<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1998
REGISTRATION NO. 333-58995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
PRE-EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MID-STATE HOMES, INC.
(Exact name of registrant as specified in its governing instruments)
<TABLE>
<S> <C>
FLORIDA 59-0945134
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S EMPLOYER IDENTIFICATION NO.)
</TABLE>
------------------------
MID-STATE HOMES, INC.
1500 NORTH DALE MABRY HIGHWAY
TAMPA, FLORIDA 33607
(813) 871-4811
(Address of principal executive offices)
------------------------------
EDWARD A. PORTER
MID-STATE HOMES, INC.
1500 NORTH DALE MABRY HIGHWAY
TAMPA, FLORIDA 33607
(813) 871-4811
(Name and address of agent for service)
------------------------------
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
EDWARD A. PORTER, ESQ. JORDAN M. SCHWARTZ, ESQ.
MID-STATE HOMES, INC. PATRICK T. QUINN, ESQ.
1500 NORTH DALE MABRY HIGHWAY CADWALADER, WICKERSHAM & TAFT
TAMPA, FLORIDA 33607 100 MAIDEN LANE,
(813) 871-4811 NEW YORK, NEW YORK 10038
(212) 504-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this Registration
Statement. If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF REGISTRATION
BEING REGISTERED REGISTERED UNIT(1) PRICE FEE
<S> <C> <C> <C> <C>
Asset Backed Notes $1,000,000.00 100% $1,000,000.00 $295 (2)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE OR SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION NOVEMBER 19, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED )
$
-------------------
MID-STATE TRUST 199
ISSUER
-----------------
$ % Asset-Backed Notes, Class A-1
$ % Asset-Backed Notes, Class A-2
$ % Asset-Backed Notes, Class A-3
$ % Asset-Backed Notes, Class A-4
-------------------
MID-STATE HOMES, INC.
SERVICER
-----------------
Mid-State Trust 199 (the "Issuer" or the "Trust"), a business trust formed
pursuant to a trust agreement dated as of , 199 , (the "Trust
Agreement") between Mid-State Homes, Inc. ("Mid-State," the "Depositor" or the
"Servicer") and , as owner trustee (the "Owner Trustee"), is
offering $ aggregate principal amount of Asset Backed Notes (the
"Notes"). The Trust will issue four classes (each, a "Class") of Notes,
designated as the Class A-1, Class A-2, Class A-3 and Class A-4 Notes. Interest
on the Notes will be payable quarterly on each January 1, April 1, July 1 and
October 1 (each, a "Payment Date"), commencing , 199 . The amount of
interest payable on each Payment Date will equal the interest accrued during the
three-month period ending on the day prior to such Payment Date (each such
period, an "Interest Accrual Period"). On each Payment Date, subject to the
availability of funds, a payment of principal of the Notes, in the amount
described herein, will be applied to the Notes. See "DESCRIPTION OF THE
NOTES--Interest and Principal Payments" herein.
The Notes will be secured by (i) certain building and installment sale
contracts, promissory notes, related mortgages and other security agreements
(the "Accounts") owned directly by the Depositor (collectively, the "Mortgage
Collateral") on , 199 (the "Cut-Off Date"), which will be
transferred to the Trust on the Closing Date (as defined under "Transaction
Summary" herein), and (ii) the Collection Account described under
"SECURITY--Collection Account" in the Prospectus.
The rights of holders of each Class of Notes other than the Class A-1 Notes
to receive payments will, in each case, be subordinated to the rights of holders
of each Class with a higher numerical Class designation.
The Notes may be redeemed on any Payment Date at the option of the Issuer if
the aggregate principal amount of each Class of Notes outstanding is less than
or equal to 10% of the original aggregate principal amount of such Class of
Notes. See "DESCRIPTION OF THE NOTES--Redemption of the Notes" herein.
There is currently no secondary market for the Notes. The underwriters named
herein under "Plan of Distribution" (the "Underwriters") intend to make a
secondary market in the Notes, but have no obligation to do so. There can be no
assurance that a secondary market for the Notes will develop or, if it does
develop, that it will continue. Further, no application will be made to list the
Notes on any securities exchange. Accordingly, the liquidity of the Notes may be
limited.
PROSPECTIVE INVESTORS SHOULD CONSIDER AND REVIEW THE INFORMATION UNDER "RISK
FACTORS" COMMENCING ON PAGE S- [ ] HEREIN AND COMMENCING ON PAGE [ ] IN THE
PROSPECTUS.
[AN INVESTOR THAT PURCHASES THE CLASS IO NOTES, WHICH HAVE NO PRINCIPAL
BALANCE, SHOULD CONSIDER THE RISK THAT A FASTER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS ON THE ACCOUNTS WILL RESULT IN AN ACTUAL YIELD THAT IS LOWER
THAN SUCH INVESTOR'S EXPECTED YIELD AND SHOULD CONSIDER THE RISK THAT A RAPID
RATE OF PRINCIPAL PAYMENTS ON THE ACCOUNTS COULD RESULT IN THE FAILURE OF SUCH
INVESTOR TO FULLY RECOVER ITS INITIAL INVESTMENT.]
[AN INVESTOR THAT PURCHASES THE CLASS PO NOTES, WHICH ARE NOT ENTITLED TO
DISTRIBUTIONS IN RESPECT OF INTEREST, SHOULD CONSIDER THE RISK THAT A SLOWER
THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE ACCOUNTS WILL RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN SUCH INVESTOR'S EXPECTED YIELD.]
Capitalized terms used in this Prospectus Supplement are defined at the
locations identified in the "Index of Principal Defined Terms" beginning on page
[ ].
It is a condition of issuance that the Class A-1 Notes be rated ["Aaa" by
Moody's Investors Service, Inc. ("Moody's")]["AAA" by Standard & Poor's Ratings
Services ("Standard & Poor's")] ["AAA" by Fitch IBCA, Inc. ("Fitch")] ["AAA" by
Duff & Phelps Credit Rating Co. ("DCR")] the Class A-2 Notes be rated at least
["Aa2" by Moody's] ["AA+" by Standard & Poor's] ["AA" by Fitch] ["AA" by DCR];
the Class A-3 Notes be rated at least ["A2" by Moody's]["AA" by Standard &
Poor's] ["A" by Fitch] ["A" by DCR]; and the Class A-4 Notes be rated at least
["Baa2" by Moody's] ["BBB" by Standard & Poor's] ["BBB" by Fitch] ["BBB" by
DCR].
------------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY AFFILIATE THEREOF. NEITHER
THE NOTES NOR THE ACCOUNTS WILL BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR ANY OTHER ENTITY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT DEPOSITOR (1)(2)
<S> <C> <C> <C>
Per Class A-1 Note....................................... % % %
Per Class A-2 Note....................................... % % %
Per Class A-3 Note....................................... % % %
Per Class A-4 Note....................................... % % %
Total.................................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from 1, 199 .
(2) Before deducting expenses, estimated to be $ .
------------------------
The Notes are offered by the Underwriters subject to prior sale, when, as
and if issued to and accepted by them and subject to the Underwriters' right to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made in book-entry form only through the Same Day Funds Settlement
System of The Depository Trust Company on or about , 199 .
[UNDERWRITER]
The date of this Prospectus Supplement is , 199 .
<PAGE>
For a description of certain tax consequences of owning the Notes,
including, without limitation, original issue discount, see "Federal Income Tax
Considerations" herein and "Material Federal Income Tax Consequences" in the
Prospectus.
This Prospectus Supplement does not contain complete information about the
offering of the Notes. Additional information is contained in the Prospectus
dated , 199 (the "Prospectus") of which this Prospectus Supplement is
part and which accompanies this Prospectus Supplement. Purchasers are urged to
read both this Prospectus Supplement and the Prospectus in full. Sales of the
Offered Securities may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
Unless and until Definitive Notes are issued, quarterly unaudited reports as
to the payments made on the Notes will be prepared by the Indenture Trustee and
sent on behalf of the Issuer only to Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC") and registered holder of the Notes. Because the
beneficial owners of Notes issued in book-entry form will not be Noteholders, as
that term is used in the Indenture, unless Definitive Notes are issued such
reports will not be made available to such owners. See "Description of the
Notes--Registration of Notes" herein.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF TERMS....................................................................... S-4
RISK FACTORS........................................................................... S-11
Limited Rights of Subordinate Noteholders............................................ S-11
Overcollateralization May Become Exhausted Resulting in Losses to be Allocated to
Notes.............................................................................. S-11
Subordinated Notes Bear Risk of Loss Before More Senior Notes........................ S-11
No Servicer Advance Obligation Limits Amounts Available for Notes.................... S-12
Potential for Losses Increases if Mortgage Collateral Includes Delinquent Accounts or
if Accounts Become Delinquent...................................................... S-12
Rate of Prepayments on Accounts May Adversely Affect Yield and Weighted Average Life
of Notes........................................................................... S-12
Failure to be Year 2000 Compliant May Adversely Affect Noteholders................... S-13
THE ISSUER............................................................................. S-13
USE OF PROCEEDS........................................................................ S-13
THE ACCOUNTS........................................................................... S-13
Underwriting and Credit Policies..................................................... S-13
Homebuilding Activities.............................................................. S-15
Servicing............................................................................ S-16
Repossessions........................................................................ S-17
Recoveries........................................................................... S-18
Time to Recovery..................................................................... S-18
THE MORTGAGE COLLATERAL................................................................ S-19
Effective Financing Rate............................................................. S-19
Total Accounts Comprising the Mortgage Collateral.................................... S-19
DESCRIPTION OF THE NOTES............................................................... S-24
Available Funds...................................................................... S-24
Interest and Principal Payments...................................................... S-24
Allocation of Losses................................................................. S-28
Redemption of the Notes.............................................................. S-29
Weighted Average Life of the Notes................................................... S-29
Registration of Notes................................................................ S-32
LEGAL INVESTMENT CONSIDERATIONS........................................................ S-34
ERISA CONSIDERATIONS................................................................... S-34
FEDERAL INCOME TAX CONSEQUENCES........................................................ S-35
General.............................................................................. S-35
Original Issue Discount.............................................................. S-36
Premium.............................................................................. S-36
THE INDENTURE.......................................................................... S-36
Events of Default.................................................................... S-36
Rights upon Event of Default......................................................... S-36
Trigger Events....................................................................... S-37
Limitations on Suits................................................................. S-38
Reports to Noteholders............................................................... S-38
The Indenture Trustee................................................................ S-38
THE SERVICING AGREEMENT................................................................ S-39
Collection of Payments............................................................... S-39
Servicing Fee........................................................................ S-39
Annual Accountants' Report........................................................... S-39
THE TRUST AGREEMENT.................................................................... S-39
THE PURCHASE AND SALE AGREEMENT........................................................ S-39
PLAN OF DISTRIBUTION................................................................... S-40
LEGAL MATTERS.......................................................................... S-40
EXPERTS................................................................................ S-41
FINANCIAL INFORMATION.................................................................. S-41
NOTE RATINGS........................................................................... S-41
INDEX OF PRINCIPAL DEFINED TERMS....................................................... S-42
</TABLE>
S-3
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS. TERMS NOT DEFINED IN THIS SUMMARY ARE USED AS
DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS. SEE "INDEX
OF PRINCIPAL DEFINED TERMS" BEGINNING ON PAGE .
<TABLE>
<S> <C>
Securities Offered........... The Class A-1, Class A-2, Class A-3 and Class A-4 Notes will
be issued pursuant to an indenture (the "Indenture") dated
the Closing Date between Mid-State Trust 199 , a business
trust, and , as trustee (the "Indenture
Trustee") for the benefit of the holders of the Notes. See
"DESCRIPTION OF THE NOTES" herein. The Notes will be offered
for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. On or about
, 199 (the "Closing Date"), Mid-State will
transfer the Accounts to the Issuer, and the Issuer will
issue the Notes, which will initially be overcollateralized
as described under "RISK FACTORS--Overcollateralization May
Become Exhausted Resulting in Losses to be Allocated to
Notes" herein. The Issuer's sole source of funds to make
payments on the Notes will be collections on the Accounts.
The Notes will have the characteristics set forth under
"DESCRIPTION OF THE NOTES" herein and in the following
table.
</TABLE>
SUMMARY OF NOTES
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3
--------------- --------------- ---------------
<S> <C> <C> <C>
Size................................................................. $ $ $
Payment Window*** (in months)*.......................................
Initial Weighted Average Life (in years)*............................
Expected Maturity*...................................................
Stated Maturity Date**...............................................
Maturity Date........................................................
Initial Subordination................................................ $ $ $
<CAPTION>
CLASS A-4
---------------
<S> <C>
Size................................................................. $
Payment Window*** (in months)*.......................................
Initial Weighted Average Life (in years)*............................
Expected Maturity*...................................................
Stated Maturity Date**...............................................
Maturity Date........................................................
Initial Subordination................................................ $
</TABLE>
The Payment Dates for each Class of Notes are January 1, April 1, July 1 and
October 1 commencing , 199 .
- ------------------------
* Assumes % CPR; computed on the basis of the assumptions under
"DESCRIPTION OF THE NOTES--Weighted Average Life of the Notes" herein and in
the Prospectus.
** Assumes % CPR; computed on the basis of the assumptions under
"DESCRIPTION OF THE NOTES--Weighted Average Life of the Notes" herein and in
the Prospectus.
*** Payment Window refers to the months in which distributions of principal are
expected to begin and in which the principal balance of the related Notes is
expected to be reduced to zero; computed on the basis of the assumptions
under "DESCRIPTION OF THE NOTES--Weighted Average Life of the Notes" herein
and in the Prospectus.
S-4
<PAGE>
<TABLE>
<S> <C>
Issuer....................... The Issuer is a business trust (the "Trust") established
under the laws of by a trust agreement dated as of
, 199 (the "Trust Agreement") between the
Depositor and , not in its individual
capacity but solely as owner trustee (the "Owner Trustee").
The settlor and sole beneficiary of the Issuer is the
Depositor, an indirect wholly-owned subsidiary of Walter
Industries, Inc. ("Walter Industries"). The Owner Trustee
will act as trustee of the Trust. See "THE ISSUER" herein
and in the Prospectus. The Notes will be obligations solely
of the Issuer.
Cut-Off Date................. , 199 (the "Cut-Off Date").
Closing Date................. On or about , 199 (the "Closing Date").
Interest and Principal
Payments on the Notes........ Interest on each Class of the Notes will be payable from
Available Funds on each Payment Date in an amount equal to
interest accrued during the three-month period ending on the
day prior to the Payment Date (each such period, an
"Interest Accrual Period"), with respect to (i) the Class
A-1 Notes at the Class A-1 Note Rate, (ii) the Class A-2
Notes at the Class A-2 Note Rate, (iii) the Class A-3 Notes
at the Class A-3 Note Rate and (iv) the Class A-4 Notes at
the Class A-4 Note Rate, in each such case on the unpaid
principal balance of the applicable Class of Notes. The
"Note Rate" of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes is %, %, % and %, respectively.
Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. See "DESCRIPTION OF THE
NOTES--Interest and Principal Payments" herein.
"Available Funds" for a Payment Date are the funds in the
Collection Account representing (i) collections on the
Accounts during the three-month period (each such period, a
"Collection Period") ending on the close of business on the
last business day of the second month preceding the month in
which such Payment Date occurs plus (ii) any net
reinvestment income earned on funds described in clause (i)
above, from the date two business days prior to the
preceding Payment Date through the date two business days
prior to such Payment Date (each such period, a
"Reinvestment Period"). Available Funds will be net of
Issuer Expenses paid to the time of calculation thereof. On
each Payment Date, Available Funds will be paid first to the
Classes of Notes in the order of their numerical Class
designations until each has received a full payment of
interest together with any unpaid interest which was due in
respect of a previous Payment Date and then to the Classes
of Notes in the order of their numerical Class designations
until each receives the payment in respect of unreimbursed
losses, together with interest thereon, and principal
described herein under "DESCRIPTION OF THE NOTES--Interest
and Principal Payments" herein.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Following the Target Overcollateralization Date, unless
there exists an uncured Trigger Event, the portion, if any,
of the funds remaining on any Payment Date after the
allocation of Available Funds described in the preceding
paragraph will be released to the Issuer on that Payment
Date, free of the lien of the Indenture, and will no longer
be available to make payments on the Notes. Such funds will
then be distributed to the owner of the beneficial interest
in the Issuer, which will initially be Mid-State. See
"DESCRIPTION OF THE NOTES-- Interest and Principal Payments"
herein.
Record Date.................. The record date for each Payment Date is the fifteenth day
of the month preceding the month of such Payment Date (the
"Record Date").
Subordination................ The rights of holders of each Class of Notes other than the
Class A-1 Notes (each, a "Subordinated Class") to receive
payments will, in each case, be subordinated to the extent
described herein, to the rights of holders of each Class
with a prior numerical Class designation. See "RISK
FACTORS--Subordinated Notes Bear Risk of Loss Before More
Senior Notes" herein and in the Prospectus. This
subordination is intended to enhance the likelihood of
timely receipt by the holders of the Class A-1 Notes of the
full amount of interest and principal to which such Class is
entitled. Similarly, but to decreasing degrees, this
subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Class A-2 and Class A-3
Notes of the full amount of interest and principal to which
such Class is entitled on each Payment Date. The protection
afforded to the holders of the Class A-1, Class A-2 and
Class A-3 Notes by means of subordination will be
accomplished by (i) the allocation of losses on the Accounts
to the respective Classes of Notes in reverse numerical
order of their Class designations and (ii) with respect to
interest, the application of the Available Funds on each
Payment Date in the sequential order provided by the
Available Funds Allocation. See "DESCRIPTION OF THE
NOTES--Interest and Principal Payments" herein.
Optional Redemption of All (but not less than all) Classes of Notes may be redeemed
Notes........................ on any Payment Date at the option of the Issuer, at 100% of
the unpaid principal amount of each Class of Notes plus
accrued interest, if, after giving effect to the payment of
principal that would be made on such Payment Date absent
such redemption, the aggregate principal amount of each
Class of Notes outstanding (prior to allocations of any
Realized Loss Amounts) is less than or equal to 10% of the
original aggregate principal amount of such Class of Notes.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Events of Default............ An Event of Default with respect to the Notes is defined in
the Indenture to include one or more of the following
events: (i) a default in the payment of any amount due under
the Notes by the Maturity Date; (ii) a failure to apply
funds in the Collection Account in accordance with the
Indenture and such failure continues for a period of two
days; (iii) a default in the payment when due of interest on
any Class of Notes and the expiration of a 30-day grace
period (provided that neither the reimbursement of any
Realized Loss Amounts nor interest on any Realized Loss
Amounts in respect of any Class of Notes will be deemed due
unless there exist Available Funds sufficient to pay such
amount and all prior amounts under the Available Funds
Allocation); (iv) the failure to pay the Outstanding
Principal Balance of each class of Notes on the Maturity
Date; (v) a default in the observance of certain negative
covenants in the Indenture, (vi) a default in the observance
of any other covenant in the Indenture, and the continuation
of any such default for a period of thirty days after notice
or (vii) certain events of bankruptcy or insolvency with
respect to the Issuer. Notwithstanding the foregoing, prior
to the Maturity Date, any of the events described in the
preceding sentence will not be an Event of Default (i) in
respect of the Class A-2 Notes until the Class A-1 Notes
have been paid in full, (ii) in respect of the Class A-3
Notes until the ClassnbA-1 Notes and Class A-2 Notes have
been paid in full and (iii) in respect of the ClassnbA-4
Notes until the Class A-1 Notes, Class A-2 Notes and Class
A-3 Notes have been paid in full. See "THE INDENTURE--Events
of Default" herein and in the Prospectus.
Prior to the Maturity Date, upon the occurrence of an Event
of Default, the Indenture Trustee or the holders entitled to
at least 66 2/3% of the Voting Rights of the Class of Notes
with the lowest numerical Class designation then outstanding
may declare the principal of the Notes to be immediately due
and payable; provided, however, that such Class of Notes or
the Indenture Trustee may make such declaration only if the
Event of Default affects, and in the case of a default in
the payment of the Notes such payment default relates to,
the Class of Notes with the lowest numerical Class
designation then outstanding. On or after the Maturity Date,
if an Event of Default occurs or shall have occurred, the
Indenture Trustee shall declare the principal of the Notes
to be immediately due and payable. See "THE
INDENTURE--Rights Upon Event of Default" herein and in the
Prospectus.
Security..................... Payments of amounts due on the Notes will be secured by the
following (collectively, the "Collateral"):
A. Mortgage Collateral..... Accounts, having on , 199 an aggregate Economic
Balance of approximately $ , will secure the Notes.
Such Accounts will have, as of the Cut-Off Date, a weighted
average finance charge of approximately % and a weighted
average remaining term to maturity of approximately years.
See "THE MORTGAGE COLLATERAL" herein and in the Prospectus
and "SECURITY" in the Prospectus.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
SERVICER; SERVICING AGREEMENT; SUBSERVICING. Mid-State or
any successor servicer will service the Accounts pursuant to
a servicing agreement dated the Closing Date among the
Issuer, the Servicer and the Indenture Trustee (the
"Servicing Agreement") either directly or through one or
more subservicers. The Servicing Agreement will provide for
the payment of a servicing fee of $ per month for
each Account outstanding from the Issuer to the Servicer.
Jim Walter Homes, Inc. ("Jim Walter Homes"), an affiliate of
the Depositor or unaffiliated third parties will perform
certain servicing functions with respect to the Accounts
pursuant to a subservicing agreement (the "Subservicing
Agreement"). See "THE SERVICING AGREEMENT" herein and in the
Prospectus.
B. Collection Account...... Prior to the Closing Date, a collection account relating to
the Collateral (the "Collection Account") will be
established with and in the name of the Indenture Trustee.
On the Closing Date, the Issuer will deposit into the
Collection Account cash in an amount equal to all payments
(including prepayments) received in respect of the Accounts
since the Cut-Off Date and up to the date that is five
business days prior to the Closing Date. Thereafter, as long
as any Note remains outstanding, all payments received in
respect of the Accounts and required to be so deposited will
be deposited in the Collection Account. The foregoing
amounts deposited into the Collection Account, less Issuer
Expenses, will be available to make payments of principal
of, and interest on, the Notes. Amounts on deposit in the
Collection Account will be invested in Eligible Investments.
See "SECURITY--Collection Account" in the Prospectus.
Representations and
Warranties Concerning the
Mortgage Collateral.......... The Issuer will represent and warrant, among other things,
that (i) the information delivered to the Indenture Trustee
with respect to the Mortgage Collateral is true and correct
as of the date such information was given; (ii) at the
Closing Date, each mortgage, deed of trust or other security
agreement that constitutes the Mortgage Collateral shall
constitute a valid first priority lien upon and secure title
to the property (the "Mortgaged Property") described therein
and such security agreement and the promissory note secured
thereby are enforceable in accordance with their terms; and
(iii) at the Closing Date, the Issuer is the sole owner of
each Account, has good title to such Account and has full
right and authority to transfer such Account and to grant a
security interest in such Account to the Indenture Trustee.
See "THE INDENTURE--Representations and Warranties" in the
Prospectus.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Within 90 days of the earlier of discovery by or notice to
the Issuer of any breach of a representation or warranty
which materially and adversely affects the interests of the
Noteholders in an Account, the Issuer is required to use its
best efforts to cure such breach in all material respects.
If such breach is not or cannot be cured within such 90-day
period or, with the prior written consent of the Indenture
Trustee, such longer period as specified in such consent,
the Issuer is required to either (i) deposit in the
Collection Account an amount equal to 100% of the current
Economic Balance of the affected Account, at which time such
affected Account will be released from the lien of the
Indenture or (ii) remove such Account from the lien of the
Indenture and substitute one or more qualified substitute
accounts. See "THE INDENTURE--Representations and
Warranties" in the Prospectus.
The obligation of the Issuer to cure any such breach or to
repurchase or substitute for the affected Account will be
the sole remedy available to the Trustee or Noteholders in
respect of the related breach.
Origination of Accounts...... All of the Accounts were originated by Jim Walter Homes. See
"THE DEPOSITOR" in the Prospectus.
Purchase and Sale The Purchase and Sale Agreement dated as of the Closing Date
Agreement.................... between the Depositor and the Issuer (the "Purchase and Sale
Agreement"). See "THE PURCHASE AND SALE AGREEMENT" herein
and in the Prospectus.
Servicer..................... Mid-State Homes, Inc. will act as the Servicer under the
Servicing Agreement. See "THE SERVICING AGREEMENT" herein
and in the Prospectus.
Indenture Trustee............ will act as the Indenture Trustee. See "THE INDENTURE--The
Indenture Trustee" herein and in the Prospectus.
Owner Trustee................ will be the Owner Trustee pursuant to the Trust Agreement.
The Owner Trustee will be obligated to (i) execute and
deliver the Indenture, the Notes, the Servicing Agreement,
the Purchase and Sale Agreement and all other documents and
instruments related thereto, (ii) acquire the Collateral and
to pledge the Collateral as security for the Notes, (iii)
issue the Notes pursuant to the Indenture and (iv) take
whatever action shall be required to be taken by the Owner
Trustee by, and subject to, the terms of the Trust
Agreement. The liability of the Owner Trustee in connection
with the issuance and sale of the Notes and in respect of
the Issuer's obligations under the Notes is limited solely
to the express obligations of the Owner Trustee set forth in
the Trust Agreement and the Indenture. See "THE TRUST
AGREEMENT" herein and in the Prospectus.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
Risk Factors................. Various risk factors related to the purchase of Notes are
discussed herein and in the Prospectus, including, among
others, (i) the factors (including the effect of changes in
mortgage market interest rates) affecting the weighted
average life of the Notes and the reinvestment risk borne by
investors and (ii) the risks related to the subordination of
each Class of Notes (other than the Class A-1 Notes) to the
Classes of Notes having prior numerical Class designations.
See "Risk Factors" herein and in the Prospectus.
Legal Investment The Notes will not constitute "mortgage related securities"
Considerations............... for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and in the Prospectus.
ERISA Considerations......... Under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the Internal Revenue Code of 1986,
as amended (the "Code"), a pension or other employee benefit
plan covered by ERISA or retirement arrangements which are
subject to ERISA or Section 4975 of the Code (collectively,
"Plans") with respect to which the Depositor or any
affiliate is a service provider, may acquire the Notes only
under certain limited circumstances. ,
counsel for the Underwriters and special counsel for the
Issuer as to ERISA matters, is of the opinion that the Notes
will be considered debt instruments rather than equity
interests of the Issuer for ERISA purposes. See "ERISA
CONSIDERATIONS" herein and in the Prospectus.
Tax Status of the Notes...... The Notes will be treated as debt for federal income tax
purposes. If the Notes are issued with original issue
discount, Noteholders generally will be required to include
the original issue discount in gross income over the life of
the Notes. The Notes will not constitute "loans secured by
an interest in real property" for "domestic building and
loan associations" or "real estate assets" for "real estate
investment trusts." See "FEDERAL INCOME TAX CONSEQUENCES"
herein and "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
Ratings...................... It is a condition of issuance that the Class A-1 Notes be
rated ["Aaa" by Moody's Investors Service, Inc.
("Moody's")]["AAA" by Standard & Poor's Ratings Services
("Standard & Poor's")] ["AAA" by Fitch IBCA, Inc. ("Fitch")]
["AAA" by Duff & Phelps Credit Rating Co. ("DCR")] the Class
A-2 Notes be rated at least ["Aa2" by Moody's] ["AA+" by
Standard & Poor's] ["AA" by Fitch] ["AA" by DCR]; the Class
A-3 Notes be rated at least ["A2" by Moody's]["AA" by
Standard & Poor's] ["A" by Fitch] ["A" by DCR]; and the
Class A-4 Notes be rated at least ["Baa2" by Moody's] ["BBB"
by Standard & Poor's] ["BBB" by Fitch] ["BBB" by DCR]. [The
rating of each Class of Notes by Standard & Poor's addresses
the likelihood of timely payment of interest and the
ultimate payment of principal on the Notes.][The rating of
each Class of Notes by Moody's addresses the likelihood of
the ultimate payment of principal and interest on the
Notes.] A security rating is not a recommendation to buy,
sell or hold the Notes. See "NOTE RATINGS" herein and in the
Prospectus.
</TABLE>
S-10
<PAGE>
RISK FACTORS
The following Risk Factors, when read in conjunction with the risk factors
set forth in the attached Prospectus, summarize the material risk factors to be
considered in connection with the purchase of Notes.
LIMITED RIGHTS OF SUBORDINATE NOTEHOLDERS
Prior to the Maturity Date, no holder of any Class of Notes will have the
right to declare the principal of the Notes to be immediately due and payable
other than (i) on or prior to the Maturity Date, the holders entitled to 66 2/3%
of the Voting Rights of the Class of Notes with the lowest numerical Class
designation then outstanding and (ii) after the Maturity Date, the holders
entitled to 66 2/3% of the Voting Rights of any Class of Notes (provided that
the holders entitled to 66 2/3% of each Class of Notes with a lower numerical
Class designation consent). See "THE INDENTURE--Rights Upon Event of Default"
herein and in the Prospectus. In addition, no holder of any Class of Notes will
have the right to petition or otherwise invoke any court or government
proceeding for the purpose of commencing or sustaining a case against the Issuer
under any Federal or state bankruptcy, insolvency or similar law other than (i)
on or prior to the Maturity Date, the holders entitled to 66 2/3% of the Voting
Rights of the Class of Notes with the lowest numerical Class designation then
outstanding and (ii) after the Maturity Date, the holders entitled to 100% of
the Voting Rights of any Class of Notes (provided that the holders entitled to
100% of each Class of Notes with a lower numerical designation consent).
OVERCOLLATERALIZATION MAY BECOME EXHAUSTED RESULTING IN LOSSES TO BE ALLOCATED
TO NOTES
As of the Cut-Off Date, the aggregate Economic Balance of the Accounts (the
"Aggregate Economic Balance") was approximately $ . On each Payment Date
prior to the Target Overcollateralization Date, unless there exists an uncured
Trigger Event, Available Funds (which are net of Issuer Expenses), if any, in
excess of the amount of interest due on the Notes on such Payment Date
("Remaining Available Funds") will be applied to pay principal of the Notes in
accordance with the Available Funds Allocation as set forth under "DESCRIPTION
OF THE NOTES--Interest and Principal Payments" herein which, in the absence of
losses or delinquencies on the Accounts, will have the effect of increasing the
level of overcollateralization from the original level. The Notes will be
overcollateralized by the Accounts to the extent, if any, by which (a) the
aggregate Economic Balance of the Accounts exceeds (b) the outstanding principal
amount of the Notes. The amount of such overcollateralization will be reduced or
eliminated to the extent that losses incurred in respect of defaulted Accounts,
together with payments on the Accounts, cause the Economic Balance of the
Accounts to decline more than the principal amount of the Notes declines on
account of payments of principal thereon. If the protection afforded to the
Notes by such overcollateralization were to be exhausted, and the Accounts
incurred further losses, such losses would be allocated first to the Class A-4
Notes, then to the Class A-3 Notes, then to the Class A-2 Notes and finally to
the Class A-1 Notes, in each case until the principal balance of such Class of
Notes has been reduced to zero. See "THE ACCOUNTS" herein and in the Prospectus
and "DESCRIPTION OF THE NOTES--Interest and Principal Payments" herein.
SUBORDINATED NOTES BEAR RISK OF LOSS BEFORE MORE SENIOR NOTES
The protection afforded to the holders of the Class A-1, Class A-2 and Class
A-3 Notes by means of subordination will be accomplished by (i) the allocation
of losses on the Accounts to the Classes of Notes in reverse order of their
numerical Class designations and (ii) with respect to interest, the application
of the Available Funds on each Payment Date in the sequential order provided by
the Available Funds Allocation. The rights of the holders of the Class A-2 Notes
to receive payments of interest on the Class A-2 Notes will be subordinated to
such rights of the holders of the Class A-1 Notes; the rights of the holders of
the Class A-3 Notes to receive payments of interest will be subordinated to such
rights of the holders of the Class A-1 and Class A-2 Notes; and the rights of
the holders of the Class A-4 Notes to receive payments of interest will be
subordinated to such rights of the holders of the Class A-1, Class A-2
S-11
<PAGE>
and Class A-3 Notes, all to the extent described herein under "DESCRIPTION OF
THE NOTES-- Interest and Principal Payments" herein. Accordingly, on any Payment
Date any deficiency in the availability of funds to pay interest or principal on
the Notes will result in shortfalls in the payment of the Notes first to the
Class A-4 Notes, then to the Class A-3 Notes, then to the Class A-2 Notes and
then to the Class A-1 Notes. Further, in the event that the
overcollateralization described above is exhausted, any losses on the Accounts
will be similarly allocated to the Classes of Notes in reverse numerical order.
NO SERVICER ADVANCE OBLIGATION LIMITS AMOUNTS AVAILABLE FOR NOTES
Since neither the Servicer nor any other party is required to advance
delinquent payments on the Accounts, significant delinquencies (especially if
combined with substantial losses on the Accounts) may result in the inability to
make full payments of interest to all Classes of Notes on a Payment Date.
Because Available Funds are allocated on each Payment Date to the Classes of
Notes in the order of their numerical Class designations, the more subordinate
Classes of Notes are more likely to suffer any such shortfalls in interest than
the more senior Classes of Notes.
POTENTIAL FOR LOSSES INCREASES IF MORTGAGE COLLATERAL INCLUDES DELINQUENT
ACCOUNTS OR IF ACCOUNTS BECOME DELINQUENT
As of the Cut-Off Date, approximately %, % and % of the Accounts as
a percentage of total Accounts had payments which were past due 31-60 days,
61-90 days and 91 or more days, respectively. % of the Accounts were in
foreclosure. If any portion of a monthly payment due on an Account is not
received by the Servicer, such Account is considered delinquent. Accounts which
are in foreclosure or bankruptcy continue to be included in the delinquency
category described in the preceding sentence. See "THE ACCOUNTS--Servicing"
herein and in the Prospectus and "--Repossessions" herein. Investors should
consider the risk that any of the Accounts may become defaulted Accounts and
subsequently the properties securing such Accounts may become repossessed
properties. See "--Losses on Accounts" in the Prospectus. Defaults by homeowners
on the Accounts may result in the failure of the Noteholders on a given Payment
Date to receive payments in full in respect of interest or principal. The
allocation of losses on the Accounts to the Classes of Notes in reverse order of
their numerical designations may more likely result in a reduction of the
principal balance of the more subordinate Classes of Notes than of the more
senior Classes of Notes without a corresponding payment of principal thereon.
See "--Risks of Subordination" herein and in the Prospectus. Such events may
cause a significant delay in the receipt of principal by the holders of the more
subordinate Classes of Notes, or may cause such Classes of Notes to fail to
receive any payment in respect of principal, and to a lesser extent, interest,
on a given Payment Date.
RATE OF PREPAYMENTS ON ACCOUNTS MAY ADVERSELY AFFECT YIELD AND WEIGHTED AVERAGE
LIFE OF NOTES
The weighted average life and the maturity of each Class of the Notes will
be affected by the prepayment experience on the Accounts and the rate and
frequency of delinquencies of payments due on the Accounts. Prepayments on the
Accounts may be influenced by a variety of economic, geographic, social and
other factors, including national and local economic conditions, repossessions,
aging, seasonality and interest rates. Other factors affecting prepayments on
the Accounts include changes in housing needs, job transfers and unemployment.
Liquidations of defaulted Accounts are generally expected to result in resale of
the repossessed properties and the subsequent origination of new Accounts rather
than cash. In general, if prevailing interest rates fall significantly below the
effective financing rates on the Accounts, the rate of prepayments on the
Accounts is likely to be higher than if prevailing interest rates remain close
to or above the effective financing rates borne by such Accounts. Conversely, if
prevailing interest rates rise above the effective financing rates on such
Accounts, the rate of prepayment would be expected to decrease. As noted above,
no party is required to advance delinquent payments on the Accounts. Even if
Available Funds are sufficient to make full payments of interest on all Classes
of Notes, any such delinquencies will reduce the amount of Remaining Available
Funds available to make payments of principal in respect of the
S-12
<PAGE>
Notes. Delinquencies occurring on or prior to the Target Overcollateralization
Date or during the existence of an uncured Trigger Event will have the effect of
extending the weighted average lives of all Classes of Notes. Following the
Target Overcollateralization Date, any such delinquencies may have the effect of
extending the weighted average lives of all Classes of Notes to the extent that
such delinquencies exceed the amount otherwise distributable to the owner of the
beneficial interest in the Issuer. See "DESCRIPTION OF THE NOTES--Weighted
Average Life of the Notes" herein and in the Prospectus.
FAILURE TO BE YEAR 2000 COMPLIANT MAY ADVERSELY AFFECT NOTEHOLDERS
The Issuer is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Issuer has been advised by the Servicer and the Owner Trustee that they
are committed to either (i) implementing modifications to their respective
existing systems to the extent required to cause them to be year 2000 compliant
or (ii) acquiring computer systems that are year 2000 compliant, in each case
prior to January 1, 2000. However, neither the Issuer nor any affiliate of the
Issuer has made any independent investigation of the computer systems of the
Owner Trustee or of the Servicer. In the event that computer problems arise out
of a failure of such efforts to be completed on time, or in the event that the
computer systems of the Owner Trustee or the Servicer are not fully year 2000
compliant, the resulting disruptions in the collection or distribution of
receipts on the Accounts could materially adversely affect the holders of the
Notes.
