SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: November 5, 1998
(Date of earliest event reported)
Commission File No. 333-51375
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV (as depositor under the Sale and
Servicing Agreement, dated as of November 1, 1998, relating to the Empire
Funding Home Loan Owner Trust 1998-3, Home Loan Asset Backed Notes, Series
1998-3)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
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(Exact name of registrant as specified in its charter)
Delaware 06-1204982
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(State of Incorporation) (I.R.S. Employer Identification No.)
1285 Avenue of the Americas
New York, New York 10019
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(Address of principal executive offices) (Zip Code)
(212) 713-2000
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(Registrant's Telephone Number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
<PAGE>
ITEM 5. Other Events
On November 5, 1998, Empire Funding Home Loan Owner Trust 1998-3 (the
"Owner Trust") issued the Home Loan Asset Backed Notes, Series 1998-3 (the
"Notes"), having an aggregate original principal balance of $283,580,654. The
Notes were issued pursuant to an Indenture, dated as of November 1, 1998 (the
"Indenture") between Empire Funding Home Loan Owner Trust 1998-3 (the "Owner
Trust") and U.S. Bank National Association ("U.S. Bank," in such capacity, the
"Indenture Trustee"), a copy of which is filed as an exhibit hereto. The Owner
Trust was formed by PaineWebber Mortgage Acceptance Corporation IV, a Delaware
corporation (the "Registrant"), pursuant to an Owner Trust Agreement, dated as
of November 1, 1998 (the "Owner Trust Agreement") among the Registrant, Empire
Funding Corp. (the "Transferor") and Wilmington Trust Company (the "Owner
Trustee"), a copy of which is filed as an exhibit hereto. The Notes are secured
by the assets of the Owner Trust, consisting of a grantor trust certificate (the
"Grantor Trust Certificate") evidencing 100% of the beneficial ownership
interests in Empire Funding Grantor Trust 1998-3 (the "Grantor Trust"). The
Grantor Trust was established pursuant to a Grantor Trust Agreement, dated as of
November 1, 1998 (the "Grantor Trust Agreement"), among the Registrant, U.S.
Bank, as grantor trustee (in such capacity, the "Grantor Trustee") and the
Transferor, a copy of which is filed as an exhibit hereto. The assets of the
Grantor Trust consist primarily of a pool (the "Pool") of closed-end, fixed-rate
home loans (the "Loans"), substantially all of which are secured primarily by
junior-lien mortgages, deeds of trust or other similar security instruments or
unsecured. The Grantor Trust Certificate was sold by the Registrant to the Owner
Trust pursuant to a Sale and Servicing Agreement, dated as of November 1, 1998
(the "Sale and Servicing Agreement"), among the Owner Trust, as issuer, the
Registrant, U.S. Bank, as indenture trustee (in such capacity, the "Indenture
Trustee"), Empire Funding Corp., as servicer and transferor and the Grantor
Trustee, a copy of which is filed as an exhibit hereto.
In addition, the Owner Trust and U.S. Bank, as administrator of the Owner
Trust have entered into an Administration Agreement, dated as of November 1,
1998 (the "Administration Agreement"), a copy of which is filed as an exhibit
hereto.
Interest on the Notes will be paid on each Payment Date (as defined in the
Sale and Servicing Agreement). Monthly payments in reduction of the principal
balance of the Notes will be allocated to the Notes in accordance with the
priorities set forth in the Sale and Servicing Agreement.
<PAGE>
ITEM 7. Financial Statements and Exhibits
(c) Exhibits
Item 601(a)
of Regulation S-K
Exhibit No. Description
- ----------- -----------
(EX-4.1) Indenture, dated as of November 1, 1998,
between Empire Funding Home Loan Owner Trust
1998-3 and U.S. Bank National Association.
(EX-4.2) Sale and Servicing Agreement, dated as of
November 1, 1998, among PaineWebber Mortgage
Acceptance Corporation IV, Empire Funding Home
Loan Owner Trust 1998-3, Empire Funding Corp.
and U.S. Bank National Association.
(EX-99.1) Administration Agreement, dated as of November
1, 1998, among Empire Funding Home Loan Owner
Trust 1998-3, Empire Funding Corp. and U.S.
Bank National Association.
(EX-99.2) Owner Trust Agreement, dated as of November 1,
1998, among PaineWebber Mortgage Acceptance
Corporation IV, Empire Funding Corp.,
Wilmington Trust Company and U.S. Bank
National Association.
(EX-99.3) Grantor Trust Agreement, dated as of November
1, 1998, among PaineWebber Mortgage Acceptance
Corporation IV, Empire Funding Corp. and U.S.
Bank National Association.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV
December 10, 1998
By: /s/ Barbara J. Dawson
---------------------------------
Name: Barbara J. Dawson
Title: Senior Vice President
<PAGE>
INDEX TO EXHIBITS
Paper (P) or
Exhibit No. Description Electronic(E)
- ----------- ----------- -------------
(EX-4.1) Indenture, dated as of November 1, 1998, E
between Empire Funding Home Loan Owner
Trust 1998-3 and U.S. Bank National
Association.
(EX-4.2) Sale and Servicing Agreement, dated as of E
November 1, 1998, among PaineWebber
Mortgage Acceptance Corporation IV, Empire
Funding Home Loan Owner Trust 1998-3,
Empire Funding Corp. and U.S. Bank
National Association.
(EX-99.1) Administration Agreement, dated as of E
November 1, 1998, among Empire Funding
Home Loan Owner Trust 1998-3, Empire
Funding Corp. and U.S. Bank National
Association.
(EX-99.2) Owner Trust Agreement, dated as of E
November 1, 1998, among PaineWebber
Mortgage Acceptance Corporation IV, Empire
Funding Corp., Wilmington Trust Company
and U.S. Bank National Association.
(EX-99.3) Grantor Trust Agreement, dated as of E
November 1, 1998, among PaineWebber
Mortgage Acceptance Corporation IV, Empire
Funding Corp. and U.S. Bank National
Association.
================================================================================
INDENTURE
between
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3,
as Issuer
and
U.S. BANK NATIONAL ASSOCIATION,
as Indenture Trustee
Dated as of November 1, 1998
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
Home Loan Asset Backed Notes,
Series 1998-3
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01. Definitions.....................................................2
Section 1.02. Incorporation by Reference of Trust Indenture Act..............10
Section 1.03. Rules of Construction..........................................10
ARTICLE II
THE NOTES
Section 2.01. Form ..........................................................11
Section 2.02. Execution, Authentication, Delivery and Dating.................11
Section 2.03. Registration; Registration of Transfer and Exchange............12
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes.....................13
Section 2.05. Persons Deemed Note Owners.....................................14
Section 2.06. Payment of Principal and/or Interest; Defaulted Interest.......14
Section 2.07. Cancellation...................................................15
Section 2.08. Conditions Precedent to the Authentication of the Notes........15
Section 2.09. Release of Collateral..........................................17
Section 2.10. Book-Entry Notes...............................................18
Section 2.11. Notices to Clearing Agency.....................................18
Section 2.12. Definitive Notes...............................................18
Section 2.13. Tax Treatment..................................................19
ARTICLE III
COVENANTS
Section 3.01. Payment of Principal and/or Interest...........................19
Section 3.02. Maintenance of Office or Agency................................20
Section 3.03. Money for Payments to Be Held in Trust.........................20
Section 3.04. Existence......................................................22
Section 3.05. Protection of Collateral.......................................22
Section 3.06. Annual Opinions as to Collateral...............................23
Section 3.07. Performance of Obligations.....................................23
Section 3.08. Negative Covenants.............................................24
Section 3.09. Annual Statement as to Compliance..............................25
Section 3.10. Covenants of the Issuer........................................26
Section 3.11. Restricted Payments............................................26
Section 3.12. Treatment of Notes as Debt for Tax Purposes....................26
<PAGE>
Section 3.13. Notice of Events of Default....................................26
Section 3.14. Further Instruments and Acts...................................26
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture........................27
Section 4.02. Application of Trust Money.....................................28
Section 4.03. Repayment of Moneys Held by Paying Agent.......................28
ARTICLE V
REMEDIES
Section 5.01. Events of Default..............................................28
Section 5.02. Acceleration of Maturity; Rescission and Annulment.............30
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee.......................................31
Section 5.04. Remedies; Priorities...........................................33
Section 5.05. Optional Preservation of the Collateral........................35
Section 5.06. Limitation of Suits............................................36
Section 5.07. Unconditional Rights of Noteholders to Receive Principal
and/or Interest ...........................................36
Section 5.08. Restoration of Rights and Remedies.............................37
Section 5.09. Rights and Remedies Cumulative.................................37
Section 5.10. Delay or Omission Not a Waiver.................................37
Section 5.11. Control by Noteholders.........................................37
Section 5.12. Waiver of Past Defaults........................................38
Section 5.13. Undertaking for Costs..........................................38
Section 5.14. Waiver of Stay or Extension Laws...............................38
Section 5.15. Action on Notes................................................39
Section 5.16. Performance and Enforcement of Certain Obligations.............39
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee....................................40
Section 6.02. Rights of Indenture Trustee....................................41
Section 6.03. Individual Rights of Indenture Trustee.........................42
Section 6.04. Indenture Trustee's Disclaimer.................................42
Section 6.05. Notices of Default.............................................42
Section 6.06. Reports by Indenture Trustee to Holders........................42
Section 6.07. Compensation and Indemnity.....................................42
Section 6.08. Replacement of Indenture Trustee...............................43
<PAGE>
Section 6.09. Successor Indenture Trustee by Merger..........................44
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee..........................................44
Section 6.11. Eligibility; Disqualification..................................46
Section 6.12. Preferential Collection of Claims Against Issuer...............46
Section 6.13. Waiver of Setoff...............................................46
ARTICLE VII
NOTEHOLDERS'LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses
of Noteholders.............................................46
Section 7.02. Preservation of Information; Communications to Noteholders.....47
Section 7.03. Reports by Issuer..............................................47
Section 7.04. Reports by Indenture Trustee...................................47
Section 7.05. [Reserved].....................................................48
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money and Claims Under the Guaranty Policy.......48
Section 8.02. Trust Accounts; Payments.......................................48
Section 8.03. General Provisions Regarding Accounts..........................50
Section 8.04. Servicer's Monthly Statements..................................51
Section 8.05. Release of Collateral..........................................51
Section 8.06. Opinion of Counsel.............................................51
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders.........52
Section 9.02. Supplemental Indentures with Consent of Noteholders............53
Section 9.03. Execution of Supplemental Indentures...........................54
Section 9.04. Effect of Supplemental Indentures..............................55
Section 9.05. Conformity with Trust Indenture Act............................55
Section 9.06. Reference in Notes to Supplemental Indentures..................55
Section 9.07. Amendments to Trust Agreement..................................55
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Redemption....................................................56
Section 10.02. Form of Redemption Notice.....................................56
<PAGE>
Section 10.03. Notes Payable on Redemption Date; Provision for Payment
of Indenture Trustee and Securities Insurer ...............56
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc.....................57
Section 11.02. Form of Documents Delivered to Indenture Trustee..............58
Section 11.03. Acts of Noteholders...........................................59
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Securities Insurer............................60
Section 11.05. Notices to Noteholders; Waiver................................61
Section 11.06. Conflict with Trust Indenture Act.............................61
Section 11.07. Effect of Headings and Table of Contents......................61
Section 11.08. Successors and Assigns........................................62
Section 11.09. Separability..................................................62
Section 11.10. Benefits of Indenture.........................................62
Section 11.11. Legal Holidays................................................62
Section 11.12. Governing Law.................................................62
Section 11.13. Counterparts..................................................62
Section 11.14. Recording of Indenture........................................62
Section 11.15. Trust Obligation..............................................62
Section 11.16. No Petition...................................................63
Section 11.17. Inspection....................................................63
Section 11.18. Grant of Noteholder Rights to Securities Insurer..............63
Section 11.19. Third Party Beneficiary.......................................64
Section 11.20. Suspension and Termination of Securities Insurer's
Rights.....................................................64
EXHIBITS
EXHIBIT A - Forms of Notes
<PAGE>
This Indenture entered into effective November 1, 1998, between EMPIRE
FUNDING HOME LOAN OWNER TRUST 1998-3, a Delaware business trust, as Issuer (the
"Issuer"), and U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee (the
"Indenture Trustee"),
W I T N E S S E T H T H A T:
In consideration of the mutual covenants herein contained, the Issuer
and the Indenture Trustee hereby agree as follows for the benefit of each of
them and for the equal and ratable benefit of the holders of the Issuer's Notes
(the "Notes").