THE ISSUER
The Issuer has been created pursuant to the Trust Agreement between the
Depositor and the Owner Trustee. The Trust Agreement provides that the Trust
will terminate in no event later than , 20 . Audited financial
statements of the Trust are included in Appendix A to this Prospectus
Supplement. For a further discussion of the Issuer, see "THE ISSUER" in the
Prospectus.
USE OF PROCEEDS
The proceeds from the sale of the Notes will be used by the Issuer to
purchase the Accounts and to pay the expenses of the offering. The Depositor
will use a portion of the net proceeds from its sale of the Accounts to purchase
the Accounts from Mid-State Trust V and the remainder for general corporate
purposes. Mid-State Trust V is a Delaware business trust organized on February
27, 1995 for which Mid-State is the depositor. The Accounts have been owned and
will be owned by Mid-State Trust V until the Closing Date. The price the Issuer
pays for the Accounts will represent the net proceeds from the sale of the
Notes.
THE ACCOUNTS
UNDERWRITING AND CREDIT POLICIES
In April 1988 the Depositor sold accounts having an aggregate Economic
Balance of approximately $1.75 billion to Mid-State Trust II; in July 1992 the
Depositor sold accounts having an aggregate Economic Balance of approximately
$301 million to Mid-State Trust III; in March 1995 the Depositor sold accounts
having an aggregate Economic Balance of approximately $827 million to Mid-State
Trust IV and; in June 1997 the Depositor sold accounts having an aggregate
Economic Balance of approximately $439 million to Mid-State Trust VI. There was
never a Mid-State Trust I. Each of Mid-State Trust II, Mid-State
S-13
<PAGE>
Trust III, Mid-State Trust IV and Mid-State Trust VI securitized their accounts
in registered public offerings under the federal securities laws.
Mid-State Trust V is party to a warehouse financing with Enterprise Funding
Corporation ("Enterprise") whereby Enterprise is obligated to provide up to
$400,000,000 of financing, from time to time (as of , approximately
$ was outstanding), to Mid-State Trust V. Unlike Mid-State Trust II,
III, IV and VI, which were established to facilitate the securitization of
accounts, Mid-State Trust V was established for the purpose of facilitating the
financing of accounts pending securitization. As of the Cut-Off Date, there were
accounts (the "Trust V Accounts") owned by Mid-State Trust V, with an
aggregate Economic Balance of approximately $ . The Trust V Accounts
were sold by the Depositor to Mid-State Trust V, pending securitization. The
amounts outstanding under the Enterprise facility are currently secured by the
Trust V Accounts. At the Closing Date, Enterprise will release every lien that
it holds on the Trust V Accounts under the warehouse facility and Mid-State
Trust V will transfer such accounts to the Depositor which accounts will, in
turn, be sold to the Issuer and will thereafter constitute the Accounts.
Enterprise will execute releases of all claims on the Trust V Accounts. The
Enterprise warehouse facility will continue to remain available to Mid-State
Trust V after the transfer of Trust V Accounts to the Depositor, and it is
anticipated that the facility will continue be used to finance newly-originated
accounts. The Issuer does not intend to enter into any comparable warehouse
financing facility. No accounts will be included in the Trust which were the
subject of any prior securitization.
Each of Mid-State Trust II, Mid-State Trust III, Mid-State Trust IV,
Mid-State Trust V and Mid-State Trust VI is a Delaware business trust for which
Mid-State is the depositor. The Depositor continues to service those accounts,
and Jim Walter Homes continues to act as subservicer. (The accounts owned by
Mid-State Trust II, Mid-State Trust III, Mid- State Trust IV and Mid-State Trust
VI are reflected in some of the tables in this section but are not security for
the Notes and will not benefit the Noteholders in any way). As used herein, the
term "account" includes all outstanding building and installment sale contracts,
related mortgages, mechanic's lien contracts and other security agreements and
promissory notes originated by Jim Walter Homes, including the accounts sold to
Mid-State Trust II, Mid-State Trust III, Mid-State Trust IV, Mid-State Trust V
and Mid-State Trust VI. For additional information regarding underwriting and
credit policies, See "THE ACCOUNTS--Underwriting and Credit Policies" in the
Prospectus.
The following table summarizes certain aggregate characteristics of the
portfolio of all outstanding accounts (including the accounts sold to Mid-State
Trust II, Mid-State Trust III, Mid-State Trust IV, Mid-State Trust V and
Mid-State Trust VI) during the last 21 fiscal years (or portions thereof). The
amounts presented are the gross receivable amounts which consist of the amount
financed and the total dollar amount of finance charges to be paid over the
duration of the related accounts ("Gross Receivable Amount"). Although account
production has declined in recent years, the table shows that the aggregate
balance of the portfolio and scheduled payments thereon have generally increased
due to higher average sales prices resulting from the sale of larger models and
a greater percentage of 90% complete homes sold. The table also shows that
repossessions increased during the early 1990's due to unfavorable economic
conditions, including the real estate market, but since 1992 have generally
declined. The information presented summarizes the aggregate characteristics of
such accounts at the times indicated and is not intended to reflect
characteristics of the Mortgage Collateral.
S-14
<PAGE>
CERTAIN ACCOUNT CHARACTERISTICS
<TABLE>
<CAPTION>
ACCOUNT AGGREGATE
PRODUCTION ANNUAL
-------------------- SCHEDULED ACCOUNT SALES
NEW RESALES PAYMENTS REPOSSESSIONS PREPAYMENTS (REPURCHASES) ENDING BALANCE
--------- --------- ----------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED MAY 31,
1998......................... 551,260 145,418 270,148 $ 135,825 $ 308,805 -- $ 4,238,745
1997......................... 560,838 141,671 274,840 136,556 245,520 4,256,845
1996......................... 506,604 116,314 318,201 119,790 233,541 -- 4,208,252
1995......................... 527,230 130,687 285,780 128,897 162,414 -- 4,256,866
1994......................... 516,822 118,703 292,117 123,882 230,802 -- 4,176,040
1993......................... 538,172 128,088 290,548 127,468 125,368 (11,810) 4,187,316
1992......................... 551,894 123,715 272,149 131,635 84,988 (7,981) 4,052,630
1991......................... 514,849 109,762 262,908 118,954 58,952 -- 3,857,812
1990......................... 470,725 104,913 248,901 110,971 57,140 (10,616) 3,674,015
1989......................... 420,170 105,846 231,651 127,080 59,163 -- 3,504,773
1988 (nine months)........... 329,526 67,433 168,430 88,553 39,984 -- 3,396,651
FISCAL YEAR ENDED AUGUST 31
1987......................... 461,181 100,104 210,058 121,110 64,382 -- 3,296,659
1986......................... 473,599 90,215 194,142 102,951 49,058 -- 3,130,924
1985......................... 522,706 76,093 176,449 84,018 35,602 -- 2,913,261
1984......................... 545,715 69,817 165,105 76,496 33,113 136,738 2,610,531
1983......................... 591,928 65,443 148,352 69,212 25,109 156,631 2,406,451
1982......................... 669,757 46,656 148,373 45,552 18,879 214,759 2,148,384
1981......................... 501,329 42,974 136,242 39,841 28,101 -- 1,859,534
1980......................... 428,515 32,999 115,047 34,585 28,657 -- 1,519,415
1979......................... 341,512 31,043 97,405 34,296 39,342 -- 1,236,190
1978......................... 282,170 30,868 95,843 33,592 45,727 -- 1,034,678
</TABLE>
HOMEBUILDING ACTIVITIES
For a more complete review of homebuilding activities see the discussion in
the Prospectus under the heading "THE ACCOUNTS--Homebuilding Activities." The
following chart shows the sales volume of Jim Walter Homes and the percent of
homes sold in three stages of completion for fiscal years 1978 to 1998:
S-15
<PAGE>
HOMEBUILDING ACTIVITIES
<TABLE>
<CAPTION>
PERCENT OF UNIT SALES
-----------------------------------------
<S> <C> <C> <C> <C>
UNITS VARIOUS 90%
SOLD SHELL STAGES COMPLETE
--------- ----- ------------- -------------
FISCAL YEAR ENDED MAY 31
1998........................................................................ 3,702 13% 7% 80%
1997........................................................................ 3,900 10 1 89
1996........................................................................ 3,760 18 4 78
1995........................................................................ 4,126 25 9 66
1994........................................................................ 4,331 23 10 67
1993........................................................................ 4,784 26 12 62
1992........................................................................ 5,305 29 13 58
1991........................................................................ 5,229 30 13 57
1990........................................................................ 5,213 30 11 59
1989........................................................................ 5,126 27 9 64
1988 (nine months).......................................................... 4,240 28 7 65
FISCAL YEAR ENDED AUGUST 31
1987........................................................................ 6,100 30 10 60
1986........................................................................ 6,403 28 12 60
1985........................................................................ 7,203 43 25 32
1984........................................................................ 7,809 37 25 38
1983........................................................................ 8,706 27 33 40
1982........................................................................ 10,267 26 34 40
1981........................................................................ 9,226 27 37 36
1980........................................................................ 10,095 27 36 37
1979........................................................................ 9,358 21 38 41
1978........................................................................ 8,952 20 38 42
</TABLE>
SERVICING
In the ordinary course of its business, Mid-State keeps historical
delinquency, repossession and real estate owned information according to
separate portfolios of accounts within the total portfolio. Mid-State, however,
believes that the total portfolio information shows the average performance of
its accounts over time, rather than a performance that might be affected by the
relative seasoning of a separate portfolio. In the case of the delinquency and
repossession experience, information as of the Cut-Off Date is given below for
the Accounts separately. As of , 199 , Mid-State's mortgage
portfolio (including mortgage indebtedness sold to others and serviced by
Mid-State) had an aggregate economic balance of approximately $ . No
assurance can be given, however, that the future experience of the Accounts will
be comparable to the historical information set forth below. See the "SERVICING
AGREEMENT" and "THE ACCOUNTS--Servicing" in the Prospectus.
The following table summarizes the delinquency characteristics for all
outstanding accounts owned or serviced by Mid-State (including the accounts
owned by Mid-State Trust II, Mid-State Trust III, Mid-State Trust IV, Mid-State
Trust V and Mid-State Trust VI) at the end of each of the past eight fiscal
years. As of
S-16
<PAGE>
each such date, the table presents the number of delinquent accounts and the
dollar amount (in millions) in Gross Receivable Amounts.
<TABLE>
<CAPTION>
DELINQUENCIES AT MAY 31,
------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
-------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts/Gross
Receivable Amount
(Dollars in
Millions).......... 85,418 $ 3,858 88,751 $ 4,053 88,977 $ 4,187 83,945 $ 4,176 80,182 $ 4,257
Delinquencies(1) as a
Percent of
Accounts/ Gross
Receivable Amount:
31-60 Days......... 1.30% 1.04% 1.36% 1.07% 1.30% 0.96% 1.30% 1.09% 1.66% 1.59%
61-90 Days......... 0.62 0.55 0.57 0.52 0.51 0.45 0.61 0.55 0.54 0.53
91 Days or more.... 4.32 3.04 4.47 3.31 3.99 3.12 4.16 3.23 4.22 3.17
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total (31 days or
more).............. 6.24% 4.63% 6.40% 4.90% 5.80% 4.53% 6.07% 4.87% 6.42% 5.29%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1996 1997 1998
-------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts/Gross
Receivable Amount
(Dollars in
Millions).......... 76,112 $ 4,208 72,656 $ 4,257 68,740 $ 4,239
Delinquencies(1) as a
Percent of
Accounts/ Gross
Receivable Amount:
31-60 Days......... 1.28% 1.10% 1.43% 1.80% 1.60% 1.46%
61-90 Days......... 0.63 0.62 0.53 0.54 0.61 0.56
91 Days or more.... 4.10 3.14 3.37 2.78 3.64 3.06
--------- --------- --------- --------- ----------- ---------
Total (31 days or
more).............. 6.01% 4.86% 5.33% 4.62% 5.85% 5.08%
--------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- ----------- ---------
</TABLE>
- ------------------------
(1) Based on number of days elapsed since the contractual due date.
As of the Cut-Off Date, the delinquency characteristics for the Accounts as
a percentage of total Accounts and as a percentage of Gross Receivable Amounts
of the Accounts, were, respectively, % and % for Accounts 31-60 days past
due, % and % for Accounts 61-90 days past due, % and % for Accounts
91 days or more past due and % and % for all delinquent Accounts.
REPOSSESSIONS
Repossessed property is rehabilitated, if necessary, and resold. The
following table sets forth certain information concerning the repossession
experience of all outstanding accounts in the Depositor's servicing portfolio
(including the accounts owned by Mid-State Trust II, Mid-State Trust III,
Mid-State Trust IV, Mid-State Trust V and Mid-State Trust VI), for each of the
past eight fiscal years.
REPOSSESSIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------- ---------
Total accounts outstanding....................... 85,418 88,751 88,977 83,945 80,182 76,112 72,656
Accounts repossessed............................. 2,224 2,379 2,180 1,963 1,914 1,676 1,824
Accounts repossessed as a percent of total number
of accounts.................................... 2.6% 2.7% 2.5% 2.3% 2.4% 2.2% 2.5%
<CAPTION>
<S> <C>
1998
---------
Total accounts outstanding....................... 68,740
Accounts repossessed............................. 1,682
Accounts repossessed as a percent of total number
of accounts.................................... 2.4%
</TABLE>
The Mortgage Collateral does not include any real estate which the Servicer
had repossessed as of the Cut-Off Date. As of the Cut-Off Date, Accounts with an
Economic Balance of $ , representing approximately % of the Aggregate
Economic Balance were in foreclosure. Additionally, as of the Cut-Off Date, the
obligors on Accounts with an Economic Balance of $ , representing
approximately % of the Aggregate Economic Balance, were in bankruptcy or
similar proceedings. Certain of these obligors nevertheless are making payments
on the Accounts. As of the Cut-Off Date, the obligors on Accounts with an
Economic Balance of $ , representing approximately % of the Aggregate
Economic Balance, were not in foreclosure or bankruptcy, but were over 120 days
delinquent.
S-17
<PAGE>
RECOVERIES
The number of homes held as real estate owned is set forth in the following
aging summary of all outstanding accounts in the Depositor's servicing portfolio
(including the homes held as real estate owned by Mid-State Trust II, Mid-State
Trust III, Mid-State Trust IV, Mid-State Trust V and Mid-State Trust VI) for the
past eight fiscal years.
REAL ESTATE OWNED
<TABLE>
<CAPTION>
MAY 31,
-------------------------------------
<S> <C> <C> <C> <C>
1991 1992 1993 1994
------- ------- ------- -------
Real Estate Owned as a Percent of Accounts Outstanding
0-3 Months.......................................................................... 0.11% 0.12% 0.06% 0.07%
4-6 Months.......................................................................... 0.04 0.03 0.01 0.01
More than 6 Months.................................................................. 0.09 0.05 0.02 0.02
------- ------- ------- -------
Total Real Estate Owned............................................................. 0.24% 0.20% 0.09% 0.10%
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
<S> <C> <C> <C> <C>
1995 1996 1997 1998
------- ------- ------- -------
Real Estate Owned as a Percent of Accounts Outstanding
0-3 Months.......................................................................... 0.05% 0.09% 0.14% 0.13%
4-6 Months.......................................................................... 0.01 0.02 0.01 0.02
More than 6 Months.................................................................. 0.01 0.01 0.02 0.04
------- ------- ------- -------
Total Real Estate Owned............................................................. 0.07% 0.12% 0.17% 0.19%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
TIME TO RECOVERY
Since no party is required to advance required payments on delinquent
Accounts, any such delinquencies that exist at the end of a Collection Period
immediately preceding any Payment Date will reduce the amount of Available Funds
for the related Payment Date. See "RISK FACTORS--Limited Assets of the Issuer
for Payment of Notes," in the Prospectus and "--Overcollateralization May Become
Exhausted Resulting in Losses to be Allocated to Notes," "--Subordinated Notes
Bear Risk of Loss Before More Senior Notes," and "--Rate of Prepayments on
Accounts May Adversely Affect Yield and Weighted Average Life of Notes" herein
and in the Prospectus.
S-18
<PAGE>
THE MORTGAGE COLLATERAL
The Mortgage Collateral which will secure the Notes consists of Accounts,
which comprise % of the accounts owned directly or indirectly by the Depositor
on the Cut-Off Date. The Mortgage Collateral had an aggregate Economic Balance
of approximately $ as of the Cut-Off Date. The characteristics of the
Accounts as of the Closing Date will not vary by more than five percent (by
aggregate Economic Balance as of the Cut-off Date) from the characteristics
thereof that are described herein.
Set forth below is a description of additional characteristics of the
Accounts as of the Cut-Off Date. Such information does not reflect changes that
may have occurred to the Accounts subsequent to the Cut-Off Date.
REMAINING YEARS TO MATURITY OF ACCOUNTS COMPRISING THE MORTGAGE COLLATERAL
% ACCOUNTS
<TABLE>
<CAPTION>
0-15 16-20 21-25 26-30 TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of Accounts............................................
Average Economic Balance...................................... $ $ $ $ $
Weighted Average Remaining Term (months)(1)...................
Weighted Average Effective Financing Rate.....................%%%%%
Current Economic Balance...................................... $ $ $ $ $
Original Economic Balance(2).................................. $ $ $ $ $
</TABLE>
% ACCOUNTS
<TABLE>
<CAPTION>
0-15 16-20 21-25 26-30 TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of Accounts............................................
Average Economic Balance...................................... $ $ $ $ $
Weighted Average Remaining Term (months)(1)...................
Weighted Average Effective Financing Rate.....................%%%%%
Current Economic Balance...................................... $ $ $ $ $
Original Economic Balance(2).................................. $ $ $ $ $
</TABLE>
- ------------------------
(1) The remaining term of an Account is based on the original term of the
Account less the number of months elapsed between the first payment due date
and the Cut-Off Date.
(2) The original Economic Balance for an Account is equal to the original Gross
Receivable Amount less total original finance charges.
EFFECTIVE FINANCING RATE
The Effective Financing Rates borne by 99.99% of the Accounts range from %
to 10.00%. The weighted average Effective Financing Rate for the Accounts as of
the Cut-Off Date is %.
TOTAL ACCOUNTS COMPRISING THE MORTGAGE COLLATERAL
As of the Cut-Off Date, Accounts having an Economic Balance of $ are
secured by homes representing new sales, and Accounts having an Economic Balance
of $ are secured by homes that have been repossessed and resold.
S-19
<PAGE>
The following table sets forth at the Cut-Off Date the years of calculated
scheduled final payment for the Accounts comprising the Mortgage Collateral:
CALCULATED SCHEDULED FINAL PAYMENT(1)
<TABLE>
<CAPTION>
NUMBER OF ACCOUNTS ECONOMIC BALANCE
---------------------- --------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
----------- --------- --------- ---------
Calendar Year of Calculated Scheduled Final Payment:
1997-1998............................................................% $ *
1999-2000............................................................%
2001-2002............................................................
2003-2004............................................................
2005-2006............................................................
2007-2008............................................................
2009-2010............................................................
2011-2012............................................................
2013-2014............................................................
2015-2016............................................................
2017-2018............................................................
2019-2020............................................................
2021-2022............................................................
2023-2024............................................................
2025-2026............................................................
2027-2028............................................................
----------- --------- --------- ---------
Total(2)........................................................... 100.00% $ 100.00%
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
Weighted Average Period to Calculated Scheduled Final Payment: years.
- ------------------------
* Indicates an amount greater than zero but less than 0.005% of the Aggregate
Economic Balance.
(1) Calculated Scheduled Final Payment is determined by adding the original term
of an Account to the first payment due date and subtracting one month.
(2) Percentages may not add to 100% due to rounding.
S-20
<PAGE>
The following three tables set forth the outstanding Economic Balance, the
original Economic Balance and the years of origination of the Accounts
comprising the Mortgage Collateral at the Cut-Off Date:
OUTSTANDING ECONOMIC BALANCE
<TABLE>
<CAPTION>
OUTSTANDING ECONOMIC
NUMBER OF ACCOUNTS BALANCE
-------------------- --------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
Outstanding Economic Balance:
$10,000 and less.....................................................% $%
$10,001 to $20,000...................................................
$20,001 to $30,000...................................................
$30,001 to $40,000...................................................
$40,001 to $50,000...................................................
$50,001 to $60,000...................................................
above $60,000........................................................
--------- --------- --------- ---------
Total(1)........................................................... 100.00% $ 100.00%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Average outstanding Economic Balance: $ .
- ------------------------
(1) Percentages may not add to 100% due to rounding.
S-21
<PAGE>
ORIGINAL ECONOMIC BALANCE
<TABLE>
<CAPTION>
ORIGINAL ECONOMIC
NUMBER OF ACCOUNTS BALANCE
-------------------- --------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
Original Economic Balance(1):
$10,000 and less....................................................% $%
$10,001 to $20,000..................................................
$20,001 to $30,000..................................................
$30,001 to $40,000..................................................
$40,001 to $50,000..................................................
$50,001 to $60,000..................................................
above $60,000.......................................................
--------- --------- --------- ---------
Total(2)(3)....................................................... 100.00% $ 100.00%
--------- --------- --------- ---------
--------- --------- --------- ---------
Average Original Economic Balance: $ .
</TABLE>
- ------------------------
(1) With respect to Accounts, representing % of the Aggregate Economic Balance
as of the Cut-Off Date, the original Economic Balances stated above are as
of the date the Economic Balances of such Accounts were reduced in
connection with the settlement of the class action litigation in South
Carolina in 1995 that is described under "RISK FACTORS--Effects of Failure
to Comply with Consumer Protection Laws and Risk of Consumer Litigation" in
the Prospectus.
(2) The original Economic Balance for an Account is equal to the original Gross
Receivable Amount less total original finance charges.
(3) Percentages may not add to 100% due to rounding.
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
AGGREGATE ECONOMIC
BALANCE AS OF
NUMBER OF ACCOUNTS CUT-OFF DATE
-------------------- --------------------
<S> <C> <C> <C> <C>
YEAR OF ORIGINATION (1) NUMBER PERCENT AMOUNT PERCENT
- ---------------------------------------------------------------------- --------- --------- --------- ---------
1990..................................................................% $%
1991..................................................................
1992..................................................................
1993..................................................................
1994..................................................................
1995..................................................................
1996..................................................................
1997..................................................................
--------- --------- --------- ---------
1998..................................................................
--------- --------- --------- ---------
Total(2).......................................................... 100.00% $ 100.00%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Calendar year in which the first payment on the Accounts became due.
(2) Percentages may not add to 100% due to rounding.
S-22
<PAGE>
The following table sets forth the geographical distribution of the Accounts
comprising the Mortgage Collateral by state at the Cut-Off Date.
GEOGRAPHICAL DISTRIBUTION
<TABLE>
<CAPTION>
% OF AGGREGATE
% OF TOTAL AGGREGATE ECONOMIC
NUMBER OF NUMBER OF ECONOMIC BALANCE OF ALL
STATE ACCOUNTS ACCOUNTS BALANCE ACCOUNTS
- -------------------------------------------------------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Alabama....................................................... % $ %
Arizona.......................................................
Arkansas......................................................
Florida.......................................................
Georgia.......................................................
Illinois......................................................
Indiana.......................................................
Kentucky......................................................
Louisiana.....................................................
Maryland......................................................
Mississippi...................................................
Missouri......................................................
New Mexico....................................................
North Carolina................................................
Ohio..........................................................
Oklahoma......................................................
South Carolina................................................
Tennessee.....................................................
Texas.........................................................
Virginia......................................................
West Virginia.................................................
Total(1).................................................. 100.00% $ 100.00%
</TABLE>
- ------------------------
(1) Percentages may not add to 100% due to rounding.
S-23
<PAGE>
DESCRIPTION OF THE NOTES
The following are summaries of the material provisions of the Notes. The
following summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the Indenture.
AVAILABLE FUNDS
"Available Funds" in respect of a Payment Date are funds equal to the sum of
(i) collections on the Accounts during the Collection Period immediately
preceding such Payment Date that are on deposit in the Collection Account as of
the close of business on the last business day of such Collection Period and
(ii) any net reinvestment income earned on funds described in clause (i) above,
during the Reinvestment Period. Available Funds will be net of Issuer Expenses
paid. "Issuer Expenses" are all of the Issuer's expenses (other than amounts due
on the Notes), including, without limitation, the fees and expenses of the Owner
Trustee, the Indenture Trustee and the fee of the Servicer. See "THE TRUST
AGREEMENT," THE INDENTURE--The Indenture Trustee" and "THE SERVICING
AGREEMENT--Servicing Fee" herein and in the Prospectus. The "Remaining Available
Funds" for a Payment Date are the Available Funds for such Payment Date reduced
by the amount of interest due on the Notes on such Payment Date.
INTEREST AND PRINCIPAL PAYMENTS
Interest on each Class of the Notes will be payable from Available Funds on
each Payment Date in an amount up to the Interest Accrual Amount of such Class.
The "Interest Accrual Amount" of any Class for any Payment Date is equal to
interest accrued on the Outstanding Principal Balance of such Class (after
giving effect to payments and allocations of losses on the preceding Payment
Date, if any) during the Interest Accrual Period ending on the day prior to the
Payment Date, at the Note Rate for such Class; provided, however, that such
amount shall not include interest due and payable with respect to unreimbursed
Realized Loss Amounts. The "Note Rate" of the Class A-1, Class A-2, Class A-3
and Class A-4 Notes is %, %, % and %, respectively. On or prior to
the Maturity Date, an event which would otherwise be an Event of Default under
the Indenture will not be an Event of Default (i) in respect of the Class A-2
Notes until the Class A-1 Notes have been paid in full, (ii) in respect of the
Class A-3 Notes until the Class A-1 Notes and Class A-2 Notes have been paid in
full and (iii) in respect of the Class A-4 Notes until the Class A-1 Notes,
Class A-2 Notes and Class A-3 Notes have been paid in full.
The "Class A-1 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-1 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-1 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-1 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-1 Initial Principal Balance" is equal to
$ .
The "Class A-2 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-2 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-2 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-2 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-2 Initial Principal Balance" is equal to
$ .
The "Class A-3 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-3 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-3 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-3 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-3 Initial Principal Balance" is equal to
$ .
The "Class A-4 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-4 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-4 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-4 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-4 Initial Principal Balance" is equal to
$ .
The Class A-1 Outstanding Principal Balance, the Class A-2 Outstanding
Principal Balance, the Class A-3 Outstanding Principal Balance and the Class A-4
Outstanding Principal Balance, are each
S-24
<PAGE>
referred to herein generally as an "Outstanding Principal Balance." The
"Aggregate Outstanding Principal Balance" as of any Payment Date is equal to the
sum of the Outstanding Principal Balances as of such Payment Date.
On any Payment Date, if Available Funds (less any interest paid to the prior
Classes of Notes, on such Payment Date) are less than the Interest Accrual
Amount for a Class of Notes, there will exist a shortfall in interest paid to
such Class of Notes; provided, however, that such amount shall not include
interest due and payable with respect to unreimbursed Realized Loss Amounts (as
to each Class of Notes, a "Class Interest Shortfall"). Class Interest Shortfalls
will be added to the amount of interest payable to the holders of such Class on
subsequent Payment Dates, subject to the availability of funds, and interest
will accrue on the amount of any Class Interest Shortfalls.
Interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
On each Payment Date, interest and principal payments on the Notes will be
made from Available Funds in the following order of priority (the "Available
Funds Allocation"):
FIRST, to the holders of the Class A-1 Notes, in an amount up to the
Interest Accrual Amount thereof;
SECOND, to the holders of the Class A-1 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
THIRD, to the holders of the Class A-2 Notes, in an amount up to the
Interest Accrual Amount thereof;
FOURTH, to the holders of the Class A-2 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
FIFTH, to the holders of the Class A-3 Notes, in an amount up to the
Interest Accrual Amount thereof;
SIXTH, to the holders of the Class A-3 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
SEVENTH, to the holders of the Class A-4 Notes, in an amount up to the
Interest Accrual Amount thereof;
EIGHTH, to the holders of the Class A-4 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
NINTH, to the holders of the Class A-1 Notes, in an amount up to the
Class A-1 Optimal Principal Amount;
TENTH, to the holders of the Class A-1 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-1 Realized Loss Amounts previously allocated thereto (provided that any
such amount will not be due and payable unless there exist Available Funds
sufficient to pay such amount and all not prior amounts under this Available
Funds Allocation);
ELEVENTH, to the holders of the Class A-1 Notes, in an amount up to the
amount of any unreimbursed Class A-1 Realized Loss Amounts previously
allocated thereto (provided that any such amount will not be due and payable
unless there exist Available Funds sufficient to pay such amount and all
prior amounts under this Available Funds Allocation);
TWELFTH, to the holders of the Class A-2 Notes, in an amount up to the
Class A-2 Optimal Principal Amount;
THIRTEENTH, to the holders of the Class A-2 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-2 Realized Loss Amounts previously allocated
S-25
<PAGE>
thereto (provided that any such amount will not be due and payable unless
there exist Available Funds sufficient to pay such amount and all prior
amounts under this Available Funds Allocation);
FOURTEENTH, to the holders of the Class A-2 Notes, in an amount up to
the amount of any unreimbursed Class A-2 Realized Loss Amounts previously
allocated thereto (provided that any such amount will not be due and payable
unless there exist Available Funds sufficient to pay such amount and all
prior amounts under this Available Funds Allocation);
FIFTEENTH, to the holders of the Class A-3 Notes, in an amount up to the
Class A-3 Optimal Principal Amount;
SIXTEENTH, to the holders of the Class A-3 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-3 Realized Loss Amounts previously allocated thereto (provided that any
such amount will not be due and payable unless there exist Available Funds
sufficient to pay such amount and all prior amounts under this Available
Funds Allocation);
SEVENTEENTH, to the holders of the Class A-3 Notes, in an amount up to
the amount of any unreimbursed Class A-3 Realized Loss Amounts previously
allocated thereto (provided that any such amount will not be due and payable
unless there exist Available Funds sufficient to pay such amount and all
prior amounts under this Available Funds Allocation);
EIGHTEENTH, to the holders of the Class A-4 Notes, in an amount up to
the Class A-4 Optimal Principal Amount;
NINETEENTH, to the holders of the Class A-4 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-4 Realized Loss Amounts previously allocated thereto (provided that any
such amount will not be due and payable unless there exist Available Funds
sufficient to pay such amount and all prior amounts under this Available
Funds Allocation); and
TWENTIETH, to the holders of the Class A-4 Notes, in an amount up to the
amount of any unreimbursed Class A-4 Realized Loss Amounts previously
allocated thereto (provided that any such amount will not be due and payable
unless there exist Available Funds sufficient to pay such amount and all
prior amounts under this Available Funds Allocation).
The "Class A-1 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-1 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate Outstanding
Principal Balance for such Payment Date; such product not to exceed the Class
A-1 Outstanding Principal Balance.
The "Class A-2 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-2 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate Outstanding
Principal Balance for such Payment Date; such product not to exceed the Class
A-2 Outstanding Principal Balance.
The "Class A-3 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-3 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate Outstanding
Principal Balance for such Payment Date; such product not to exceed the Class
A-3 Outstanding Principal Balance.
The "Class A-4 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-4 Outstanding Principal Balance
for such Payment Date and the denominator of which is the
S-26
<PAGE>
Aggregate Outstanding Principal Balance for such Payment Date; such product not
to exceed the Class A-4 Outstanding Principal Balance.
A "Class Optimal Principal Amount" is any of the Class A-1, Class A-2, Class
A-3 or Class A-4 Optimal Principal Amounts, as applicable.
The "Optimal Principal Amount" is equal to (A) on any Payment Date (i) on or
prior to the Target Overcollateralization Date or (ii) after the Target
Overcollateralization Date and on which there exists an uncured Trigger Event,
the Remaining Available Funds; and (B) on any Payment Date after the Target
Overcollateralization Date on which there does not exist an uncured Trigger
Event, the amount which, when paid as principal on the Notes, will result in
achieving or maintaining the Target Overcollateralization Level. In no event
will the Optimal Principal Amount for any Payment Date exceed the Remaining
Available Funds for such Payment Date or the Aggregate Outstanding Principal
Balance of the Notes.
An Event of Default may be cured only if the Indenture Trustee has not
accelerated the Notes.
The "Target Overcollateralization Date" is the Payment Date occurring in
.
The "Target Overcollateralization Level" as of any Payment Date, is the
level of overcollateralization that would exist if the Overcollateralization
Amount were equal to the greater of (i) the product of (x) the
Overcollateralization Percentage and (y) the Aggregate Economic Balance of the
Accounts as of the first day of the month preceding the month of such Payment
Date and (ii) the Minimum Target Overcollateralization Amount.
The "Overcollateralization Amount" as of any Payment Date, is an amount
equal to (i) the Aggregate Economic Balance of the Accounts as of the first day
of the month preceding the month of such Payment Date, less (ii) the Aggregate
Outstanding Principal Balance and all unreimbursed Realized Loss Amounts, after
giving effect to payments, but prior to the allocation of losses thereon on such
Payment Date.
The "Minimum Target Overcollateralization Amount" for any Payment Date, is
(a) an amount equal to the greater of (i) the product of (x) 10% and (y) the
Aggregate Economic Balance of the Accounts as of the first day of the month
preceding the month of such Payment Date and (ii) $ or (b) in the event
that (i) Mid-State is no longer the Servicer, (ii) the cumulative losses on the
Accounts exceed %, %, %, % and % of the Aggregate
Economic Balance as of the Cut-Off Date, at the end of four, five, six, seven
and eight years after the Cut-Off Date, respectively, or exceed %
thereafter, or (iii) the average 60 day delinquency ratio test as defined in the
Indenture as of any Payment Date, exceeds %, and such event is continuing,
an amount equal to the greater of (x) the Aggregate Outstanding Principal
Balance of the Notes and (y) the Aggregate Economic Balance of the Accounts as
of the month preceding the month of such Payment Date.
The "Overcollateralization Percentage" will be a fraction, expressed as a
percentage, the numerator of which is equal to the excess of (i) the Aggregate
Economic Balance of the Accounts as of the first day of the month preceding the
month in which the Target Overcollateralization Date occurs over (ii) the
Aggregate Outstanding Principal Balance of all Classes of Notes and all
unreimbursed Realized Loss Amounts with respect to all Classes of Notes on the
Target Overcollateralization Date (following payments and allocations of losses
on the Target Overcollateralization Date) and the denominator of which is the
Aggregate Economic Balance of the Accounts as of the first day of the month
preceding the month in which the Target Overcollateralization Date occurs.
Following the Target Overcollateralization Date, unless there exists an
uncured Trigger Event, the portion, if any, of the Available Funds remaining
after the Available Funds Allocation, will be released to the Issuer, free of
the lien of the Indenture, and will no longer be available to make payments on
the Notes. Such funds will then be distributed to the owner of the beneficial
interest in the Issuer, which will initially be Mid-State.
S-27
<PAGE>
ALLOCATION OF LOSSES
As of each Payment Date, the Indenture Trustee will calculate the Class A-1
Realized Loss Amount, the Class A-2 Realized Loss Amount, the Class A-3 Realized
Loss Amount and the Class A-4 Realized Loss Amount.
The "Class A-1 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the Class A-1 Outstanding Principal Balance as of such Payment
Date (after application of the Class A-1 Optimal Principal Amount, but prior to
the application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Collection Period related to
such Payment Date, not to exceed the Class A-1 Outstanding Principal Balance.
The "Class A-2 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the sum of (a) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date) and (b) the
Class A-2 Outstanding Principal Balance as of such Payment Date (after
application of the Class A-2 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Collection Period related to
such Payment Date, not to exceed the Class A-2 Outstanding Principal Balance.
The "Class A-3 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the sum of (a) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date), (b) the
Class A-2 Outstanding Principal Balance as of such Payment Date (after
application of the Class A-2 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) and (c) the Class A-3 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-3
Optimal Principal Amount, but prior to the application of losses on such Payment
Date) over (ii) the Aggregate Economic Balance of the Accounts immediately
following the Collection Period related to such Payment Date, not to exceed the
Class A-3 Outstanding Principal Balance.
The "Class A-4 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the sum of (a) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date), (b) the
Class A-2 Outstanding Principal Balance as of such Payment Date (after
application of the Class A-2 Optimal Principal Amount but prior to the
application of losses on such Payment Date), (c) the Class A-3 Outstanding
Principal Amount, but prior to the application of losses on such Payment Date)
and (d) the Class A-4 Outstanding Principal Balance as of such Payment Date
(after application of the Class A-4 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Collection Period related to
such Payment Date, not to exceed the Class A-4 Outstanding Principal Balance.
The Class A-1 Realized Loss Amount, the Class A-2 Realized Loss Amount, the
Class A-3 Realized Loss Amount and the Class A-4 Realized Loss Amount are
referred to herein generally as the "Realized Loss Amounts."