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants on
the Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit
of the Holders of the Notes and the Securities Insurer, all of the Issuer's
right, title and interest in and to: (i) the Owner Trust Estate (as defined in
the Sale and Servicing Agreement); (ii) all right, title and interest of the
Issuer in and to the Sale and Servicing Agreement; (iii) all present and future
claims, demands, causes of action and choses in action in respect of any or all
of the foregoing and all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion thereof, voluntary or involuntary, into cash or other
liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, property insurance
proceeds, condemnation awards, rights to payment of any and every kind and other
forms of obligations and receivables, instruments and other property which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing; (iv) all funds on deposit from time to time in the Trust Accounts
(including the Certificate Distribution Account); and (v) all other property of
the Owner Trust from time to time (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders
of the Notes and the Securities Insurer, acknowledges such Grant, accepts the
trusts hereunder and agrees to perform its duties required in this Indenture to
the best of its ability to the end that the interests of the Holders of the
Notes may adequately and effectively be protected. The Indenture Trustee agrees
and acknowledges that possession of the Grantor Trust Certificate will be
maintained by the Indenture Trustee in St. Paul, Minnesota. The Indenture
Trustee further agrees and acknowledges that each other item of Collateral that
is physically delivered to the Indenture Trustee will be held by the Custodian
on behalf of the Indenture Trustee in St. Paul, Minnesota.
<PAGE>
The Indenture Trustee, as holder of the Grantor Trust Certificate, and
the Grantor Trustee agree to exercise their respective rights under the Grantor
Trust Agreement for the benefit of the Noteholders and the Securities Insurer.
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. (a) Except as otherwise specified herein or
as the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.03(a) hereof.
"Administration Agreement" means the Administration Agreement dated as
of November 1, 1998, among the Administrator, the Issuer and the Company.
"Administrator" means U.S. Bank National Association, a national
banking association, or any successor Administrator under the Administration
Agreement.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Authorized Officers delivered by the Administrator to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).
"Basic Documents" means the Certificate of Owner Trust, Certificate of
Grantor Trust, the Grantor Trust Agreement, the Owner Trust Agreement, this
Indenture, the Sale and Servicing Agreement, the Home Loan Purchase Agreement,
the Administration Agreement, the Insurance Agreement, the Custodial Agreement,
the Note Depository Agreement, the Notes and other documents and certificates
delivered in connection herewith or therewith.
<PAGE>
"Book-Entry Notes" means a beneficial interest in the Notes, ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10 hereof.
"Business Day" means any day other than (a) a Saturday or Sunday, or
(b) a day on which banking institutions are authorized or obligated by law or
executive order to be closed in a city at any of the following locations: (i)
The City of New York, (ii) where the Securities Insurer is located, (iii) where
the corporate trust office of the Indenture Trustee or Grantor Trustee is
located, (iv) where the servicing operations of the Servicer are located or (v)
where the master servicing operations of the Master Servicer's master are
located.
"Certificate of Grantor Trust" means the certificate of trust of the
Grantor Trust substantially in the form of Exhibit A to the Grantor Trust
Agreement.
"Certificate of Owner Trust" means the certificate of trust of the
Issuer substantially in the form of Exhibit C to the Owner Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for which from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means November 5, 1998.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
"Commission" means the Securities and Exchange Commission.
"Company" means Empire Funding Corp., an Oklahoma corporation, or any
successor in interest thereto.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located at
180 East Fifth Street, St. Paul, Minnesota 55101; Attention: Structured Finance,
or at such other address as the Indenture Trustee may designate from time to
time by notice to the Noteholders and the Issuer, or the principal corporate
trust office of any successor Indenture Trustee at the address designated by
such successor Indenture Trustee by notice to the Noteholders and the Issuer.
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
<PAGE>
"Definitive Notes" means the Notes as set forth in Section 2.12
hereof.
"Depositor" shall mean PaineWebber Mortgage Acceptance Corporation IV,
a Delaware corporation, in its capacity as depositor under the Sale and
Servicing Agreement, or any successor in interest thereto.
"Depository Institution" means any depository institution or trust
company, including the Indenture Trustee, that (a) is incorporated under the
laws of the United States of America or any State thereof, (b) is subject to
supervision and examination by federal or state banking authorities and (c) has
outstanding unsecured commercial paper or other short-term unsecured debt
obligations that are rated A-1 by S&P, Fitch and DCR (or comparable ratings if
S&P, Fitch and DCR are not the Rating Agencies).
"Due Period" means, with respect to any Payment Date, the calendar
month immediately preceding the month of such Payment Date.
"Event of Default" has the meaning specified in Section 5.01 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Fitch" means Fitch IBCA, Inc., or any successor thereto.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Grantor Trust" means Empire Funding Grantor Trust 1998-3, formed
pursuant to the Grantor Trust Agreement.
"Grantor Trust Agreement" means the Trust Agreement dated as of
November 1, 1998, among PaineWebber Mortgage Acceptance Corporation IV, as
Depositor, the Company and the Grantor Trustee.
<PAGE>
"Grantor Trust Certificate" means the trust certificate issued by the
Grantor Trust evidencing 100% of the beneficial ownership of the Grantor Trust.
"Grantor Trustee" means U.S. Bank National Association, a national
banking association, as Grantor Trustee under the Grantor Trust Agreement, or
any successor Grantor Trustee hereunder.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indemnification Agreement" means the Indemnification Agreement dated
as of November 3, 1998 among the Securities Insurer, the Transferor and
Servicer, the Depositor and the Underwriter.
"Indenture Trustee" means U.S. Bank National Association, a national
banking association, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee hereunder.
"Independent" means, when used with respect to any specified Person,
that the Person (a) is in fact independent of the Issuer, any other obligor on
the Notes, the Transferor, the Securities Insurer and any Affiliate of any of
the foregoing Persons, (b) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Transferor, the Securities Insurer or any Affiliate of any of the foregoing
Persons and (c) is not connected with the Issuer, any such other obligor, the
Transferor, the Securities Insurer or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 hereof,
made by an Independent appraiser or other expert appointed by an Issuer Order
and approved by the Indenture Trustee in the exercise of reasonable care, and
such opinion or certificate shall state that the signer has read the definition
of "Independent" in this Indenture and that the signer is Independent within the
meaning thereof.
"Insurance Agreement" means the Insurance and Indemnification
Agreement, dated as of November 1, 1998, among the Securities Insurer, Empire
Funding Corp., as Transferor and Servicer, the Depositor, the Issuer, the
Grantor Trust, the Owner Trustee, the Master Servicer and U.S. Bank National
Association.
"Issuer" or "Owner Trust" means Empire Funding Home Loan Owner Trust
1998-3 until a successor replaces it and, thereafter, means the successor and,
for purposes of any provision contained herein and required by the TIA, each
other obligor on the Notes.
<PAGE>
"Issuer Order" and "Issuer Request" mean a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"Majority Noteholders" means until such time as the Note Principal
Balance of the Notes has been reduced to zero, the holder or holders of in
excess of 50% of the Note Principal Balance of all Notes then Outstanding.
"Master Servicer" means Norwest Bank Minnesota, National Association,
a national banking association.
"Maturity Date" means, with respect to the Notes, November 25, 2024.
"Moody's" means Moody's Investors Service, Inc., or any successor
thereto.
"Note" means an Empire Funding Home Loan Owner Trust 1998-3, Home Loan
Asset-Backed Note, Series 1998-3.
"Note Depository Agreement" means the agreement to be entered into
among the Issuer, the Administrator, the Indenture Trustee and The Depository
Trust Company, as the initial Clearing Agency, relating to the Book-Entry Notes.
"Note Interest Rate" means, with respect to the Notes, 6.75% per
annum, computed on the basis of a 360-day year assumed to consist of twelve
30-day months, except that commencing on the first day of the month in which the
Clean-up Call Date occurs, the Note Interest Rate shall be increased by 0.50%
per annum.
"Note Owner" means, with respect to a Book-Entry Note, the Person that
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.03 hereof.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer or the Administrator, under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.01
hereof, and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer or the Administrator.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be an employee of
or counsel to the party required to provide such opinion or opinions and, in
each such case, who shall be
<PAGE>
satisfactory to the Indenture Trustee and the Securities Insurer, and which
opinion or opinions shall be addressed to the Indenture Trustee, as Indenture
Trustee, and the Securities Insurer and shall comply with any applicable
requirements of Section 11.01 hereof and shall be in form and substance
satisfactory to the Indenture Trustee and the Securities Insurer.
"Outstanding" means, with respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has theretofore been deposited with the Indenture Trustee
or any Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision for such notice
satisfactory to the Indenture Trustee has been made);
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser; provided, however, that in determining
whether the Holders of the requisite percentage of Outstanding Notes have
given any request, demand, authorization, direction, notice, consent or
waiver hereunder or under any Basic Document, Notes owned by the Issuer,
any other obligor upon the Notes, the Transferor or any Affiliate of any of
the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee
knows to be owned in such manner shall be disregarded. Notes owned in such
manner that have been pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of the Indenture Trustee
that the pledgee has the right so to act with respect to such Notes and
that the pledgee is not the Issuer, any other obligor upon the Notes, the
Transferor or any Affiliate of any of the foregoing Persons; and
(iv) Notes for which the related Maturity Date has occurred;
provided, that Notes that have been paid with funds provided under the Guaranty
Policy shall be deemed to be Outstanding until the Securities Insurer has been
reimbursed with respect thereto.
"Outstanding Amount" means the aggregate principal amount of the
Notes, Outstanding at the date of determination.
"Owner Trust Agreement" means the Trust Agreement dated as of November
1, 1998, among PaineWebber Mortgage Acceptance Corporation IV, as Depositor, the
Company,
<PAGE>
Wilmington Trust Company, as Owner Trustee and U.S. Bank National Association,
as Paying Agent.
"Owner Trustee" means Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
Owner Trustee under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other Person that
meets the eligibility standards for the Indenture Trustee specified in Section
6.11 hereof and is authorized by the Issuer to make payments to and payments
from the Note Payment Account, including payment of principal of or interest on
the Notes on behalf of the Issuer.
"Payment Date" means the 25th day of any month or if such 25th day is
not a Business Day, the first Business Day immediately following such day,
commencing in December 1998.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, limited liability company, limited
liability partnership or government or any agency or political subdivision
thereof.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 hereof in lieu of a mutilated,
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Rating Agency" means either or all of (i) Moody's, (ii) Fitch or
(iii) S&P. If no such organization or successor thereto is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Servicer and approved
by the Securities Insurer, notice of which designation shall have been given to
the Indenture Trustee, the Securities Insurer, the Master Servicer and the
Issuer.
"Rating Agency Condition" means, with respect to any applicable
action, that each Rating Agency shall have been given 10 days' prior notice
thereof (or such shorter period as is acceptable to each Rating Agency) and that
each of the Rating Agencies shall have notified the Depositor, the Servicer, the
Master Servicer and the Issuer in writing that such action will not result in a
reduction, withdrawal or qualification of the then current internal ratings
assigned to the Notes without respect to the Securities Insurer.
"Record Date" means, as to each Payment Date, the last Business Day of
the month immediately preceding the month in which such Payment Date occurs.
<PAGE>
"Redemption Date" means in the case of a redemption of the Notes
pursuant to Section 10.01 hereof, the Payment Date specified by the Servicer or
the Issuer pursuant to such Section 10.01.
"Registered Holder" means the Person in the name of which a Note is
registered on the Note Register on the applicable Record Date.
"Residual Interest Certificate" has the meaning assigned to such term
in Section 1.1 of the Owner Trust Agreement.
"Responsible Officer" means, with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Assistant Treasurer,
Assistant Secretary or any other officer of the Indenture Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"S&P" means Standard and Poor's Ratings Services or any successor
thereto.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of November 1, 1998, among the Issuer, PaineWebber Mortgage Acceptance
Corporation IV, as Depositor, and Empire Funding Corp., as Transferor and
Servicer, Norwest Bank Minnesota, National Association, as Master Servicer, and
U.S. Bank National Association, as Indenture Trustee and Grantor Trustee.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Insurer" means MBIA Insurance Corporation.
"Servicer" shall mean Empire Funding Corp., in its capacity as
servicer under the Sale and Servicing Agreement, and any Successor Servicer
thereunder.
"State" means any one of the States of the United States of America or
the District of Columbia.
"Transferor" means Empire Funding Corp., an Oklahoma corporation.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code as in effect in the relevant jurisdiction, as amended from time
to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, capitalized terms used but not otherwise defined herein have
the respective meanings set forth in the Sale and Servicing Agreement for all
purposes of this Indenture.
<PAGE>
Section 1.02. Incorporation by Reference of Trust Indenture Act. (a)
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
(b) All other TIA terms used in this Indenture that are defined in the
TIA, defined by TIA reference to another statute or defined by rule of the
Securities and Exchange Commission have the respective meanings assigned to them
by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in
effect in the United States from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented (as provided in such agreements) and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person are
also to its permitted successors and assigns.
<PAGE>
ARTICLE II
THE NOTES
Section 2.01. Form. The Notes shall be designated as the "Empire
Funding Home Loan Owner Trust 1998-3 Asset Backed Notes, Series 1998-3". Each
Note shall be in substantially the form set forth in Exhibit A hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may, consistently herewith, be determined by the officers executing such Notes,
as evidenced by their execution thereof. Any portion of the text of any Note may
be set forth on the reverse thereof, with an appropriate reference thereto on
the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes are set forth in Exhibit A hereto. The terms of each Note are part of
the terms of this Indenture.
Section 2.02. Execution, Authentication, Delivery and Dating. The
Notes shall be executed on behalf of the Issuer by an Authorized Officer of the
Owner Trustee or the Administrator. The signature of any such Authorized Officer
on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Owner Trustee or the Administrator
shall bind the Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Notes or did not hold such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section
2.08 hereof, the Indenture Trustee shall upon Issuer Order authenticate and
deliver the Notes for original issue in the following principal amount:
$283,580,654. The aggregate principal of the Notes Outstanding at any time may
not exceed such amount.
The Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Issuer on the Closing Date shall be dated
November 5, 1998. All other Notes that are authenticated after the Closing Date
for any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $25,000 initial principal amount and integral multiples of
$1,000 in excess thereof.
<PAGE>
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
Section 2.03. Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee and the
Securities Insurer prompt written notice of the appointment of such Note
Registrar and of the location, and any change in the location, of the Note
Register, and the Indenture Trustee and the Securities Insurer shall have the
right to inspect the Note Register at all reasonable times and to obtain copies
thereof, and the Indenture Trustee and the Securities Insurer shall have the
right to rely upon a certificate executed on behalf of the Note Registrar by an
Executive Officer thereof as to the names and addresses of the Holders of the
Notes and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.02 hereof, the
Issuer shall execute, and the Indenture Trustee shall authenticate and the
Noteholder shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations, of a like aggregate principal amount upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is
entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include
<PAGE>
membership or participation in the Securities Transfer Agents' Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act.
No service charge shall be made to a Holder or the Securities Insurer
for any registration of transfer or exchange of Notes, but the Issuer may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 9.06 hereof not
involving any transfer.
The preceding provisions of this Section 2.03 notwithstanding, the
Issuer shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee and the Securities
Insurer such security or indemnity as may reasonably be required by them to hold
the Issuer, the Securities Insurer and the Indenture Trustee harmless, then, in
the absence of notice to the Issuer, the Note Registrar or the Indenture Trustee
that such Note has been acquired by a bona fide purchaser, an Authorized Officer
of the Owner Trustee or the Administrator on behalf of the Issuer shall execute,
and upon its request the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become or within seven days shall be
due and payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable or upon the Redemption Date without surrender thereof. If, after
the delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer, the Securities Insurer and the Indenture
Trustee shall be entitled to recover such replacement Note (or such payment)
from the Person to which it was delivered or any Person taking such replacement
Note from such Person to which such replacement Note was delivered or any
assignee of such Person, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer, the Securities Insurer or
the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 2.04, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
<PAGE>
Every replacement Note issued pursuant to this Section 2.04 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 2.04 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.05. Persons Deemed Note Owners. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Securities Insurer, the
Indenture Trustee and any agent of the Issuer, the Securities Insurer or the
Indenture Trustee may treat the Person in the name of which any Note is
registered (as of the day of determination) as the Note Owner for the purpose of
receiving payments of principal of and interest, if any, on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and none of
the Issuer, the Securities Insurer, the Indenture Trustee or any agent of the
Issuer, the Securities Insurer or the Indenture Trustee shall be affected by
notice to the contrary.
Section 2.06. Payment of Principal and/or Interest; Defaulted
Interest. (a) Each Note shall accrue interest at the Note Interest Rate, and
such interest shall be payable on each Payment Date as specified in Exhibit A
hereto, subject to Section 3.01 hereof. Any installment of interest or
principal, if any, payable on any Note that is punctually paid or duly provided
for by the Issuer on the applicable Payment Date shall be paid to the Person in
the name of which such Note (or one or more Predecessor Notes) is registered on
the Record Date by check mailed first-class postage prepaid to such Person's
address as it appears on the Note Register on such Record Date, except that,
unless Definitive Notes have been issued pursuant to Section 2.12 hereof, with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payment will be made
by wire transfer in immediately available funds to the account designated by
such nominee and except for the final installment of principal payable with
respect to such Note on a Payment Date or on the Maturity Date (and except for
the Termination Price for any Note called for redemption pursuant to Section
10.01 hereof), which shall be payable as provided in Section 2.06(b) below. The
funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.03 hereof.
(b) The principal of each Note shall be payable in installments on
each Payment Date as provided in the form of Note set forth in Exhibit A hereto.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the earlier of (i) the
Maturity Date, (ii) the Redemption Date or (iii) the date on which an Event of
Default shall have occurred and be continuing, if the Indenture Trustee or the
Majority Noteholders or the Securities Insurer shall have declared the Notes to
be immediately due and payable in the manner provided; however, that if on the
date any such Event of Default occurs, no Securities Insurer Default exists and
is continuing, the Securities
<PAGE>
Insurer, in its sole discretion, may determine whether or not to accelerate
payment on the Notes.