On each Payment Date, any Class A-1 Realized Loss Amount will be applied in
reduction of the Class A-1 Outstanding Principal Balance; any Class A-2 Realized
Loss Amount will be applied in reduction of the Class A-2 Outstanding Principal
Balance; any Class A-3 Realized Loss Amount will be applied in reduction of the
Class A-3 Outstanding Principal Balance; and any Class A-4 Realized Loss Amount
will be applied in reduction of the Class A-4 Outstanding Principal Balance; in
each case, until the Outstanding Principal Balance of such Class has been
reduced to zero.
Any reimbursement of Realized Loss Amounts with respect to a Class of Notes
will not result in a reduction of the Outstanding Principal Balance of such
Class of Notes.
S-28
<PAGE>
REDEMPTION OF THE NOTES
All (but not less than all) of the outstanding Notes may be redeemed on any
Payment Date at the option of the Issuer, at 100% of the unpaid principal amount
of the Notes plus accrued interest, if, after giving effect to the payment of
principal to be made on such Payment Date absent such redemption, the aggregate
principal amount of each Class of Notes outstanding (prior to allocations of any
Realized Loss Amounts) is less than or equal to 10% of the original aggregate
principal amount of such Class of Notes.
WEIGHTED AVERAGE LIFE OF THE NOTES
The following information is given solely to illustrate the effect of
prepayments in respect of the Accounts on the weighted average life of each
Class of Notes and is not a prediction of the prepayment rate, the repossession
rate or the effects of repossessions that might actually be experienced in
respect of the Accounts.
The weighted average life of each Class of Notes refers to the average
amount of time that will elapse from the date of its issuance until each dollar
of principal of such Class of Notes will be repaid to the investor. The weighted
average life of the Notes will be influenced by, among other factors, the rate
at which collections are made on the Accounts. Payments on the Accounts may be
in the form of scheduled payments or prepayments (for this purpose, the term
"prepayments" includes prepayments in full and receipt of proceeds from
Insurance Policies that are not applied to the restoration of the home). It is
expected that, consistent with Mid-State's current servicing procedures,
repossessed homes will, in general, be sold in exchange for a new Account
together with a small amount of cash. Consequently, liquidations of Accounts due
to repossessions are not expected to generate much, if any, cash proceeds.
Because of the initial overcollateralization, the likelihood of prepayments
on the Accounts and the application of the Remaining Available Funds to pay
principal of the Notes in accordance with the Available Funds Allocation, it is
expected that each Class of Notes could be fully paid significantly earlier than
the Maturity Date. On the other hand, because no party is required to advance
delinquent payments on the accounts, there will be no cash flow in respect of
Accounts secured by repossessed properties until a new Account is generated upon
the sale, if any, of the related repossessed property; and such cash flow would
normally be in a lesser amount. There can be no assurance that any of the
foregoing events will occur or as to the timing of the occurrence of such
events.
The weighted average life of each Class of Notes as computed herein and the
other information in the tables below assume that: (i) all of the Accounts
constitute eight fully-amortizing fixed-rate accounts: (a) one of which has the
characteristics as set forth under the column "0-15" in the table entitled
"Remaining Years to Maturity of Accounts Comprising the Mortgage
Collateral-- % Accounts" (the " % Accounts Table") set forth under "THE
MORTGAGE COLLATERAL" herein; (b) one of which has the characteristics as set
forth under the column "16-20" in the % Accounts Table; (c) one of which has
the characteristics as set forth under the column "21-25" in the % Accounts
Table; (d) one of which has the characteristics as set forth under the column
"26-30" in the % Accounts Table; (e) one of which has the characteristics as
set forth under the column "0-15" in the table entitled "Remaining Years to
Maturity of Accounts Comprising the Mortgage Collateral-- % Accounts (the
" % Accounts Table") set forth under "THE MORTGAGE COLLATERAL" herein; (f) one
of which has the characteristics as set forth under the column "16-20" in the
% Accounts Table; (g) one of which has the characteristics as set forth under
the column "21-25" in the % Accounts Table; and (h) one of which has the
characteristics as set forth under the column "26-30" in the % Accounts
Table; (ii) Issuer Expenses consist only of the servicing fees; the servicing
fees and losses total % of the current Aggregate Economic Balance; (iii) no
Event of Default under the Indenture occurs and no Trigger Event occurs; (iv)
there are no delinquent monthly payments; (v) the Issuer does not redeem the
Notes as provided under "Redemption of Notes" above; and (vi) the Notes are
issued on , 19 and the Class A-1, Class A-2, Class A-3, and Class A-4
Notes are assumed to bear interest at an interest rate equal
S-29
<PAGE>
to %, %, % and %, respectively. No representation is made that the
Accounts will not experience delinquencies or losses or that resales of
repossessed houses will not occur and new Accounts will not be generated.
Prepayments on Accounts that are not due to repossessions are commonly
measured relative to a prepayment standard or model. The model used in this
Prospectus, the conditional prepayment rate ("CPR"), represents an assumed
annual rate of prepayments relative to the outstanding Economic Balance of the
Accounts at the beginning of an Interest Accrual Period. The CPR is expressed as
an annual rate, which is applied monthly as a percentage of the Accounts
outstanding at the beginning of each month reduced by scheduled payments due on
the Accounts. As used in the tables below, " % CPR" assumes prepayments at an
annual rate of %; " % CPR" assumes prepayments at an annual rate of %;
and so on.
Since the tables below were prepared on the basis of the assumptions
specified above, there are discrepancies between the characteristics of the
actual Accounts and the characteristics of the Accounts assumed in preparing the
tables, and discrepancies between the actual Issuer Expenses and the Issuer
Expenses assumed in preparing the tables. Any such discrepancy may have an
effect upon the percentages of the remaining principal amount of each Class of
Notes outstanding and weighted average lives of such Notes set forth in each
table. In addition, since the actual Accounts have characteristics which differ
from those assumed in preparing the tables, the payments of principal on each
Class of Notes may be made earlier or later than as indicated in the tables. The
tables below were also prepared on the basis of the assumptions that there are
no delinquencies in respect of the Accounts. In the actual servicing of the
Accounts, it is expected that there will be delinquencies, losses, resales of
repossessed houses and new Accounts generated that can vary from the assumptions
used in the calculation of the tables on the following pages. In general,
repossessed houses will be sold for a new Account with little or no cash
downpayment, and there will be some period of time between the repossession of
the house and the origination of the new Account (which may have a lower
Economic Balance), during which period no collections are received in respect of
the repossessed house. Such discrepancies may have an effect on the weighted
average life of each Class of Notes and the percentages of the remaining
principal amount of such Notes set forth in each table.
It is not likely that the Accounts will prepay at any constant level of CPR
to maturity or that all the Accounts will prepay at the same rate. In addition,
the diverse remaining terms to maturity of the Accounts (which include recently
originated Accounts) could produce slower or faster payments of principal than
indicated in the table at the various levels of CPR specified even if the
weighted average remaining term to scheduled maturity of the Accounts is
years.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated repayment rates, repossession
rates and principal amounts of new Accounts assumed to be generated in respect
of repossessions under a variety of their own assumptions as to the matters set
forth above.
There is no assurance that prepayments of the Accounts will conform to any
level of CPR set forth above in this section or any other level of CPR. The
rates of prepayments on the Accounts are influenced by a variety of economic,
geographic, social and other factors. In general, however, if prevailing
interest rates fall, and particularly if they fall significantly below the
Effective Financing Rates of the Accounts, the rate of repayment on such
Accounts is likely to increase. Conversely, if interest rates rise, and
particularly if they rise significantly above the Effective Financing Rates of
the Accounts, the rate of repayment would be expected to decrease. Other factors
affecting prepayment of Accounts include changes in the homeowner's housing
needs, job transfers, unemployment and the homeowner's net equity in the
properties. The CPR does not purport to be either an historical description of
the voluntary prepayment experience of the Accounts or a prediction of the
anticipated amount of prepayments of the Accounts.
S-30
<PAGE>
Based on the assumptions described above, the following tables indicate the
resulting weighted average life of each Class of Notes and set forth the
percentage of the original principal amount of each Class of Notes that would be
outstanding immediately prior to giving effect to the payment due on each of the
dates shown at the indicated percentages of CPR.
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-1 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE % CPR % CPR % CPR % CPR
- -------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Closing Date........................................................ 100% 100% 100% 100%
% % % %
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
<CAPTION>
PAYMENT DATE % CPR
- -------------------------------------------------------------------- -----------
<S> <C>
Closing Date........................................................ 100%
%
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of %.
(3) The number of months from and including the first payment date to the month
in which the final payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-1 Notes is , 20 and the
weighted average life of the Class A-1 Notes is years, in each case assuming
a prepayment speed of 0% CPR.
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-2 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE % CPR % CPR % CPR % CPR
- -------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Closing Date........................................................ 100% 100% 100% 100%
% % % %
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
<CAPTION>
PAYMENT DATE % CPR
- -------------------------------------------------------------------- -----------
<S> <C>
Closing Date........................................................ 100%
%
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of %.
(3) The number of months from and including the first payment date to the month
in which the final payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-2 Notes is , 20 and the
weighted average life of the Class A-2 Notes is years, in each case assuming a
prepayment speed of 0% CPR.
S-31
<PAGE>
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-3 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE % CPR % CPR % CPR % CPR
- -------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Closing Date........................................................ 100% 100% 100% 100%
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
<CAPTION>
PAYMENT DATE % CPR
- -------------------------------------------------------------------- -----------
<S> <C>
Closing Date........................................................ 100%
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of %.
(3) The number of months from and including the first payment date to the month
in which the final payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-3 Notes is , 20 and the
weighted average life of the Class A-3 Notes is years, in each case assuming a
prepayment speed of 0% CPR.
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-4 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE % CPR % CPR % CPR % CPR
- -------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Closing Date........................................................ 100% 100% 100% 100%
% % % %
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
<CAPTION>
PAYMENT DATE % CPR
- -------------------------------------------------------------------- -----------
<S> <C>
Closing Date........................................................ 100%
%
Weighted Average Life (Years) (1)...................................
Duration (Years) (2)................................................
Principal Payment Window (Months) (3)...............................
Expected Final Maturity.............................................
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of %.
(3) The number of months from and including the first payment date to the month
in which the final payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-4 Notes is , 20 and the
weighted average life of the Class A-4 Notes is years, in each case assuming a
prepayment speed of 0% CPR.
REGISTRATION OF NOTES
The Notes will initially be registered in the name of Cede & Co. ("Cede"),
the nominee of the Depository Trust Company ("DTC"). DTC is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the
S-32
<PAGE>
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the 1934 Act. DTC
accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of Notes. Participants include securities brokers and dealers,
banks and trust companies and clearing corporations and may include certain
other organizations. Indirect access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants").
Note owners who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Notes may do so only through Participants
and indirect participants (unless and until Definitive Notes, as defined below,
are issued). In addition, Note owners will receive all payments of principal of
and interest on the Notes from the Indenture Trustee through DTC and
Participants. Note owners will not receive or be entitled to receive Notes
representing their respective interests in the Notes, except under the limited
circumstances described below.
Unless and until Definitive Notes (as defined below) are issued, it is
anticipated that the only "Noteholder" of the Notes will be Cede, as nominee of
DTC. Note owners will not be Noteholders as that term is used in the Indenture.
Note owners are only permitted to exercise the rights of Noteholders indirectly
through Participants and DTC.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit payments of principal of, and interest on, the
Notes. Unless and until Definitive Notes are issued, Note owners who are not
Participants may transfer ownership of Notes only through Participants by
instructing such Participants to transfer Notes, by book-entry transfer, through
DTC for the account of the purchasers of such Notes, which account is maintained
with their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Notes will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited.
The Notes will be issued in registered form to Note owners, or their
nominees, rather than to DTC (such Notes being referred to herein as "Definitive
Notes"), only if (i) DTC or the Issuer advises the Indenture Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as nominee and depository with respect to the Notes and the Issuer or the
Trustee is unable to locate a qualified successor, (ii) the Issuer, at its sole
option elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of an Event of Default, DTC, at the direction of Note owners having a
majority in percentage interests of the Note owners together, advises the
Indenture Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) to the exclusion of any physical notes
being issued to Note owners is no longer in the best interest of Note owners.
Upon issuance of Definitive Notes to Note owners, such Notes will be
transferable directly (and not exclusively on a book-entry basis) and registered
holders will deal directly with the Indenture Trustee with respect to transfers,
notices and payments.
DTC has advised the Issuer and the Indenture Trustee that, unless and until
Definitive Notes are issued, DTC will take any action permitted to be taken by a
Noteholder under the Notes only at the direction of one or more Participants to
whose DTC account the Notes are credited. DTC has advised the Issuer that DTC
will take such action with respect to the Notes only at the direction of and on
behalf of the related Participants, with respect to such Notes. DTC may take
actions, at the direction of the related Participants, with respect to some
Notes which conflict with the actions taken with respect to other Notes.
S-33
<PAGE>
Because DTC can only act on behalf of Participants, who in turn act on
behalf of indirect participants, the ability of a Note owner to pledge its Notes
to persons or entities that do not participate in the DTC system, or to
otherwise act with respect to such Notes, may be limited due to the lack of a
physical certificate for such Notes. In addition, under a book-entry format,
Note owners may experience delays in their receipt of payments, since payments
will be made by the Indenture Trustee, to Cede, as nominee for DTC.
Neither the Issuer, the Depositor nor the Indenture Trustee will have any
responsibility for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests of the Notes held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. In the event of the insolvency of DTC, a
Participant or an indirect participant in whose name Notes are registered, the
ability of the owners of such Notes to obtain timely payment and, if the limits
of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable, ultimate
payment of amounts paid on such Notes may be impaired.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended. As a result,
the appropriate characterization of the Notes under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase the Notes, is subject to significant interpretive uncertainties.
No representation is made as to the proper characterization of any Class of
Notes for legal investment or other purposes, or as to the ability of particular
investors to purchase the Notes under applicable legal investment or other
restrictions. All institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Notes constitute legal investments
for them or are subject to investment, capital or other restrictions.
ERISA CONSIDERATIONS
The Issuer, the Depositor and Walter Industries, an affiliate of the
Depositor, may each be considered a "party in interest" within the meaning of
ERISA, or a "disqualified person" within the meaning of the Code, with respect
to many employee benefit plans or retirement arrangements which are subject to
ERISA or Section 4975 of the Code (collectively, the "Plans"). While Mid-State
has no present intention to transfer the beneficial interest in the Issuer to
any person other than an affiliate of Mid-State (including a trust beneficially
owned by Mid-State or an affiliate), any transferee of such beneficial interest
(including a transferee that is not such an affiliate) may be such a "party in
interest" or "disqualified person." Prohibited transactions within the meaning
of ERISA and the Code may arise if the Notes are acquired by a Plan with respect
to which Walter Industries is a service provider or other category of "party in
interest" or "disqualified person," unless such Notes are acquired pursuant to
an exemption for transactions effected on behalf of such Plan by a "qualified
professional asset manager" or pursuant to any other available exemption.
A possible violation of the prohibited transaction rules also could occur if
a Plan purchased Notes pursuant to this offering if the Issuer, any Underwriter,
or any of their employees, affiliates or financial consultants (i) manage any
part of the Plan's investment portfolio on a discretionary basis, or (ii)
regularly provide advice pursuant to an agreement or understanding, written or
unwritten, with the individual, employer or trustee with discretion over the
assets of such Plan that such advice concerning investment matters will be used
as a primary basis for the Plan's investment decisions. Accordingly, the Issuer,
any Underwriter, Mid-State and their respective affiliates will not, and no Plan
should, allow the purchase of Notes with assets of any Plan if the Issuer, any
Underwriter, Mid-State or any of their respective
S-34
<PAGE>
employees, affiliates or financial consultants provide with respect to the
assets to be used to acquire such Notes the management services or advice
described in the previous sentence.
On November 13, 1986, the Department of Labor issued a final regulation
concerning the definition of what constitutes the assets of an ERISA-Covered
Plan (Reg. Section 2510.3-101, 51 Fed. Reg. 41262) (the "Final Regulation").
Under the Final Regulation, which became effective on March 13, 1987, the assets
and properties of corporations, trusts, and certain other entities in which a
Plan makes an equity investment could be deemed to be assets of the investing
plan in certain circumstances. Cadwalader, Wickersham & Taft, counsel for the
Underwriters and special counsel for the Issuer as to ERISA matters, is of the
opinion that the Notes will be considered debt instruments rather than equity
interests of the Issuer for ERISA purposes. Counsel's opinion on this issue is
not binding on the Department of Labor or a court reviewing such issue.
If the underlying assets of the Trust (as opposed to the Notes alone) were
to be deemed to be "plan assets" under ERISA, (a) the prudence and other
fiduciary responsibility standards of Part 4 of Subtitle B of Title I of ERISA,
applicable to investments made by Plans and their fiduciaries, would extend to
investments made by the Trust; and (b) certain transactions in which the Trust
might seek to engage could constitute "prohibited transactions" under ERISA and
the Code.
Any Plan fiduciary considering whether to purchase any Notes on behalf of a
Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment. See "ERISA CONSIDERATIONS" in the Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is the opinion of Cadwalader, Wickersham & Taft as
to the material federal income tax consequences of the purchase, ownership and
disposition of the Notes, special federal income tax counsel to the Issuer and
counsel to the Underwriters, in reliance on laws, regulations, rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. This summary does
not address the federal income tax consequences of an investment in the Notes
applicable to all categories of investors, some of which may be subject to
special rules. Prospective investors should consult their own tax advisors
regarding the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Notes. Unless stated otherwise,
for purposes of the following summary, references to "Noteholder" and "holder"
mean the beneficial owner of a Note.
This summary must be read in conjunction with the disclosure in the
Prospectus under the heading "MATERIAL FEDERAL INCOME TAX CONSEQUENCES," which
disclosure is incorporated herein by reference.
GENERAL
Cadwalader, Wickersham & Taft, counsel for the Underwriters and special
federal income tax counsel to the Issuer, has advised the Issuer that in its
opinion the Notes will be treated for federal income tax purposes as
indebtedness and not as an ownership interest in the Accounts nor as an equity
interest in the Issuer or a separate association taxable as a corporation.
Cadwalader, Wickersham & Taft has further advised the Issuer that in its
opinion, under current law, the Trust will not be treated as a taxable mortgage
pool ("TMP") as defined in Code Section 7701(i).
Based on the foregoing, for federal income tax purposes, (i) Notes held by a
thrift institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v); (ii) interest on Notes held by a real
estate investment trust will not be treated as "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B); (iii) Notes
S-35
<PAGE>
held by a real estate investment trust will not constitute "real estate assets"
or "Government securities" within the meaning of Code Section 856(c)(4)(A); and
(iv) Notes held by a regulated investment company will not constitute
"Government securities" within the meaning of Code Section 851(b)(3)(A)(i).
ORIGINAL ISSUE DISCOUNT
It is anticipated that the Class [ ] Notes will be issued with "original
issue discount" within the meaning of Section 1273(a) of the Code in an amount
equal to the difference between the "stated redemption price at maturity" of
[each] such Class of Notes and their "issue price." Holders of any Notes issued
with original issue discount generally must include such original issue discount
in gross income for federal income tax purposes as it accrues, in accordance
with a constant interest method based on the compounding of interest, in advance
of receipt of the cash attributable to such income. See "MATERIAL FEDERAL INCOME
TAX CONSEQUENCES--Original Issue Discount and Premium" in the Prospectus.
PREMIUM
It is anticipated that the Class [ ] Certificates will be issued at a
premium for federal income tax purposes. A purchaser of a Note who purchases the
Note at a premium may elect to amortize such premium under a constant yield
method. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES--Original Issue Discount
and Premium" in the Prospectus.
THE INDENTURE
The following summaries of certain provisions of the Indenture do not
purport to be complete and are qualified in their entirety by reference to the
provisions of the Indenture and the discussion contained in the Prospectus under
the heading "THE INDENTURE."
EVENTS OF DEFAULT
Prior to the Maturity Date, any of the events described in the Prospectus
under "THE INDENTURE--Events of Default" will not be an Event of Default (i) in
respect of the Class A-2 Notes until the Class A-1 Notes have been paid in full,
(ii) in respect of the Class A-3 Notes until the Class A-1 Notes and Class A-2
Notes have been paid in full and (iii) in respect of the Class A-4 Notes until
the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes have been paid in full.
RIGHTS UPON EVENT OF DEFAULT
The Indenture provides that the Indenture Trustee may exercise remedies on
behalf of the Noteholders only if an Event of Default has occurred and is
continuing. The Indenture Trustee shall proceed, in its own name, subject to the
Indenture, to protect and enforce its rights and the rights of the Noteholders
by such remedies provided for in the Indenture as the Indenture Trustee shall
deem most effectual to protect and enforce such rights.
Prior to the Maturity Date, upon the occurrence of an Event of Default, the
Indenture Trustee or the holders entitled to at least 66 2/3% of the Voting
Rights of the Class of Notes with the lowest numerical Class designation then
outstanding may declare the principal of the Notes to be immediately due and
payable; provided, however, that such Class of Notes or the Indenture Trustee
may make such declaration only if the Event of Default affects, and in the case
of a default in the payment of the Notes such payment default relates to, the
Class of Notes with the lowest numerical Class designation then outstanding.
Upon such declaration, the Indenture Trustee may, or at the direction of the
holders entitled to at least 66 2/3% of the Voting Rights of the Class of Notes
with the lowest numerical Class designation then outstanding shall, pursue one
or more remedies subject to, and in accordance with the terms of the Indenture,
including without limitation, selling the Accounts at one or more public or
private sales. Notwithstanding the
S-36
<PAGE>
acceleration of the maturity of the Notes, the Indenture Trustee shall refrain
from selling the Accounts and continue to apply all amounts received on the
Accounts to payments due on the Notes in accordance with their terms if, among
other conditions specified in the Indenture, (i) the Indenture Trustee
determines that anticipated collections on the Accounts would be sufficient to
pay the Class of Notes with the lowest numerical Class designation then
outstanding and (ii) the Indenture Trustee has not been otherwise directed by
the holders of all the Notes. On or prior to the Maturity Date, a Class of Notes
which does not have the lowest numerical Class designation then outstanding will
not have any right to direct the Indenture Trustee to pursue any remedies or
actions under the Indenture.
On or after the Maturity Date, if an Event of Default occurs or shall have
occurred, the Indenture Trustee shall declare the principal of the Notes to be
immediately due and payable. Upon such declaration, the Indenture Trustee may,
or at the direction or with the consent of the holders entitled to at least a
majority of the aggregate Voting Rights of all Classes of Notes voting together
as a single Class shall, pursue one or more remedies subject to and in
accordance with the terms of the Indenture, including without limitation selling
the Accounts at one or more public or private sales. Notwithstanding the
acceleration of the maturity of the Notes, the Indenture Trustee shall refrain
from selling the Accounts and continue to apply all amounts received on the
Accounts to payments due on the Notes in accordance with their terms if, among
other conditions specified in the Indenture, (i) the Indenture Trustee
determines that anticipated collections on the Accounts would be sufficient to
pay all the Classes of Notes then outstanding and (ii) the Indenture Trustee has
not been otherwise directed by the holders of all the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default shall occur and be continuing, the
Indenture Trustee shall be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the holders of
Notes, unless such holders have offered to the Indenture Trustee security or
indemnity satisfactory to it against loss, liability or expense incurred in
compliance with such request. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the then outstanding Notes (or in the case of any action
described in the immediately preceding two paragraphs, the holders of Notes
otherwise required to take such action) shall have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
Indenture Trustee or exercising any trust or power conferred on the Indenture
Trustee, and the holders of a majority in principal amount of the Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of the Indenture that cannot be modified without the
waiver or consent of the holder of each outstanding Note affected thereby. See
"DESCRIPTION OF THE NOTES--Registration of the Notes" herein.
TRIGGER EVENTS
A "Trigger Event" under the Indenture includes the occurrence of any of the
following events:
(i) the Issuer fails to make a payment due under the Indenture and such
failure continues for two business days;
(ii) the Servicer fails to make a required payment or deposit due under the
Servicing Agreement and such failure continues for four business days;
(iii) an Event of Default (as defined in the Servicing Agreement) occurring
by reason of (i) the Servicer's failure to perform any covenants or
agreements of the Servicer contained in the Servicing Agreement; (ii)
certain events of insolvency in respect of the Servicer; or (iii) any
representation or warranty made by the Servicer pursuant to the
Servicing Agreement proves to be incorrect;
S-37
<PAGE>
(iv) a breach of any covenant of the Servicer in the Servicing Agreement
which may have a materially adverse effect on the Servicer or its
performance under the Servicing Agreement that is not cured within 60
days after the Servicer becomes aware thereof or after notice thereof
from any Person;
(v) any representation or warranty by Mid-State in the Purchase and Sale
Agreement, or any representation or warranty by the Issuer in the
Indenture, is incorrect and such breach may have a materially adverse
effect on the Issuer or the Noteholders and is not cured, or the
related Account is not substituted for or repurchased by Mid-State and
in either case released from the lien of the Indenture, within 90 days
after notice thereof from the Indenture Trustee;
(vi) certain events of insolvency in respect of the Issuer;
(vii) the Purchase and Sale Agreement, the Servicing Agreement or the
Indenture ceases to be in full force and effect or;
(viii) the lien of the Indenture ceases to be effective or ceases to be of a
first priority.
LIMITATIONS ON SUITS
No holder of any Note will have the right to institute any proceedings,
judicial or otherwise, with respect to the Indenture, or for the appointment of
a receiver or trustee, or for any other remedy under the Indenture, unless (a)
such holder previously has given to the Indenture Trustee written notice of a
continuing Event of Default, (b) the holders of Notes entitled to not less than
40% of the Voting Rights have made written request of the Indenture Trustee to
institute such proceedings in its own name as Indenture Trustee and have offered
the Indenture Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request, (c) the Indenture
Trustee has for 60 days after its receipt of such notice neglected or refused to
institute any such proceeding and (d) no direction inconsistent with such
written request has been given to the Indenture Trustee during such 60-day
period by the holders of a majority in principal amount of the then outstanding
Notes.
The Indenture will provide that no holder of a Class of Notes will have the
right, either directly or through an affiliate, to petition or otherwise invoke
the process of any court or government authority for the purpose of commencing
or sustaining a case against the Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian sequester or other similar official of the Issuer or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Issuer, other than (i) on or prior to the Maturity Date, the
holders entitled to at least [66 2/3%] of the Voting Rights of the Class of
Notes with the lowest numerical Class designation then outstanding and (ii)
after the Maturity Date, the holders entitled to at least 100% of the Voting
Rights of any Class of Notes (provided that the holders entitled to at least
100% of the Voting Rights of any Class of Notes (provided that the holders
entitled to at least 100% of the Voting Rights of each Class of Notes with a
lower numerical Class designation then outstanding consent).
REPORTS TO NOTEHOLDERS
On each Payment Date the Indenture Trustee is required to deliver to the
Noteholders a written report setting forth the amount of the quarterly payment
which represents principal and the amount which represents interest (in each
case on a per individual Note basis), and the remaining outstanding principal
amount of an individual Note after giving effect to the payment of principal
made on such Payment Date.
THE INDENTURE TRUSTEE
The Indenture Trustee will be , a .
S-38
<PAGE>
THE SERVICING AGREEMENT
COLLECTION OF PAYMENTS
Generally, all payments received on the Mortgage Collateral will be
deposited on a daily basis in a holding account (the "Holding Account")
established with and in the name of , as custodian for itself as the Indenture
Trustee, prior to the Closing Date. The Servicer will transfer the payments
attributable to the Mortgage Collateral, net of the applicable servicing fee and
other permitted deductions, into the Collection Account.
SERVICING FEE
The servicing fee will be calculated and paid monthly based upon the number
of Accounts being serviced as of the end of the preceding month. No such fee
will be paid, however, on Accounts that have resulted in repossession. The
servicing fee will be calculated at $ per Account outstanding per month.
The servicing fee will be paid to the Servicer out of the Holding Account upon
submission of a withdrawal request in accordance with the Servicing Agreement.
In addition to the servicing fee, the Servicer will receive all assumption fees,
late payment charges, interest on taxes and insurance paid on behalf of the
Accounts and similar charges, to the extent such fees and expenses are collected
from obligors.
Out of its servicing fee, the Servicer is obligated to pay normal expenses
and disbursements incurred in connection with servicing the Accounts, including
the fees and disbursements of its independent accountants and expenses incurred
in connection with reports to the Indenture Trustee. Fees and expenses incurred
in connection with realization upon defaulted Accounts are reimbursable from the
Holding Account.
ANNUAL ACCOUNTANTS' REPORT
The Servicer is required to cause a firm of independent certified public
accountants to furnish to the Issuer and the Indenture Trustee, on or before 120
days after the end of each of its fiscal years beginning with the fiscal year
ending , 199 , a statement to the effect that such firm (a) has
examined the Servicer's financial statements for the preceding fiscal year in
accordance with generally accepted auditing standards and has issued an opinion
thereon, and (b) has examined certain documents and records relating to the
servicing of the Accounts during the preceding fiscal year in accordance with
the Uniform Single Audit Program for Mortgage Bankers, and has found no material
exceptions relating to the Accounts or has set forth such exceptions.
THE TRUST AGREEMENT
The Trust Agreement will provide that the Owner Trustee is entitled to an
annual fee equal to $ . For a further discussion of the provisions of
the Trust Agreement see the discussion contained in the Prospectus under the
heading "THE INDENTURE."
The Trust Agreement will provide that the Trust will in no event terminate
later than , 20 .
THE PURCHASE AND SALE AGREEMENT
Pursuant to the Purchase and Sale Agreement, the Depositor will sell and
assign to the Issuer all its right, title and interest in the Mortgage
Collateral as further described in the Prospectus under "THE PURCHASE AND SALE
AGREEMENT."
S-39
<PAGE>
PLAN OF DISTRIBUTION
The Depositor, as sole beneficial owner of the Issuer, and Walter Industries
have entered into an Underwriting Agreement with , as representative
of the several underwriters named therein ( , collectively with the
other underwriters, the "Underwriters"). Subject to the terms and conditions of
the Underwriting Agreement, the Depositor has agreed to cause the Issuer to sell
to the Underwriters, and the Underwriters have agreed to purchase, the
respective principal amount of each Class of Notes set forth opposite their
names below.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
PRINCIPAL AMOUNT OF AMOUNT OF AMOUNT OF
AMOUNT OF CLASS CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS A-1 NOTES NOTES NOTES NOTES
- ---------------------------------------------------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total................................................. $ $ $ $
--------------- ---------- ---------- ----------
--------------- ---------- ---------- ----------
</TABLE>
Under the terms of the Underwriting Agreement, the Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes, if any of the Notes are purchased.
The Underwriters have advised the Depositor and the Issuer that they propose
to offer the Notes to the public at the prices set forth on the cover page
hereof, and to certain dealers at such prices less a concession not in excess of
%, %, % and % of the Class A-1 Notes, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes, respectively. The Underwriters may allow and such
dealers may reallow a concession to certain other dealers not in excess of %,
%, % and % of the Class A-1 Notes, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes, respectively. After the initial public offering, the
public offering prices and such concessions may be changed.
During and after the offering, the Underwriters may purchase and sell Notes
in the open market. These transactions may include overallotment and stabilizing
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Notes, which may be higher than the price that might
otherwise prevail in the open market. These transactions may be effected in the
over-the-counter market or otherwise, and these activities, if commenced, may be
discontinued at any time.
The Depositor and Walter Industries have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof. The Issuer has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
Certain legal matters will be passed upon for the Owner Trustee in its
individual capacity by ; for the Depositor by Cadwalader, Wickersham
& Taft, New York, New York; for the Indenture Trustee by ; for the
Issuer by Cadwalader, Wickersham & Taft, New York, New York, as to the validity
of the Notes and the enforceability of the Indenture under New York law;
, as to matters of Delaware law; by , Tampa, Florida, as
to matters of Florida law; by , as to matters referred to under
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" and as to certain ERISA matters
referred to under "ERISA CONSIDERATIONS" and for the Underwriters by
.
S-40
<PAGE>
EXPERTS
The audited financial statements of the Trust are included as an exhibit
hereto in reliance upon the report of , independent certified public
accountants, upon the authority of said firm as experts in accounting and
auditing.
FINANCIAL INFORMATION
As of the date of this Prospectus, the Issuer has been formed and the
Depositor has made a $100.00 capital contribution to the Issuer. See "THE
ISSUER" herein and in the Prospectus. Because financial information concerning
the Issuer would not be meaningful, no financial information regarding the
Issuer is provided.
NOTE RATINGS
It is a condition of issuance that the Class A-1 Notes be rated ["Aaa" by
Moody's Investors Service, Inc. ("Moody's")]["AAA" by Standard & Poor's Ratings
Services ("Standard & Poor's")] ["AAA" by Fitch IBCA, Inc. ("Fitch")] ["AAA" by
Duff & Phelps Credit Rating Co. ("DCR")] the Class A-2 Notes be rated at least
["Aa2" by Moody's] ["AA+" by Standard & Poor's] ["AA" by Fitch] ["AA" by DCR];
the Class A-3 Notes be rated at least ["A2" by Moody's] ["AA" by Standard &
Poor's] ["A" by Fitch] ["A" by DCR]; and the Class A-4 Notes be rated at least
["Baa2" by Moody's] ["BBB" by Standard & Poor's] ["BBB" by Fitch] ["BBB" by
DCR]. Such ratings will reflect only the views of [Moody's] [Standard &
Poor's][Fitch][DCR]. [The rating of each Class of Notes by Standard & Poor's
addresses the likelihood of timely payment of interest and the ultimate payment
of principal on the Notes.] [The rating of each Class of Notes by Moody's
addresses the likelihood of the ultimate payment of principal and interest on
the Notes.] When rating securities, [Moody's] [Standard &
Poor's][Fitch][DCR]consider the transaction in its entirety and rely on factors
in addition to the amount and performance of the collateral securing the debt.
An explanation of the significance of such ratings may be obtained from [Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10004, telephone
(212) 553-0300][Standard & Poor's Ratings Services, 25 Broadway, New York, New
York 10017, telephone (212) 208-8000.][Fitch IBCA, Inc., One State Street Plaza,
New York, New York 10004, telephone (212) 908-0500][Duff & Phelps Credit Rating
Co., 55 East Monroe, Chicago Illinois 60603, telephone (312) 368-3100] There is
no assurance that such ratings will continue for any period of time or that they
will not be revised or withdrawn entirely by either of such rating agencies if,
in its judgment, circumstances so warrant. A revision, withdrawal or
qualification of either of such ratings may have an adverse effect on the market
price of the Notes. A security rating is not a recommendation to buy, sell or
hold securities.
S-41
<PAGE>
INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<S> <C>
% Accounts Table.................................................................... S-29
Accounts............................................................................ Cover
Aggregate Economic Balance.......................................................... S-11
Aggregate Outstanding Principal Balance............................................. S-25
Available Funds..................................................................... S-24
Available Funds Allocation.......................................................... S-25
Cede................................................................................ S-2
Class............................................................................... Cover
Class A-1 Initial Principal Balance................................................. S-24
Class A-1 Optimal Principal Balance................................................. S-26
Class A-1 Outstanding Principal Balance............................................. S-24
Class A-1 Realized Loss Amount...................................................... S-28
Class A-2 Initial Principal Balance................................................. S-24
Class A-2 Optimal Principal Amount.................................................. S-26
Class A-2 Outstanding Principal Balance............................................. S-24
Class A-2 Realized Loss Amount...................................................... S-28
Class A-3 Initial Principal Balance................................................. S-24
Class A-3 Optimal Principal Amount.................................................. S-26
Class A-3 Outstanding Principal Balance............................................. S-24
Class A-3 Realized Loss Amount...................................................... S-28
Class A-4 Initial Principal Balance................................................. S-24
Class A-4 Optimal Principal Amount.................................................. S-26
Class A-4 Outstanding Principal Balance............................................. S-24
Class A-4 Realized Loss Amount...................................................... S-26
Class Interest Shortfall............................................................ S-25
Class Optimal Principal Amount...................................................... S-27
Closing Date........................................................................ S-4
Code................................................................................ S-10
Collateral.......................................................................... S-7
Collection Account.................................................................. S-8
Collection Period................................................................... S-5
CPR................................................................................. S-30
Cut-Off Date........................................................................ Cover
DCR................................................................................. Cover
Definitive Notes.................................................................... S-33
Depositor........................................................................... Cover
DTC................................................................................. S-2
Enterprise.......................................................................... S-14
ERISA............................................................................... S-10
Final Regulation.................................................................... S-35
Fitch............................................................................... Cover
Gross Receivable Amount............................................................. S-14
Holding Account..................................................................... S-39
Indenture........................................................................... S-4
Indenture Trustee................................................................... S-4
indirect participants............................................................... S-33
Interest Accrual Amount............................................................. S-24
Interest Accrual Period............................................................. Cover
</TABLE>
S-42
<PAGE>
<TABLE>
<S> <C>
Issuer.............................................................................. Cover
Issuer Expenses..................................................................... S-24
Jim Walter Homes.................................................................... S-8
Mid-State........................................................................... Cover
Minimum Target Overcollateralization Amount......................................... S-27
Moody's............................................................................. Cover
Mortgage Collateral................................................................. Cover
Mortgaged Property.................................................................. S-8
Note Rate........................................................................... S-24
Noteholder.......................................................................... S-33
Notes............................................................................... Cover
Optimal Principal Amount............................................................ S-27
Outstanding Principal Balance....................................................... S-25
Overcollateralization Amount........................................................ S-27
Overcollateralization Percentage.................................................... S-27
Owner Trustee....................................................................... Cover
Participants........................................................................ S-33
Payment Date........................................................................ Cover
Plans............................................................................... S-34
Prospectus.......................................................................... S-2
Purchase and Sale Agreement......................................................... S-9
Realized Loss Amounts............................................................... S-28
Record Date......................................................................... S-6
Reinvestment Period................................................................. S-5
Remaining Available Funds........................................................... S-11
Rules............................................................................... S-33
Servicer............................................................................ Cover
Servicing Agreement................................................................. S-8
Standard & Poor's................................................................... Cover
Subordinated Class.................................................................. S-6
Subservicing Agreement.............................................................. S-8
Target Overcollateralization Date................................................... S-27
Target Overcollateralization Level.................................................. S-27
TMP................................................................................. S-35
Trigger Event....................................................................... S-37
Trust............................................................................... Cover
Trust Agreement..................................................................... Cover
Trust V Accounts.................................................................... S-14
Underwriters........................................................................ Cover
Walter Industries................................................................... S-5
</TABLE>
S-43
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1998
PROSPECTUS
, 19
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
MID-STATE HOMES, INC.