All principal payments on the Notes shall be made pro rata to the
Noteholders. The Indenture Trustee shall notify the Person in the name of which
a Note is registered at the close of business on the Record Date preceding the
Payment Date on which the Issuer expects that the final installment of principal
of and interest on such Note will be paid. Such notice shall be mailed or
transmitted by facsimile prior to such final Payment Date and shall specify that
such final installment will be payable only upon presentation and surrender of
such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. A copy of such form of notice shall
be sent to the Securities Insurer by the Indenture Trustee. Notices in
connection with redemptions of Notes shall be mailed to Noteholders as provided
in Section 10.02 hereof. Promptly following the date on which all principal of
and interest on the Notes has been paid in full and the Notes have been
surrendered to the Indenture Trustee, the Indenture Trustee shall, if the
Securities Insurer has paid any amount in respect of the Notes under the
Guaranty Policy that has not been reimbursed to the Securities Insurer, deliver
such surrendered Notes to the Securities Insurer.
Section 2.07. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall promptly be cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall promptly be cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 2.07, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Order that they be destroyed or returned to it; provided, however, that such
Issuer Order is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
Section 2.08. Conditions Precedent to the Authentication of the Notes.
The Notes may be authenticated by the Indenture Trustee, upon Issuer Request and
upon receipt by the Indenture Trustee of the following:
(a) An Issuer Order authorizing the execution and authentication of
such Notes by the Issuer.
(b) All of the items of Collateral which shall be delivered to the
Indenture Trustee or its designee.
(c) An executed counterpart of the Owner Trust Agreement.
(d) An Opinion of Counsel addressed to the Indenture Trustee and the
Securities Insurer to the effect that:
<PAGE>
(i) all conditions precedent provided for in this Indenture relating
to the authentication of the Notes have been complied with;
(ii) the Owner Trustee has power and authority to execute, deliver and
perform its obligations under the Owner Trust Agreement;
(iii) the Issuer has been duly formed, is validly existing as a
business trust under the laws of the State of Delaware, 12 Del. C. Section
3801 et seq., and has power, authority and legal right to execute and
deliver this Indenture, the Administration Agreement, the Insurance
Agreement, and the Sale and Servicing Agreement;
(iv) assuming due authorization, execution and delivery hereof by the
Indenture Trustee, the Indenture is the valid, legal and binding obligation
of the Issuer, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
or preferential conveyance and other similar laws of general application
affecting the rights of creditors generally and to general principles of
equity (regardless of whether such enforcement is considered in a
Proceeding in equity or at law);
(v) the Notes, when executed and authenticated as provided herein and
delivered against payment therefor, will be the valid, legal and binding
obligations of the Issuer pursuant to the terms of this Indenture, entitled
to the benefits of this Indenture, and will be enforceable in accordance
with their terms, subject to bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent or preferential conveyance and other
similar laws of general application affecting the rights of creditors
generally and to general principles of equity (regardless of whether such
enforcement is considered in a Proceeding in equity or at law);
(vi) the Owner Trust Agreement authorizes the Issuer to Grant the
Collateral to the Indenture Trustee as security for the Notes;
(vii) this Indenture has been duly qualified under the Trust Indenture
Act;
(viii) no authorization, approval or consent of any governmental body
having jurisdiction in the premises which has not been obtained by the
Issuer is required to be obtained by the Issuer for the valid issuance and
delivery of the Notes, except that no opinion need be expressed with
respect to any such authorizations, approvals or consents as may be
required under any state securities or "blue sky" laws;
(ix) on the Closing Date, the Issuer shall cause to be furnished to
the Indenture Trustee and the Securities Insurer an Opinion of Counsel
either stating that, in the opinion of such counsel, such action when taken
with respect to the recording and filing of this Indenture, any indentures
supplemental hereto, and any other requisite documents, and with respect to
the execution and filing of any financing statements and continuation
statements, will perfect and make effective the lien and security interest
of
<PAGE>
this Indenture and reciting the details of such action, or stating that, in
the opinion of such counsel, no such action is necessary to make such lien
and security interest effective; and
(x) any other matters as the Indenture Trustee or the Securities
Insurer may reasonably request.
(e) An Officer's Certificate complying with the requirements of
Section 11.01 hereof and stating that:
(i) the Issuer is not in Default under this Indenture and the issuance
of the Notes applied for will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, the Owner Trust
Agreement, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is bound, or any
order of any court or administrative agency entered in any Proceeding to
which the Issuer is a party or by which it may be bound or to which it may
be subject, and that all conditions precedent provided in this Indenture
relating to the authentication and delivery of the Notes applied for have
been complied with;
(ii) the Issuer is the owner of the Grantor Trust Certificate, has not
assigned any interest or participation in the Grantor Trust Certificate
(or, if any such interest or participation has been assigned, it has been
released) and has the right to Grant the Grantor Trust Certificate to the
Indenture Trustee;
(iii) the Issuer has Granted to the Indenture Trustee all of its
right, title and interest in and to the Collateral, and has delivered or
caused the same to be delivered to the Indenture Trustee;
(iv) attached thereto are true and correct copies of letters signed by
the Rating Agencies confirming that the Notes have been rated "Aaa" by
Moody's and "AAA" by Fitch and S&P; and
(v) all conditions precedent provided for in this Indenture relating
to the authentication of the Notes have been complied with; and
(f) A fair value certificate from the Servicer, as agent of the Trust,
pursuant to Section 2(a)(xi) of the Administration Agreement.
Section 2.09. Release of Collateral. Except as otherwise provided in
Section 11.01 hereof and the terms of the Basic Documents, the Indenture Trustee
shall release property from the lien of this Indenture only upon receipt of an
Issuer Request accompanied by an Officer's Certificate, an Opinion of Counsel
and Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
<PAGE>
Section 2.10. Book-Entry Notes. The Notes, when authorized by an
Issuer Order, will be issued in the form of typewritten Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by or on behalf of the Issuer. The Book-Entry Notes shall be
registered initially on the Note Register in the name of Cede & Co., the nominee
of the initial Clearing Agency, and no Note Owner will receive a definitive Note
representing such Note Owner's interest in such Note, except as provided in
Section 2.12 hereof. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to such Note Owners pursuant to Section
2.12 hereof:
(i) the provisions of this Section 2.10 shall be in full force and
effect;
(ii) the Note Registrar, the Indenture Trustee and the Securities
Insurer shall be entitled to deal with the Clearing Agency for all purposes
of this Indenture (including the payment of principal of and interest on
the Notes and the giving of instructions or directions hereunder) as the
sole Holder of the Notes, and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section 2.10 conflict
with any other provisions of this Indenture, the provisions of this Section
2.10 shall control;
(iv) the rights of Note Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and
agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants pursuant to the Note Depository Agreement.
Unless and until Definitive Notes are issued pursuant to Section 2.12
hereof, the initial Clearing Agency will make book-entry transfers among
the Clearing Agency Participants and receive and transmit payments of
principal of and interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a
specified percentage of the Outstanding Notes, the Clearing Agency shall be
deemed to represent such percentage only to the extent that it has received
instructions to such effect from Note Owners and/or Clearing Agency
Participants owning or representing, respectively, such required percentage
of the beneficial interest in the Notes and has delivered such instructions
to the Indenture Trustee.
Section 2.11. Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to such Note Owners pursuant to
Section 2.12 hereof, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Clearing Agency and shall have no obligation to such Note Owners.
Section 2.12. Definitive Notes. (a) If (i) the Administrator advises
the Indenture Trustee in writing that the Clearing Agency is no longer willing
or able to properly
<PAGE>
discharge its responsibilities with respect to the Book-Entry Notes and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Clearing Agency or (iii) after the
occurrence of an Event of Default, Owners of the Book-Entry Notes representing
beneficial interests aggregating at least a majority of the Outstanding Notes
advise the Clearing Agency in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interests of such
Note Owners, then the Clearing Agency shall notify all Note Owners, the
Securities Insurer and the Indenture Trustee of the occurrence of such event and
of the availability of Definitive Notes to Note Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Notes representing the
Book-Entry Notes by the Clearing Agency, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar, the Securities Insurer
or the Indenture Trustee shall be liable for any delay in delivery of such
instructions and each of them may conclusively rely on, and shall be protected
in relying on, such instructions. Upon the issuance of Definitive Notes, the
Indenture Trustee shall recognize the Holders of the Definitive Notes as
Noteholders.
Section 2.13. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that for all
purposes, including federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Collateral. The Issuer, by entering into this Indenture, and each
Noteholder, by its acceptance of a Note (and each Note Owner by its acceptance
of an interest in the applicable Book-Entry Note), agree to treat the Notes for
all purposes, including federal, state and local income, single business and
franchise tax purposes, as indebtedness of the Issuer.
ARTICLE III
COVENANTS
Section 3.01. Payment of Principal and/or Interest. The Issuer will
duly and punctually pay (or will cause to be paid duly and punctually) the
principal of and interest on the Notes in accordance with the terms of the Notes
and this Indenture. Without limiting the foregoing, subject to and in accordance
with Section 8.02(c) hereof, the Issuer will cause to be paid to the Noteholders
all amounts on deposit in the Note Payment Account on each Payment Date
deposited therein pursuant to the Sale and Servicing Agreement (less any amounts
representing income from Permitted Investments) for the benefit of the Notes.
Amounts properly withheld under the Code by any Person from a payment to any
Noteholder of interest and/or principal shall be considered as having been paid
by the Issuer or the Securities Insurer, as applicable, to such Noteholder for
all purposes of this Indenture. The Notes shall be non-recourse obligations of
the Issuer and shall be limited in right of payment to amounts available from
the Collateral and any amounts received by the Indenture Trustee under the
Guaranty Policy in respect of the Notes, as provided in this Indenture. The
Issuer shall not otherwise be liable for payments on the Notes. If any other
provision of this Indenture shall be deemed to
<PAGE>
conflict with the provisions of this Section 3.01, the provisions of this
Section 3.01 shall control.
Section 3.02. Maintenance of Office or Agency. The Issuer will or will
cause the Administrator to maintain in the Borough of Manhattan in The City of
New York an office or agency where Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Issuer in
respect of the Notes and this Indenture may be served. The Issuer hereby
initially appoints the Administrator to serve as its agent for the foregoing
purposes and to serve as Paying Agent with respect to the Notes and the
Certificates. The Issuer will give prompt written notice to the Indenture
Trustee and the Securities Insurer of the location, and of any change in the
location, of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Indenture
Trustee with the address thereof, such surrenders, notices and demands may be
made or served at the Corporate Trust Office, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
Section 3.03. Money for Payments to Be Held in Trust. As provided in
Section 8.02(a) and (b) hereof, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Note
Payment Account pursuant to Section 8.02(c) hereof shall be made on behalf of
the Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so
withdrawn from the Note Payment Account for payments of Notes shall be paid over
to the Issuer except as provided in this Section 3.03.
On or before the seventh Business Day preceding each Payment Date and
the Redemption Date, the Paying Agent shall deposit or cause to be deposited in
the Note Payment Account an aggregate sum sufficient to pay the amounts due on
such Payment Date or the Redemption Date under the Notes, such sum to be held in
trust for the benefit of the Persons entitled thereto, and (unless the Paying
Agent is the Indenture Trustee) shall promptly notify the Indenture Trustee and
the Securities Insurer of its action or failure so to act.
Any Paying Agent shall be appointed by Issuer Order with written
notice thereof to the Indenture Trustee and the Securities Insurer. Any Paying
Agent appointed by the Issuer shall be a Person which would be eligible to be
Indenture Trustee hereunder as provided in Section 6.11 hereof. The Issuer shall
not appoint any Paying Agent (other than the Indenture Trustee) which is not, at
the time of such appointment, a Depository Institution.
The Issuer will cause each Paying Agent other than the Administrator
to execute and deliver to the Indenture Trustee and the Securities Insurer an
instrument in which such Paying Agent shall agree with the Indenture Trustee
(and if the Indenture Trustee acts as Paying Agent, it hereby so agrees),
subject to the provisions of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
<PAGE>
(ii) give the Indenture Trustee and the Securities Insurer notice of
any default by the Issuer (or any other obligor upon the Notes) of which it
has actual knowledge in the making of any payment required to be made with
respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Indenture Trustee, forthwith pay to the Indenture
Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes if
at any time it ceases to meet the standards required to be met by a Paying
Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith; provided, however, that
with respect to withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer shall have first
provided the calculations pertaining thereto to the Indenture Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to either (i) the Issuer on
Issuer Request and with the prior written consent of the Securities Insurer as
long as no Securities Insurer Default has occurred and is continuing or (ii) if
such money or a portion thereof was paid by the Securities Insurer to the
Indenture Trustee for the payment of principal of or interest on such Note, to
the Securities Insurer in lieu of the Issuer to the extent of such unreimbursed
amount; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Issuer for payment thereof (but only to the extent of
the amounts so paid to the Issuer), and all liability of the Indenture Trustee
or such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published, once in a newspaper of general circulation in The
City of New York customarily published in the English language on each Business
Day, notice that such money remains unclaimed and that, after a date specified
<PAGE>
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the Issuer
or the Securities Insurer, as applicable. The Indenture Trustee shall also adopt
and employ, at the expense and direction of the Issuer, any other reasonable
means of notification of such repayment (including, but not limited to, mailing
notice of such repayment to Holders whose Notes have been called but have not
been surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).
Section 3.04. Existence. (a) Subject to subparagraph (b) of this
Section 3.04, the Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless,
subject to the prior written consent of the Securities Insurer, it becomes, or
any successor Issuer hereunder is or becomes, organized under the laws of any
other State or of the United States of America, in which case the Issuer will
keep in full effect its existence, rights and franchises under the laws of such
other jurisdiction) and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Owner Trust Agreement shall be the successor Owner Trustee under
this Indenture without the execution or filing of any paper, instrument or
further act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Owner Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
Section 3.05. Protection of Collateral. The Issuer will from time to
time and upon the direction of the Securities Insurer execute and deliver all
such reasonable supplements and amendments hereto and all such financing
statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all or any
portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
<PAGE>
(v) preserve and defend title to the Collateral and the rights of the
Indenture Trustee, the Noteholders and the Securities Insurer in such
Collateral against the claims of all persons and parties.
The Issuer hereby designates the Administrator, its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.05.
Section 3.06. Annual Opinions as to Collateral. On or before July 15th
in each calendar year, beginning in 1999, the Issuer shall furnish to the
Indenture Trustee and the Securities Insurer an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and refiling of this Indenture,
any indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any financing statements and continuation
statements as is necessary to maintain the lien and security interest created by
this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest of this
Indenture until July 15th of the following calendar year.
Section 3.07. Performance of Obligations. (a) The Issuer will not take
any action and will use its best efforts not to permit any action to be taken by
others that would release any Person from any of such Person's material
covenants or obligations under any instrument or agreement included in the
Collateral or that would result in the amendment, hypothecation, subordination,
termination or discharge of, or impair the validity or effectiveness of, any
such instrument or agreement, except as expressly provided in this Indenture,
the Sale and Servicing Agreement or such other instrument or agreement.
(b) The Issuer may contract with or otherwise obtain the assistance of
other Persons (including, without limitation, the Administrator under the
Administration Agreement) to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee and the Securities Insurer in an Officer's Certificate of the
Issuer shall be deemed to be action taken by the Issuer. Initially, the Issuer
has contracted with the Administrator to assist the Issuer in performing its
duties under this Indenture. The Administrator must at all times be the same
Person as the Indenture Trustee.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, in the Basic Documents
and in the instruments and agreements included in the Collateral, including but
not limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement. Except as otherwise expressly provided
therein, the Issuer shall not waive, amend, modify, supplement or terminate any
Basic
<PAGE>
Document or any provision thereof without the consent of the Indenture Trustee,
the Securities Insurer and the Holders of at least a majority of the Outstanding
Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Termination Event under the Sale and Servicing Agreement, the Issuer shall
promptly notify the Indenture Trustee, the Securities Insurer, the Master
Servicer and the Rating Agencies thereof, and shall specify in such notice the
action, if any, the Issuer is taking with respect to such default. If such a
Servicer Termination Event shall arise from the failure of the Servicer to
perform any of its duties or obligations under the Sale and Servicing Agreement
with respect to the Home Loans, the Issuer shall take all reasonable steps
available to it to remedy such failure.
(e) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee and, if a Securities Insurer
Default has not occurred and is not continuing, the Securities Insurer, amend,
modify, waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of any
Collateral (except to the extent otherwise provided in the Sale and Servicing
Agreement) or the Basic Documents, or waive timely performance or observance by
the Servicer, the Master Servicer or the Depositor under the Sale and Servicing
Agreement; and (ii) that any such amendment shall not (A) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, payments that
are required to be made for the benefit of the Noteholders or (B) reduce the
aforesaid percentage of the Outstanding Notes that is required to consent to any
such amendment, without the consent of the Holders of all Outstanding Notes. If
any such amendment, modification, supplement or waiver shall so be consented to
by the Indenture Trustee and, if a Securities Insurer Default has not occurred
and is not continuing, the Securities Insurer, the Issuer agrees, promptly
following a request by the Indenture Trustee or the Securities Insurer to do so,
to execute and deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Indenture Trustee may deem
necessary or appropriate in the circumstances.
Section 3.08. Negative Covenants. So long as any Notes are
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or the Sale and
Servicing Agreement, sell, transfer, exchange or otherwise dispose of any
of the properties or assets of the Issuer, including those included in the
Collateral, unless directed to do so by the Indenture Trustee acting at the
direction of the Securities Insurer, unless a Securities Insurer Default
has occurred and is continuing, or the Securities Insurer;
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Noteholder by reason of the payment of the taxes levied
or assessed upon any part of the Collateral;
<PAGE>
(iii) engage in any business or activity other than as permitted by
the Owner Trust Agreement or other than in connection with, or relating to,
the issuance of Notes pursuant to this Indenture, or amend the Owner Trust
Agreement as in effect on the Closing Date other than in accordance with
Section 11.1 thereof;
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any indebtedness of
any Person, except for such indebtedness as may be incurred by the Issuer
in connection with the issuance of the Notes pursuant to this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or consolidate
with any other Person;
(vii) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien of this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be released
from any covenants or obligations with respect to the Notes under this
Indenture except as may expressly be permitted hereby, (B) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance
(other than the lien of this Indenture) to be created on or extend to or
otherwise arise upon or burden the Collateral or any part thereof or any
interest therein or the proceeds thereof or (C) permit the lien of this
Indenture not to constitute a valid first priority security interest in the
Collateral;
(viii) remove the Administrator without cause unless the Rating Agency
Condition shall have been satisfied in connection with such removal; or
(ix) take any other action or fail to take any action which may cause
the Issuer to be taxable as (a) an association pursuant to Section 7701 of
the Code and the corresponding regulations or (b) as a taxable mortgage
pool pursuant to Section 7701(i) of the Code and the corresponding
regulations.
Section 3.09. Annual Statement as to Compliance. The Issuer will
deliver to the Indenture Trustee and the Securities Insurer, within 120 days
after the end of each fiscal year of the Issuer (commencing in the fiscal year
1999), an Officer's Certificate stating, as to the Authorized Officer signing
such Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year and of
its performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has complied with all conditions and covenants under
this Indenture throughout such year, or, if there has been a default in its
compliance with any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
<PAGE>
Section 3.10. Covenants of the Issuer. All covenants of the Issuer in
this Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Owner
Trust Agreement will be, entering into this Indenture solely as Owner Trustee
under the Owner Trust Agreement and not in its respective individual capacity,
and in no case whatsoever shall the Owner Trustee or any such successor Owner
Trustee be personally liable on, or for any loss in respect of, any of the
statements, representations, warranties or obligations of the Issuer hereunder,
as to all of which the parties hereto agree to look solely to the property of
the Issuer.
Section 3.11. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any payment (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof, to
the Owner Trustee or any owner of a beneficial interest in the Issuer or
otherwise with respect to any ownership or equity interest or security in or of
the Issuer or to the Servicer or Master Servicer, (ii) redeem, purchase, retire
or otherwise acquire for value any such ownership or equity interest or security
or (iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, payments to
the Servicer, the Master Servicer, the Indenture Trustee, the Grantor Trustee,
the Owner Trustee, the Securities Insurer, the Noteholders and the holders of
the Residual Interest Certificate as contemplated by Section 8.02(c) hereof, and
to the extent funds are available for such purpose under, the Sale and Servicing
Agreement, the Grantor Trust Agreement or the Owner Trust Agreement. The Issuer
will not, directly or indirectly, make or cause to be made payments to or
distributions from the Collection Account in respect of the Grantor Trust
Certificate except in accordance with this Indenture and the Basic Documents.