Depositor
ASSET BACKED NOTES
(Issuable in Series)
Mid-State Homes, Inc. ("Mid-State" or the "Depositor") will act as depositor
in connection with the issuance of Asset Backed Notes (the "Notes") offered
hereby and by Supplements to this Prospectus which may be sold from time to time
in one or more series (each, a "Series") as described in the related Prospectus
Supplement. Each Series of Notes will be issued by a separate trust (each, a
"Trust").
The assets of each Trust will consist primarily of (i) certain building and
installment sale contracts, promissory notes, related mortgages and other
security agreements (the "Accounts") owned directly by the Depositor
(collectively, the "Mortgage Collateral") to be transferred to such Trust by the
Depositor, (ii) the Collection Account described herein under
"SECURITY--Collection Account," (iii) the proceeds of any insurance policy
relating to the Notes or the Accounts and (iv) certain other property as
described herein. The Accounts will be serviced by Mid-State (in its capacity as
servicer, the "Servicer"). The Accounts and other assets of each Trust as
described herein and in the related Prospectus Supplement will be held for the
benefit of the holders of the related Series of Notes.
Each Series of Notes will include one or more classes (each, a "Class").
Each Class of Notes of any Series will represent the right, which right may be
senior to the rights of one or more of the other Classes of the Notes, to
receive a specified portion of payments of principal and interest from payments
on the Accounts in the related Trust in the manner described herein and in the
related Prospectus Supplement. The Notes of any Class will represent debt
secured by such Accounts, as described herein and in the related Prospectus
Supplement. A Series may include one or more Classes of Notes entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, and one or more Classes of Notes entitled to interest
distributions, with disproportionate, nominal or no principal distributions. See
"Descriptions of the Notes" herein.
PROSPECTIVE INVESTORS SHOULD CONSIDER AND REVIEW THE INFORMATION UNDER "RISK
FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
If so specified in the related Prospectus Supplement, one or more Classes of
Notes of a Series may have the benefit of insurance policies, surety bonds,
guarantees, letters of credit, reserve funds, cash accounts, reinvestment
income, overcollateralization or other types of credit support, or any
combination thereof. In addition to or in lieu of any or all of the foregoing,
credit enhancement with respect to one or more Classes of Notes of a Series may
be provided through subordination. See "Description of the Notes--Description of
Credit Enhancement" herein.
The yield on each Class of Notes of a Series will be affected by, among
other things, the rate of payments on the related Accounts in the related Trust
and the timing of receipt of such payments. A Trust may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement.
Offers of the Notes of a Series may be made through one or more different
methods, including offerings through underwriters, as described under "Plan of
Distribution" herein and in the related Prospectus Supplement. There will have
been no secondary market for the Notes of any Series prior to the offering
thereof. There can be no assurance that a secondary market for any Class of
Notes of any Series will develop or, if one does develop, that it will continue.
None of the Notes will be listed on any securities exchange. With respect to
each Series, all of the Notes of each Class offered hereby will be rated in one
of the four highest rating categories by one or more nationally recognized
statistical rating organizations.
------------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY AFFILIATE THEREOF. NEITHER
THE NOTES NOR THE ACCOUNTS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE DEPOSITOR OR ANY OF ITS AFFILIATES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 19
<PAGE>
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (including any amendments thereto) under
the Securities Act of 1933, as amended, with respect to the Notes. This
Prospectus, which forms part of the Registration Statement, omits certain
information set forth in the Registration Statement pursuant to the Rules and
Regulations of the Commission. The Registration Statement and the exhibits
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices located as follows: New York Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. The Commission also maintains a site on the World Wide Web at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system.
The Issuer has filed the Registration Statement, including all exhibits thereto,
through the EDGAR system and therefore such materials should be available by
logging onto the Commission's Web site. The Commission maintains computer
terminals providing access to the EDGAR system at each of the offices referred
to above. Copies of such material also can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The address of the principal executive offices of the Issuer is Mid-State
Homes, Inc., 1500 North Dale Mabry Highway, Tampa, Florida 33607, and the
telephone number of the principal executive offices of the Issuer is (813)
871-4811.
REPORTS TO NOTEHOLDERS
Periodic reports concerning the assets of each Trust are required to be
forwarded to holders of the Notes of the related Series. See "The
Indenture--Reports to Noteholders" herein. Any reports forwarded to holders will
not contain financial information that has been examined and reported upon by,
with an opinion expressed by, an independent public or certified public
accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Depositor pursuant to Section
13(a), Section 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date of this Prospectus and
prior to the termination of the offering of the Notes offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Depositor will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any of or all the documents incorporated herein by reference (other
than exhibits to such documents). Requests for such copies should be directed to
David L. Townsend, Vice President-Administration, Walter Industries, Inc., 1500
N. Dale Mabry Highway, Tampa, Florida 33607.
2
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 2
REPORTS TO NOTEHOLDERS................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 2
SUMMARY OF PROSPECTUS.................................................................. 5
RISK FACTORS........................................................................... 12
Limited Liquidity Of Notes........................................................... 12
Limited Assets of the Issuer for Payment of Notes.................................... 12
Limited Nature of Ratings............................................................ 12
Lowering of Rating on Notes May Decrease Value and Liquidity of Notes................ 12
Event of Insolvency of the Depositor May Delay or Reduce Payments on the Notes....... 13
Limited Rights of Noteholders........................................................ 13
Overcollateralization May Become Exhausted Resulting in Losses to be Allocated to
Notes.............................................................................. 13
Subordinated Notes Bear Risk of Loss Before More Senior Notes........................ 14
Credit Enhancement is Limited in Amount and Coverage................................. 14
Losses on Accounts May Reduce Amounts Available to Pay Noteholders................... 14
Potential for Losses Increases if Mortgage Collateral Includes Delinquent Accounts or
if Accounts Become Delinquent...................................................... 14
Rate of Prepayments on Accounts May Adversely Affect Yield and Weighted Average Life
of Notes........................................................................... 14
Effects of Failure to Comply With Consumer Protection Laws and Risk of Consumer
Litigation......................................................................... 15
Collections on the Accounts May be Adversely Affected if Servicer is Removed and
Replaced........................................................................... 16
Grant of Security Interest In Mortgage Collateral; Risks of Defective Security
Interest........................................................................... 16
Noteholder Risk Due to Lack of Third-Party Appraisals and/or Title Insurance......... 16
Pre-Funding Accounts May Result in Prepayments....................................... 16
THE DEPOSITOR.......................................................................... 17
THE ISSUER............................................................................. 17
DISCUSSION AND ANALYSIS OF ISSUER'S FINANCIAL CONDITION................................ 18
Expenses............................................................................. 18
Capital Resources and Liquidity...................................................... 18
Results of Operations................................................................ 18
Impact of Inflation and Changing Prices.............................................. 18
THE ACCOUNTS........................................................................... 19
Homebuilding Activities.............................................................. 19
Underwriting and Credit Policies..................................................... 19
Description of Accounts.............................................................. 20
Servicing............................................................................ 21
Recoveries........................................................................... 21
Time to Recovery..................................................................... 22
THE MORTGAGE COLLATERAL................................................................ 22
CERTAIN LEGAL ASPECTS OF THE ACCOUNTS AND RELATED MATTERS.............................. 22
Consumer Protection Laws............................................................. 22
Mortgages, Deeds of Trust and Mechanic's Lien Contracts.............................. 23
Foreclosure and Other Remedies....................................................... 23
Rights of Redemption................................................................. 24
Anti-Deficiency Legislation and Other Limitations on Creditors....................... 24
Enforceability of Certain Provisions................................................. 26
Environmental Legislation............................................................ 26
SECURITY............................................................................... 26
Mortgage Collateral.................................................................. 26
Collection Account................................................................... 28
Certain Contractual Rights........................................................... 28
DESCRIPTION OF THE NOTES............................................................... 29
General.............................................................................. 29
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Interest............................................................................. 30
Principal............................................................................ 30
Categories of Classes of Notes....................................................... 30
Available Funds...................................................................... 33
Description of Credit Enhancement.................................................... 33
Distributions........................................................................ 36
Redemption of the Notes.............................................................. 36
Weighted Average Life of the Notes................................................... 36
Registration and Transfer of Notes................................................... 37
LEGAL INVESTMENT CONSIDERATIONS........................................................ 41
ERISA CONSIDERATIONS................................................................... 41
MATERIAL FEDERAL INCOME TAX CONSEQUENCES............................................... 43
General.............................................................................. 43
Original Issue Discount and Premium.................................................. 43
Market Discount...................................................................... 46
Sale or Redemption of Notes.......................................................... 47
Foreign Investors.................................................................... 47
Backup Withholding................................................................... 48
Taxable Mortgage Pools............................................................... 48
THE INDENTURE.......................................................................... 49
Negative Covenants................................................................... 49
Review of Account Documents.......................................................... 49
Representations and Warranties....................................................... 49
Modification of Indenture............................................................ 51
Voting............................................................................... 52
Events of Default.................................................................... 52
Rights upon Event of Default......................................................... 52
Limitations on Suits................................................................. 53
Reports to Noteholders............................................................... 53
Issuer's Annual Compliance Statement................................................. 53
Satisfaction and Discharge of Indenture.............................................. 53
The Indenture Trustee................................................................ 53
THE SERVICING AGREEMENT................................................................ 54
General.............................................................................. 54
Collection of Payments............................................................... 54
Servicing Fee........................................................................ 54
Insurance; Taxes..................................................................... 54
Realization upon Defaulted Accounts.................................................. 55
Resignation.......................................................................... 55
Annual Accountants' Report........................................................... 55
Events of Default.................................................................... 56
Rights Upon Event of Default......................................................... 56
Termination and Replacement of Servicer.............................................. 56
Amendments........................................................................... 56
THE TRUST AGREEMENT.................................................................... 57
THE PURCHASE AND SALE AGREEMENT........................................................ 58
PRE-FUNDING ACCOUNT.................................................................... 59
USE OF PROCEEDS........................................................................ 59
PLAN OF DISTRIBUTION................................................................... 59
LEGAL MATTERS.......................................................................... 60
NOTE RATINGS........................................................................... 60
INDEX OF PRINCIPAL DEFINED TERMS....................................................... 61
</TABLE>
4
<PAGE>
SUMMARY OF PROSPECTUS
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS
AND BY REFERENCE TO THE INFORMATION WITH RESPECT TO EACH SERIES OF NOTES
CONTAINED IN THE RELATED PROSPECTUS SUPPLEMENT. TERMS NOT DEFINED IN THIS
SUMMARY ARE USED AS DEFINED ELSEWHERE IN THIS PROSPECTUS. SEE "INDEX OF
PRINCIPAL DEFINED TERMS" BEGINNING ON PAGE 58.
<TABLE>
<S> <C>
Notes Offered................ Asset backed notes (the "Notes") issuable in Series.
Depositor.................... Mid-State Homes, Inc., a corporation organized under the
laws of the State of Florida (the "Depositor" or
"Mid-State") which is an indirect wholly-owned subsidiary of
Walter Industries, Inc. ("Walter Industries").
Issuer....................... With respect to each Series of Notes, the issuer (the
"Issuer") will be a trust established by the Depositor for
the purpose of issuing such Series of Notes (each, a
"Trust"). Each Trust will be formed pursuant to a Trust
Agreement between the Depositor and an owner trustee
identified in the related Prospectus Supplement. The
Depositor will be the settlor of each Trust and the owner of
the sole trust certificate issued by the Trust and therefore
will be the sole beneficiary of each Trust. See "THE ISSUER"
herein. Each Series of Notes will represent indebtedness of
the Issuer and will be issued pursuant to an indenture (the
"Indenture") between the Issuer and an indenture trustee
identified in the related Prospectus Supplement. The Notes
will represent nonrecourse obligations of the Issuer and the
assets of the Trust will be the sole source of payments on
the Notes.
Servicer..................... Mid-State in its capacity as servicer (the "Servicer"). See
"THE SERVICING AGREEMENT" herein. Jim Walter Homes, Inc.
("Jim Walter Homes"), an affiliate of the Depositor, or one
or more unaffiliated third parties may perform certain
servicing functions with respect to the Accounts pursuant to
a sub-servicing agreement for each Series of Notes (each, a
"Sub-servicing Agreement").
Indenture Trustee............ The entity or entities named as indenture trustee in the
related Prospectus Supplement. See "THE INDENTURE--The
Indenture Trustee" herein.
Owner Trustee................ The entity or entities named as owner trustee in the related
Prospectus Supplement which will have the obligations set
forth in the related Trust Agreement and described herein
and in the related Prospectus Supplement. See "THE TRUST
AGREEMENT" herein.
Cut-Off Date................. The date specified in the related Prospectus Supplement on
and after which payments due or received on the related
Accounts will be transferred to the related Trust and
available for payment to the holders of the Notes of such
Series (each, a "Cut-Off Date").
Closing Date................. The date on which the Notes of any Series are initially
issued (each, a "Closing Date") as specified in the related
Prospectus Supplement.
Description of Notes......... The Notes of each Series may be issued in one or more
Classes and will represent debt secured by (i) a segregated
pool of certain building and installment sale contracts,
promissory notes, related mortgages
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
and other security agreements (the "Accounts") owned
directly or indirectly by the Depositor (collectively, the
"Mortgage Collateral"), (ii) the Collection Account
described herein under "Security-- Collection Account,"
(iii) the proceeds of any insurance policy relating to the
Notes or the Accounts and (iv) certain other assets
described herein. See "DESCRIPTION OF THE NOTES" herein.
A Series of Notes may include one or more Classes entitled
to principal distributions, with disproportionate, nominal
or no interest distributions, and one or more Classes of
Notes entitled to interest distributions, with
disproportionate, nominal or no principal distributions. The
principal amount of any Note may be zero or may be a
notional amount as specified in the related Prospectus
Supplement. A Class of Notes of a Series entitled to
payments of interest may receive interest at a specified
rate which may be fixed, variable or adjustable and may
differ from other Classes of the same Series, may receive
interest based on the weighted average interest rate on the
underlying Accounts as otherwise determined, all as
described in the related Prospectus Supplement. One or more
Classes of Notes of a Series may be entitled to receive
principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments
based on a notional principal amount which reduces in
accordance with a planned amortization schedule. A Series
may also include one or more Classes of Notes entitled to
payments derived from a specific group or groups of Accounts
held by the related Trust. The rights of one or more of the
other Classes of Notes of a Series may be senior or
subordinate to the rights of one or more of the other
Classes of Notes of such Series. A Series may include two or
more Classes of Notes which differ as to priority of payment
or amount of distribution of principal or interest or both.
Payment Date................. The monthly, quarterly or other periodic date specified in
the related Prospectus Supplement on which payments will be
made to holders of Notes (each, a "Payment Date").
Interest and Principal
Payments on the Notes...... Interest on each Class of Notes of a Series will be payable
from Available Funds on each Payment Date in an amount equal
to interest accrued during a one-month, three-month or
six-month period as specified in the related Prospectus
Supplement (each such period, an "Interest Accrual Period"),
at a rate (the "Note Rate") for such Class specified in the
related Prospectus Supplement. Interest accrued on each
Class of Notes at the applicable Note Rate during each
Interest Accrual Period will be paid, to the extent monies
are available therefor, on each Payment Date, commencing on
the day specified in the related Prospectus Supplement and
will be distributed in the manner specified in such
Prospectus Supplement, except for any Class of Notes
("Accrual Notes") on which interest is to accrue and not be
paid until the principal of certain other Classes has been
paid in full or until the occurrence of certain events as
specified in such Prospectus Supplement. If so described in
the related Prospectus Supplement, interest that has accrued
but is not yet payable on any Accrual Notes
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
will be added to the principal balance thereof on each
Payment Date and will thereafter bear interest at the
applicable Note Rate. Payments of interest with respect to
any Class of Notes entitled to receive interest only or a
disproportionate amount of interest and principal will be
paid in the manner set forth in the related Prospectus
Supplement.
Payment of interest (or accruals of interest, in the case of
Accrual Notes) with respect to any Series of Notes or one or
more Classes of Notes of such Series, may be reduced to the
extent of interest shortfalls not covered by any applicable
credit enhancement. Interest will be calculated either on
the basis of a 360-day year consisting of twelve 30-day
months or on the basis of actual days elapsed in each month
and a 360-day year. See "DESCRIPTION OF THE NOTES--
Interest--Principal" herein.
On each Payment Date, commencing with the Payment Date
specified in the related Prospectus Supplement, principal
with respect to each Note of a Series will be paid to
holders of the Notes of such Series (other than a Class of
Notes of such Series entitled to receive interest only) in
the priority, manner and amount specified in such Prospectus
Supplement, to the extent funds are available therefor.
Unless otherwise specified in the related Prospectus
Supplement, with respect to each Series of Notes, "Available
Funds" for a Payment Date are the funds in the related
Collection Account representing (i) collections on the
related Accounts during the period specified in the related
Prospectus Supplement (each such period, a "Collection
Period"), (ii) any net reinvestment income earned on funds
described in clause (i) above, from the date two business
days prior to the preceding Payment Date through the date
two business days prior to such Payment Date (each such
period, a "Reinvestment Period") and (iii) the proceeds of
any insurance policy relating to the Notes or the Accounts.
Available Funds will be net of Issuer Expenses paid to the
time of calculation thereof, as described in the related
Prospectus Supplement. On each Payment Date, Available Funds
for a Series of Notes will be paid to the holders of the
Notes of such Series in the priority, manner and amount
specified in the related Prospectus Supplement. "DESCRIPTION
OF THE NOTES--Interest-- Principal herein."
Record Date.................. The record date for each Payment Date is the day of the
month indicated in the related Prospectus Supplement (the
"Record Date").
Credit Enhancement........... If so specified in the related Prospectus Supplement,
partial or full protection against certain defaults and
losses on Accounts in the related Trust may be provided to
one or more Classes of Notes of the related Series in the
form of credit enhancement, such as an insurance policy,
surety bond, guarantee, letter of credit, reserve fund, cash
account, reinvestment income, overcollateralization or
another type of credit enhancement, or a combination thereof
(any such coverage with respect to the Notes of any Series,
"Credit Enhancement"). The amount and types of coverage, the
identification of the entity
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
providing the coverage (if applicable) and related
information with respect to each type of Credit Enhancement,
if any, will be described in the related Prospectus
Supplement for a Series of Notes. See "Risk Factor--Credit
Enhancement Limitations" and "Description of Credit
Enhancement" herein.
The rights of holders of a Class of Notes of a Series may be
subordinated to a different Class of Notes of such Series
(each, a "Subordinated Class"). In each such case such Class
of Notes will be subordinated to the extent described in the
related Prospectus Supplement. See "RISK
FACTORS--Subordinated Notes Bear Risk of Loss Before More
Senior Notes" herein. Subordination is intended to enhance
the likelihood of timely receipt by the holders of certain
Notes of the full amount of interest and principal to which
such Class is entitled. The protection afforded to the
holders of non-subordinated Classes of Notes or Classes of
Notes that are subordinated to a lesser extent within a
Series of Notes by means of subordination will be
accomplished by (i) the allocation of losses on the related
Accounts to the respective Classes of Notes of a Series as
set forth in the related Prospectus Supplement and (ii) the
application of the Available Funds for a Series on each
Payment Date in the sequential order provided in the related
Prospectus Supplement. See "DESCRIPTION OF THE
NOTES--Interest--Principal" herein.
Optional Redemption
of Notes................... If so specified in the related Prospectus Supplement,
Classes of Notes of a Series may be redeemed on a Payment
Date at the option of the related Issuer or such other
entity as specified in the related Prospectus Supplement, at
a price equal to the unpaid principal amount of each Class
of Notes of such Series plus accrued interest, if indicated
in the related Prospectus Supplement, after giving effect to
the payment of principal that would be made on such Payment
Date absent such redemption, the aggregate principal amount
of each Class of Notes of such Series outstanding is at a
level of the original aggregate principal amount of such
Class of Notes as specified in the related Prospectus
Supplement. In no event will such percentage exceed 25% of
the original principal amount of each Class of Notes of such
Series. The redemption price paid in connection with any
such optional redemption will be required to be sufficient
to pay the full principal balance of the outstanding Notes
and all interest accrued and unpaid thereon.
Events of Default............ Prior to the maturity date of a Series of Notes, upon the
occurrence of an Event of Default, the related Indenture
Trustee or the holders entitled to a percentage indicated in
the related Prospectus Supplement of the Voting Rights of a
Class of Notes of such Series then outstanding may have the
right to declare the principal of the Notes of such Series
to be immediately due and payable; provided, however, that
such Class of Notes or the related Indenture Trustee may
make such declaration only if provided for in the related
Prospectus Supplement. On or after the applicable maturity
date, if an Event of Default occurs or shall have occurred,
the related Indenture
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Trustee shall declare the principal of the Notes of such
Series to be immediately due and payable. See "THE
INDENTURE--Events of Default--Rights Upon Event of Default"
herein.
Security..................... Payments of amounts due on the Notes of a Series will be
secured by the following (collectively, the "Collateral"):
A. Mortgage Collateral..... Accounts having an aggregate Economic Balance as set forth
in the related Prospectus Supplement on the related Cut-Off
Date will secure each Series of Notes. Such Accounts will
have additional characteristics as set forth in the related
Prospectus Supplement. The Mortgage Collateral will in all
instances be secured by a mortgage lien. See "THE MORTGAGE
COLLATERAL" and "SECURITY" herein.
SERVICER; SERVICING AGREEMENT; SUB-SERVICING. Mid-State or
any successor servicer will perform all servicing functions
in respect of the Accounts as required by a Servicing
Agreement for each Series dated the applicable Closing Date
among the related Issuer, the Servicer and the Indenture
Trustee for such Series (each, a "Servicing Agreement")
either directly or through one or more sub-servicers. Each
Servicing Agreement will (i) define the Servicer's servicing
obligations; (ii) provide for the payment of a servicing fee
as set forth in the related Prospectus Supplement; (iii)
include certain representations and warranties; (iv) impose
reporting requirements on the Servicer; and (v) include
events of default. See "THE SERVICING AGREEMENT" herein.
CERTAIN CONTRACTUAL RIGHTS. With respect to each Series of
Notes, the related Issuer will assign all of its right,
title and interest (including the right to compel
performance of the sub-servicer) under the Servicing
Agreement and under the Purchase and Sale Agreement for such
Series of Notes to the related Indenture Trustee.
B. Collection Account...... With respect to each Series of Notes, a collection account
relating to the Collateral (each, a "Collection Account")
will be established with, and in the name of, the Indenture
Trustee for such Series and the Issuer for such Series will
deposit into the related Collection Account cash in an
amount as set forth in the related Prospectus Supplement
received in respect of the related Accounts. See "SECURITY--
Collection Account" herein.
C. Pre-Funding Account..... In addition, if the related Prospectus Supplement so
provides, funds on deposit in an account (a "Pre-Funding
Account") will be used to purchase additional Accounts
during the period specified in the related Prospectus
Supplement. In no event will the Pre-Funding Amount (as
defined herein) exceed 25% of the initial aggregate
principal amount of the Notes of the related Series of
Notes. See "Pre-Funding Account" herein.
Representations and
Warranties Concerning the
Mortgage Collateral........ With respect to each Series of Notes, the Issuer of such
Series of Notes will make certain representations and
warranties regarding the
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
related Mortgage Collateral and Accounts. See "THE
INDENTURE--Representation and Warranties" herein.
With respect to each Series of Notes, the related Prospectus
Supplement will specify the procedures to be followed upon
the discovery of a breach of a representation or warranty
which materially and adversely affects the interests of the
Noteholders of such Series in a related Account.
Origination of Accounts...... With respect to each Series of Notes, the Accounts will have
been originated by Jim Walter Homes and/or one or more
affiliates of Jim Walter Homes. In the event any Accounts
not originated by Jim Walter Homes or its affiliates are
included in a Trust, the related Prospectus Supplement will
provide detailed information regarding the originator of
such Accounts.
Some portion of the customers that purchase and finance
homes through Jim Walter Homes may not qualify for
traditional bank financing of such homes.
Jim Walter Homes is in the business of marketing and
supervising the construction of standardized,
partially-finished, detached, single-family residential
homes. The homes are sold directly to customers through
approximately 117 branch offices, serving approximately 24
states, primarily in the southern region of the United
States. The Accounts related to each Series will have been
acquired by the Depositor from Jim Walter Homes or its
affiliates. See "THE DEPOSITOR" herein.
Purchase and Sale
Agreement.................. With respect to each Series of Notes, the Depositor and the
related Issuer will enter into a Purchase and Sale Agreement
dated as of the Closing Date for such Series of Notes (each,
a "Purchase and Sale Agreement") pursuant to which the
Depositor will sell and assign, and the related Issuer will
purchase, all of the related Accounts for such Series of
Notes. See "THE PURCHASE AND SALE AGREEMENT" herein.
Risk Factors................. Various risk factors related to the purchase of Notes are
discussed under "Risk Factors" herein.
Legal Investment
Considerations............. The Notes will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended. As a result, the appropriate
characterization of the Notes under various legal investment
restrictions, and thus the ability of investors subject to
these restrictions to purchase the Notes, may be subject to
significant interpretative uncertainties. Investors should
consult their legal advisors to determine whether and to
what extent the Notes constitute legal investments for them.
See "LEGAL INVESTMENT CONSIDERATIONS" herein.
ERISA Considerations......... Under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the Internal Revenue Code of 1986,
as amended (the "Code"), a pension or other employee benefit
plan covered by ERISA or retirement arrangements which are
subject to
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
ERISA or Section 4975 of the Code (collectively, "Plans")
with respect to which the Depositor or any affiliate is a
service provider, may acquire the Notes only under certain
limited circumstances.
A fiduciary or other person investing "plan assets" of any
employee benefit or other plan subject to ERISA, or Section
4975 of the Code should carefully review with its legal
advisors whether the purchase or holding of any Class of
Notes could give rise to a transaction prohibited or not
otherwise permissible under ERISA or Section 4975 of the
Code. Certain Classes of Notes may not be permitted to be
acquired by any employee benefit or other plan subject to
ERISA or Section 4975 of the Code, as specified in the
related Prospectus Supplement. See "ERISA Considerations"
herein.
Tax Status of the Notes...... The following discussion is the opinion of Cadwalader,
Wickersham & Taft. The Notes will be treated as debt for
federal income tax purposes. If the Notes are issued with
original issue discount, Noteholders generally will be
required to include the original issue discount in gross
income over the life of the Notes. The Notes will not
constitute "loans secured by an interest in real property"
for "domestic building and loan associations" or "real
estate assets" for "real estate investment trusts." See
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" herein.
Use of Proceeds.............. Unless otherwise specified in the related Prospectus
Supplement, the net proceeds of the offering of each Series
of Notes will be used by the related Issuer to purchase the
related Mortgage Collateral from the Depositor and to pay
the expenses of the offering. See "USE OF PROCEEDS" herein.
Ratings...................... It will be a condition to the issuance of each Series of
Notes that each Class of the Notes be rated by one or more
of Moody's Investors Service, Inc. ("Moody's"), Duff &
Phelps Credit Rating Co. ("DCR"), Standard & Poor's ("S&P")
and Fitch IBCA, Inc. ("Fitch" and each of Fitch, Moody's,
DCR and S&P, a "Rating Agency") in one of their four highest
rating categories. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to
revision or withdrawal at any time. No person is obligated
to maintain any rating on any Note, and, accordingly, there
can be no assurance that the ratings assigned to any Class
of Notes upon initial issuance thereof will not be lowered
or withdrawn by a Rating Agency at any time thereafter. If a
rating of any Class of Notes of a Series is revised or
withdrawn, the liquidity of such Class of Notes may be
adversely affected. In general, the ratings address credit
risk and do not represent any assessment of the likelihood
or rate of principal prepayments. See "RISK FACTORS--Limited
Liquidity of Notes-- Limited Nature of Ratings," "--Lowering
of Rating on Notes May Decrease Value and Liquidity of
Notes" and "Ratings" herein.
</TABLE>
11
<PAGE>
RISK FACTORS
The following risk factors, when read in conjunction with the risk factors
set forth in the attached Prospectus Supplement, summarize the material risk
factors to be considered in connection with the purchase of the related series
of Notes.
LIMITED LIQUIDITY OF NOTES
At the time of issuance of a Series of Notes there will be no secondary
market for any of the Notes. If so indicated in the related Prospectus
Supplement, the underwriter of a Series may intend to make a market in the Notes
of such Series but will not be obligated to do so. There can be no assurance
that a secondary market for any Series of Notes will develop or, if one does
develop, that it will provide Noteholders with liquidity of investment or will
continue while Notes of such Series remain outstanding. Further, it is not
expected that any application will be made to list the Notes of a Series on any
securities exchange. Accordingly, the liquidity of the Notes may be limited.
LIMITED ASSETS OF THE ISSUER FOR PAYMENT OF NOTES
The Notes of each Series will represent obligations of the related Issuer,
whose assets will consist solely of the Collateral pledged as security under the
related Indenture. No recourse is available with respect to payments on the
Notes of any Series to the Depositor, Jim Walter Homes or any other affiliate of
the Depositor. If the Issuer of a Series of Notes is unable to make the payments
due on the Notes of such Series and an Event of Default under the related
Indenture occurs and the maturity of the Notes of such Series is accelerated, it
is unlikely that such Issuer will be able to pay the accelerated principal
amount due on such Notes at the time of acceleration.
LIMITED NATURE OF RATINGS
It will be a condition to the issuance of the Notes that each Class of Notes
be rated in one of the four highest rating categories by one or more of Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"),
Standard & Poor's ("S&P") or Fitch IBCA, Inc. ("Fitch"; and each of Moody's,
S&P, DCR and Fitch, a "Rating Agency"). See "Ratings" herein. Any rating
assigned by a Rating Agency to a Class of Notes of any Series will reflect such
Rating Agency's assessment solely of the likelihood that holders of Notes of
such Class will receive payments to which such holders are entitled under the
related Indenture. Such rating will not constitute an assessment of the
likelihood that principal prepayments (including those caused by defaults) on
the related Account will be made, the degree to which the rate of such
prepayments might differ from that originally anticipated or the likelihood of
early optional termination or redemption of the Series of Notes. Such rating
will not address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a Note at a significant premium
might fail to recoup its initial investment under certain prepayment scenarios.
LOWERING OF RATING ON NOTES MAY DECREASE VALUE AND LIQUIDITY OF NOTES
The rating of any Series of Notes by any applicable Rating Agency may be
lowered following the initial issuance thereof as a result of the downgrading of
the obligations of any applicable Credit Provider, or as a result of losses on
the related Accounts substantially in excess of the levels contemplated by such
Rating Agency at the time of its initial rating analysis. The lowering of a
rating on a Series or Class of Notes may adversely affect the market value of
such Notes and the liquidity of such Notes. Neither the Depositor nor any of its
affiliates will have any obligation to replace or supplement any credit
enhancement or to take any other action to maintain any rating of any Series of
Notes.
12
<PAGE>
EVENT OF INSOLVENCY OF THE DEPOSITOR MAY DELAY OR REDUCE PAYMENTS ON NOTES
With respect to each Series of Notes, under the related Purchase and Sale
Agreement, the Depositor will represent and warrant that it has validly sold and
assigned to the Issuer of such Series all of its right, title and interest in
the related Accounts. However, if, in a bankruptcy proceeding involving the
Depositor, a bankruptcy trustee, the Depositor as debtor in possession or a
creditor of the Depositor were to take the position that (i) the transfer of the
Accounts of a Series of Notes to the related Issuer should be recharacterized as
a transfer for security rather than a sale or (ii) the assets of such Issuer
(including the related Mortgage Collateral) should be substantively consolidated
into the bankruptcy estate of the Depositor, then delays in payments on the
Notes of such Series could occur and (should the bankruptcy court rule in favor
of such bankruptcy trustee, debtor in possession or creditor) reductions in
payments on such Notes could result. It is possible that the risk of
recharacterizing the sale of the related Accounts as a transfer for security is
increased by the position to be taken by the Depositor that the transfer of the
related Accounts is not a sale under generally accepted accounting principles or
for income and other tax purposes and that the risk of substantive consolidation
is increased by the fact that the Issuer of such Series is a trust of which the
Depositor is the sole beneficiary.
With respect to each Series of Notes, the related Purchase and Sale
Agreement will provide that, if the intended sale is recharacterized as a
transfer for security, then the Depositor thereby grants to the Issuer of such
Series of Notes a security interest in the related Mortgage Collateral. To the
extent that the Depositor is deemed to have granted a security interest in the
related Accounts to the related Issuer and such security interest was validly
perfected (see "Grant of Security Interest In Mortgage Collateral; Risks of
Defective Security Interest" below) more than 90 days prior to any insolvency of
the Depositor, was not granted or taken with the intent to hinder, delay or
defraud the Depositor or its creditors and has been validly assigned to the
related Indenture Trustee, such security interest should not be subject to
avoidance in the event of the insolvency of the Depositor. In such event, while
payments already made to the related Indenture Trustee with respect to the
related Accounts should not be subject to recovery by a bankruptcy trustee of
the Depositor, delays in payments on the Notes of such Series and possible
reductions in the amount of those payments could occur.
LIMITED RIGHTS OF NOTEHOLDERS
With respect to each Series of Notes, prior to the related maturity date, no
holder of any Class of Notes of a Series will have the right to declare the
principal of such Notes to be immediately due and payable other than as set
forth in the related Prospectus Supplement. See "THE INDENTURE--Rights Upon
Event of Default" herein. In addition, no holder of any Class of Notes of a
Series will have the right to petition or otherwise invoke any court or
government proceeding for the purpose of commencing or sustaining a case against
the related Issuer under any Federal or state bankruptcy, insolvency or similar
law other than as provided in the related Prospectus Supplement.
OVERCOLLATERALIZATION MAY BECOME EXHAUSTED RESULTING IN LOSSES TO BE ALLOCATED
TO NOTES
With respect to any Series of Notes which provides for
overcollateralization, the amount of such overcollateralization will be reduced
or eliminated to the extent that losses incurred in respect of defaulted
Accounts of such Series, together with payments on the Accounts, cause the
Economic Balance of the related Accounts to decline more than the principal
amount of the Notes of such Series declines on account of payments of principal
thereon. If the protection afforded to the Notes of such Series by such
overcollateralization were to be exhausted, and the Accounts incurred further
losses, such losses would be allocated as set forth in the related Prospectus
Supplement. See "THE ACCOUNTS" and "DESCRIPTION OF THE NOTES--Interest--
Principal" herein.
13
<PAGE>
SUBORDINATED NOTES BEAR RISK OF LOSS BEFORE MORE SENIOR NOTES
With respect to any Series of Notes which provides for subordination, the
protection afforded to the holders of certain Classes of Notes of such a Series
by means of such subordination will be accomplished by (i) the allocation of
losses on the related Accounts to certain other Classes of Notes of such Series
as set forth in the related Prospectus Supplement and (ii) with respect to
interest, the application of the Available Funds for such Series on each Payment
Date in the sequential order provided in the related Prospectus Supplement. See
"DESCRIPTION OF THE NOTES--Interest--Principal" herein. Accordingly, on any
Payment Date any deficiency in the availability of funds to pay interest or
principal on the Notes of such Series will result in shortfalls in the payment
of such Notes and yields of such Notes as described in the related Prospectus
Supplement.
CREDIT ENHANCEMENT IS LIMITED IN AMOUNT AND COVERAGE
Although credit enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Notes entitled to the benefit thereof, the
amount of such credit enhancement may be limited, as set forth in the related
Prospectus Supplement, and may decline and could be depleted under certain
circumstances prior to the payment in full of the related Series of Notes, and
as a result Noteholders may suffer losses. Moreover, such credit enhancement may
not cover all potential losses or risks. For example, credit enhancement may or
may not cover, or may cover only in part, fraud or negligence by certain
parties. See "Description of Credit Support" herein.