Section 3.12. Treatment of Notes as Debt for Tax Purposes. The Issuer
shall, and shall cause the Administrator to, treat the Notes as indebtedness for
all purposes.
Section 3.13. Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Securities Insurer, the Master Servicer and the Rating
Agencies prompt written notice of each Event of Default hereunder, each default
on the part of the Servicer or the Transferor of its obligations under the Sale
and Servicing Agreement and each default on the part of the Transferor of its
obligations under the Home Loan Purchase Agreement.
Section 3.14. Further Instruments and Acts. Upon request of the
Indenture Trustee or the Securities Insurer, the Issuer will execute and deliver
such further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purpose of this Indenture.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of
<PAGE>
transfer and exchange, (ii) substitution of mutilated, destroyed, lost or stolen
Notes, (iii) rights of Noteholders to receive payments of principal thereof and
interest thereon including any such right of the Securities Insurer pursuant to
Section 2.06(b) or the proviso to the definition of "Outstanding", (iv) Sections
3.03, 3.04, 3.05, 3.08 and 3.10 hereof, (v) the rights, obligations and
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.07 hereof and the obligations of the Indenture
Trustee under Section 4.02 hereof) and (vi) the rights of Noteholders as
beneficiaries hereof with respect to the property so deposited with the
Indenture Trustee payable to all or any of them), and the Indenture Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i) Notes
that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.04 hereof and (ii) Notes for the payment of
which money has theretofore been deposited in trust or segregated and held
in trust by the Issuer and thereafter repaid to the Issuer or discharged
from such trust, as provided in Section 3.03 hereof) shall have been
delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. shall have become due and payable, or
b. will become due and payable within one year following the Maturity
Date, or
c. are to be called for redemption within one year under arrangements
satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense,
of the Issuer,
d. and the Issuer, in the case of clause a., b. or c. above, has
irrevocably deposited or caused irrevocably to be deposited with the
Indenture Trustee cash or direct obligations of or obligations
guaranteed by the United States of America (which will mature prior to
the date such amounts are payable), in trust for such purpose, in an
amount sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Indenture Trustee for
cancellation when due to the Maturity Date or the Redemption Date (if
Notes shall have been called for redemption pursuant to Section 10.01
hereof), as the case may be; and
(B) the latest of (a) 18 months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full of all unpaid
Trust Fees and Expenses and all sums owing to the Securities Insurer under the
Insurance Agreement, and (c) the date on which the Issuer has paid or caused to
be paid all other sums payable hereunder by the Issuer; and
<PAGE>
(C) the Issuer shall have delivered to the Indenture Trustee and the
Securities Insurer an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent Certificate from a
firm of certified public accountants, each meeting the applicable requirements
of Section 11.01(a) hereof and, subject to Section 11.02 hereof, each stating
that all conditions precedent herein provided for, relating to the satisfaction
and discharge of this Indenture with respect to the Notes, have been complied
with.
Section 4.02. Application of Trust Money. All moneys deposited with
the Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Securities Insurer and to the Holders of
the particular Notes for the payment or redemption of which such moneys have
been deposited with the Indenture Trustee, of all sums due and to become due
thereon for principal and/or interest; but such moneys need not be segregated
from other funds except to the extent required herein or in the Sale and
Servicing Agreement or required by law.
Section 4.03. Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.03 hereof and thereupon such Paying Agent shall be released from
all further liability with respect to such moneys.
ARTICLE V
REMEDIES
Section 5.01. Events of Default. (a) "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) subject to Section 5.01(b) and notwithstanding that there may be
insufficient sums in the Note Payment Account for payment thereof on the related
Payment Date, default in the payment of any interest on any Note when the same
becomes due and payable, and continuance of such default for a period of five
(5) days; or
(ii) subject to Section 5.01(b) and notwithstanding that there may be
insufficient sums in the Note Payment Account for payment thereof on the related
Payment Date, default in the payment of the principal of or any installment of
the principal of any Note (i) when the same becomes due and payable or (ii) on
the Maturity Date; or
<PAGE>
(iii) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere in
this Section specifically dealt with), or any representation or warranty of the
Issuer made in this Indenture, the Insurance Agreement, the Sale and Servicing
Agreement or in any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material respect as of
the time when the same shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given, by
registered or certified mail, to the Issuer by the Indenture Trustee at the
direction of the Securities Insurer, or to the Issuer and the Indenture Trustee
by the Holders of at least 25% of the Outstanding Notes and with the prior
written consent of the Securities Insurer, a written notice specifying such
default or incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder; or
(iv) default in the observance or performance of any covenant or
agreement of the Company made in the Owner Trust Agreement or Grantor Trust
Agreement or any representation or warranty of the Company made in the Owner
Trust Agreement or Grantor Trust Agreement, proving to have been incorrect in
any material respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect shall not have
been eliminated or otherwise cured, for a period of 30 days after there shall
have been given, by registered or certified mail, to the Issuer by the Indenture
Trustee at the direction of the Securities Insurer, or to the Issuer and the
Indenture Trustee by the Holders of at least 25% of the Outstanding Notes and
with the prior written consent of the Securities Insurer, a written notice
specifying such Default or incorrect representation or warranty and requiring it
to be remedied and stating that such notice is a notice of Default hereunder; or
(v) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part of
the Collateral in an involuntary case under any applicable federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Collateral, or
ordering the winding-up or liquidation of the Issuer's affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or
(vi) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Issuer to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any
substantial part of the Collateral, or the making by the Issuer of any general
assignment for the benefit of creditors, or the failure by the Issuer generally
to pay its debts as such debts become due, or the taking of any action by the
Issuer in furtherance of any of the foregoing.
<PAGE>
The Issuer shall promptly deliver to the Indenture Trustee and the
Securities Insurer written notice in the form of an Officer's Certificate of any
event which with the giving of notice and the lapse of time would become an
Event of Default under clauses (iii), (iv) and (v) above, the status of such
event and what action the Issuer is taking or proposes to take with respect
thereto.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default shall occur and a Securities Insurer Default has occurred
and is continuing then and in every such case the Indenture Trustee may or the
Indenture Trustee as directed in writing by the Majority Noteholders shall
declare all the Notes to be then immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the Outstanding Amount of such Notes, together
with accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable; provided, however, that if on the date any
such Event of Default occurs or is continuing, and no Securities Insurer Default
exists and is continuing, then the Securities Insurer, in its sole discretion,
may determine whether or not to accelerate payment on the Notes. In the event of
any acceleration of the Notes by operation of this Section 5.02, the Indenture
Trustee shall continue to be entitled to make claims under the Guaranty Policy
pursuant to Section 8.02(e) hereof. Payments under the Guaranty Policy following
acceleration of the Notes shall be applied by the Indenture Trustee:
FIRST: to the payment of amounts due and unpaid on the Notes in
respect of interest, ratably, without preference or priority of any kind;
and
SECOND: to the payment of amounts due and unpaid on the Notes in
respect of principal, ratably, without preference or priority of any kind,
until the Notes are paid in full.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the moneys due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided,
either the Securities Insurer (so long as a Securities Insurer Default has not
occurred and is continuing) or the Majority Noteholders (if a Securities Insurer
Default has occurred and is continuing), by written notice to the Issuer and the
Indenture Trustee, may rescind and annul such declaration and its consequences
if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
1. all payments of principal of and/or interest on all Notes and all
other amounts that would then be due hereunder or upon such Notes if
the Event of Default giving rise to such acceleration had not
occurred; and
2. all sums paid or advanced by the Indenture Trustee or the Securities
Insurer hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee or the Securities
Insurer and their respective agents and counsel; and
<PAGE>
(b) all Events of Default, other than the nonpayment of the principal
of the Notes that has become due solely by such acceleration, have been cured or
waived as provided in Section 5.12 hereof. No such rescission shall affect any
subsequent default or impair any right consequent thereto.
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issuer will, upon demand of the Indenture
Trustee made at the direction of the Securities Insurer, pay to the Indenture
Trustee, for the benefit of the Holders of the Notes and the Securities Insurer,
the whole amount then due and payable on such Notes for principal and/or
interest, with interest upon the overdue principal and, to the extent payment at
such rate of interest shall be legally enforceable, upon overdue installments of
interest at the rate borne by the Notes and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and the Securities Insurer and their respective agents and
counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee may, with the prior written consent of the
Securities Insurer (so long as no Securities Insurer Default has occurred and is
continuing) and shall at the direction of the Securities Insurer (so long as no
Securities Insurer Default has occurred and is continuing) or the Majority
Noteholders (if a Securities Insurer Default has occurred and is continuing)
institute a Proceeding for the collection of the sums so due and unpaid, and may
prosecute such Proceeding to judgment or final decree, and may enforce the same
against the Issuer or other obligor upon such Notes and collect in the manner
provided by law out of the property of the Issuer or other obligor upon such
Notes, wherever situated, the moneys adjudged or decreed to be payable. At any
time, so long as no Securities Insurer Default has occurred and is continuing,
if the Securities Insurer is the holder of any Note pursuant to Section 2.06(b)
hereof or all amounts due to all other Holders of the Notes pursuant to the
Notes and this Indenture have been paid in full, then the Securities Insurer
may, in its own name, institute any Proceedings or take any action permitted
under this Section 5.03 to collect amounts due hereunder from the Issuer or any
other obligor of the Notes.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Securities Insurer, and if a Securities
Insurer Default has occurred and is continuing, the Indenture Trustee may, in
its discretion, and shall at the direction of the majority of the Holders of the
Outstanding Notes, as more particularly provided in Section 5.04 hereof, proceed
to protect and enforce its rights and the rights of the Securities Insurer and
the Noteholders by such appropriate Proceedings as the Indenture Trustee shall
deem most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy
or legal or equitable right vested in the Indenture Trustee by this Indenture or
by law.