LOSSES ON ACCOUNTS MAY REDUCE AMOUNTS AVAILABLE TO PAY NOTEHOLDERS
In most cases, amounts realized upon resale of repossessed properties may be
less than the outstanding Economic Balances (as defined herein) of the Accounts
for the related Series of Notes at the time of repossession. In addition,
certain states have adopted statutes limiting the right of mortgagees to obtain
deficiency judgments against customers following foreclosure. In the event that
the amount realized upon resale is less than the outstanding Economic Balance of
the related Account, the Servicer may be unable to collect the amount of such
deficiency. If losses incurred in connection with repossessing homes are at
levels higher than those historically experienced, the ability of the Issuer of
such Series of Notes to make required payments on such Notes may be adversely
affected and such Noteholders may incur a loss on their investment. See "THE
ACCOUNTS" and "CERTAIN LEGAL ASPECTS OF THE ACCOUNTS AND RELATED
MATTERS--Anti-Deficiency Legislation and Other Limitations on Creditors" herein.
POTENTIAL FOR LOSSES INCREASES IF MORTGAGE COLLATERAL INCLUDES DELINQUENT
ACCOUNTS OR IF ACCOUNTS BECOME DELINQUENT
The related Prospectus Supplement will set forth the percentage of the
Accounts for such Series that were delinquent, if any, the length of the
delinquency and the percentage in foreclosure as well as repossession data. If
any portion of a monthly payment due on an Account is not received by the
Servicer, such Account is considered delinquent. See "THE ACCOUNTS--Servicing"
herein. Investors should consider the risk that any of the Accounts may become
defaulted Accounts and subsequently the properties securing such Accounts may
become repossessed properties. See "--Losses on Accounts" herein. Defaults by
homeowners on the Accounts may result in the failure of the Noteholders of a
Series on a given Payment Date to receive payments in full in respect of
interest or principal.
RATE OF PREPAYMENTS ON ACCOUNTS MAY ADVERSELY AFFECT YIELD AND WEIGHTED AVERAGE
LIFE OF NOTES
The weighted average life and the maturity of each Class of Notes of a
Series will be affected by the prepayment experience on the related Accounts and
the rate and frequency of delinquencies of payments due on the related Accounts.
Prepayments on the Accounts may be influenced by a variety of economic,
geographic, social and other factors, including national and local economic
conditions, repossessions,
14
<PAGE>
aging, seasonality and interest rates. Other factors affecting prepayments on
the Accounts include changes in housing needs, job transfers and unemployment.
Liquidations of defaulted Accounts are generally expected to result in resale of
the repossessed properties and the subsequent origination of new Accounts rather
than cash. In general, if prevailing interest rates fall significantly below the
effective financing rates on the Accounts, the rate of prepayments on the
Accounts is likely to be higher than if prevailing interest rates remain close
to or above the effective financing rates borne by such Accounts. Conversely, if
prevailing interest rates rise above the effective financing rates on such
Accounts, the rate of prepayment would be expected to decrease. Even if
Available Funds are sufficient to make full payments of interest on all Classes
of Notes of a Series, any such delinquencies, to the extent that they are not
covered by Credit Enhancement or some other mechanism specified in the related
Prospectus Supplement, will reduce the amount of Remaining Available Funds
available to make payments of principal in respect of the Notes of such Series.
See "DESCRIPTION OF THE NOTES--Weighted Average Life of the Notes" herein.
If Notes are purchased at a discount or a premium to their principal balance
and the purchaser calculates its anticipated yield to maturity based upon an
assumed rate of payment of principal that is faster or slower than that actually
experienced, the purchaser's actual yield to maturity will be different from
that initially calculated by the purchaser. Investors bear the risk of not being
able to reinvest payments of principal at a yield at least equal to the interest
rate borne by the Notes.
Investors in principal-only Notes should consider that a slower than
anticipated rate of payments on the related Accounts could result in an actual
yield that is lower than anticipated and investors in interest-only Notes should
consider that a faster than anticipated rate of payments on the related Accounts
could result in an actual yield that is lower than anticipated.
EFFECTS OF FAILURE TO COMPLY WITH CONSUMER PROTECTION LAWS AND RISK OF CONSUMER
LITIGATION
The Accounts are subject to any claims or defenses that a customer may have
against Jim Walter Homes or Jim Walter Homes affiliates, as applicable, in
connection with the sale, financing and construction of such customer's home.
Accordingly, the Servicer may not be able to recover the amount due on an
Account if a customer successfully asserts such claims or defenses. See "CERTAIN
LEGAL ASPECTS OF THE ACCOUNTS AND RELATED MATTERS--Consumer Protection Laws"
herein.
From time to time, litigation (including group or class action litigation)
is instituted or threatened against Jim Walter Homes or Mid-State. While the
results of any litigation cannot be predicted with certainty, the Depositor
believes, based on its experience in similar litigation and the magnitude of
potential damages that any litigation currently pending or, to the knowledge of
the Depositor, threatened, against Jim Walter Homes or Mid-State would not have
a material adverse effect on the business of Jim Walter Homes or Mid-State or on
the ability of either to perform its obligations with respect to any Accounts or
any Trust. In the event that such actions are brought involving accounts,
possibly including Accounts to be sold to the Issuer for any Series of Notes, it
is possible that the related Trust would be named a party thereto and the costs
associated with such a litigation could adversely affect payments on the Notes
of such Series.
15
<PAGE>
COLLECTIONS ON THE ACCOUNTS MAY BE ADVERSELY AFFECTED IF SERVICER IS REMOVED AND
REPLACED
The effective servicing of the Accounts requires a significantly greater
local presence and number of employees than does the servicing of traditional
mortgage loans. In addition, although the Servicing Agreement for each Series of
Notes may not allow the Servicer to resign except under limited circumstances,
it may permit the Issuer, the Indenture Trustee or the holders of a majority of
the aggregate principal amount of the Notes for such Series of Notes to remove
the Servicer under certain limited circumstances. If Mid-State were removed as
Servicer, Mid-State's and Jim Walter Homes' system and expertise may be
difficult for a successor servicer to replicate, and collections and recoveries
on the Accounts may be adversely affected. See "THE SERVICING AGREEMENT" herein.
GRANT OF SECURITY INTEREST IN MORTGAGE COLLATERAL; RISKS OF DEFECTIVE SECURITY
INTEREST
With respect to each Series of Notes, the related Issuer will grant to the
related Indenture Trustee, on behalf of the Noteholders of such Series of Notes,
a security interest in the promissory notes, building and installment sale
contracts and other security agreements underlying each related Account
comprising the Mortgage Collateral for such Series. Local counsel in those
jurisdictions where greater than 1% (based on the Aggregate Economic Balance as
of the related Cut-Off Date for such Series of Notes) of all the Mortgaged
Properties of such Series of Notes are located ("Local Counsel") will render
opinions to the effect that, subject to customary exceptions regarding
enforcement of remedies in bankruptcy and the effect of equitable principles,
and assuming that certain procedures described therein related to the execution,
delivery and recordation of the mortgages and other documents relating to the
Accounts of such Series and the collateral assignment of such documents to the
related Indenture Trustee are followed, such Indenture Trustee will have a valid
assignment of the mortgages, deeds of trust and similar security instruments
included in the related Mortgage Collateral that were originated in each of
their respective jurisdictions. After the issuance of the Notes of a Series, the
Indenture Trustee of such Series of Notes and the related Issuer intend to
comply with the procedures set forth in such opinions. In addition, the related
Issuer intends to comply with procedures customarily followed by mortgage
lenders and recommended by Local Counsel with respect to the creation and
perfection in favor of the related Indenture Trustee of a lien on the promissory
notes and building and installment sale contracts and other security agreements
included in the related Mortgage Collateral and collections thereof. However,
there can be no assurance that such procedures will be adequate to create and
perfect a security interest in all items included in the related Mortgage
Collateral and all amounts in the related Collection Account. If the security
interest of the Indenture Trustee of such Series is challenged, delays in
payments on the Notes of such Series and possible reductions in the amount of
payments of principal of, and interest on, the Notes of such Series could occur.
NOTEHOLDER RISK DUE TO LACK OF THIRD-PARTY APPRAISALS AND/OR TITLE INSURANCE
As described herein under "THE ACCOUNTS--Underwriting and Credit Policies,"
Jim Walter Homes does not obtain independent third-party appraisals or title
insurance in connection with the origination of accounts. Any losses resulting
from the inadequacy of the property or failures of title will be borne by the
holders of the Notes of such Series as set forth in the related Prospectus
Supplement.
PRE-FUNDING ACCOUNTS MAY RESULT IN PREPAYMENTS
If so provided in the related Prospectus Supplement, on the Closing Date an
amount will be deposited (the "Pre-Funded Amount") as specified in such
Prospectus Supplement into a segregated account (the "Pre-Funding Account"). The
Pre-Funded Amount will not exceed 25% of the initial aggregate principal amount
of the Notes of the related Series of Notes. The Pre-Funded Amount will be used
by the Issuer to purchase Accounts ("Subsequent Accounts") from the Depositor
during a period from the Closing Date to a date not more than six months after
the Closing Date (such period, the "Funding Period"). To the extent that the
entire Pre-Funded Amount has not been applied to the purchase of Subsequent
Accounts by the
16
<PAGE>
end of the related Funding Period, any amounts remaining in the Pre-Funding
Account will be distributed as a prepayment of principal to Noteholders on the
Distribution Date immediately following the end of the Funding Period, pursuant
to the priorities set forth in the related Prospectus Supplement.
THE DEPOSITOR
The Depositor was established in 1958 to purchase mortgage installment notes
from Jim Walter Homes relating to homes constructed and sold by Jim Walter Homes
and its predecessor and to service such installment notes. Jim Walter Homes
currently is the twelfth largest builder of single-family detached housing in
the nation. Over 90% of the homes sold by Jim Walter Homes and its affiliates
are financed by Jim Walter Homes, which sells the related accounts to Mid-State.
Each of Jim Walter Homes and the Depositor is an indirect wholly-owned
subsidiary of Walter Industries. The offices of the Depositor are located at
1500 North Dale Mabry Highway, Tampa, Florida 33607.
Walter Industries was organized in August 1987 by a group of investors for
the purpose of acquiring the company that was the predecessor to Jim Walter
Homes ("Original Jim Walter"), pursuant to a leveraged buy-out. In December
1989, Walter Industries and most of its subsidiaries, including the Depositor,
each filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code with the Bankruptcy Court for the Middle District
of Florida, Tampa Division (the "Bankruptcy Court"). The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness incurred in connection
with the leveraged buy-out, which indebtedness by its terms required that the
interest rates thereon be reset to the rate per annum such indebtedness should
bear in order to have a bid value of 101% of the principal amount thereof as of
December 2, 1989. The reset advisors' inability to reset the interest rates was
primarily attributable to two factors: (i) uncertainties arising from certain
litigation (the "Litigation") pending against an affiliate of Jim Walter Homes,
which uncertainties materially hindered the ability of Walter Industries and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time.
In March 1995, Walter Industries and its subsidiaries, including the
Depositor, emerged from bankruptcy pursuant to an Amended Joint Plan of
Reorganization dated December 9, 1994 as modified on March 1, 1995 (as so
modified, the "Consensual Plan"). Despite the confirmation and effectiveness of
the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over,
among other things, the resolution of disputed pre-petition claims against
Walter Industries and its subsidiaries and other matters that may arise in
connection with or relate to the Consensual Plan. Also pursuant to the
Consensual Plan, the Litigation, among other things, was settled after a ruling
by the Bankruptcy Court (which was confirmed on appeal by the United States
District Court for the Middle District of Florida) finding in favor of Walter
Industries. Since the Chapter 11 proceedings described above are completed, the
Depositor does not believe that such proceedings will have a material adverse
effect on the ongoing business, operations or financial condition of Jim Walter
Homes or the Depositor.
THE ISSUER
The Issuer for each Series of Notes will be a Delaware Business Trust
created pursuant to a Trust Agreement between the Depositor and the Owner
Trustee for such Series of Notes. Under the terms of each Trust Agreement, the
Depositor will convey to the related Owner Trustee a nominal amount of cash to
establish the Trust for such Series of Notes. In exchange, the Depositor will
receive certificate(s) evidencing beneficial ownership of such Trust created
under such agreement. With respect to each Series of Notes, on the related
Closing Date, the Issuer of such Series of Notes will purchase the related
Accounts from the Depositor with the net proceeds from the sale of the Notes
from such Series. The Issuer of such Series of Notes will pledge the related
Accounts to the related Indenture Trustee, for the benefit of the Noteholders of
such Series, as security for such Notes. Subject to certain restrictions, the
Depositor
17
<PAGE>
may sell or assign certificates of beneficial ownership in the Issuer of a
Series of Notes to another entity or entities.
The Trust Agreement for each Series of Notes will provide that the related
Issuer may not conduct any activities other than those related to the issuance
and sale of Notes, the purchase of Accounts, the financing of properties
repossessed by such Issuer, the investment of certain funds in Eligible
Investments, as described under "SECURITY--Mortgage Collateral--Investment of
Funds" herein, and such other limited activities as may be required in
connection with reports and payments to holders of the Notes of such Series and
the beneficial interest of such related Trust. See "SECURITY--Mortgage
Collateral-- Investment of Funds" herein. With respect to each Series of Notes,
neither the related Owner Trustee in its individual capacity nor the holder(s)
of the beneficial interest of the related Trust are liable for payment of
principal of or interest on the Notes of such Series and each holder of Notes of
such Series will be deemed to have released the related Owner Trustee and each
holder of the beneficial interest of the related Trust from any such liability.
With respect to each Series of Notes, the related Trust Agreement will provide
that the Trust of such Series will terminate upon the earlier to occur of (i)
the final sale or disposition of the trust estate and the distribution of all
proceeds thereof to the owners or (ii) 21 years less one day following the death
of the survivor of certain individuals described in the related Trust Agreement,
but in no event later than the date provided in the related Prospectus
Supplement.
It is not contemplated that annual or other regular meetings of the
Noteholders of a Series will be held. Each Indenture, however, permits Holders
of a certain percentage of principal amount of each Class of Notes of a Series
to approve certain amendments to the related Indenture and, in certain
circumstances, to declare the principal of the Notes of such Series due and
payable. See "THE INDENTURE--Modification of Indenture" and "--Rights Upon Event
of Default" herein.
DISCUSSION AND ANALYSIS OF ISSUER'S FINANCIAL CONDITION
EXPENSES
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the anticipated expenses of the Issuer for each Series of
Notes will consist of interest payments due on the Notes of such Series and
amounts payable for such Issuer's operating expenses (including, without
limitation, amounts payable under the related Indenture, the related Trust
Agreement and the related Servicing Agreement that may be payable by the related
Trust). Payments on the Accounts of a Series of Notes are intended to be
sufficient to make timely payments of interest on the Notes of such Series and
to retire such Notes not later than the related maturity date.
CAPITAL RESOURCES AND LIQUIDITY
With respect to each Series of Notes, the primary sources of the related
Issuer's funds will be collections in respect of the related Accounts for such
Series and reinvestment income therefrom. With respect to each Series of Notes,
the related Issuer is expected to have sufficient liquidity and capital
resources to make timely payments of interest on the Notes of such Series and to
retire the Notes of such Series not later than the related maturity date. See
"DESCRIPTION OF THE NOTES--Interest-- Principal" and "SECURITY" herein.
RESULTS OF OPERATIONS
With respect to each Series of Notes, the related Issuer's results of
operations will depend primarily on the rate at which payments are made on the
related Accounts, the level of income from reinvestment of payments on the
related Accounts and the level of the related Issuer's operating expenses.
IMPACT OF INFLATION AND CHANGING PRICES
With respect to each Series of Notes, inflation and increased prices may
result in increases in the level of the related Issuer's operating expenses.
However, such increases may be offset, in whole or in part, by increases in
income from reinvestment of payments on the related Mortgage Collateral for such
Series of Notes. See "SECURITY" herein.
18
<PAGE>
THE ACCOUNTS
HOMEBUILDING ACTIVITIES
It is expected that all of the Accounts will have been originated by Jim
Walter Homes and/or Jim Walter Homes affiliates. Any Account originated by a Jim
Walter Homes affiliate will have been originated using substantially the same
standards as those used by Jim Walter Homes in underwriting Accounts of the same
type. Jim Walter Homes is in the business of marketing and supervising the
construction of standardized, partially finished, detached, single-family
residential homes. The homes are sold directly to customers through
approximately 117 branch offices, serving approximately 24 states, primarily in
the southern region of the United States. A home is constructed on the
customer's land only after a building contract has been entered into and Jim
Walter Homes is satisfied that the customer has clear title to the land and that
the site is suitable for building. Currently, Jim Walter Homes offers over 30
models of homes in various stages of completion ranging from a "shell" to a "90%
completed" home. A shell is a home completed on the outside with rough floors,
partition studding and closet framing but without interior walls, floor
finishing, plumbing, electrical wiring and fixtures, doors and cabinetry. A 90%
completed home has a completed interior except for interior paint, floor
covering and utility hook-up.
Jim Walter Homes is a contractor rather than a developer, does not own or
sell land to customers except in connection with resales of repossessed homes
and does not maintain its own construction crews. Local independent contractors
construct the homes using their own construction crews. Jim Walter Homes'
employees, however, supervise construction to ensure that it conforms to its
specifications.
UNDERWRITING AND CREDIT POLICIES
Substantially all homes Jim Walter Homes sells are purchased with financing
it arranges. Generally, 100% of the purchase price is financed. Some portion of
the customers that purchase and finance homes through Jim Walter Homes may not
qualify for traditional bank financing of such homes. To qualify for financing a
potential customer must provide information concerning his or her monthly income
and employment history as well as a legal description of and evidence that the
customer owns the land on which the home is to be built. A customer's income and
employment usually are verified through telephone conversations with such
customer's employer and by examining his or her pay stubs, W2 forms or, if the
customer is self-employed, income tax returns. An applicant must have a minimum
of one year's continuous employment or, if he or she has changed jobs, the new
job must be in the same field of work. Only a small percentage of secondary
income (second jobs or part-time work) is utilized in qualifying applicants.
Ownership of the land is verified by examining the title record. In addition,
Jim Walter Homes' credit department obtains a credit report. If a favorable
report is obtained and the required monthly payment does not exceed 25% of the
customer's monthly gross income, the application usually is approved and a
building or installment sale contract is executed, a title report is ordered and
frequently a survey of the property is made. Surveys are performed by
independent registered surveyors when, in the opinion of Jim Walter Homes,
additional information beyond examination of the title record is needed. Such
additional information is primarily concerned with verification of legal
description, ownership of land and existence of any encroachments. Jim Walter
Homes may also use a point or grade credit scoring system. Particular attention
is paid to the credit information for the most recent three to five years.
Attention is also given to the customer's total indebtedness and total other
monthly payments on a judgmental basis by the credit department. The customer's
credit standing is considered favorable if the employment history, income and
credit report meet the aforementioned criteria. The building and installment
sale contract is subject to (i) except in the State of Texas, executing a
promissory note which is secured by a first lien on the land and the home to be
built, (ii) executing a mortgage, deed of trust, mechanic's lien contract or
other security instrument, (iii) receiving a satisfactory title report, (iv)
inspecting the land to determine that it is suitable for building and (v)
obtaining required permits. Although the mortgages, deeds of trust and similar
security instruments constitute a first lien on the land and the home to be
built, such security
19
<PAGE>
instruments are not insured by the Federal Housing Administration or guaranteed
by the Department of Veterans Affairs or otherwise insured or guaranteed.
Jim Walter Homes does not obtain appraisals or title insurance. Although
consideration is given to the ratio of the amount financed to the estimated
value of the home and the land securing such amount, there is no explicit
appraisal-based loan-to-value test. However, there is a requirement that the
value of the lot on which the home is to be built, as estimated solely on the
basis of Jim Walter Homes' mortgage servicing division employees' experience and
knowledge, be at least equal to 10% of the cash selling price of the home
resulting in a maximum initial loan-to-value ratio of approximately 90%. Before
occupying a new home, the customer must complete the utility and sewer hook-ups,
and any of the other components not purchased from Jim Walter Homes, arrange for
the building inspection and, if required, obtain a certificate of occupancy.
Upon construction of a new home to the agreed-upon percentage of completion, Jim
Walter Homes conveys the Account represented thereby, including the underlying
documents related thereto, to the Depositor in the ordinary course of business.
Accounts may be selected for inclusion in a Trust if such Accounts were
originated in accordance with the criteria described above and such Accounts are
not in default.
DESCRIPTION OF ACCOUNTS
With respect to sales of new homes, each Account (other than those
originated in the State of Texas) is evidenced by a promissory note (each, a
"Promissory Note"), a building contract (each, a "Building Contract"), a related
mortgage and certain other security agreements and each Account originated in
the State of Texas is evidenced by a retail installment contract (each, a "Texas
Building Contract") and a mechanic's lien contract with power of sale (each, a
"Mechanic's Lien Contract"). With respect to sales of repossessed homes, each
Account (other than those originated in the State of Texas) is evidenced by a
Promissory Note, a sale contract (each, a "Sale Contract," and together with the
Building Contracts, "Retail Contracts"), a related mortgage or certain other
security agreements and each Account originated in the State of Texas is
evidenced by an installment sale contract (each, a "Texas Sales Contract," and
together with the Texas Building Contracts, "Texas Contracts") and a deed with
vendor's lien together with a purchase money deed of trust (collectively, each,
a "Texas Resale Mortgage," and together with the Mechanic's Lien Contracts,
"Texas Mortgages"). Each Account is secured by a first lien on a single-unit
residential home and the real property on which such home is situated.
Each Promissory Note and Texas Contract obligates the homeowner to pay the
Gross Receivable Amount of the related Account. Each Promissory Note and Texas
Contract generally requires equal monthly payments in amounts sufficient to
amortize the Gross Receivable Amount over the term thereof. The "Gross
Receivable Amount" with respect to any Account is equal to the sum of the amount
of the Account financed and the total dollar amount of finance charges to be
paid over the duration of such Account. The terms of the Promissory Notes and
Texas Contracts generally range from 144 to 360 months. The Promissory Notes do
not have a stated interest rate and neither the Promissory Notes nor the Texas
Contracts divide the monthly payments into interest and principal portions.
Each Retail Contract and Texas Contract sets forth (i) the amount that is
being financed by the related customer (generally the purchase price of the
related home), (ii) the total finance charge that such customer will incur
through the maturity date of the Promissory Note or the Texas Contract, as the
case may be, and (iii) the annual percentage rate (the "Effective Financing
Rate") used to calculate the total finance charge. Upon a prepayment in full by
a customer or an acceleration of the amount owed by such customer under the
Promissory Note or the Texas Contract, as the case may be, such customer will be
entitled to receive a credit for any unearned finance charge (i.e., that portion
of the total finance charge which has not yet been earned through the date of
the prepayment or acceleration, calculated using either the actuarial or rule of
78s method, whichever provides for a greater recovery to the customer).
20
<PAGE>
The "Economic Balance" of an Account is the present value of the future
scheduled monthly payments due on the Account. Such present value is calculated
by discounting the remaining future scheduled monthly payments on an Account by
the Effective Financing Rate thereof. The Effective Financing Rate is determined
by calculating the discount rate which, when applied in a present value
calculation, results in the present value of all originally scheduled monthly
payments on such Account being equal to the original amount financed. In effect,
the Economic Balance of an Account is the amount of principal that can be
amortized by the installment payments due over the remaining scheduled term of
the Account at the Effective Financing Rate. The Economic Balance of any Account
as to which the related home has been repossessed and disposed of will be equal
to $0 and such Account will be removed from the lien of the Indenture. The
Economic Balance of any Account which is substituted (as described under
"--Recoveries" below) for an Account described in the preceding sentence will be
calculated as described in this paragraph.
SERVICING
Mid-State, as the Servicer, has serviced and expects to continue to service
all Accounts from Tampa, Florida. Although the Servicer does not escrow payments
for insurance premiums and real estate taxes, it monitors these payments by
customers. With respect to each Series of Notes, under the terms of the related
Servicing Agreement, the Servicer will be responsible for paying unpaid taxes
and insurance premiums and recovering such amounts from customers or, in certain
circumstances, from liquidation proceeds. See "THE SERVICING
AGREEMENT--Insurance; Taxes" herein.
Jim Walter Homes, pursuant to a sub-servicing agreement, has performed and
will continue to perform substantially all field servicing activities, which
include collecting or foreclosing on delinquent Accounts and reselling
repossessed homes. Mid-State currently intends to continue to use Jim Walter
Homes as a sub-servicer for such field servicing activities and to perform
itself the remaining servicing activities. Any sub-servicer engaged by Mid-State
other than Jim Walter Homes would be expected to have experience in servicing
loans or accounts similar to the Accounts and to have sufficient financial
resources to perform its duties. Each month the Servicer will send a delinquency
list, which includes all Accounts which are past due, to the branch, regional
and home offices of Jim Walter Homes. Representatives of Jim Walter Homes will
contact the customer in person, by phone or by mail. If an Account becomes more
than three months past due, generally, the customer surrenders the property or
the Servicer commences foreclosure proceedings. Mid-State's current policy is to
continue to show an Account as delinquent until it is brought current, the
property is surrendered or foreclosure proceedings are completed.
RECOVERIES
Homes may be repossessed by the Servicer in the event that the related
purchaser had missed a number of monthly payments and the Servicer reasonably
believes that the prudent course of action would be to repossess the home.
Information concerning the frequency of defaults and repossessions in respect of
accounts originated by Jim Walter Homes will be included in the Prospectus
Supplement for each Series of Notes. Generally, repossessed homes are remarketed
by field collection personnel of Jim Walter Homes with assistance from its sales
network for new homes. Typically, the homes are resold with little or no
rehabilitation of the properties and, accordingly, cash expenditures are small.
The majority of homes, including the land on which such homes are located, are
resold for a down payment of generally less than $1,000 and a new account. All
other repossessed homes are sold for cash.
With respect to each Series of Notes, the related Sub-servicing Agreement
will require Jim Walter Homes to continue to perform remarketing services as it
has in the past. In certain jurisdictions in which repossessed homes may be
located, local laws require that persons selling real property be licensed real
estate agents or brokers, unless such persons are selling real estate which they
(or their employers) own. The field collection personnel of Jim Walter Homes are
generally not licensed real estate agents or brokers. It is therefore necessary,
with respect to repossessed homes located in such jurisdictions, for title
21
<PAGE>
to such repossessed homes to be taken, in whole or in part, in the name of Jim
Walter Homes (rather than in the name of the Issuer) pending disposition. Upon
disposition, the applicable Trust will receive the related cash proceeds, if
any, and the related new Accounts originated, in connection with resales of
repossessed properties securing defaulted Accounts for such Series. In the event
repossessed property is sold at a loss, such loss will be reflected in the
accounting records of the Issuer of such Series. Depending on the age of the
repossessed Account and other factors, such as the condition and location of the
related repossessed property, the amount of a recovery (i.e., the amount of the
new Account plus cash, if any) as a percentage of the Economic Balance will
vary.
TIME TO RECOVERY
The elapsed time between the initial delinquency of an account and the date
the related home is resold can be divided into three stages: (i) delinquency as
to monthly payment period, (ii) repossession period and (iii) real estate owned
period. An account generally will be no more than three months delinquent before
the Servicer commences foreclosure proceedings. If the Servicer anticipates that
a payment will not be forthcoming, it may commence foreclosure proceedings when
an account has been delinquent as little as two months. The Servicer estimates
that approximately 20% of all repossessed homes are voluntarily surrendered
during the delinquency period and, accordingly, avoid the repossession period,
and it estimates that, although the time to recovery can vary considerably, the
average time following initial delinquency until recovery is approximately ten
months.
Since no party is required to advance required payments on delinquent
Accounts, any such delinquencies that exist at the end of a Collection Period
immediately preceding any Payment Date will reduce the amount of Available Funds
for the related Payment Date. See "RISK FACTORS--Limited Assets of the Issuer
for Payment of Notes," "--Overcollateralization May Become Exhausted Resulting
in Losses to be Allocated to Notes," "--Subordinated Notes Bear Risk of Loss
Before More Senior Notes," and "--Rate of Prepayments on Accounts May Adversely
Affect Yield and Weighted Average Life of Notes" herein.
THE MORTGAGE COLLATERAL
Each Prospectus Supplement will contain information, as of the dates
specified in such Prospectus Supplement and to the extent then applicable and
specifically known to the Depositor, with respect to the related Accounts,
including (A) (i) the aggregate number of Accounts, (ii) the aggregate Economic
Balance of the Accounts, (iii) the Effective Financing Rate of the Accounts,
(iv) the number and aggregate balance of Accounts secured by homes representing
new sales, (v) the number and aggregate balance of Accounts secured by homes
that have been repossessed and resold, (vi) the years of calculated scheduled
final payment of the Accounts, (vii) the outstanding Economic Balance of the
Accounts, (viii) the original Economic Balance of the Accounts, (ix) the years
of origination of the Accounts and (x) the geographical distribution of the
Accounts and (B) with respect to different ranges of remaining years to maturity
of Accounts, (i) the number of Accounts, (ii) the average Economic Balance of
the Accounts (iii) the weighted average remaining term of the Accounts, (iv) the
weighted average effective financing rate of the Accounts, (v) the current
Economic Balance of the Accounts and (vi) the original Economic Balance of the
Accounts. The Mortgage Collateral will in all instances be secured by a mortgage
lien.
CERTAIN LEGAL ASPECTS OF THE ACCOUNTS AND RELATED MATTERS
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors providing mortgage financing.
These laws include, without limitation, the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Federal Reserve
Board's Regulations "B" and "Z" and the Uniform Consumer Credit Code (the
"UCCC"). These requirements can impose
22
<PAGE>
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases, such liabilities may affect the ability of an
assignee (such as each Trust and each Indenture Trustee) to enforce installment
contracts and promissory notes such as the Accounts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the UCCC,
has the effect of subjecting not only a seller (and certain related creditors
and their assignees) in a consumer credit transaction but also any assignee of
the seller, to all claims and defenses which the customer could assert against
the seller. Because liability under the FTC Rule is limited to the amounts paid
by such customer under the contract, the holder of the contract may be unable to
collect any remaining balance due thereunder. The Accounts are subject to the
requirements of the FTC Rule. Accordingly, each Issuer, as holder of Accounts
for a Series of Notes, will be subject to any claims or defenses that the
obligor of the related Account may assert against Jim Walter Homes under the
building or sale contract related to such Account in such Series. If a customer
successfully asserts any such claim or defense, the value of such Account could
be adversely affected.
The installment contracts utilized by Jim Walter Homes contain provisions
obligating the obligor to pay late charges if payments are not made in a timely
manner. In certain cases, laws of certain states may specifically limit the
amount of late charges that may be collected or prohibit the imposition of late
charges. With respect to each Series of Notes, late charges will be retained by
the Servicer as additional servicing compensation, and the inability of the
Servicer to collect these amounts will not affect payments to Noteholders of
such Series.
MORTGAGES, DEEDS OF TRUST AND MECHANIC'S LIEN CONTRACTS
The following discussion contains summaries of certain legal aspects of the
mortgages, deeds of trust, deeds to secure debt and mechanic's lien contracts
(collectively, "Security Instruments") which are general in nature. Because such
legal aspects are governed by applicable state law (which laws may differ
substantially) the summaries do not purport to be complete or to reflect the
laws of any particular state or to encompass the laws of all states in which the
security for the Accounts is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing such
Accounts.
The Security Instruments generally will be either mortgages or deeds of
trust depending upon the prevailing practice in the state in which the property
securing the related Account is located. A mortgage creates a lien upon the real
property encumbered by the mortgage. There are two parties to a mortgage, the
mortgagor, who is the obligor and homeowner, and the mortgagee, who provides
financing. Generally, the mortgagor delivers to the mortgagee a note and the
mortgage. The lien created by a mortgage is not prior to liens for real estate
taxes and assessments or to certain tax liens (see "--Anti-Deficiency
Legislation and Other Limitations on Creditors"), nor is it prior to certain
other liens which in most jurisdictions are given priority by statute. Priority
between mortgages depends on their terms and generally on the order in which
they are filed with a state or county recording office.
Although a deed of trust is similar to a mortgage, a deed of trust formally
has three parties: the obligor-homeowner called the trustor (similar to a
mortgagor), a creditor (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the obligor
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. The
deed of trust may, by state law, be subordinated to real estate taxes and
assessments and certain other liens which are given priority by statute. It also
may be subordinated to certain tax liens (see "--Anti-Deficiency Legislation and
Other Limitations on Creditors").
In the State of Texas, indebtedness incurred for the purchase of real
property is typically secured by a deed of trust and indebtedness incurred for
the purpose of making improvements on real property is secured by a mechanic's
lien contract, both with power of sale. In all material respects, the mechanic's
lien contract has the same effect as a deed of trust.
23
<PAGE>
FORECLOSURE AND OTHER REMEDIES
The laws of foreclosure vary from state to state. Foreclosure of a mortgage
generally is accomplished by judicial action. The action is initiated by the
service of legal pleadings upon all parties having an interest in the real
property. Delays in completion of the foreclosure may occasionally result from
difficulties experienced in locating necessary party defendants. Judicial
foreclosure proceedings are often not contested by any of the parties defendant.
If a mortgagee's right of foreclosure is contested, the legal proceedings
necessary to resolve the issue can be time consuming. If the court finds for a
mortgagee, it generally issues a judgment of foreclosure and appoints a referee
or other court officer to conduct the sale of the property.
Foreclosure of either a deed of trust or a mechanic's lien contract
generally is accomplished by a non-judicial trustee's sale under a specific
provision in the deed of trust which authorizes the trustee to sell the property
upon any default by the obligor under the terms of the deed of trust or the note
secured thereby. In some states, the trustee must record a notice of default and
send a copy to the obligor and to any person who has recorded a request for a
copy of notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest in the
real property, including any junior lienholder. In some states, the obligor has
the right to reinstate the obligation at any time following default until
shortly before the trustee's sale. In general, the obligor, or any other person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation. Generally, state law controls
the amount of foreclosure expenses and costs, including attorneys' fees, which
may be recovered by a creditor. If the deed of trust or mechanic's lien
contract, as the case may be, is not reinstated, a notice of sale must be posted
in a public place and, in most states, published for a specific period of time
in one or more newspapers. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest in the real property.
In the case of foreclosure under a mortgage, deed of trust or mechanic's
lien contract, the sale by the referee or other designated officer or by the
trustee is at a public sale. However, because of the difficulty a potential
buyer at the sale would have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at the foreclosure sale. Instead, it is common for the creditor, or an
affiliate of the creditor, to purchase the property from the trustee or referee
for an amount equal to the unpaid principal amount of note secured by the
mortgage, deed of trust or mechanic's lien contract, accrued and unpaid interest
and the costs and expenses of foreclosure. Thereafter, subject to the right of
the obligor in some states to remain in possession during the redemption period,
the creditor will assume the burdens of ownership, including obtaining insurance
and making such repairs at its own expense as are necessary to render the
property suitable for resale. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the creditor's investment in
the property.
RIGHTS OF REDEMPTION
In some states, after the sale of real property pursuant to a deed of trust
or foreclosure of a mortgage, the obligor and foreclosed junior liens are given
a statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire unpaid balance
of the cash price, earned finance charges and costs and expenses of foreclosure.
In other states, redemption may be authorized if the former customer pays only a
portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the creditor to sell the foreclosed property. The right
of redemption could defeat the title of any purchaser from the creditor
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the creditor to retain the
property and to pay the expenses of ownership until the redemption period has
run.
24
<PAGE>
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON CREDITORS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the obligor following foreclosure or sale under a
mortgage or a deed of trust. A deficiency judgment is a personal judgment
against the obligor equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
creditor. In some states, statutes require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the obligor. Finally, other statutory provisions limit any deficiency judgment
against the obligor following a judicial sale to the excess of the outstanding
debt over the fair market value of the property at the time of the sale. The
purpose of these statutes is generally to prevent a beneficiary or mortgagee
from obtaining a large deficiency judgment against the obligor as a result of
low or no bids at the judicial sale.
Numerous other statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage creditor to realize upon collateral and/or
enforce a deficiency judgment. For example, under federal bankruptcy law,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) are automatically stayed upon the filing of a bankruptcy petition,
and often no mortgage payments are made during the course of the bankruptcy
proceeding. In a case under the bankruptcy laws, the secured creditor is
precluded from foreclosing without authorization from the bankruptcy court. In
addition, with respect to federal bankruptcy laws, a court with federal
bankruptcy jurisdiction may permit an obligor through his or her chapter 11 or
chapter 13 rehabilitative plan to cure a monetary default in respect of a
Security Instrument on such obligor's residence by paying arrearages within a
reasonable time period and reinstating the original Security Instrument payment
schedule even though the creditor accelerated the outstanding indebtedness and a
final judgment of foreclosure had been entered in state court (provided no sale
of the residence had yet occurred) prior to the filing of the obligor's
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that enabled an
obligor to cure a payment default by paying arrearages over a number of years.
In addition, the laws of various states provide for moratoria on the payment of
principal of, and interest on, outstanding indebtedness by obligors meeting
certain qualifications.
Courts with federal bankruptcy jurisdiction also have indicated that the
terms of a mortgage or a deed of trust secured by property not consisting solely
of the obligor's principal residence may be modified. These courts have
suggested that such modifications may include reducing the amount of each
monthly payment, reducing the rate of interest or finance charge, altering the
repayment schedule and reducing the creditor's security interest to the value of
the residence, thus rendering the creditor a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
indebtedness. Some courts have permitted such modifications when the mortgage or
deed of trust is secured both by the obligor's principal residence and by
personal property.
The Code provides priority to certain tax liens over the liens of a Security
Instrument. In addition, substantive requirements are imposed upon creditors in
connection with the origination of Security Instruments by numerous federal and
some state consumer protection laws. These laws include the federal
Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Billing Act,
Fair Credit Reporting Act and related statutes. These federal laws and state
laws impose specific statutory liabilities upon creditors who originate Security
Instruments and who fail to comply with the provisions of such laws. In some
cases, this liability may affect assignees of the Security Instruments,
including the Issuer and the Indenture Trustee. See "--Consumer Protection Laws"
above.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a homeowner under an Account who enters the military
service after the origination of such homeowner's
25
<PAGE>
Account (including a homeowner who is a member of the National Guard or is in
reserve status at the time of the origination of the Account and is later called
to active duty) may not be charged interest above an annual rate of 6% during
the period of such homeowner's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that similar actions
could have an effect, for an indeterminate period of time, on the ability of the
Servicer to collect full amounts of finance charges on certain of the Accounts.
In addition, the Relief Act imposes limitations which would impair the ability
of the Servicer to foreclose on an affected Account during the homeowner's
period of active duty status. Thus, in the event that such an Account goes into
default, there may be delays and losses occasioned by the inability to realize
upon the related Mortgaged Property in a timely fashion.
ENFORCEABILITY OF CERTAIN PROVISIONS
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the obligor from the
legal effect of his defaults under the mortgage or deed of trust. Examples of
judicial remedies that have been fashioned include judicial requirements that
the creditor undertake affirmative and extensive actions to determine the causes
for the obligor's default and the likelihood that the obligor will be able to
cure the default. In some cases, courts have substituted their judgment for the
creditors' judgment and have required that creditors reinstate mortgages or
deeds of trust or recast payment schedules in order to accommodate obligors who
are suffering from temporary financial disability. In other cases, courts have
limited the right of creditors to foreclose if the default under the mortgage
instrument is not a monetary default, such as when the obligor fails adequately
to maintain the property or the obligor executes a second mortgage or deed of
trust affecting the property.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property that
is the subject of a clean-up action by the state on account of hazardous wastes
or hazardous substances released or disposed of on the property. Such a lien
will generally have priority over all subsequent liens on the property and, in
certain of these states, will have priority over prior recorded liens including
the lien of a mortgage or deed of trust. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale may, in certain limited circumstances, be liable
as an "owner or operator" for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a secured party (such as the Trust). In the event that title to a
Mortgaged Property securing an Account was acquired by the Issuer of a Series of
Notes and cleanup costs were incurred in respect of the Mortgaged Property, the
Noteholders of such Series would be adversely affected if such costs were
required to be paid by the Issuer of such Series.
However, recent amendments to federal environmental legislation provide for
a "secured creditor exemption" which defines and specifies the range of
permissible actions that may be undertaken by a secured party holding security
in a contaminated facility. In addition, under the amendments, a secured party
continues to be protected from liability as an "owner or operator" after
foreclosure as long as it seeks to divest itself of the facility at the earliest
practicable commercially reasonable time on commercially reasonable terms,
taking into account market conditions and legal and regulatory requirements. The
"secured creditor exemption," however, does not necessarily affect the potential
for liability in actions under other federal or state laws which may impose
liability on "owners or operators" but do not incorporate the "secured creditor
exemption."
26
<PAGE>
SECURITY
MORTGAGE COLLATERAL
GENERAL. With respect to each Series of Notes, the Notes of such Series
will be secured by assignments to the related Indenture Trustee of Collateral
consisting of (i) the Mortgage Collateral for such Series of Notes, (ii) the
payments received thereon after the related Cut-Off Date, (iii) the net
reinvestment income from such payments and (iv) the related Servicing Agreement
and related Purchase and Sale Agreement. See "DESCRIPTION OF THE
NOTES--Interest--Principal Payments" herein.
ACCOUNTS. With respect to each Series, in order to enable the Indenture
Trustee of such Series of Notes to obtain a security interest in the mortgage,
deed of trust or other security instrument, as the case may be, and other
documents and instruments underlying each related Account comprising the
Mortgage Collateral for such Series, upon receipt of such documents and
instruments from the Depositor after the issuance of the Notes for such Series,
the related Indenture requires the Issuer of such Series to: (i) endorse each
customer's promissory note in blank and deliver such note to be held by the
related Indenture Trustee until such time as such customer's Account is paid in
full or becomes subject to foreclosure proceedings; (ii) prepare assignments of
mortgages, mechanic's lien contracts or deeds of trust, as the case may be, in
recordable form, which collaterally assign the related Issuer's interest in the
mortgages, mechanic's lien contracts or deeds of trust to the related Indenture
Trustee; and (iii) record such assignments in the local real estate records
where the real property is located. See "RISK FACTORS--Grant of Security
Interest in Mortgage Collateral--Risks of Defective Security Interest" herein.
INSURANCE PROCEEDS. Unless otherwise specified in the related Prospectus
Supplement with respect to each Series of Notes, the Issuer of such Series of
Notes will assign to the related Indenture Trustee, as additional security for
the Notes of such Series, all payments due under the standard hazard insurance
policies (the "Insurance Policies") insuring the relevant Mortgaged Property
with respect to each of the Accounts comprising the Mortgage Collateral for such
Series. Because the Insurance Policies will be underwritten by different issuers
and will cover Mortgaged Properties located in various states, such policies
will not contain identical terms and conditions. The most significant terms
thereof, however, generally will be determined by state law and generally will
be similar. Most such policies typically will not cover any physical damage
resulting from the following: war, governmental actions, floods, earth
movements, nuclear reaction, hazardous wastes or substances, and theft. The
foregoing list is indicative of certain kinds of uninsured risks and is not
all-inclusive. The terms of each Account comprising the Mortgage Collateral for
a Series of Notes will require the customer to maintain an Insurance Policy
covering the related mortgaged property. With respect to each Series of Notes,
the terms of the related Servicing Agreement require the Servicer either to
cause such Insurance Policy to be maintained in full force and effect, or to
obtain an insurance policy against certain losses with respect to each such
Account. All proceeds of any Insurance Policy collected by the Servicer (less
amounts to be applied to the restoration or repair of the mortgaged property)
will be deposited in the Collection Account for the related Series of Notes.
Insurance proceeds designated for repair or restoration of a Mortgaged Property
will be deposited in a servicing account established in accordance with the
terms of each Servicing Agreement. See "THE SERVICING AGREEMENT--Insurance;
Taxes" herein.
At the time of entering into a Retail Contract or Texas Contract, Jim Walter
Homes offers each customer the opportunity to select Best Insurors, Inc.
("Best"), a licensed Florida insurance agency and a wholly-owned subsidiary of
Walter Industries, to provide the Insurance Policy required to be maintained by
such customer under the Retail Contract or Texas Contract. Each Prospectus
Supplement shall set forth the percentage, if any, of the Accounts having
Insurance Policies issued by Best.
Any losses incurred with respect to Accounts comprising the Mortgage
Collateral of any Series of Notes due to uninsured risks (including earthquakes,
mudflows and floods) or insufficient hazard insurance proceeds will result in a
loss which may result in the reduction of the principal balance of one or more
27
<PAGE>
Classes of Notes of such Series without a payment in respect of principal
thereon. See "RISK FACTORS--Subordinated Notes Bear Risk of Loss Before More
Senior Notes" herein.
INVESTMENT OF FUNDS. Subject to certain limitations set forth in the
Indenture for each Series of Notes, prior to a default or an Event of Default
under the related Indenture, funds in the Collection Account for each Series of
Notes will be invested by the related Indenture Trustee, as directed by the
Issuer of such Series of Notes, in certain eligible investments which may
include, among other investments, obligations of the United States or any agency
thereof backed by the full faith and credit of the United States, certain
obligations issued or fully guaranteed by the Federal Home Loan Mortgage
Corporation ("Freddie Mac") or the Federal National Mortgage Association
("Fannie Mae"), certificates of deposit, time deposits and bankers' acceptances
that are obligations of eligible depository institutions, certain repurchase
agreements entered into with eligible depository institutions, commercial paper
or other debt securities issued by corporations meeting certain credit rating
standards and other investments acceptable to the Rating Agencies or other such
investments as set forth in the related Prospectus Supplement ("Eligible
Investments"). With respect to each Series of Notes, if a default or an Event of
Default under the related Indenture occurs and is continuing, the related Issuer
shall no longer have the ability to direct the investment of funds in the
Collection Account for such Series of Notes. See "THE INDENTURE-- Events of
Default" herein.
Funds in a Collection Account may be invested only in Eligible Investments
so that all investments will mature no later than two Business Days prior to the
next Payment Date. Any income or other gain from Eligible Investments will be
credited to, and any loss resulting from such investments will be charged to,
the Collection Account for such Series of Notes.
COLLECTION ACCOUNT
With respect to each Series of Notes, prior to the Closing Date, the
Collection Account for such Series will be established with, and in the name of,
the related Indenture Trustee. With respect to each Series of Notes, on the
related Closing Date, the related Issuer will deposit cash in an amount equal to
all payments (including prepayments) received on the related Accounts comprising
the Mortgage Collateral for such Series of Notes since the related Cut-Off Date
and up to the date that is five business days prior to the related Closing Date.
Thereafter, all payments (including payments received since and including the
date that is five business days prior to the related Closing Date) received in
respect of the related Accounts will be deposited in the related Collection
Account on a weekly basis (which will include the deposit on the last business
day of each Collection Period), in accordance with information provided by the
Servicer. With respect to each Series of Notes, the related Indenture Trustee
will transfer amounts in the related Holding Account into the related Collection
Account. Prior to any such deposit, payments received in respect of the related
Accounts will be held by the Indenture Trustee of such Series in the related
Holding Account. See "THE SERVICING AGREEMENT--Collection of Payments" herein.
The foregoing amounts deposited into the Collection Account of a Series of
Notes, together with the reinvestment income thereon and less related Issuer
Expenses, will be available to make payments on the Notes of such Series.
CERTAIN CONTRACTUAL RIGHTS
With respect to each Series of Notes, the Issuer of such Series of Notes
will assign to the Indenture Trustee of such Series of Notes as security for the
Notes of such Series all of its right, title and interest in, to and under the
related Purchase and Sale Agreement and the related Servicing Agreement and the
rights to certain servicing software. See "THE PURCHASE AND SALE AGREEMENT"
herein.
28
<PAGE>
DESCRIPTION OF THE NOTES
The following are summaries of the material provisions of the Notes. The
following summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the separate Indenture for each
Series of Notes.
GENERAL
The following summary describes certain terms of the Notes, common to any
Indenture and Trust Agreement. Forms of the Indenture, the Trust Agreement and
the Purchase and Sale Agreement providing for the transfer of Accounts from the
Depositor to an Issuer have been filed as exhibits to the Registration Statement
of which this Prospectus forms a part. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Notes and the Purchase and Sale Agreement for each Trust,
any Indenture and Trust Agreement and the related Prospectus Supplement. Where
particular provisions or terms used in any of such documents are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference as part of such summaries.
The Notes will represent debt secured by the assets of the related Trust,
including the Accounts and all proceeds thereof and certain other property, as
described in the related Prospectus Supplement. If specified in the related
Prospectus Supplement, one or more Classes of Notes of a Series may have the
benefit of one or more insurance policies, surety bonds, guarantees, letters of
credit, reserve funds, cash accounts, reinvestment income, overcollateralization
or other form of credit enhancement. In addition to or in lieu of any or all of
the foregoing, credit enhancement may be provided through subordination. Any
such credit enhancement may be included in the assets of the related Trust. See
"Description of Credit Enhancement" herein.
A Series of Notes may include one or more Classes entitled to distributions
of principal and disproportionate, nominal or no interest distributions or
distributions of interest and disproportionate, nominal or no principal
distributions. The principal amount of any Note may be zero or may be a notional
amount as specified in the related Prospectus Supplement. A Class of Notes of a
Series entitled to payments of interest may receive interest at a specified rate
(a "Note Rate") which may be fixed, variable or adjustable and may differ from
other Classes of the same Series, may receive interest as described in the
related Prospectus Supplement. One or more Classes of Notes of a Series may be
entitled to receive principal payments pursuant to a planned amortization
schedule or may be entitled to receive interest payments based on a notional
principal amount which reduces in accordance with a planned amortization
schedule. A Series may also include one or more Classes of Notes entitled to
payments derived from a specified group or groups of Accounts held by the
related Trust. The rights of one or more Classes of Notes may be senior or
subordinate to the rights of one or more of the other Classes of Notes of such
Series. A Series may include two or more Classes of Notes which differ as to the
priority of payment or amount of distributions of principal or interest or both.
Each Class of Notes of a Series will be issued in the denominations
specified in the related Prospectus Supplement. Each Note will represent a
percentage interest (a "Percentage Interest") in the Notes of the respective
Class of the respective Series, determined by dividing the original dollar
amount (or Notional Principal Amount, in the case of certain Notes entitled to
receive interest only) represented by such Note by the original principal
balance of such Class.
One or more Classes of Notes of a Series may be issuable in the form of
fully registered definitive certificates or, if so specified in the related
Prospectus Supplement, one or more Classes of Notes of a Series (the "Book-Entry
Notes") may initially be represented by one or more certificates registered in
the name of Cede & Co. ("Cede"), the nominee of The Depository Trust Company
("DTC"). If so specified in the related Prospectus Supplement, holders of Notes
may hold beneficial interests in Book-Entry Notes through DTC (in the United
States) or CEDEL or Euroclear (in Europe) directly if they are participants of
such systems, or indirectly through organizations which are participants in such
systems. Notes
29
<PAGE>
representing the Book-Entry Notes will be issued in definitive form only under
the limited circumstances described herein and in the related Prospectus
Supplement. With respect to Book-Entry Notes, all references herein to "holders"
of Notes shall reflect the rights of owners of the Book-Entry Notes, as they may
indirectly exercise such rights through DTC, CEDEL, Euroclear and their
participating organizations, except as otherwise specified herein. See
"--Registration and Transfer of Notes" herein.
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date, there shall be paid to each person in whose name a Note is
registered on the related Record Date (which in case of the Book-Entry Notes
initially will be only Cede, as nominee of DTC), the portion of the aggregate
payment to be made to holders of such Class to which such holder is entitled, if
any, based on the Percentage Interest held by such holder of such Class.
INTEREST
Unless otherwise specified in the related Prospectus Supplement, interest
will accrue on each Class of Notes of a Series (other than a Class of Notes
entitled to receive only principal) during each period specified in the related
Prospectus Supplement (each, an "Interest Accrual Period") at the Note Rate for
such Class specified in the related Prospectus Supplement. Interest accrued on
each Class of Notes at the applicable Note Rate during each Interest Accrual
Period will be paid, to the extent monies are available therefor, on each
Payment Date, commencing on the day specified in the related Prospectus
Supplement and will be distributed in the manner specified in such Prospectus
Supplement. Payments of interest with respect to any Class of Notes entitled to
receive interest only or a disproportionate amount of interest and principal
will be paid in the manner set forth in the related Prospectus Supplement.
Payments of interest with respect to any Series of Notes or one or more Classes
of Notes of such Series, may be reduced to the extent of interest shortfalls not
covered by any applicable credit enhancement.
PRINCIPAL
On each Payment Date, commencing with the Payment Date specified in the
related Prospectus Supplement, principal with respect to the related Accounts
will be paid to holders of the Notes of the related Series (other than a Class
of Notes of such Series entitled to receive interest only) in the priority,
manner and amount specified in such Prospectus Supplement, to the extent funds
are available therefor.
Payments of Principal with respect to a Series of Notes or one or more
Classes of such Series may be reduced to the extent of delinquencies or losses
not covered by any applicable credit enhancement.
CATEGORIES OF CLASSES OF NOTES
The Notes of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Notes may identify the Classes which
comprise such Series by reference to the following categories or another
category specified in the applicable Prospectus Supplement.
30
<PAGE>
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DESCRIPTION
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
PRINCIPAL TYPES
------------------------------------------------------------------
Subordinated Class........................... If specified in the applicable Prospectus Supplement, the rights
of the holders of the Subordinated Class or Classes of a Series of
Notes for which credit enhancement is provided through
subordination to receive distributions with respect to the
Accounts in the related Trust will be subordinated to such rights
of the holders of the Notes of the same Series to the extent
described in the related Prospectus Supplement. This subordination
is intended to enhance the likelihood of regular receipt by
holders of Notes of the full amount of scheduled monthly payments
of principal and interest due them and to provide limited
protection to the holders of the Notes against losses due to
defaults. Certain losses and shortfalls may be allocated to a
Subordinated Class thereby reducing the yield on such Class as
specified in the related Prospectus Supplement.
Lockout Class................................ A senior Class that is designed not to participate in (I.E., to be
"locked out" of), for a specified period, the receipt of (1)
principal prepayments on the Accounts that are allocated
disproportionately to the senior Classes of such Series as a group
pursuant to a "shifting interest" structure and/or (2) scheduled
principal payments on the Accounts that are allocated to the
senior Classes as a group. A Lockout Class will typically not be
entitled to receive distributions of principal prepayments and/or
scheduled principal payments, as applicable, for a period of
several years, during which time all or a portion of such
principal payments that it would otherwise be entitled to receive
in the absence of a "lockout" structure will be distributed in
reduction of the principal balances of other senior Classes.
Although Lockout Classes are designed to minimize weighted average
life volatility during the lockout period, under certain payment
scenarios the Lockout Classes may receive payments during a
lockout period, therefore weighted average life volatility exists.
Notional Amount Class........................ A Class having no principal balance and bearing interest on the
related notional amount. The notional amount is used for purposes
of the determination of interest distributions.
Scheduled Amortization Class................. A Class that is designed to receive principal payments using a
predetermined principal balance schedule. The schedule is derived
by assuming either two constant prepayment rates or a single
constant prepayment rate for the underlying Accounts. The two
rates are the endpoints for the "structuring range" for the
Scheduled Amortization Class. A Scheduled Amortization Class is
generally less sensitive to prepayments than a Support Class.
There is no assurance that such a Class will receive payments
according to their scheduled due to the uncertainty of the timing
and amount of payments made on the Accounts.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
Sequential Pay Class......................... Classes that are entitled to receive principal payments in a
prescribed sequence, that do not have predetermined principal
balance schedules and that, in most cases, are entitled to receive
payments of principal continuously from the first Payment Date on
which they receive principal until they are retired. Sequential
Pay Classes may receive principal payments concurrently with one
or more other Classes. A single Class that is entitled to receive
principal payments before or after other Classes in the same
Series of Notes may be identified as a Sequential Pay Class.
Support Class (also sometimes
referred to as a "Companion Class")........ A Class that is entitled to receive principal payments on any
Payment Date only if scheduled payments have been made on
specified Scheduled Amortization Classes.
INTEREST TYPES
Fixed Rate Class............................. A Class with an interest rate that is fixed throughout the life of
the Class.
Floating Rate Class.......................... A Class with an interest rate that resets periodically based upon
a designated index and that varies directly with changes in such
index.
Inverse Floating Rate Class.................. A Class with an interest rate that resets periodically based upon
a designated index and that varies inversely with changes in such
index and with changes in the interest rate payable on the related
Floating Rate Class.
Variable Rate Class.......................... A Class with an interest rate that resets periodically and is
calculated by reference to the rate or rates of interest applica-
ble to the Accounts.
Interest Only Class.......................... A Class that is entitled to receive some or all of the interest
payments made on the Accounts and little or no principal. Interest
Only Classes have either a nominal principal balance or a notional
amount. A nominal principal balance represents actual principal
that will be paid on the Class. It is referred to as nominal since
it is extremely small compared to other Classes. A notional amount
is the amount used as a reference to calculate the amount of
interest due on an Interest Only Class that is not entitled to any
distributions in respect of principal.
Principal Only Class......................... A Class that does not bear interest and is entitled to receive
only distributions in respect of principal.
Accrual Class................................ A Class that accretes the amount of accrued interest otherwise
distributable on such Class, which amount will be added as
principal to the principal balance of such Class on each
applicable Payment Date. Such accretion may continue until some
specified event has occurred or until such Accrual Class is
retired.
</TABLE>
32
<PAGE>
AVAILABLE FUNDS
"Available Funds" in respect of a Payment Date are funds that will generally
be equal to the sum of (i) collections on the related Accounts during the
Collection Period immediately preceding such Payment Date that are on deposit in
the Collection Account as of the close of business on the last business day of
such Collection Period (ii) any net reinvestment income earned on funds
described in clause (i) above, during the Reinvestment Period and (iii) the
proceeds of any insurance policy relating to the Notes or the Accounts.
Available Funds will be net of Issuer Expenses paid. "Issuer Expenses" are all
of the Issuer's expenses (other than amounts due on the Notes of such Series),
including, without limitation, the fees and expenses of the related Owner
Trustee, the related Indenture Trustee and the fee of the Servicer for such
Series of Notes. See "THE TRUST AGREEMENT," THE INDENTURE--The Indenture
Trustee" and "THE SERVICING AGREEMENT--Servicing Fee" herein. The "Remaining
Available Funds" for a Payment Date are the Available Funds for such Payment
Date reduced by the amount of interest due on the Notes of such Series on such
Payment Date.
DESCRIPTION OF CREDIT ENHANCEMENT
To the extent specified in the related Prospectus Supplement, credit
enhancement for one or more Classes of a Series of Notes may be provided by one
or more of a letter of credit, financial guaranty insurance policy, reserve
fund, spread account, cash collateral account, mortgage pool insurance policy,
special hazard insurance policy or other type of credit enhancement. Credit
enhancement may also be provided by overcollateralization or by subordination of
one or more Classes of Notes of a Series to one or more other Classes of Notes
of such Series. Any credit enhancement will be limited in amount and scope of
coverage. Unless otherwise specified in the related Prospectus Supplement,
credit enhancement for a Series of Notes will not be available for losses
incurred with respect to any other Series of Notes. To the extent credit
enhancement for any Series of Notes is exhausted, or losses are incurred which
are not covered by such credit enhancement, the holders of the Notes will bear
all further risk of loss.
The amounts and types of credit enhancement, as well as the provider thereof
(the "Credit Provider"), if applicable, with respect to each Series of Notes
will be set forth in the related Prospectus Supplement. To the extent provided
in the applicable Prospectus Supplement and the related Indenture, any credit
enhancement may be periodically modified, reduced or substituted for as the
aggregate principal balance of the related Accounts decrease, upon the
occurrence of certain events or otherwise. Unless otherwise specified in the
related Prospectus Supplement, to the extent permitted by the applicable Rating
Agencies and provided that the then current rating of the affected Notes is not
reduced or withdrawn as a result thereof, any credit enhancement may be
cancelled or reduced in amount or scope of coverage or both.
The descriptions of credit enhancement arrangements included in this
Prospectus or any Prospectus Supplement and the coverage thereunder do not
purport to be complete and are qualified in their entirety by reference to the
actual forms of governing documents, copies of which will be available upon
request.
FINANCIAL GUARANTY INSURANCE POLICY. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond (a
"Notes Insurance Policy") may be obtained and maintained for a Class or Series
of Notes. The issuer of the Notes Insurance Policy (the "Insurer") will be
described in the related Prospectus Supplement and a copy of the form of Notes
Insurance Policy will be filed with the related Current Report on Form 8-K.
Unless otherwise specified in the related Prospectus Supplement, a Notes
Insurance Policy will be unconditional and irrevocable and will guarantee to
holders of the applicable Notes that an amount equal to the full amount of
distributions due to such holders will be received by the Indenture Trustee or
its agents on behalf of such holders for distribution on each Payment Date.
The specific terms of any Notes Insurance Policy will be set forth in the
related Prospectus Supplement. A Notes Insurance Policy may have limitations and
generally will not insure the obligation of the
33
<PAGE>
Depositor to purchase or substitute for a defective Account and will not
guarantee any specific rate of principal prepayments.
Unless otherwise specified in the related Prospectus Supplement, the Insurer
will be subrogated to the rights of each holder to the extent the Insurer makes
payments under the Notes Insurance Policy.
LETTER OF CREDIT. If so specified in the related Prospectus Supplement, all
or a component of credit enhancement for a Class or a Series of Notes may be
provided by a letter of credit (a "Letter of Credit") issued by a bank or other
financial institution (a "Letter of Credit Issuer") identified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, each Letter of Credit will be irrevocable. A Letter of Credit may
provide coverage with respect to one or more Classes of Notes or the underlying
Accounts or, if specified in the related Prospectus Supplement, may support a
specified obligation or be provided in lieu of the funding with cash of a
Reserve Fund or Spread Account (each as defined below). The amount available,
conditions to drawing, if any, and right to reimbursement with respect to a
Letter of Credit will be specified in the related Prospectus Supplement. A
Letter of Credit will expire on the date specified in the related Prospectus
Supplement, unless earlier terminated or extended in accordance with its terms.
POOL INSURANCE POLICY. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Notes may be provided
by a pool insurance policy (a "Pool Insurance Policy") issued by the insurer (a
"Pool Insurer") specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, each Pool Insurance Policy will,
subject to limitations described in such Prospectus Supplement, insure against
losses due to defaults in the payment of principal or interest on the underlying
assets up to the amount specified in such Prospectus Supplement (or in a Current
Report on Form 8-K). The Indenture with respect to any Series of Notes for which
a Pool Insurance Policy is provided will require the Servicer or other party
specified therein to use reasonable efforts to maintain the Pool Insurance
Policy and to present claims to the Pool Insurer in the manner required thereby.
No Pool Insurance Policy will be a blanket policy against loss and will be
subject to the limitations and conditions precedent described in the related
Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICY. If so specified in the related Prospectus
Supplement, credit enhancement with respect to a Series of Notes may be provided
in part by an insurance policy (a "Special Hazard Policy") covering losses due
to physical damage to a Mortgaged Property other than a loss of the type covered
by a standard hazard insurance policy or flood insurance policy or losses
resulting from the application of co-insurance clauses contained in standard
hazard insurance policies. The Prospectus Supplement relating to a Series of
Notes for which a Special Hazard Policy is provided will identify the issuer of
such policy and any limitation on coverage. No Special Hazard Policy will cover
extraordinary losses such as those due to war, civil insurrection, governmental
action, errors in design or workmanship, chemical contamination or similar
causes. Each Special Hazard Policy will contain an aggregate limit on claims
specified in the related Prospectus Supplement. No claims will be paid under any
Special Hazard Policy unless hazard insurance on the Account is in force and
protection and preservation expenses have been paid.
SPREAD ACCOUNT AND RESERVE FUND. If so specified in the related Prospectus
supplement, all or any component of credit enhancement for a Series of Notes may
be provided by a reserve fund (a "Reserve Fund") or a spread account (a "Spread
Account"). A Reserve Fund or Spread Account may be funded by a combination of
cash, one or more letters of credit or otherwise provided by the Depositor or
other party identified in the related Prospectus Supplement, amounts otherwise
distributable to one or more Classes of Notes subordinated to one or more other
Classes of Notes or to the holder of the certificate of beneficial interest in
the related Trust or as otherwise specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, a Reserve Fund
for a Series of Notes may be funded in whole or in part on the applicable
Closing Date. If so specified in the related Prospectus Supplement, cash
deposited in a Reserve Fund or a Spread Account may be withdrawn and replaced
with one or more letters
34
<PAGE>
of credit or Permitted Instruments. A Reserve Fund or Spread Account may be
pledged or otherwise made available to a Credit Provider. If so specified in the
related Prospectus Supplement, a Reserve Fund or Spread Account may not be
deemed part of the assets of the related Trust or may be deemed to be pledged or
provided by the Depositor, the holders of the Class of Notes otherwise entitled
to the amounts deposited in such account or such other party as is identified in
such Prospectus Supplement.
CASH COLLATERAL ACCOUNT. If so specified in the related Prospectus
Supplement, all or any portion of credit enhancement for a Series of Notes may
be provided by the establishment of a cash collateral account (a "Cash
Collateral Account"). A Cash Collateral Account will be similar to a Reserve
Fund or Spread Account except that generally a Cash Collateral Account is funded
initially by a loan from a cash collateral lender (the "Cash Collateral
Lender"), the proceeds of which are invested with the Cash Collateral Lender or
other eligible institution. Unless otherwise specified in the related Prospectus
Supplement, the Cash Collateral Account will be required to be maintained as an
Eligible Investment. The loan from the Cash Collateral Lender will be repaid
from amounts as are specified in the related Prospectus Supplement. Amounts on
deposit in the Cash Collateral Account will be available in generally the same
manner described above with respect to a Spread Account or Reserve Fund. As
specified in the related Prospectus Supplement, a Cash Collateral Account may be
deemed to be part of the assets of the related Trust, may be deemed to be part
of the assets of a separate cash collateral trust or may be deemed to be
property of the party specified in the related Prospectus Supplement and pledged
for the benefit of the holders of one or more Classes of Notes of a Series.
SUBORDINATION. If so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, Curtailments,
interest or any combination thereof otherwise payable to one or more Classes of
Notes of a Series ("Subordinated Notes") may instead be payable to holders of
one or more other Classes of Notes of such Series ("Senior Notes") under the
circumstances and to the extent specified in such Prospectus Supplement. A Class
of Notes may be subordinated to one or more Classes of Notes and senior to one
or more other Classes of Notes of a Series. If so specified in the related
Prospectus Supplement, delays in receipt of scheduled payments on the Accounts
and losses on defaulted Accounts will be borne first by the various Classes of
Subordinated Notes and thereafter by the various Classes of Senior Notes, in
each case under the circumstances and subject to the limitations specified in
such Prospectus Supplement. The aggregate losses in respect of defaulted
Accounts which must be borne by the Subordinated Notes by virtue of
subordination and the amount of the distributions otherwise distributable to the
Subordinated Notes that will be distributable to Senior Notes on any Payment
Date may be limited as specified in the related Prospectus Supplement or the
availability of subordination may otherwise be limited as specified in the
related Prospectus Supplement. If losses or delinquencies were to exceed the
amounts payable and available to holders of Subordinated Notes of a Series or if
such amounts were to exceed any limitation on the amount of subordination
available, holders of Senior Notes of such Series could experience losses.
In addition, if so specified in the related Prospectus Supplement, amounts
otherwise payable to holders of Subordinated Notes on any Payment Date may be
deposited in a Reserve Fund or Spread Account, as described above. Such deposits
may be made on each Payment Date, on each Payment Date for a specified period or
to the extent necessary to cause the balance in such account to reach or
maintain a specified amount, as specified in the related Prospectus Supplement,
and thereafter, amounts may be released from such Reserve Fund or Spread Account
in the amounts and under the circumstances specified in such Prospectus
Supplement.
As between Classes of Subordinated Notes, payments to holders of Senior
Notes on account of delinquencies or losses and deposits to any Reserve Fund or
Spread Account will be allocated as specified in the related Prospectus
Supplement.
CROSS-SUPPORT PROVISIONS. If the Mortgage Collateral for a Series is
divided into separate groups, each supporting a separate Class or Classes of
Notes of a Series, credit enhancement may be provided by
35
<PAGE>
cross-support provisions requiring that distributions be made on Senior Notes
evidencing interests in one group of Accounts prior to distributions on
Subordinated Notes evidencing interests in a different group of Accounts within
the Trust. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
OTHER CREDIT ENHANCEMENT. Credit enhancement may also be provided for a
Series of Notes in the form of overcollateralization, surety bond, insurance
policy or other type of credit enhancement approved by the applicable Rating
Agencies to cover one or more risks with respect to the Accounts or the Notes,
as specified in the related Prospectus Supplement.
DISTRIBUTIONS
Unless otherwise specified in the related Prospectus Supplement, on each
Payment Date, the Indenture Trustee of a Series is required to distribute from
Available Funds the amounts set forth in the related Prospectus Supplement, to
the extent available, in the priority set forth therein, which generally will
include (in no particular order of priority):
(i) deposits into any account established for the purpose of paying
credit enhancement fees and premiums;
(ii) if a reserve fund or similar account is established with respect to
a Series of Notes, deposits into such fund or account of amounts required to
be deposited therein;
(iii) payments to holders of Notes on account of interest and principal,
in that order and in the manner set forth in the related Prospectus
Supplement; and
(iv) after the payments and deposits described above and in the related
Prospectus Supplement, the balance, if any, to the persons specified in the
related Prospectus Supplement.
An Event of Default may be cured only if the Indenture Trustee of a Series
has not accelerated the Notes of such Series.
REDEMPTION OF THE NOTES
If so specified in the related Prospectus Supplement, Classes of Notes of a
Series may be redeemed on a Payment Date at the option of the Issuer of such
Series or such other entity as specified in the related Prospectus Supplement,
at a price equal to the unpaid principal amount of each Class of Notes of such
Series plus accrued interest, if indicated in the related Prospectus Supplement,
after giving effect to the payment of principal that would be made on such
Payment Date absent such redemption, the aggregate principal amount of each
Class of Notes of such Series outstanding (prior to allocations of any losses on
the related Mortgage Collateral as set forth in the related Prospectus
Supplement) is at a level of the original aggregate principal amount of such
Class of Notes as specified in the related Prospectus Supplement. In no event
will such percentage exceed 25% of the unpaid principal amount of the Notes of
such Series. The redemption price paid in connection with any optional
redemption will be required to be sufficient to pay the full principal balance
of the outstanding Notes and all interest accrued and unpaid thereon.
WEIGHTED AVERAGE LIFE OF THE NOTES
The weighted average life of each Class of Notes of a Series refers to the
average amount of time that will elapse from the date of its issuance until each
dollar of principal of such Class of Notes will be repaid to the investor. The
weighted average life of the Notes of a Series will be influenced by, among
other factors, the rate at which collections are made on the related Accounts.
Payments on the Accounts may be in the form of scheduled payments or prepayments
(for this purpose, the term "prepayments" includes prepayments in full and
receipt of proceeds from Insurance Policies that are not applied to the
restoration
36
<PAGE>
of the home). It is expected that, consistent with Mid-State's current servicing
procedures, repossessed homes will, in general, be sold in exchange for a new
Account together with a small amount of cash. Consequently, liquidations of
Accounts due to repossessions are not expected to generate much, if any, cash
proceeds.
The weighted average life of each Class of Notes of a Series will be
computed in the related Prospectus Supplement based on certain assumptions and
other information as set forth in the related Prospectus Supplement.
REGISTRATION AND TRANSFER OF NOTES
If so specified in the related Prospectus Supplement, one or more Classes of
Notes of a Series will be issued in definitive certificated form and will be
transferable and exchangeable at the office of the registrar identified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, no service charge will be made for any such registration
or transfer of such Notes, but the owner may be required to pay a sum sufficient
to cover any tax or other governmental charge.
If so specified in the related Prospectus Supplement, Book-Entry Notes may
be initially represented by one or more certificates registered in the name of
DTC and be available only in the form of book-entries. If specified in the
related Prospectus Supplement, holders of Notes may hold beneficial interests in
Book-Entry Notes through DTC (in the United States) or CEDEL or Euroclear (in
Europe) directly if they are participants of such systems, or indirectly through
organizations which are participants in such systems.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in DTC in accordance with DTC rules on
behalf of the relevant European international clearing system by its Depositary.
However, each such cross-market transaction will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines. The relevant European international clearing
system will, if the transaction meets its settlement requirements, deliver
instructions to its Depositary to take action to effect final settlement on its
behalf by delivering or receiving securities through DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. CEDEL Participants and Euroclear Participants may
not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of Notes by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal
37
<PAGE>
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities for its
participating members ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions between DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies and clearing corporations which may include underwriters, agents
or dealers with respect to the Notes of any Class or Series. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly ("Indirect DTC Participants").
The rules applicable to DTC and DTC Participants are on file with the
Commission.
Beneficial owners ("Owners") that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Book-Entry Notes may do so only through DTC Participants and
Indirect DTC Participants. DTC Participants who are Owners of Book-Entry Notes
will receive a credit for such Notes on DTC's records. The ownership interest of
such holder will in turn be recorded on respective records of the DTC
Participants and Indirect DTC Participants. Such holders will not receive
written confirmation from DTC of their purchase, but are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect DTC
Participant through which the Noteholder entered into the transaction. Unless
and until Definitive Notes (as defined below) are issued, it is anticipated that
the only "holder" of Book-Entry Notes of any Series will be Cede, as nominee of
DTC. Owners will only be permitted to exercise the rights of holders indirectly
through DTC Participants and DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Book-Entry Notes and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Notes. DTC Participants and Indirect DTC Participants with which
Owners have accounts with respect to the Book-Entry Notes similarly are required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective Noteholders.