<PAGE>
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral, Proceedings under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, upon the direction of the Securities Insurer, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and/or interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee, each predecessor
Indenture Trustee and the Securities Insurer, and their respective agents,
attorneys and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and
each predecessor Indenture Trustee, except as a result of negligence or bad
faith), the Securities Insurer and the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders, the Securities Insurer and the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Indenture
Trustee, the Securities Insurer or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property; and any trustee, receiver, liquidator, custodian or other similar
official in any such Proceeding is hereby authorized by each of such
Noteholders and the Securities Insurer to make payments to the Indenture
Trustee and, in the event that the Indenture Trustee shall consent to the
making of payments directly to such Noteholders and the Securities Insurer,
to pay to the Indenture Trustee such amounts as shall be sufficient to
cover reasonable compensation to the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred and all
<PAGE>
advances made by the Indenture Trustee and each predecessor Indenture
Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder or the Securities Insurer any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof or the Securities Insurer or to authorize the Indenture Trustee
to vote in respect of the claim of any Noteholder in any such proceeding except,
as aforesaid, to vote for the election of a trustee in bankruptcy or similar
Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents, attorneys and counsel, shall be
for the ratable benefit of the Holders of the Notes and the Securities Insurer.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.
Section 5.04. Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Securities Insurer, and if a
Securities Insurer Default has occurred and is continuing, the Indenture Trustee
may, and at the direction of a majority of the Holders of the Outstanding Notes
shall, do one or more of the following (subject to Section 5.05 hereof):
(i) institute Proceedings in its own name and as trustee of an express
trust for the collection of all amounts then payable on the Notes or under
this Indenture with respect thereto, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Issuer and any other
obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure with respect to the Collateral;
(iii) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Indenture Trustee, the Securities Insurer or the Noteholders; and
<PAGE>
(iv) sell the Collateral or any portion thereof or rights or interest
therein in a commercially reasonable manner, at one or more public or
private sales called and conducted in any manner permitted by law;
provided, however, (x) if a Securities Insurer Default has occurred and is
continuing, the Indenture Trustee may not sell or otherwise liquidate the
Collateral following an Event of Default, unless (A) the Holders of 100% of
the Outstanding Notes consent thereto, (B) the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient to discharge in
full all amounts then due and unpaid upon such Notes for principal and/or
interest or (C) the Indenture Trustee determines that the Collateral will
not continue to provide sufficient funds for the payment of principal of
and interest on the Notes as they would have become due if the Notes had
not been declared due and payable, and the Indenture Trustee obtains the
consent of Holders of 66-2/3% of the Outstanding Notes, and (y) if no
Securities Insurer Default has occurred and is continuing, the Securities
Insurer may direct the Indenture Trustee and the Indenture Trustee shall
comply with any such direction, to sell or otherwise liquidate the
Collateral following an Event of Default if (1) the conditions under either
A, B or C in clause (x) above are met or (2) the Securities Insurer has
paid the Notes in full under the Guaranty Policy. In determining such
sufficiency or insufficiency with respect to clause (B) and (C) of this
subsection (a)(iv), the Indenture Trustee may, but need not, obtain and
rely upon an opinion of an Independent investment banking or accounting
firm of national reputation as to the feasibility of such proposed action
and as to the sufficiency of the Collateral for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for any costs or expenses incurred by
it in connection with the enforcement of the remedies provided for in this
Article V;
SECOND: to the Master Servicer, any Master Servicing Compensation due
and payable under the Sale and Servicing Agreement;
THIRD: to the Servicer, any Servicing Compensation due and unpaid;
FOURTH: to the Securities Insurer for any Guaranty Insurance Premiums
due and payable;
FIFTH: to the Indenture Trustee, any Indenture Trustee Fees due and
payable;
SIXTH: to the Owner Trustee, any Owner Trustee Fees due and payable;
SEVENTH: to the Custodian, any Custodian Fees due and payable;
EIGHTH: to the Grantor Trustee, any Grantor Trustee Fees due and
payable;
<PAGE>
NINTH: to the Noteholders for amounts due and unpaid on the Notes for
interest, pro rata among the Holders of the Notes for interest, according
to the amounts due and payable pursuant to Section 5.01(d) of the Sale and
Servicing Agreement, until the Note Principal Balance of the Notes is
reduced to zero;
TENTH: to the Noteholders for amounts due and unpaid on the Notes for
principal, pro rata among the Holders of the Notes, according to the
amounts due and payable pursuant to Section 5.01(d) of the Sale and
Servicing Agreement, until the Note Principal Balance of the Notes is
reduced to zero;
ELEVENTH: to the Securities Insurer for any amounts then due and
payable pursuant to Section 5.01(e) of the Sale and Servicing Agreement;
TWELFTH: to the Noteholders for amounts due and unpaid on the Notes of
Excess Spread, pro rata among the Holders of the Notes, according to the
amounts due and payable pursuant to Section 5.01(e) of the Sale and
Servicing Agreement, until the Note Principal Balance is reduced to zero;
and
THIRTEENTH: to the Servicer in an amount equal to any outstanding
Nonrecoverable Servicing Advances, and then to the Owner Trustee, for any
amounts to be distributed pro rata to the holders of the Residual Interest
Certificate pursuant to the Owner Trust Agreement.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Noteholder,
the Securities Insurer and the Issuer a notice that states the record date, the
payment date and the amount to be paid.
Section 5.05. Optional Preservation of the Collateral. If the Notes
have been declared to be due and payable under Section 5.02 hereof following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Collateral. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to maintain possession
of the Collateral. In determining whether to maintain possession of the
Collateral, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
Section 5.06. Limitation of Suits. No Holder of any Note shall have
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for as long as a Securities Insurer Default has not occurred or
is not continuing and, if a Securities Insurer Default has occurred and is
continuing, unless:
<PAGE>
(a) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% of the Outstanding Notes have
made written request to the Indenture Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Indenture Trustee
hereunder;
(c) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(d) the Indenture Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceeding; and
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 30-day period by the Majority
Noteholders.
It is understood and intended that no one or more Holders of Notes
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each group representing less than a Majority Noteholders, the Indenture Trustee
in its sole discretion may determine what action, if any, shall be taken,
notwithstanding any other provisions of this Indenture.
Section 5.07. Unconditional Rights of Noteholders to Receive Principal
and/or Interest. Notwithstanding any other provisions in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the applicable Maturity Date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee, the Securities Insurer or any Noteholder has instituted any Proceeding
to enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Indenture Trustee, the Securities Insurer or to such Noteholder, then and in
every such case the Issuer, the Indenture Trustee, the Securities Insurer and
the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee, the Securities
Insurer and the Noteholders shall continue as though no such Proceeding had been
instituted.
<PAGE>
Section 5.09. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee, the Securities
Insurer or to the Noteholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.10. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee, the Securities Insurer or any Holder of any Note to
exercise any right or remedy accruing upon any Default or Event of Default shall
impair any such right or remedy or constitute a waiver of any such Default or
Event of Default or an acquiescence therein. Every right and remedy given by
this Article V or by law to the Indenture Trustee, the Securities Insurer or to
the Noteholders may be exercised from time to time, and as often as may be
deemed expedient, by the Indenture Trustee, the Securities Insurer or by the
Noteholders, as the case may be, subject, in each case, however, to the right of
the Securities Insurer to control any such right and remedy, except as provided
in Section 11.20.
Section 5.11. Control by Noteholders. Subject to the rights of the
Securities Insurer under Section 11.18 hereof, the Majority Noteholders shall
have the right to direct the time, method and place of conducting any Proceeding
for any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided,
however, that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) subject to the express terms of Section 5.04 hereof, any direction
to the Indenture Trustee to sell or liquidate the Collateral shall be by
Holders of Notes representing not less than 100% of the Notes Outstanding;
(c) if the conditions set forth in Section 5.05 hereof have been
satisfied and the Indenture Trustee elects to retain the Collateral
pursuant to such Section, then any direction to the Indenture Trustee by
Holders of Notes representing less than 100% of the Notes Outstanding to
sell or liquidate the Collateral shall be of no force and effect; and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Noteholders set forth in this
Section 5.11, subject to Section 6.01 hereof, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
<PAGE>
Section 5.12. Waiver of Past Defaults. The Securities Insurer may, or
at any time when a Securities Insurer Default has occurred and is continuing,
the Majority Noteholders may waive any past Default or Event of Default and its
consequences, except a Default (a) in the payment of principal of or interest on
any of the Notes or (b) in respect of a covenant or provision hereof that cannot
be modified or amended without the consent of the Securities Insurer or the
Holder of each Note. In the case of any such waiver, the Issuer, the Indenture
Trustee, the Securities Insurer and the Holders of the Notes shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee or the Securities Insurer, (b) any suit instituted by any
Noteholder, or group of Noteholders, in each case holding in the aggregate more
than 10% of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture (or, in
the case of redemption, on or after the Redemption Date).
Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee or the Securities Insurer, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.15. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee, the Securities Insurer
<PAGE>
or the Noteholders shall be impaired by the recovery of any judgment by the
Indenture Trustee against the Issuer or by the levy of any execution under such
judgment upon any portion of the Collateral or upon any of the assets of the
Issuer. Any money or property collected by the Indenture Trustee shall be
applied in accordance with Section 5.04(b) hereof.
Section 5.16. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Indenture Trustee to do so
and at the Administrator's expense, the Issuer shall take all such lawful action
as the Indenture Trustee may request to compel or secure the performance and
observance by the Transferor, the Servicer and the Master Servicer, as
applicable, of each of their obligations to the Issuer and the Grantor Trustee
under or in connection with the Sale and Servicing Agreement, and to exercise
any and all rights, remedies, powers and privileges lawfully available to the
Issuer, as Grantor Trust Holder, under or in connection with the Sale and
Servicing Agreement and the Grantor Trust Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Transferor or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Transferor, the Master Servicer or the Servicer of
each of their obligations under the Sale and Servicing Agreement and the Grantor
Trust Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall, at the direction of the Securities Insurer, and at the
direction (which direction shall be in writing or by telephone, confirmed in
writing promptly thereafter) of the Holders of 66-2/3% of the Notes Outstanding
shall, with the prior written consent of the Securities Insurer, exercise all
rights, remedies, powers, privileges and claims of the Issuer, as Grantor Trust
Holder, against the Transferor, the Servicer or the Master Servicer under or in
connection with the Sale and Servicing Agreement and the Grantor Trust
Agreement, including the right or power to take any action to compel or secure
performance or observance by the Transferor, the Servicer or the Master
Servicer, as the case may be, of each of their obligations to the Grantor
Trustee thereunder and to give any consent, request, notice, direction,
approval, extension, or waiver under the Sale and Servicing Agreement and the
Grantor Trust Agreement, and any right of the Issuer to take such action shall
be suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
<PAGE>
(i) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) in the absence of bad faith or gross negligence on its part, the
Indenture Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; provided, however, that the Indenture
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11 hereof.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this Section
6.01.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds held by the Indenture Trustee except to the extent permitted by
law or the terms of this Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and provided, further, that nothing
in this Section 6.01(g) shall be construed to limit the exercise by the
Indenture Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the Issuer's failure to pay the Indenture Trustee's
fees and expenses pursuant to Section 6.07 hereof. In determining that such
repayment or indemnity is not reasonably assured to it, the Indenture Trustee
must consider not only the
<PAGE>
likelihood of repayment or indemnity by or on behalf of the Issuer but also the
likelihood of repayment or indemnity from amounts payable to it from the
Collateral pursuant to Section 6.07 hereof.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section.