DTC has advised the Servicer and the Depositor that, unless and until
Definitive Notes are issued, DTC will take any action permitted to be taken by a
holder only at the direction of one or more DTC Participants to whose DTC
accounts the Notes are credited. DTC has advised the Servicer and the Depositor
that DTC will take such action with respect to any Percentage Interests of the
Book-Entry Notes of a Series only at the direction of and on behalf of such DTC
Participants with respect to such Percentage Interests of the Book-Entry Notes.
DTC may take actions, at the direction of the related DTC Participants, with
respect to some Book-Entry Notes which conflict with actions taken with respect
to other Book-Entry Notes.
Cedel Bank societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include any underwriters, agents or dealers with
respect to any Class or Series of Notes offered hereby. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
38
<PAGE>
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 27 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office (the "Euroclear
Operator" or "Euroclear"), under contract with Euroclear Clearance System S.C.,
a Belgian cooperative corporation (the Euroclear "Cooperative"). All operations
are conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Euroclear Cooperative establishes policy for the
Euroclear System on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include any underwriters,
agents or dealers with respect to any Class or Series of Notes offered hereby.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Payments and distributions with respect to Book-Entry Notes held through
CEDEL or Euroclear will be credited to the cash accounts of CEDEL Participants
or Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by Citibank, N.A. or The Chase Manhattan
Bank, the relevant depositary of CEDEL and Euroclear (the "Depositaries"),
respectively. Such payments and distributions will be subject to tax withholding
in accordance with relevant United States tax laws and regulations. See
"Material Federal Income Tax Considerations" herein. CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Noteholder on behalf of a CEDEL Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Book-Entry Notes of a Series will be issued in registered form to Owners, or
their nominees, rather than to DTC (such Book-Entry Notes being referred to
herein as "Definitive Notes") only under the circumstances provided in the
related Indenture, which generally will include, except if otherwise provided
therein, if (i) DTC or the Servicer advises an Issuer and any Indenture Trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to the Book-Entry Notes
of such Series and the Servicer is unable to locate a qualified successor, (ii)
the
39
<PAGE>
Servicer, at its sole option, elects to terminate the book-entry system through
DTC or (iii) after the occurrence of a servicer termination event, a majority of
the aggregate Percentage Interest of any Class of Notes of such Series advises
DTC in writing that the continuation of a book-entry system through DTC (or a
successor thereto) to the exclusion of any physical notes being issued to Owners
is no longer in the best interests of Owners of such Class of Notes. Upon
issuance of Definitive Notes of a Series to Owners, such Book-Entry Notes will
be transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the related Issuer or related
Indenture Trustee, as the case may be, with respect to transfers, notices and
distributions.
40
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The Notes will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended. As a result,
the appropriate characterization of the Notes under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase the Notes, is subject to significant interpretive uncertainties.
Unless otherwise specified in the related Prospectus Supplement, no
representation is made as to the proper characterization of any Class of Notes
of any Series for legal investment or other purposes, or as to the ability of
particular investors to purchase the Notes under applicable legal investment or
other restrictions. All institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Notes constitute legal investments
for them or are subject to investment, capital or other restrictions.
ERISA CONSIDERATIONS
With respect to each Series of Notes, the Issuer, the Depositor and Walter
Industries, an affiliate of the Depositor, may each be considered a "party in
interest" within the meaning of ERISA, or a "disqualified person" within the
meaning of the Code, with respect to many employee benefit plans or retirement
arrangements which are subject to ERISA or Section 4975 of the Code
(collectively, the "Plans"). While Mid-State has no present intention to
transfer the beneficial interest in the Issuer of any Series of Notes to any
person other than an affiliate of Mid-State (including a trust beneficially
owned by Mid-State or an affiliate), any transferee of such beneficial interest
(including a transferee that is not such an affiliate) may be such a "party in
interest" or "disqualified person." Prohibited transactions within the meaning
of ERISA and the Code may arise if the Notes are acquired by a Plan with respect
to which Walter Industries is a service provider or other category of "party in
interest" or "disqualified person," unless such Notes are acquired pursuant to
an exemption for transactions effected on behalf of such Plan by a "qualified
professional asset manager" or pursuant to any other available exemption.
A possible violation of the prohibited transaction rules also could occur if
a Plan purchased Notes pursuant to this offering and the Issuer, any
underwriter, or any of their employees, affiliates or financial consultants (i)
manage any part of the Plan's investment portfolio on a discretionary basis, or
(ii) regularly provide advice pursuant to an agreement or understanding, written
or unwritten, with the individual, employer or trustee with discretion over the
assets of such Plan that such advice concerning investment matters will be used
as a primary basis for the Plan's investment decisions. Accordingly, the Issuer,
any underwriter, Mid-State and their respective affiliates will not, and no Plan
should, allow the purchase of Notes with assets of any Plan if the Issuer, any
underwriter, Mid-State or any of their respective employees, affiliates or
financial consultants provide with respect to the assets to be used to acquire
such Notes the management services or advice described in the previous sentence.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain requirements on employee benefit plans and on
certain other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested, that are
subject to Title I of ERISA and Section 4975 of the Code and on persons who are
fiduciaries with respect to such Plans in connection with the investment of Plan
assets. Certain employee benefit plans such as governmental plans (as defined in
ERISA Section 3(32)), and, if no election has been made under Section 410(d) of
the Code, church plans (as defined in Section 3(33) of ERISA) are not subject to
ERISA requirements. Accordingly, assets of such plans may be invested in Notes
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal, state and local law. Any such plan which
is qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code, however, is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
41
<PAGE>
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth in
Section 406 and 407 of ERISA and Section 4975 of the Code.
A Plan's investment in Notes may cause the Accounts and other assets
included in a related Trust to be deemed Plan assets. Section 2510.3-101 of the
regulations of the United States Department of Labor ("DOL") provides that when
a Plan acquires an equity interest in an entity, the Plan's assets include both
such equity interest and an undivided interest in each of the underlying assets
of the entity, unless certain exceptions not applicable here apply, or unless
the equity participation in the entity by "benefit plan investors" (i.e., Plans
and certain employee benefit plans not subject to ERISA) is not "significant",
both as defined therein. For this purpose, in general, equity participation by
benefit plan investors will be "significant" on any date if 25% or more of the
value of any class of equity interests in the entity is held by benefit plan
investors. To the extent the Notes are treated as equity interests for purposes
of DOL regulations section 2510.3-101, equity participation in a Trust will be
significant on any date if immediately after the most recent acquisition of any
Security, 25% or more of any class of Notes is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Collateral and other assets included in a Trust constitute
Plan assets, then any party exercising management or discretionary control
regarding those assets, such as the Servicer, may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the Accounts and other assets included in a
Trust constitute Plan assets, the purchase of Notes by a Plan, as well as the
operation of the Trust, may constitute or involve a prohibited transaction under
ERISA and the Code.
To the extent the Notes are not treated as equity interests for purposes of
DOL regulations section 2510.3-101, a Plan's investment in such Notes
("Non-Equity Notes") would not cause the assets included in a related Trust to
be deemed Plan assets. However, the Depositor, the Servicer, the Indenture
Trustee, or underwriter may be the sponsor of or investment advisor with respect
to one or more Plans. Because such parties may receive certain benefits in
connection with the sale of Non-Equity Notes, the purchase of Non-Equity Notes
using Plan assets over which any such parties have investment authority might be
deemed to be a violation of the prohibited transaction rules of ERISA and the
Code for which no exemption may be available. Accordingly, Non-Equity Notes may
not be purchased using the assets of any Plan if a Depositor, or any of the
Servicer, the Indenture Trustee or the underwriter has investment authority with
respect to such assets.
In addition, certain affiliates of the Depositor might be considered or
might become Parties in Interest with respect to a Plan. Also, any holder of
Notes, because of its activities or the activities of its respective affiliates,
may be deemed to be a Party in Interest with respect to certain Plans, including
but not limited to Plans sponsored by such holder. In either case, the
acquisition or holding of Non-Equity Notes by or on behalf of such a Plan could
be considered to give rise to an indirect prohibited transaction within the
meaning of ERISA and the Code, unless it is subject to one or more statutory or
administrative exemptions such as Prohibited Transaction Class Exemption ("PTE")
84-14, which exempts certain transactions effected on behalf of a Plan by a
"qualified professional asset manager", PTE 90-1, which exempts certain
transactions involving insurance company pooled separate accounts, PTE 91-38,
which exempts certain
42
<PAGE>
transactions involving bank collective investment funds, PTE 95-60, which
exempts certain transactions involving insurance company general accounts, or
PTE 96-23, which exempts certain transactions effected on behalf of a Plan by
certain "in-house" asset managers. It should be noted, however, that even if the
conditions specified in one or more of these exemptions are met, the scope of
relief provided by these exemptions may not necessarily cover all acts that
might be construed as prohibited transactions.
Any Plan fiduciary which proposes to cause a Plan to purchase Notes should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment and the potential applicability of any
prohibited transaction exemption in connection therewith. The Prospectus
Supplement with respect to a series of Notes may contain additional information
regarding the application of any exemption, with respect to the Notes offered
thereby.
The sale of Notes to a Plan is in no respect a representation by the
Depositor or the underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
ANY PLAN FIDUCIARY OR OTHER INVESTOR CONSIDERING WHETHER TO PURCHASE ANY
NOTES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN SHOULD CONSULT WITH ITS
COUNSEL AND REFER TO THE RELATED PROSPECTUS SUPPLEMENT FOR GUIDANCE REGARDING
THE ERISA CONSIDERATIONS APPLICABLE TO THE NOTES OFFERED THEREBY.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is the opinion of Cadwalader, Wickersham & Taft as
to the material federal income tax consequences of the purchase, ownership and
disposition of Notes. This opinion covers the federal income tax
characterization of the Notes and the federal income tax treatment of original
issue discount, market discount, premium, sales or redemptions of Notes and
backup withholding and taxation of foreign investors. This opinion assumes the
accuracy of the factual descriptions contained in this Prospectus and the
applicable Prospectus Supplement and compliance with all provisions of the
related agreements pursuant to which the Notes are issued. This discussion
reflects laws, regulations, rulings and decisions now in effect or (with respect
to regulations) proposed, all of which are subject to change either
prospectively or retroactively. This summary does not address the federal income
tax consequences of an investment in the Notes applicable to all categories of
investors, some of which may be subject to special rules. The Depositor
recommends that prospective investors consult their own tax advisors regarding
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Notes. Unless stated otherwise, for
purposes of the following summary, references to "Noteholder" and "holder" mean
the beneficial owner of a Note.
GENERAL
The determination of whether a particular investment represents indebtedness
or an ownership interest in the underlying property or an equity interest in the
issuing entity is based upon a number of factors, no one of which is
controlling, which generally look to form of the transaction, the intent of the
parties, the degree of assurance of repayment and the economic indicia of
ownership of the underlying property. Based on an analysis of the relevant
factors, although there is no authority directly on point, in the opinion of
Cadwalader, Wickersham & Taft, the Notes will be treated for federal income tax
purposes as indebtedness and not as an ownership interest in the Accounts nor as
an equity interest in the Issuer or a separate association taxable as a
corporation and, further, under current law, the Trust will not be treated as a
taxable mortgage pool ("TMP") as defined in Code Section 7701(i).
Based on the foregoing, for federal income tax purposes, (i) Notes held by a
thrift institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v); (ii) interest on Notes held by a real
estate investment trust will not be treated as "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B); (iii) Notes
43
<PAGE>
held by a real estate investment trust will not constitute "real estate assets"
or "Government securities" within the meaning of Code Section 856(c)(4)(A); and
(iv) Notes held by a regulated investment company will not constitute
"Government securities" within the meaning of Code Section 851(b)(3)(A)(i).
ORIGINAL ISSUE DISCOUNT AND PREMIUM
Tax counsel will indicate in the related Prospectus Supplement whether the
Notes may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Generally, such original issue discount, if any, will equal
the difference between the "stated redemption price at maturity" of the Notes
and their "issue price." Holders of any Notes issued with original issue
discount generally must include such original issue discount in gross income for
federal income tax purposes as it accrues, in accordance with a constant
interest method based on the compounding of interest, in advance of receipt of
the cash attributable to such income.
Based on Code Sections 1271 through 1273 and Section 1275, Treasury
Regulations under such Code Sections issued on January 27, 1994, as amended on
June 14, 1996 (the "OID Regulations") and certain provisions of the Tax Reform
Act of 1986 (the "1986 Act"), the Depositor anticipates that the amount of
original issue discount required to be included in a Noteholder's income in any
taxable year will be computed as described below. The OID Regulations require
that the amount and rate of accrual of original issue discount be calculated
based on a reasonable assumed prepayment rate for the collateral supporting a
debt instrument ("Prepayment Assumption") and prescribes a method for adjusting
the amount and rate of accrual of such discount where the actual prepayment rate
differs from the Prepayment Assumption. The Prepayment Assumption will include a
reasonable assumed prepayment rate for the Accounts. The OID Regulations provide
that the Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of such Notes, and which is not an
unreasonable assumption. The Prepayment Assumption determined by the Depositor
for the purposes of determining the amount and rate of accrual of original issue
discount will be set forth in the Prospectus Supplement with respect to a Series
of Notes. No representation is made that the Accounts will prepay at the
Prepayment Assumption or at any other rate. The Prepayment Assumption used to
price the Notes will be based in part on an assumed level of cash recoveries on
repossessed properties and also on an assumed default rate on the Accounts. It
is unclear under the 1986 Act and the OID Regulations whether an assumption as
to cash recoveries on repossessed properties or an assumption as to a default
rate on the Accounts will be acceptable. Moreover, it is not clear whether an
assumption as to the expected timing of payments on an equity interest in a
Trust is permissible. The Depositor intends, however, to use such assumptions
for purposes of computing original issue discount on the Notes unless
regulations are issued that prohibit the use of such assumptions. There can be
no assurance, however, that the Internal Revenue Service (the "IRS") will agree
with the positions taken by the Depositor and any challenge by the IRS could
result in holders being required to include income in different amounts or at
different times from those described below.
In general, each Note will be treated as a single installment obligation
issued with an amount of original issue discount equal to the excess of its
"stated redemption price at maturity" over its "issue price." The "issue price"
of the Notes is the price at which a substantial amount of the Notes are first
sold to the public (excluding bond houses, brokers, underwriters or wholesalers)
regardless of the price paid by subsequent buyers. Generally, the stated
redemption price at maturity of a Note is its stated principal amount. Under a
DE MINIMIS rule contained in the Code, original issue discount will be
considered to be zero, however, if it equals less than 0.25% of the stated
redemption price at maturity of a Note multiplied by its weighted average
maturity. Weighted average maturity is computed, for this purpose, as the sum of
the amounts determined by multiplying (i) the number of full years from the
issue date (rounding down for partial years) until each payment included in the
stated redemption price at maturity is scheduled to be made under the Prepayment
Assumption, by (ii) a fraction, the numerator of which is the amount of each
such payment and the denominator of which is the Note's stated redemption price
at maturity.
44
<PAGE>
Generally, a Noteholder must include in gross income in each taxable year,
the "daily portion," as determined below, of the original issue discount that
accrues on a Note for each day during the taxable year that the Noteholder holds
such Note, including the purchase date but excluding the disposition date. In
the case of an original holder of a Note, a calculation will be made of the
portion of the original issue discount that accrues during each successive
period (an "accrual period") that either begins or ends on the day in the
calendar year corresponding to a Payment Date and begins on the day after the
end of the immediately preceding accrual period (or on the issue date in the
case of the first accrual period). This will be done, in the case of each full
accrual period, by (a) adding (i) the present value at the end of the accrual
period (determined by using as a discount factor the original yield to maturity
of the Note as calculated under the Prepayment Assumption), and (ii) any
principal payments received during such accrual period and (b) subtracting from
the total the "adjusted issue price" of the Note at the beginning of such
accrual period. The "adjusted issue price" of a Note at the beginning of the
first accrual period is its issue price; the "adjusted issue price" of a Note at
the beginning of a subsequent accrual period is the "adjusted issue price" at
the beginning of the immediately preceding accrual period plus the amount of
original issue discount allocable to that accrual period and reduced by the
amount of any principal payment made at the end of or during that accrual
period. The original issue discount accrued during an accrual period will then
be divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the accrual period. With respect to an
initial accrual period shorter than a full accrual period, the daily portions of
original issue discount must be determined according to an appropriate
allocation under a reasonable method set forth under the OID Regulations,
provided that such method is consistent with the method used to determine yield
on the Notes. The calculation of original issue discount as described above will
cause the accrual of original issue discount to either increase or decrease (but
never below zero) in a given accrual period to reflect the fact that prepayments
are occurring faster or slower than under the Prepayment Assumption.
A subsequent purchaser of a Note issued with original issue discount who
purchases the Note at a cost less than the remaining stated redemption price at
maturity but more than its adjusted issue price (i.e., at an "acquisition
premium"), also will be required to include in gross income the sum of the daily
portions of original issue discount on the Note. In computing the daily portions
of original issue discount for such a purchaser, however, the daily portion is
reduced by the amount that would be the daily portion for such day (computed in
accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that Note exceeds the following amount: (a) the sum of the issue price plus
the aggregate amount of original issue discount that would have been includable
in the gross income of an original Noteholder (who purchased the Note at its
issue price), (b) less any prior payments included in the stated redemption
price at maturity, and the denominator of which is the sum of the daily portions
for that Note for all days beginning on the date after the purchase date and
ending on the maturity date computed under the Prepayment Assumption.
An initial purchaser of a Note who purchases the Note at a cost greater than
its principal amount will be considered to have purchased the Note at a premium.
Moreover, a purchaser who purchases a Note in the secondary market for greater
than its adjusted issue price (in the case of a Note issued with original issue
discount) or its remaining principal amount (in the case of a Note issued
without original issue discount) will be considered to have purchased the Note
at a premium. A Noteholder that holds a Note purchased at a premium as a capital
asset within the meaning of Section 1221 of the Code may elect to amortize such
premium under a constant yield method. The Code provides that amortizable bond
premium will be treated as an offset to interest income rather than as a
deductible interest expense. The election to amortize premium will apply to all
debt instruments acquired by the Noteholder at a premium held in that taxable
year or thereafter, unless revoked with the permission of the IRS. Investors
should consult their own tax advisors regarding the consequences of making such
an election.
The OID Regulations permit a Noteholder to elect to accrue all interest,
discount (including DE MINIMIS market or original issue discount) and premium on
the Notes in income as interest, based on a
45
<PAGE>
constant yield method. If such an election were to be made with respect to a
Note with market discount, the Noteholder would be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that such Noteholder acquires
during the year of the election or thereafter. Similarly, a Noteholder that
makes this election for a Note that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Noteholder owns or
acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a Note is irrevocable without the consent of the
IRS.
MARKET DISCOUNT
A purchaser of a Note also may be subject to the market discount provisions
of Code Sections 1276 through 1278. Under these provisions and the rules set
forth in the OID Regulations with respect to original issue discount, "market
discount" equals the excess, if any, of (i) the Note's stated principal amount
or, in the case of a Note with original issue discount, the adjusted issue price
(determined for this purpose as if the purchaser had purchased such Note from an
original holder) over (ii) the price paid by the purchaser for such Note. Under
a DE MINIMIS rule contained in the Code, market discount with respect to a Note
will be considered to be zero if the amount allocable to the Note is less than
0.25% of the stated redemption price at maturity of such Note multiplied by the
number of complete years to maturity of the Note remaining after the date of
purchase. If market discount on a Note is considered to be zero under this rule,
the actual amount of market discount must be allocated to the remaining
principal payments on the Note and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Investors should
consult their own advisors regarding the application of the market discount
rules and advisability of making any of the elections allowed under Code
Sections 1276 through 1278.
The 1986 Act provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount Note
acquired by the taxpayer after the date of enactment of the Act shall be treated
as ordinary income to the extent that it does not exceed the accrued market
discount at the time of such payment. The amount of accrued market discount for
purposes of determining the tax treatment of subsequent principal payments or
dispositions of the Note is to be reduced by the amount so treated as ordinary
income. This rule will not apply, however, if the Noteholder elects to include
market discount in income currently as it accrues on all market discount
obligations acquired by such Noteholder in the taxable year and thereafter.
The 1986 Act also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, certain rules
described in the legislative history accompanying the 1986 Act will apply. Under
those rules, the holder of a market discount Note may elect to accrue market
discount either on the basis of a constant interest rate (taking into account
the Prepayment Assumption) or according to one of the following methods. For
Notes issued with original issue discount, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
original issue discount accruing during the period and the denominator of which
is the total remaining original issue discount at the beginning of the period.
For Notes issued without original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount under any
of the methods in the case of instruments (such as the Notes) which provide for
payments which may be accelerated by reason of prepayments of other obligations
securing such instruments, the Prepayment
46
<PAGE>
Assumption will apply. Regulations are to provide similar rules for computing
the accrual of amortizable note premium on instruments payable in more than one
principal installment.
A holder of a Note who acquired such Note at a market discount also may be
required to defer, until the maturity date of such Note or its earlier
disposition in a taxable transaction, the deduction of a portion of the amount
of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry the Note in excess of
the aggregate amount of interest (including original issue discount) includable
in such holder's gross income for the taxable year with respect to such Note.
The amount of such net interest expense deferred in a taxable year may not
exceed the amount of market discount accrued on the Note for the days during the
taxable year on which the holder held the Note and, in general, would be
deductible when such market discount is includable in income. The amount of any
remaining deferred deduction is to be taken into account in the taxable year in
which the Note matures or is disposed of in a taxable transaction. In the case
of a disposition in which gain or loss is not recognized, in whole or in part,
any remaining deferred deduction will be allowed to the extent gain is
recognized on the disposition. The deferral rule does not apply if the
Noteholder elects to include such market discount in income currently as it
accrues on all market discount obligations acquired by such Noteholder in that
taxable year and thereafter.
SALE OR REDEMPTION OF NOTES
If a Note is sold or redeemed, the seller generally will recognize gain or
loss equal to the difference between the amount realized on the sale or
redemption and the seller's adjusted basis in the Note. Such adjusted basis
generally will equal the cost of the Note to the seller, increased by any
original issue discount and market discount included in the seller's gross
income with respect to the Note, and reduced by payments included in the stated
redemption price at maturity previously received by the seller and by any
amortized premium. Similarly, a holder who receives a payment which is part of
the stated redemption price at maturity of a Note will recognize gain equal to
the excess, if any, of the amount of the payment over such holder's adjusted
basis in the Note. A holder of a Note who receives a final payment which is less
than such holder's adjusted basis in the Note will generally recognize a loss.
In general, such gain or loss will be a capital gain or loss, provided that the
Note is held as a "capital asset" (generally, property held for investment)
within the meaning of Code Section 1221.
FOREIGN INVESTORS
Payments of interest (including any payment with respect to accrued original
issue discount) on the Notes to a Noteholder who is a non-United States person
("foreign person") not engaged in a trade or business within the United States,
will not be subject to Federal income or withholding tax if (i) such Noteholder
does not actually or constructively own 10 percent or more of the combined
voting power of all classes of equity in Mid-State or any parent corporation
thereof, (ii) such Noteholder is not a controlled foreign corporation (within
the meaning of Code Section 957) related to Mid-State or any parent corporation
thereof and (iii) such Noteholder complies with certain identification
requirements (including delivery of a statement, signed by the Noteholder under
penalty of perjury, certifying that such Noteholder is a foreign person and
providing the name and address of such Noteholder). As used herein, the term
"foreign person" means a person that is, for United States Federal income tax
purposes, someone other than (i) a citizen or resident of the United States,
(ii) a corporation, partnership (except to the extent provided in applicable
Treasury Regulations) or other entity created or organized in or under the laws
of the United States or of any political subdivision thereof, (iii) an estate
whose income is subject to United States federal income tax regardless of its
source or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust (or, to the extent provided in applicable Treasury regulations, certain
trusts in existence on August 20, 1996 which are eligible to elect to be treated
as United States persons).
47
<PAGE>
Recently issued Treasury regulations (the "New Regulations") provide
alternative methods of satisfying the certification requirement described above.
The New Regulations are effective January 1, 2000, although valid withholding
certificates that are held on December 31, 1999, remain valid until the earlier
of December 31, 2000 or the date of expiration of the certificate under the
rules as currently in effect. The New Regulations require, in the case of Notes
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Noteholders who are foreign persons as described above should
consult their own tax advisors concerning the application of the certification
requirements in the New Regulations.
If a tax is withheld by the withholding agent, the Noteholder would be
entitled to a refund of such tax if such Noteholder can prove it is a foreign
person and it is not a 10 percent shareholder of Mid-State or any parent
corporation thereof, or a controlled foreign corporation related to Mid-State or
any parent corporation thereof. A Noteholder may be required to file a U.S.
Federal income tax return to obtain a refund. Foreign investors should consult
their tax advisors regarding the potential imposition of the 30 percent
withholding tax.
BACKUP WITHHOLDING
Federal income tax laws provide for "backup withholding" of tax at a rate of
31% in certain circumstances on "reportable payments," which include payments of
principal, interest and original issue discount (determined in any case as if
the Noteholder were the original holder of the Note), but not market discount,
on a Note and of the proceeds of the disposition of a Note. Persons subject to
the requirement of backup withholding include, in certain circumstances, the
Depositor, the Issuer, the paying agent of the Issuer, a person who collects a
payment of interest or original issue discount as a custodian or nominee on
behalf of the Noteholder and a "broker" (as defined in applicable Treasury
regulations) through which the Noteholder receives the proceeds of the
retirement or other disposition of a Note. Backup withholding applies only if
the Noteholder, among other things, (1) fails to furnish a social security
number or other taxpayer identification number to the person subject to the
requirement of backup withholding, (2) furnishes an incorrect taxpayer
identification number to such person, (3) fails to report properly interest or
dividends or (4) under certain circumstances, fails to provide to such person a
certified statement, signed under penalty of perjury, that the taxpayer
identification number furnished is the correct number and that such Noteholder
is not subject to backup withholding.
Backup withholding will not apply, however, with respect to certain payments
made to Noteholders, including payments to certain exempt recipients (such as
tax-exempt organizations) and to certain foreign persons (as discussed under
"Foreign Investors" above). Noteholders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
The amount of any "reportable payments" made by the Issuer during each
calendar year and the amount of tax withheld, if any, with respect to payments
on the Notes will be reported to the Noteholders and to the IRS.
TAXABLE MORTGAGE POOLS
Under Code section 7701(i), an entity substantially all the assets of which
consist of mortgage loans and which does not elect REMIC status may be
classified as a taxable mortgage pool only if it is "the obligor under debt
obligations with two or more maturities." On August 4, 1995 the IRS issued
Treasury regulations under Section 7701(i) (the "TMP Regulations"). Because the
Notes will pay principal PRO RATA in the absence of losses on the Accounts and
various Classes of Notes will have the same maturities (within the meaning of
applicable Treasury regulations), the Trust will not be classified as a TMP.
48
<PAGE>
THE INDENTURE
The following summaries describe the material provisions expected to be in
the Indenture for each Series of Notes not described elsewhere in this
Prospectus. The summaries do not purport to be complete and are qualified in
their entirety by reference to the provisions of the Indenture of the related
Series. The related Prospectus Supplement will describe any material provisions
of the related Indenture not described herein. Where particular provisions or
terms used in the Indenture for a Series of Notes are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries. The Notes of each Series will be secured under the
related Indenture.
NEGATIVE COVENANTS
With respect to each Series of Notes, the related Issuer will not, among
other things, engage in any business or activity other than in connection with,
or relating to, the issuance of Notes of such Series and the purchase of the
related Accounts or the preservation of the related Trust and the release of
assets therefrom pursuant to the related Indenture and the related Trust
Agreement. See "THE ISSUER" herein.
REVIEW OF ACCOUNT DOCUMENTS
Within 90 days after the Closing Date for a Series of Notes, the related
Indenture Trustee will review the Mortgage Collateral documents with respect to
each Account for such Series of Notes that is part of such Mortgage Collateral
to determine that all documents required to be delivered have been delivered,
that they have been executed as required and that they relate to the Accounts
listed on the Schedule of Accounts attached to the Indenture for such Series of
Notes. Upon discovery that any such Mortgage Collateral document is missing or
defective in a materially adverse manner, the related Indenture Trustee will
notify the Servicer and the Issuer of such Series of Notes.
Within 90 days of the earlier of discovery by or notice to the Issuer of a
Series of Notes that any related Mortgage Collateral document is missing or
defective and such omission or defect materially and adversely affects the
interest of the Noteholders of such Series in a related Account, such Issuer
will be required to use its best efforts to cure such omission or defect. If
such omission or defect is not or cannot be cured within such 90-day period or,
with the prior written consent of the related Indenture Trustee, such longer
period as specified in such consent, such Issuer is required to either (i)
deposit in the related Collection Account an amount equal to 100% of the current
Economic Balance of the affected Account for such Series, at which time such
affected Account will be released from the lien of the related Indenture or (ii)
remove such Account from the lien of such Indenture and substitute one or more
qualified substitute accounts.
In order to be a "qualified substitute account," an account must comply with
the representations and warranties described under "THE
INDENTURE--Representations and Warranties" below, and must have an Economic
Balance not less than the Economic Balance of, and an Effective Financing Rate
not less than the Effective Financing Rate of, the Account for which it is being
substituted, all as more specifically set forth in the related Indenture.
With respect to each Series of Notes, the obligation of the related Issuer
to cure any such omission or defect or to repurchase or substitute for the
affected Account will be the sole remedy available to such Indenture Trustee or
Noteholders for such Series in respect of the related omission or defect.
REPRESENTATIONS AND WARRANTIES
With respect to each Series of Notes in the related Indenture the Issuer of
such Series of Notes will make representations and warranties with respect to
each related Account that constitutes part of the Mortgage Collateral for such
Series to the effect that as of the related Closing Date:
49
<PAGE>
(a) the information set forth with respect to such Account in the
Schedule of Accounts attached to the Indenture is true and correct as of the
date as of which such information is given;
(b) the related building or installment sale contract, as the case may
be, has been duly executed by the parties thereto and the duties to be
performed thereunder prior to the date the first payment in connection with
such contract is due have been performed;
(c) the Mortgage Collateral documents have been duly executed by the
Account obligor and, to the extent required under local law for recordation
or enforcement, properly acknowledged;
(d) the mortgages have been properly recorded as required by law and
such documents constitute a valid first priority lien upon and secure title
to the property described therein, which in each case, is a single family
detached dwelling, and such Mortgage Collateral documents are enforceable in
accordance with their respective terms except as enforceability thereof may
be limited by bankruptcy, insolvency, moratorium and other laws affecting
creditors' rights generally and by general principles of equity (whether
applied in a proceeding in law or at equity);
(e) the Issuer is the sole owner of each Account that is part of the
Mortgage Collateral and has good title to such Account and full right and
authority to grant a lien or security interest on such Account to the
Indenture Trustee and, upon delivery of the related Mortgage Collateral
documents to the Indenture Trustee, the Indenture Trustee will have a valid
and perfected lien or security interest in such Account;
(f) all costs, fees, intangible, documentary, recording taxes and
expenses incurred in making, closing and recording such Account and the
related mortgage and in connection with the issuance of the Notes, have been
paid;
(g) no part of the property purporting to secure any such Account has
been, or shall have been, released from the lien or security title of the
related mortgage, deed of trust, mechanic's lien contract or other security
agreement except for property securing Accounts which have prepaid in full
between the Cut-Off Date and the date that is five business days prior to
the Closing Date which amounts shall be deposited in the Collection Account
on or before the Closing Date;
(h) except to the extent permitted by the Servicing Agreement, no term
or provision of any Account that is part of the Mortgage Collateral has been
or will be altered, changed or modified in any way by the Servicer or the
Issuer without the consent of the Indenture Trustee;
(i) Mid-State and the Issuer acquired title to the Accounts in good
faith, for value and without notice of any adverse claim;
(j) the promissory note or installment contract with respect to each
Account evidences a homeowner's obligation to pay the Gross Receivable
Amount of the related Account with fully amortizing level monthly payments
and each bears a fixed finance charge rate. Each promissory note or
installment contract has an original term to maturity not in excess of 30
years;
(k) except as disclosed in the Indenture, there is no right of
rescission, setoff, defense or counterclaim to the promissory note,
installment contract, mortgage, mechanic's lien contract or other security
agreement with respect to any Account, including both the obligation of the
Account obligor to pay the unpaid balance of the cash price or finance
charge on such promissory note or installment contract and the defense of
usury; furthermore, neither the operation of any of the terms of the
promissory note, installment contract, mortgage, mechanic's lien contract or
other security agreement with respect to any Account nor the exercise of any
right thereunder will render such promissory note, installment contract,
mortgage, mechanic's lien contract or other security agreement
unenforceable, in whole or in part, or subject such promissory note or
mortgage to any right of rescission, setoff, counterclaim or defense,
including the defense of usury, and no such right of rescission, setoff,
counterclaim or defense has been asserted with respect thereto;
50
<PAGE>
(l) as of the Closing Date, to the best of the Issuer's knowledge there
are no mechanics' liens or claims for work, labor or material (and to the
best of the Issuer's knowledge, no rights or claims are outstanding that
under law could give rise to such lien) affecting any mortgaged property
which are or may be a lien prior to, or equal with, the lien of the
mortgage, mechanic's lien contract or other security agreement thereon;
(m) except as disclosed in the Indenture, the promissory note or
installment contract with respect to each Account at origination complied in
all material respects with applicable local, state and federal laws,
including, without limitation, usury, equal credit opportunity,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws;
(n) as of the Closing Date, with respect to each deed of trust with
respect to any Account, a trustee, duly qualified under applicable law to
serve as such, is properly designated, serving and named in such deed of
trust;
(o) there has been no fraud, dishonesty, misrepresentation or negligence
on the part of the originator or Account obligor in connection with the
origination of the promissory note or installment contract with respect to
any Account or in connection with the sale of the related Account; and
(p) to the best knowledge of the Issuer, except for Mortgaged Properties
for which insurance proceeds are available, each Mortgaged Property is free
of damage which materially and adversely affects the value thereof.
Within 90 days of the earlier of discovery by or notice to the related
Issuer of any breach of a representation or warranty which materially and
adversely affects the interest of the Noteholders of such Series in a related
Account, the Issuer of such Series of Notes is required to use its best efforts
to cure such breach in all material respects. If such breach is not or cannot be
cured within such 90-day period or, with the prior written consent of the
related Indenture Trustee, such longer period as specified in such consent, the
Issuer of such Series of Notes is required to either (i) deposit in the related
Collection Account an amount equal to 100% of the current Economic Balance of
the affected Account, at which time such affected Account will be released from
the lien of the related Indenture or (ii) remove such Account from the lien of
such Indenture and substitute one or more qualified substitute accounts.
In order to be a "qualified substitute account," an account must comply with
the representations and warranties set forth above and must have an Economic
Balance not less than the Economic Balance of, and an Effective Financing Rate
not less than the Effective Financing Rate of, the Account for which it is being
substituted all as more specifically set forth in the related Indenture.
The obligation of the Issuer of a Series of Notes to cure any such breach or
to repurchase or substitute for the affected Account will be the sole remedy
available to the related Indenture Trustee or Noteholders of the particular
Series of Notes in respect of the related breach.
MODIFICATION OF INDENTURE
With the consent of the holders of Notes of a Series evidencing not less
than 50% of the Voting Rights of each Class of Notes of such Series adversely
affected, the related Indenture Trustee and the Issuer of such Series of Notes
may execute a supplemental indenture to add provisions to, or change in any
manner or eliminate provisions of, the related Indenture or modify (except as
provided below) in any manner the rights of the holders of the Notes of such
Series.
Without the consent of the holders of each outstanding Note of a Series
affected thereby, no supplemental indenture shall (a) change the related
maturity date, or the Payment Date for any installment of interest on, any Note
of such Series or reduce the principal amount thereof, the interest rate thereon
or the redemption price with respect thereto, or change the earliest date on
which any Note of
51
<PAGE>
such Series may be redeemed or any place of payment where, or the coin or
currency in which, any Note of such Series or any interest thereon is payable or
impair the right to institute suit for the enforcement of certain provisions of
the related Indenture regarding payment, (b) reduce the percentage of the Voting
Rights, the consent of the holders of which is required for any supplemental
indenture, or the consent of the holders of which is required for any waiver of
compliance with certain provisions of the related Indenture, or of certain
defaults thereunder and their consequences as provided for in the related
Indenture, (c) modify the provisions of the related Indenture relating to the
sale of property subject to the lien under the related Indenture or specifying
the circumstances under which such a supplemental indenture may not change the
provisions of the related Indenture without the consent of the holders of each
outstanding Note of such Series affected thereby, as applicable, (d) modify or
alter the provisions of the related Indenture regarding the voting of Notes of
such Series held by the related Issuer or an affiliate of such Issuer, (e)
permit the creation of any lien ranking prior to or on a parity with the lien of
the related Indenture with respect to any part of the property subject to the
lien under the related Indenture or terminate the lien of the related Indenture
on any property at any time subject thereto or deprive the holder of any Note of
such Series of the security afforded by the lien of the related Indenture or (f)
modify any of the provisions of the related Indenture in such manner as to
affect the calculation of the principal and interest payable on any Note of such
Series.
VOTING
The voting rights assigned to each Class of Notes of a Series (the "Voting
Rights") will be a fraction, expressed as a percentage, the numerator of which
is equal to the aggregate outstanding principal amount of such Class of Notes of
a Series and the denominator of which is equal to the aggregate outstanding
principal amount of all Classes of Notes of such Series.
EVENTS OF DEFAULT
With respect to each Series of Notes, an event of default (an "Event of
Default") will be defined in the related Indenture as one or more of the
following events: (i) a default in the payment of any amount due under the Notes
of such Series by the related maturity date; (ii) a failure to apply funds in
the Collection Account of such Series in accordance with the related Indenture
and such failure continues for a period of two days; (iii) a default in the
payment when due of any interest on any Class of Notes of a particular Series
and the expiration of a 30-day grace period; (iv) the failure to pay the
outstanding principal balance of each Class of Notes of such Series on the
related maturity date; (v) a default in the observance of certain negative
covenants in the related Indenture; (vi) a default in the observance of any
other covenant in the related Indenture and the continuation of any such default
for a period of thirty days after notice to the Issuer of such Series of Notes
by the related Indenture Trustee or to such Issuer and such Indenture Trustee by
the holders of Notes of such Series entitled to at least 40% of the Voting
Rights, such written notice specifying the Event of Default and stating that
such notice is a "Notice of Default;" or (vii) certain events of bankruptcy or
insolvency with respect to the Issuer of such Series of Notes. Notwithstanding
the foregoing, with respect to a Series of Notes that uses subordination as a
form of Credit Enhancement, prior to the applicable maturity date, any of the
events described in the preceding sentence will not be an Event of Default in
respect of a subordinate Class of Notes until each Class of Notes senior in
priority of payments has been paid in full.
RIGHTS UPON EVENT OF DEFAULT
With respect to each Series of Notes, the related Indenture provides that
the Indenture Trustee for such Series of Notes may exercise remedies on behalf
of the Noteholders of such Series only if an Event of Default has occurred and
is continuing. The Indenture Trustee for such Series of Notes shall proceed, in
its own name, subject to the related Indenture, to protect and enforce its
rights and the rights of the
52
<PAGE>
Noteholders of such Series by such remedies provided for in the related
Indenture as the related Indenture Trustee shall deem most effectual to protect
and enforce such rights.
LIMITATIONS ON SUITS
No holder of any Note of a Series will have the right to institute any
proceedings, judicial or otherwise, with respect to the related Indenture, or
for the appointment of a receiver or trustee, or for any other remedy under the
related Indenture, unless (a) such holder previously has given to the related
Indenture Trustee written notice of a continuing Event of Default, (b) the
holders of Notes of such Series entitled to not less than 40% of the Voting
Rights of such Series have made written request of the related Indenture Trustee
to institute such proceedings in its own name as Indenture Trustee and have
offered such Indenture Trustee reasonable indemnity against the costs, expenses
and liabilities to be incurred in compliance with such request, (c) such
Indenture Trustee has for 60 days after its receipt of such notice neglected or
refused to institute any such proceeding and (d) no direction inconsistent with
such written request has been given to such Indenture Trustee during such 60-day
period by the holders of a majority in principal amount of the then outstanding
Notes of such Series.
REPORTS TO NOTEHOLDERS
With respect to each Series of Notes, on each Payment Date the related
Indenture Trustee is required to deliver to the Noteholders of such Series a
written report setting forth the amount of the quarterly payment which
represents principal and the amount which represents interest (in each case on a
per individual Note basis), and the remaining outstanding principal amount of an
individual Note after giving effect to the payment of principal made on such
Payment Date.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
With respect to each Series of Notes, the related Issuer will be required to
file annually with the Indenture Trustee for such Series a written statement as
to the fulfillment of its obligations under the related Indenture.
SATISFACTION AND DISCHARGE OF INDENTURE
With respect to each Series of Notes, the related Indenture will be
discharged in respect of the Accounts for such Series upon the delivery to the
related Indenture Trustee for cancellation of all the Notes of such Series or,
with certain limitations, upon deposit with the related Indenture Trustee of
funds sufficient for the payment in full of all the Notes of such Series.
THE INDENTURE TRUSTEE
The Indenture Trustee will be the entity or entities named in the related
Prospectus Supplement.
THE SERVICING AGREEMENT
GENERAL
With respect to each Series of Notes, the related Accounts will be serviced
by the Servicer under the Servicing Agreement for such Series of Notes between
the Servicer and the related Issuer, which will be assigned to the related
Indenture Trustee as additional security for the Notes of such Series. The
following summaries describe the material provisions of each Servicing Agreement
for each Series of Notes. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the related Servicing Agreement and the Indenture for such Series of Notes, and
where particular provisions or terms used in the related Servicing Agreement or
the related Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of
53
<PAGE>
such summaries. The offices of the Servicer are located at 1500 North Dale Mabry
Highway, Tampa, Florida 33607. The Servicer, as Depositor, will be the settlor
and initially the sole beneficiary of the Issuer. The Servicer will perform the
services described below and set forth in each Servicing Agreement.
COLLECTION OF PAYMENTS
With respect to each Series of Notes, the Servicer will service the Accounts
and will provide certain accounting and reporting services with respect to the
Accounts. The Servicer will be obligated to service the Accounts generally in
accordance with certain specific standards set forth in the related Servicing
Agreement and otherwise in accordance with reasonable and prudent servicing
standards that are employed by a prudent servicer with respect to the servicing
of accounts held in its own portfolio and in accordance with the Servicer's past
practices. Although the Servicer will be responsible for servicing the Accounts,
the Servicer will enter into a sub-servicing agreement with Jim Walter Homes
pursuant to which Jim Walter Homes will perform certain day-to-day servicing
functions, such as following up on delinquent accounts and initiating
foreclosure proceedings, in accordance with the standards and provisions of the
related Servicing Agreement.
Generally, all payments received on the Mortgage Collateral for a Series of
Notes will be deposited on a daily basis in a separate holding account (each, a
"Holding Account") established with and in the name of a custodian as set forth
in the related Prospectus Supplement prior to the related Closing Date. The
Servicer will transfer the payments attributable to the Mortgage Collateral for
a Series of Notes, net of the applicable servicing fee and other permitted
deductions, into the related Collection Account.
With respect to each Series of Notes, the Servicer will perform certain
monitoring and reporting functions for the related Indenture Trustee, including
the preparation and delivery of monthly reports to the related Indenture Trustee
covering the current payments and prepayments in full received with respect to
the Accounts of such Series and reports covering defaulted Accounts.
SERVICING FEE
The servicing fee will be calculated and paid as set forth in the related
Prospectus Supplement. In addition to the servicing fee, the Servicer may
receive other fees as set forth in the related Prospectus Supplement.
INSURANCE; TAXES
The Servicer will not be required to maintain escrow accounts for collection
of taxes or premiums on Insurance Policies on the Accounts. The terms of each
Account require the obligor to maintain a standard Insurance Policy covering the
property underlying such Account. The standard Insurance Policy is generally in
the form of the fire insurance policy with extended coverage that is customary
in the state in which the Mortgaged Property is located. Such standard forms
vary from state to state but generally cover damage by fire, lightning and
windstorm, subject to certain conditions and exclusions. Other causes of damage
(including without limitation floods and earth movements) are not covered. With
respect to each Series of Notes, the Servicing Agreement requires the Servicer
to cause such a policy to be maintained in full force and effect or to maintain
a blanket insurance policy insuring against hazard and certain other losses with
respect to each such Account. The Servicer or Jim Walter Homes, as sub-servicer,
will be required to monitor the customer's payment of insurance and taxes. If
such payments are not made, the Servicer will be required to make such payments
and will not be reimbursed for such payments except to the extent such amounts
are collected from the obligor, from a sub-servicer or to the extent recoverable
as liquidation expenses.
If the Servicer obtains an Insurance Policy on behalf of an obligor, it
normally does so through an insurance agency that is an affiliate of the
Servicer, and the reinsurer, if any, of such Insurance Policy is an affiliate of
the Servicer.
54
<PAGE>
REALIZATION UPON DEFAULTED ACCOUNTS
The Servicer will foreclose upon or otherwise comparably convert the
ownership of the property securing any Account that comes into default and as to
which no satisfactory arrangements can be made for collection of delinquent
amounts. In connection with such foreclosure or other conversion, the Servicer
will follow such practices and procedures specified in the Servicing Agreement
for such Series of Notes as are consistent with its customary servicing
procedures. In this regard, the Servicer may sell the property at a foreclosure
or a trustee's sale. Generally, however, it is expected that the property will
be resold primarily in exchange for a new account and such account will be an
Account securing the Notes of such Series.
If any property securing a defaulted Account is damaged and the proceeds, if
any, from the related Insurance Policy maintained by the customer or from any
temporary insurance policy obtained by the Servicer are insufficient to restore
the damaged property completely, the Servicer will not be required to expend its
own funds to restore the damaged property unless it determines (i) that such
restoration is likely to increase the liquidation proceeds of the related
Account and (ii) that it will recover such expenses through liquidation or
insurance proceeds.
RESIGNATION
With respect to each Series of Notes, the Servicer may not resign from its
obligations and duties under the related Servicing Agreement unless it
determines that its duties thereunder are no longer permissible by reason of a
change in applicable law. No such resignation will be effective until a
successor servicer has assumed the Servicer's obligations and duties under the
related Servicing Agreement. Such a successor servicer must be satisfactory to
the Issuer of such Series of Notes and the related Indenture Trustee in the
exercise of their reasonable discretion. The Servicer may, however, enter into
sub-servicing agreements with any person similar to the one to be entered into
with Jim Walter Homes to perform any of its obligations under the Servicing
Agreement for a Series of Notes, but the Servicer will remain fully liable for
performance of all obligations under the related Servicing Agreement.
ANNUAL ACCOUNTANTS' REPORT
With respect to each Series of Notes, the Servicer will be required to cause
a firm of independent certified public accountants to furnish to the Issuer of
each Series of Notes and the related Indenture Trustees, at such times as set
forth in the related Prospectus Supplement, a statement to the effect that such
firm (a) has examined the Servicer's financial statements for the preceding
fiscal year in accordance with generally accepted auditing standards and has
issued an opinion thereon, and (b) has examined certain documents and records
relating to the servicing of the Accounts during the preceding fiscal year in
accordance with the Uniform Single Audit Program for Mortgage Bankers, and has
found no material exceptions relating to the Accounts for such Series or has set
forth such exceptions.
EVENTS OF DEFAULT
With respect to each Series of Notes, Events of Default under each Servicing
Agreement will include: (a) any failure to deposit into the Holding Account of a
Series of Notes any required payment within two Business Days after it is
required to be deposited; (b) any failure by the Servicer duly to observe or
perform any other of its covenants or agreements in the related Servicing
Agreement which continues unremedied for 30 days after the giving of written
notice of such failure by the related Indenture Trustee or the holders of Notes
of such Series representing a majority in principal amount of the then
outstanding Notes of such Series; (c) certain events of bankruptcy, insolvency,
receivership or reorganization of the Servicer, any sub-servicer or any
affiliate of either; (d) any representation, warranty or statement of the
Servicer made in the related Servicing Agreement or any other certificate
delivered in connection with the issuance of the Notes of such Series being
materially incorrect as of the time such representation, warranty or statement
was made, which defect has not been cured within 30 days after the Servicer
received notice
55
<PAGE>
of the defect; and (e) any failure of the Servicer to deliver to the related
Indenture Trustee a weekly report covering transfers from the related Holding
Account to the related Collection Account in the absence of force majeure.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Servicing Agreement remains
unremedied, the Issuer or the Indenture Trustee of such Series of Notes (in each
case subject to the provisions of the related Indenture) or, with the consent of
the related Indenture Trustee, holders of Notes of such Series entitled to more
than 50% of the Voting Rights of each Class of Notes of such Series may
terminate all of the rights and obligations of the Servicer under the related
Servicing Agreement. Upon such termination, the Issuer of such Series of Notes
will be obligated to obtain a substitute servicer satisfactory to the related
Indenture Trustee. If the Issuer of such Series of Notes fails to appoint a
servicer satisfactory to the related Indenture Trustee, such Indenture Trustee
may appoint or petition, in a court of competent jurisdiction, for the
appointment of a servicer to act as successor to the Servicer under the related
Servicing Agreement. Pending the appointment of a successor Servicer, the
Indenture Trustee of such Series of Notes will be obligated to act as Servicer.
The Indenture Trustee of a Series of Notes and such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation to the Servicer under the related Servicing Agreement. No
termination of the Servicer shall be effective until the new servicer enters
into a servicing agreement with the Issuer of such Series of Notes and the
related Indenture Trustee.
TERMINATION AND REPLACEMENT OF SERVICER
Upon the occurrence of certain events as set forth in the related Prospectus
Supplement, the Indenture Trustee of such Series of Notes will have the option
to, but is not obligated to: (i) terminate the rights of the Servicer under the
related Servicing Agreement and appoint a new Servicer thereunder; (ii) compel
the transfer of the software used by the Servicer to service the related
Accounts; (iii) direct the homeowners under the Accounts of such Series of Notes
to make payments directly to the successor Servicer; and/or (iv) avail itself of
any other remedies under the related Servicing Agreement or the related
Indenture.
AMENDMENTS
With respect to each Series of Notes, the related Servicing Agreement may be
amended by the related Issuer and Mid-State with the consent of the related
Indenture Trustee and the holders of Notes of such Series entitled to more than
50% of the Voting Rights of each Class of affected Notes of such Series, for the
purpose of adding any provisions to, or modifying or eliminating any provisions
of, the related Servicing Agreement. However, amendments affecting amounts to be
deposited in the related Holding Account or the related Collection Account,
altering the priorities with which any allocation of funds shall be made under
the related Servicing Agreement, creating liens on the collateral securing the
payment of principal and interest on the Notes of such Series or modifying
certain specified provisions of the related Servicing Agreement may be approved
only with the consent of the related Indenture Trustee and all holders of the
Notes of such Series. The Servicing Agreement for a Series of Notes may also be
amended without the consent of the related Indenture Trustee or any Noteholder
of such Series if such amendment does not adversely affect in any material
respect the interests of any Noteholder of such Series.
THE TRUST AGREEMENT
The following summaries describe the material provisions of the Trust
Agreement for each Series of Notes not described elsewhere in this Prospectus.
The related Prospectus Supplement will describe any material provisions of the
related Trust Agreement not described herein.
56
<PAGE>
With respect to each Series of Notes, under the terms of the related Trust
Agreement, the Depositor will have conveyed to the related Owner Trustee a
nominal amount of cash to establish the related Trust, which will act as Issuer
for such Series of Notes. In exchange, the Depositor will have received
certificates evidencing beneficial ownership of the Issuer of such Series of
Notes created under such agreement. Subject to certain restrictions, the
Depositor may sell or assign certificates of beneficial ownership of the Issuer
of a Series of Notes to another entity or entities.
With respect to each Series of Notes, the related Trust Agreement will
provide that the related Owner Trustee will be obligated to (i) execute and
deliver the Indenture, the Notes, the Servicing Agreement, the Purchase and Sale
Agreement and all other documents, agreements and instruments related thereto
for such Series of Notes, (ii) acquire the related Collateral and to pledge such
Collateral as security for the Notes of such Series, (iii) issue the Notes of
such Series pursuant to the related Indenture and (iv) take whatever action
shall be required to be taken by the Owner Trustee of such Series of Notes by,
and subject to, the terms of the related Trust Agreement. With respect to each
Series of Notes, the related Trust Agreement will provide that the Issuer of
such Series of Notes may not conduct any activities other than those related to
the issuance and sale of Notes of such Series, the investment of certain funds
in Eligible Investments, as defined in the related Indenture, and such other
limited activities as may be required in connection with reports and payments to
holders of the Notes of such Series and the beneficial interest of the related
Trust. With respect to each Series of Notes, neither the related Owner Trustee
in its individual capacity nor the holders of the beneficial interest of the
related Trust (the "Owners") are liable for payment of principal of or interest
on the Notes of such Series and each holder of Notes of such Series will be
deemed to have released the related Owner Trustee and the Owners of such Series
from any such liability. Upon the payment in full of all outstanding Notes of a
Series and the satisfaction and discharge of the related Indenture, the related
Owner Trustee will succeed to all the rights of the related Indenture Trustee,
and the Owners of such Series of Notes will succeed to all the rights of the
Noteholders of such Series, under the related Servicing Agreement, except as
otherwise provided therein.
With respect to each Series of Notes, the related Trust Agreement will
provide that the related Owner Trustee does not have the power to commence a
voluntary proceeding in bankruptcy with respect to the related Trust until at
least 367 days after payment in full of all the Notes of such Series and the
Owners of such Series of Notes shall not direct the related Owner Trustee to
take any action that would violate such provision.
The related Prospectus Supplement will set forth the fee the related Owner
Trustee is entitled to pursuant to the related The Trust Agreement.
With respect to each Series of Notes, the related Trust Agreement may, at
the unanimous written request of the Owners of such Series of Notes, be
supplemented and amended by a written instrument signed by the related Owner
Trustee and the Owners of such Series of Notes, with the written consent of the
related Indenture Trustee.
With respect to each Series of Notes, the related Trust Agreement will
provide that the related Trust will terminate upon the earlier to occur of (i)
the final sale or disposition of the trust estate and the distribution of all
proceeds thereof to the Owners of such Series of Notes or (ii) 21 years less one
day following the death of the survivor of certain individuals described in the
Trust Agreement, but in no event later than the date set forth in the related
Prospectus Supplement.
THE PURCHASE AND SALE AGREEMENT
The following summaries describe the material provisions of the Purchase and
Sale Agreement for each Series of Notes not described elsewhere in this
Prospectus. The related Prospectus Supplement will describe any material
provisions of the related Purchase and Sale Agreement not described herein.
57
<PAGE>
The Depositor will sell and assign to the Issuer of a Series of Notes all
its right, title and interest in the Mortgage Collateral for such Series
pursuant to the related Purchase and Sale Agreement. Simultaneously, the Issuer
of such Series of Notes will collaterally assign such Mortgage Collateral to the
related Indenture Trustee as security for the Notes of such Series pursuant to
the related Indenture.
The Depositor will represent and warrant to the Issuer of each Series of
Notes, with respect to the Accounts sold pursuant to the related Purchase and
Sale Agreement, that as of the date of execution thereof: (i) the related
building or installment sale contract, as the case may be, has been duly
executed by the parties thereto and the duties to be performed thereunder prior
to the date the first payment in connection with such contract is due shall have
been performed by both parties thereto; (ii) the promissory note shall have been
duly executed by the customer with respect thereto and, to the extent required
under local law for recordation or enforcement, the mortgage, mechanic's lien
contract or other security agreement has been duly executed and properly
acknowledged; (iii) the Mortgage Collateral documents, other than the
assignments thereof, shall have been properly recorded as required by law; (iv)
the mortgage, deed of trust, mechanic's contract or other security agreement
shall constitute a valid first-priority lien upon and secure title to the
property described therein, and such mortgage, deed of trust, mechanic's lien
contract or other security agreement and the promissory note or installment sale
contract secured thereby shall be fully enforceable in accordance with their
respective terms; (v) all costs, fees, intangible and documentary recording
taxes and expenses incurred in making, closing, and recording each Account shall
have been paid; and (vi) no part of the mortgaged property securing any
promissory note or installment sale contract shall have been released from the
lien or security title of the mortgage, deed of trust, mechanic's lien contract
or other security agreement securing such promissory note or installment sale
contract except for Account notes which have been prepaid in full since the
related Cut-Off Date, which amounts will be deposited in the related Collection
Account.
Within 90 days of the earlier of discovery by or notice to the Depositor of
any breach of a representation or warranty which materially and adversely
affects the interests of the Issuer of a Series of Notes in a related Account,
the Depositor is required to use its best efforts to cure such breach in all
material respects. If such breach is not or cannot be cured within such 90-day
period or, with the prior written consent of the related Indenture Trustee, such
longer period as specified in such consent, the Depositor is required to either
(i) repurchase such Account from the related Issuer for an amount equal to 100%
of the current Economic Balance of the affected Account or (ii) substitute for
such affected Account one or more qualified substitute accounts.
In order to be a "qualified substitute account," an account must comply with
the representations and warranties set forth above and must have an Economic
Balance not less than the Economic Balance of, and an Effective Financing Rate
not less than the Effective Financing Rate of, the Account for which it is being
substituted, all as more specifically set forth in the related Purchase and Sale
Agreement.
The obligation of the Depositor to cure any such breach or to repurchase or
substitute for the affected Account will be the sole remedy available to the
Issuer of a Series of Notes in respect of the related breach.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Servicer will
establish and maintain a Pre-Funding Account, in the name of the related
Indenture Trustee on behalf of the related Noteholders, into which the Depositor
will deposit the Pre-Funded Amount on the related Closing Date. The Pre-Funded
Amount will not exceed 25% of the initial aggregate principal amount of the
Notes of the related Series of Notes. The Pre-Funded Amount will be used by the
related Issuer upon satisfaction of the conditions precedent thereto specified
in the related Indenture to purchase Subsequent Accounts from the Depositor from
time to time during the Funding Period. The Funding Period, if any, for a Trust
Fund will begin on the related Closing Date and will end on the date specified
in the related Prospectus Supplement, which in no event will be later than the
date that is three months after the Closing Date. Any amounts remaining in the
58
<PAGE>
Pre-Funding Account at the end of the Funding Period will be distributed to the
related Noteholders in the manner and priority specified in the related
Prospectus Supplement, as a prepayment of principal of the related Notes.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement,
substantially all of the proceeds from the sale of the Notes of a Series will be
used by the Issuer to purchase the Accounts for such Series and to pay the
expenses of the offering of such Series.
PLAN OF DISTRIBUTION
The Notes are being offered hereby in Series through one or more of the
methods described below. The related Prospectus Supplement for each Series will
describe the method of offering being utilized for that Series and will state
the public offering or purchase price of each Class of Notes of such Series, or
the method by which such price is to be determined, and the net proceeds to the
Seller from such sale.
The Notes will be offered through the following methods from time to time
and offerings may be made concurrently through more than one of these methods or
an offering of a particular Series of Notes may be made through a combination of
two or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters specified in the related Prospectus Supplement;
2. By placements by the Issuer with investors through dealers; and
3. By direct placements by the Issuer with investors.
If underwriters are used in a sale of any Notes, such Notes will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices to be determined at the time of sale or at
the time of commitment therefor. Firm commitment underwriting and public
reoffering by underwriters may be done through underwriting syndicates or
through one or more firms acting alone. The specific managing underwriter or
underwriters, if any, with respect to the offer and sale of a particular Series
of Notes will be set forth on the cover of the Prospectus Supplement applicable
to such Series and the members of the underwriting syndicate, if any, will be
named in such Prospectus Supplement. The related Prospectus Supplement will
describe any discounts and commissions to be allowed or paid by the Issuer to
the underwriters, any other items constituting underwriting compensation and any
discounts and commissions to be allowed or paid to the dealers. The obligations
of the underwriters will be subject to certain conditions precedent. The
underwriters with respect to a sale of any Class of Notes will be obligated to
purchase all such Notes if any are purchased. The Issuer will indemnify the
applicable underwriters against certain civil liabilities, including liabilities
under the Securities Act.
The Prospectus Supplement with respect to any Series of Notes offered other
than through underwriters will contain information regarding the nature of such
offering and any agreements to be entered into between the Issuer and dealers
and/or the Issuer and purchasers of Notes of such Series.
Purchasers of Notes, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Noteholders should consult with their legal advisors in this regard prior
to any such reoffer or sale.
If specified in the Prospectus Supplement relating to a Series of Notes, the
Issuer or any affiliate thereof may purchase some or all of one or more Classes
of Notes of such Series from the underwriter or underwriters at a price
specified or described in such Prospectus Supplement. Such purchaser may
thereafter from time to time offer and sell, pursuant to this Prospectus, some
or all of such Notes so
59
<PAGE>
purchased directly, through one or more underwriters to be designated at the
time of the offering of such Notes or through dealers acting as agent and/or
principal. Such offering may be restricted in the matter specified in such
Prospectus Supplement. Such transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices. The
underwriters and dealers participating in such purchaser's offering of such
Notes may receive compensation in the form of underwriting discounts or
commissions from such purchaser and such dealers may receive commissions from
the investors purchasing such Notes for whom they may act as agent (which
discounts or commissions will not exceed those customary in those types of
transactions involved). Any dealer that participates in the distribution of such
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act, and any commissions and discounts received by such dealer and any profit on
the resale of such Notes by such dealer might be deemed to be underwriting
discounts and commissions under the Securities Act.
During and after the offering, the underwriters may purchase and sell Notes
in the open market. These transactions may include overallotment and stabilizing
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Notes, which may be higher than the price that might
otherwise prevail in the open market. These transactions may be effected in the
over-the-counter market or otherwise, and these activities, if commenced, may be
discontinued at any time.
The Depositor has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or contribute to payments the underwriters may be required to make in respect
thereof. The Issuer has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
LEGAL MATTERS
Certain legal matters relating to the Notes, including the federal income
tax consequences to holders of Notes of an investment in the Notes of a Series
will be passed upon for the Depositor by Cadwalader, Wickersham & Taft, New
York, New York.
NOTE RATINGS
It will be a condition to the issuance of each Series of Notes that each
Class of the Notes be rated by one or more of Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Standard & Poor's ("S&P")
and Fitch IBCA, Inc. ("Fitch" and each of Fitch, Moody's, DCR and S&P, a "Rating
Agency") in one of their four highest rating categories. A security rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time. No person is obligated to maintain any
rating on any Note, and, accordingly, there can be no assurance that the ratings
assigned to any Class of Notes upon initial issuance thereof will not be lowered
or withdrawn by a Rating Agency at any time thereafter. If a rating of any Class
of Notes of a Series is revised or withdrawn, the liquidity of such Class of
Notes may be adversely affected. In general, the ratings address credit risk and
do not represent any assessment of the likelihood or rate of principal
prepayments.
60
<PAGE>
INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<S> <C>
1986 Act.............................................................................. 44
Accounts.............................................................................. Cvr
Accrual Notes......................................................................... 6
Available Funds....................................................................... 33
Bankruptcy Court...................................................................... 17
Best.................................................................................. 27
Book-Entry Notes...................................................................... 29
Building Contract..................................................................... 20
Cash Collateral Account............................................................... 35
Cash Collateral Lender................................................................ 35
Cede.................................................................................. 29
CEDEL................................................................................. 38
CEDEL Participants.................................................................... 38
Class................................................................................. Cvr
Closing Date.......................................................................... 5
Code.................................................................................. 10
Collateral............................................................................ 9
Collection Account.................................................................... 9
Collection Period..................................................................... 7
Commission............................................................................ 2
Companion Class....................................................................... 32
Consensual Plan....................................................................... 17
Cooperative........................................................................... 39
Credit Enhancement.................................................................... 7
Credit Provider....................................................................... 33
Cut-Off Date.......................................................................... 5
DCR................................................................................... 12
Definitive Notes...................................................................... 39
Depositor............................................................................. Cvr
Depositaries.......................................................................... 39
DOL................................................................................... 42
DTC................................................................................... 29
DTC Participants...................................................................... 38
Economic Balance...................................................................... 20
EDGAR................................................................................. 2
Effective Financing Rate.............................................................. 20
Eligible Investments.................................................................. 28
ERISA................................................................................. 41
Euroclear............................................................................. 39
Euroclear Operator.................................................................... 39
Euroclear Participant................................................................. 39
Event of Default...................................................................... 52
Exchange Act.......................................................................... 2
Fannie Mae............................................................................ 27
Fitch................................................................................. 12
</TABLE>
61
<PAGE>
INDEX OF PRINCIPAL DEFINED TERMS (CONTINUED)
<TABLE>
<S> <C>
Freddie Mac........................................................................... 27
FTC Rule.............................................................................. 23
Funding Period........................................................................ 16
Gross Receivable Amount............................................................... 20
Holding Account....................................................................... 54
Indenture............................................................................. 5
Indenture Trustee..................................................................... 53
Indirect DTC Participants............................................................. 38
Insurance Policies.................................................................... 27
Insurer............................................................................... 33
Interest Accrual Period............................................................... 30
IRS................................................................................... 44
Issuer................................................................................ 33
Issuer Expenses....................................................................... 33
Jim Walter Homes...................................................................... 5
Letter of Credit...................................................................... 34
Letter of Credit Issuer............................................................... 34
Litigation............................................................................ 17
Local Counsel......................................................................... 16
Mechanic's Lien Contract.............................................................. 20
Mid-State............................................................................. Cvr
Moody's............................................................................... 12
Mortgage Collateral................................................................... Cvr
New Regulations....................................................................... 48
Non-Equity Notes...................................................................... 42
Note Rate............................................................................. 29
Noteholder............................................................................ 43
Notes................................................................................. Cvr
Notes Insurance Policy................................................................ 33
Notice of Default..................................................................... 52
OID Regulations....................................................................... 44
Original Jim Walter................................................................... 17
Owners................................................................................ 38
Parties in Interest................................................................... 42
Payment Date.......................................................................... 6
Percentage Interest................................................................... 29
Plans................................................................................. 41
Pool Insurance Policy................................................................. 34
Pool Insurer.......................................................................... 34
Pre-Funded Amount..................................................................... 16
Pre-Funding Account................................................................... 16
Prepayment Assumption................................................................. 44
Promissory Note....................................................................... 20
PTE................................................................................... 42
</TABLE>
62
<PAGE>
INDEX OF PRINCIPAL DEFINED TERMS (CONTINUED)
<TABLE>
<S> <C>
Purchase and Sale Agreement........................................................... 10
Rating Agency......................................................................... 12
Record Date........................................................................... 7
Reinvestment Period................................................................... 7
Relief Act............................................................................ 25
Remaining Available Funds............................................................. 33
Reserve Fund.......................................................................... 34
Retail Contracts...................................................................... 20
S&P................................................................................... 12
Sale Contract......................................................................... 20
Security Instruments.................................................................. 23
Senior Notes.......................................................................... 35
Series................................................................................ Cvr
Servicer.............................................................................. Cvr
Servicing Agreement................................................................... 9
Special Hazard Policy................................................................. 34
Spread Account........................................................................ 34
Subordinated Class.................................................................... 8
Subordinated Notes.................................................................... 35
Subsequent Accounts................................................................... 16
Sub-servicing Agreement............................................................... 5
Terms and Conditions.................................................................. 39
Texas Building Contract............................................................... 20
Texas Contracts....................................................................... 20
Texas Mortgages....................................................................... 20
Texas Resale Mortgage................................................................. 20
Texas Sales Contract.................................................................. 20
TMP................................................................................... 43
TMP Regulations....................................................................... 48
Trust................................................................................. Cvr
UCCC.................................................................................. 22
Voting Rights......................................................................... 52
Walter Industries..................................................................... 5
</TABLE>
63
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THIS PROSPECTUS SUPPLEMENT NOR
THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY NOR AN
OFFER OF SUCH SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN
WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary of Terms....................................... S-4
Risk Factors........................................... S-11
The Issuer............................................. S-13
Use of Proceeds........................................ S-13
The Accounts........................................... S-13
The Mortgage Collateral................................ S-19
Description of the Notes............................... S-24
Legal Investment Considerations........................ S-34
ERISA Considerations................................... S-34
Federal Income Tax Considerations...................... S-35
The Indenture.......................................... S-36
The Servicing Agreement................................ S-39
The Trust Agreement.................................... S-39
The Purchase and Sale Agreement........................ S-39
Plan of Distribution................................... S-40
Legal Matters.......................................... S-40
Financial Information.................................. S-41
Note Ratings........................................... S-41
Index of Principal Defined Terms....................... S-42
PROSPECTUS
Available Information.................................. 2
Reports to Noteholders................................. 2
Incorporation of Certain Documents by Reference........ 2
Summary of Prospectus.................................. 5
Risk Factors........................................... 12
The Depositor.......................................... 17
The Issuer............................................. 17
Discussion and Analysis of Issuer's Financial
Condition............................................ 18
The Accounts........................................... 19
The Mortgage Collateral................................ 22
Certain Legal Aspects of the Accounts and Related
Matters.............................................. 22
Security............................................... 26
Description of the Notes............................... 29
Legal Investment Considerations........................ 41
ERISA Considerations................................... 41
Material Federal Income Tax Consequences............... 43
The Indenture.......................................... 49
The Servicing Agreement................................ 54
The Trust Agreement.................................... 57
The Purchase and Sale Agreement........................ 58
Pre-Funding Account.................................... 59
Use of Proceeds........................................ 59
Plan of Distribution................................... 59
Legal Matters.......................................... 60
Note Ratings........................................... 60
Index of Principal Defined Terms....................... 61
</TABLE>
------------------------
UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$
MID-STATE TRUST
$ %
ASSET-BACKED NOTES, CLASS A-1
$ %
ASSET-BACKED NOTES, CLASS A-2
$ %
ASSET-BACKED NOTES, CLASS A-3
$ %
ASSET-BACKED NOTES, CLASS A-4
---------------------
MID-STATE HOMES,
INC.
SERVICER
------------------
PROSPECTUS SUPPLEMENT
, 199
------------------
[UNDERWRITER]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the fees and expenses expected to be incurred by
Mid-State Homes, Inc. (the "Registrant") in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions and costs represented by the salaries and wages of
regular employees and officers of the Registrant). All such expenses, other than
the Filing Fee, are estimated expenses.
<TABLE>
<S> <C>
SEC Filing Fee.................................................. $ 190,000
Indenture Trustee's Fees........................................ 80,000
Owner Trustee's Fees............................................ 24,000
Legal Fees and Expenses......................................... 1,050,000
Accounting Fees and Expenses.................................... 100,000
Blue Sky and Legal Investment Fees and Expenses................. 30,000
Printing Fees and Expenses...................................... 250,000
Rating Agency Fees and Expenses................................. 500,000
Miscellaneous................................................... 26,000
---------
Total........................................................... $2,250,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of Walter Industries, Inc. ("Walter Industries"), a Delaware
corporation and indirect owner of all of the issued and outstanding shares of
the capital stock of the Registrant, provide that, to the fullest extent
permitted by Delaware law, Walter Industries will indemnify any current or
former director or officer of Walter Industries and may, at the discretion of
the board of directors, indemnify any current or former employee or agent of
Walter Industries, against certain liabilities, including liabilities incurred
by reason of the fact that such person is or was serving, at the request of
Walter Industries, as a director, officer, partner, trustee, employee or agent
of another corporation or partnership, joint venture, trust or other enterprise.
To the extent that directors and officers of the Registrant serve or have
previously served as directors, officers, employees or agents of Walter
Industries, they are eligible for indemnification by Walter Industries against
liabilities in respect of actions taken in their capacities as directors or
officers of the Registrant.
The directors and officers of the Registrant are covered by a directors' and
officers' liability insurance policy maintained by Walter Industries for the
benefit of all of its subsidiaries.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS.
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(A) UNDERTAKING PURSUANT TO RULE 415:
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or event arising after the
effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement of any
material change in such information in this registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain at the termination of the
offering.
(B) UNDERTAKING IN RESPECT OF DOCUMENTS SUBSEQUENTLY FILED THAT ARE
INCORPORATED BY REFERENCE:
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrants'
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(C) UNDERTAKING IN RESPECT OF INDEMNIFICATION:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of
II-2
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(D) UNDERTAKING IN RESPECT OF QUALIFICATION OF INDENTURES UNDER THE TRUST
INDENTURE ACT OF 1939:
The Registrant hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act of 1939 in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act of 1939.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 (including the requirement that the notes be
rated investment grade at the time of sale) and has duly caused this Pre-
Effective Amendment No. 3 to Form S-3 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Tampa, Florida on
November , 1998.
<TABLE>
<S> <C> <C>
MID-STATE HOMES, INC.
By: /s/ DEAN M. FJELSTUL
Name: Dean M. Fjelstul
Title: VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 3 to Form S-3 Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
* President, Principal
- ------------------------------ Executive Officer and November , 1998
Kenneth E. Hyatt Director
*
- ------------------------------ Director November , 1998
Richard E. Almy
/s/ DEAN M. FJELSTUL Vice President, Principal
- ------------------------------ Financial Officer and November , 1998
Dean M. Fjelstul Director
*
- ------------------------------ Controller (Principal November , 1998
Joseph H. Kelly, Jr. Accounting Officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DEAN M. FJELSTUL
-------------------------
Dean M. Fjelstul
ATTORNEY-IN-FACT (1)
</TABLE>
- ------------------------
(1) Dean M. Fjelstul by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Articles of Incorporation and by-laws of the Registrant*
4.1 -- Form of Indenture (including forms of Notes)*
5.1 -- Opinion of Cadwalader, Wickersham & Taft*
8.1 -- Opinion of Cadwalader, Wickersham & Taft with respect to certain tax matters*
9.1 -- Form of Trust Agreement*
10.1 -- Form of Servicing Agreement*
10.2 -- Form of Purchase and Sale Agreement*
Consents of Cadwalader, Wickersham & Taft (included as part of exhibits 5.1 and
24.1 -- 8.1)*
25.1 -- Power of Attorney*
</TABLE>
- ------------------------
* Previously filed.