(i) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any Event of Default (other than an Event
of Default pursuant to Section 5.01(a)(i) or (ii) hereof) unless a Responsible
Officer of the Indenture Trustee shall have received written notice thereof or
otherwise shall have actual knowledge thereof. In the absence of receipt of
notice or such knowledge, the Indenture Trustee may conclusively assume that
there is no Event of Default.
(j) The Indenture Trustee shall, and hereby agrees, that it will hold
the Guaranty Policy in trust and will hold any proceeds of any claim on the
Guaranty Policy in trust solely for the use and benefit of the Noteholders. The
Indenture Trustee will deliver to the Rating Agencies notice of any change made
to the Guaranty Policy.
Section 6.02. Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to
be genuine and to have been signed or presented by the proper person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee so long as the Indenture Trustee
remains liable to the Issuer, the Noteholders and the Securities Insurer for the
performance of its duties hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that such action or omission by the
Indenture Trustee does not constitute willful misconduct, negligence or bad
faith.
(e) The Indenture Trustee may, at the expense of the Transferor as
provided under Section 6.07, consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the Notes
shall be full and complete authorization and protection from liability in
respect to any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
<PAGE>
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12 hereof.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
Section 6.05. Notices of Default. If a Default occurs and is
continuing and if it is known to a Responsible Officer of the Indenture Trustee,
the Indenture Trustee shall mail to each Noteholder notice of the Default within
90 days after it occurs and to the Securities Insurer notice of such Default
promptly after it occurs. Except in the case of a Default in payment of
principal of or interest on any Note (including payments pursuant to the
mandatory redemption provisions of such Note), the Indenture Trustee may
withhold the notice to Noteholders if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such Holder to prepare its federal and state income tax returns.
Section 6.07. Compensation and Indemnity. As compensation for its
services hereunder, the Indenture Trustee shall be entitled to receive, on each
Payment Date, the Indenture Trustee's Fee pursuant to Section 8.02(c) hereof
(which compensation shall not be limited by any law on compensation of a trustee
of an express trust) and shall be entitled to reimbursement by the Servicer for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts and
Opinions of Counsel hereunder. The Issuer agrees to cause the Transferor, at its
expense, to indemnify the Indenture Trustee against any and all loss, liability
or expense (including attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder. The
Indenture Trustee shall notify the Issuer, the Servicer and the Master Servicer
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee so to notify the Issuer, the Servicer and the Master Servicer shall not
relieve the Issuer of its obligations hereunder. The Issuer shall or shall cause
the Servicer to defend any such claim, and the Indenture Trustee may have
separate counsel reasonably acceptable to the Servicer and the Issuer shall or
shall cause the Servicer to pay the reasonable fees and expenses of such
counsel. Neither the Issuer, the Servicer nor the Master Servicer need reimburse
any
<PAGE>
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of a Default specified in
Section 5.01(a)(vi) or (vii) hereof with respect to the Issuer, the expenses are
intended to constitute expenses of administration under Title 11 of the United
States Code or any other applicable federal or state bankruptcy, insolvency or
similar law.
Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Securities Insurer.
The Securities Insurer or the Holders of a majority of the Outstanding Notes
with the consent of the Securities Insurer may remove the Indenture Trustee by
so notifying the Indenture Trustee and may appoint a successor Indenture Trustee
subject to Section 6.11. The Issuer shall remove the Indenture Trustee upon the
prior written consent of the Securities Insurer if:
(a) the Indenture Trustee fails to comply with Section 6.11 hereof;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee acceptable to the
Securities Insurer.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee, the Securities Insurer and to
the Issuer. Thereupon the resignation or removal of the retiring Indenture
Trustee shall become effective, and the successor Indenture Trustee shall have
all the rights, powers and duties of the Indenture Trustee under this Indenture.
The successor Indenture Trustee shall mail a notice of its succession to
Noteholders. The retiring Indenture Trustee shall promptly transfer all property
held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Securities Insurer, the Issuer or the Holders of a
majority of the Outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Indenture Trustee.
<PAGE>
If the Indenture Trustee fails to comply with Section 6.11 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee
acceptable to the Securities Insurer.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section 6.08, the Issuer's and the Administrator's obligations under
Section 6.07 hereof shall continue for the benefit of the retiring Indenture
Trustee acceptable to the Securities Insurer.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided,
however, that such corporation or banking association shall otherwise be
qualified and eligible under Section 6.11 hereof. The Indenture Trustee shall
provide the Securities Insurer and the Rating Agencies prior written notice of
any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee. (a) Notwithstanding any other provisions of this Indenture,
at any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Collateral may at the time be located, the
Indenture Trustee shall have the power, with the prior written consent of the
Securities Insurer, and may execute and deliver all instruments to appoint one
or more Persons to act as a co-trustee or co-trustees, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity and for the benefit of the Noteholders, such title
to the Collateral, or any part hereof, and, subject to the other provisions of
this Section, such powers, duties, obligations, rights and trusts as the
Indenture Trustee or the Securities Insurer may consider necessary or desirable.
No co-trustee or separate trustee hereunder shall be required to meet the terms
of eligibility as a successor trustee under Section 6.11 hereof and no notice to
Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 6.08 hereof; provided that the Indenture Trustee shall
deliver notice of any such co-trustee or separate trustee to the Securities
Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
<PAGE>
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed
the Indenture Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Collateral or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. Eligibility; Disqualification. The Indenture Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The Indenture
Trustee shall be acceptable to the Securities Insurer and shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Indenture Trustee shall comply with
TIA Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities of the Issuer are outstanding if the requirements
for such exclusion set forth in TIA Section 310(b)(1) are met.
<PAGE>
Section 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee which has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
Section 6.13. Waiver of Setoff. The Indenture Trustee hereby expressly
waives any and all rights of setoff that the Indenture Trustee may otherwise at
any time have under the applicable law with respect to any Trust Account and
agrees that amounts in the Trust Accounts shall at all times be held and applied
solely in accordance with the Basic Documents.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses
of Noteholders. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Holders of Notes as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished. The Indenture Trustee, or if the Indenture Trustee
is not the Note Register, the Issuer, shall furnish to the Securities Insurer
(so long as no Securities Insurer Default has occurred and is continuing) in
writing on an annual basis, and at such other times as the Securities Insurer
may request, a copy of the list of Noteholders.
Section 7.02. Preservation of Information; Communications to
Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 hereof and the names and addresses of Holders of Notes received
by the Indenture Trustee in its capacity as Note Registrar. The Indenture
Trustee may destroy any list furnished to it as provided in such Section 7.01
upon receipt of a new list so furnished. The Indenture Trustee shall make such
list available to the Securities Insurer on request.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA Section 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
<PAGE>
(i) file with the Indenture Trustee and the Securities Insurer, within
15 days after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) that
the Issuer may be required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, the Securities Insurer and the
Commission in accordance with the rules and regulations prescribed from
time to time by the Commission such additional information, documents and
reports with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by such
rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Noteholders described in TIA Section 313(c)) such
summaries of any information, documents and reports required to be filed by
the Issuer pursuant to clauses (i) and (ii) of this Section 7.03(a) and by
rules and regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each March 1, beginning with March 1, 1999, the
Indenture Trustee shall mail to the Securities Insurer and to each Noteholder as
required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Indenture Trustee also shall comply with
TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each securities
exchange, if any, on which the Notes are listed. The Issuer shall notify the
Indenture Trustee if and when the Notes are listed on any securities exchange.
Section 7.05. [Reserved].
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money and Claims Under the Guaranty
Policy. (a) Except as otherwise expressly provided herein, the Indenture Trustee
may demand payment or delivery of, and shall receive and collect, directly and
without intervention or assistance of any fiscal agent or other intermediary,
all money and other property payable to or receivable by the Indenture Trustee
pursuant to this Indenture. The Indenture Trustee shall apply all such money
received by it as provided in this Indenture. Except as otherwise expressly
provided in this Indenture, if any default occurs in the making of any payment
or performance under any
<PAGE>
agreement or instrument that is part of the Collateral, the Indenture Trustee
may take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V hereof.
(b) The Notes will be insured by the Guaranty Policy pursuant to the
terms set forth therein, notwithstanding any provisions to the contrary
contained in this Indenture or the Sale and Servicing Agreement. All amounts
received under the Guaranty Policy shall be used solely for the payment to
Noteholders of principal and interest on the Notes.
Section 8.02. Trust Accounts; Payments. (a) On or prior to the Closing
Date, the Issuer shall cause the Servicer to establish and maintain, in the name
of the Indenture Trustee for the benefit of the Noteholders and the Securities
Insurer, or on behalf of the Owner Trustee for the benefit of the
Securityholders, the Trust Accounts as provided in Article V of the Sale and
Servicing Agreement. The Indenture Trustee shall deposit amounts into each of
the Trust Accounts in accordance with the terms hereof, the Sale and Servicing
Agreement and the Servicer's Monthly Remittance Report.
(b) On the seventh Business Day prior to each Payment Date, the
Indenture Trustee shall withdraw from the Collection Account, pursuant to
Section 5.01(b)(2) of the Sale and Servicing Agreement, as a distribution in
respect of the Grantor Trust Certificate, the Available Collection Amount and
shall deposit such amount into the Note Payment Account. On each Payment Date,
to the extent funds are available in the Note Payment Account, the Indenture
Trustee shall either retain funds in the Note Payment Account for payment on
such day or make the withdrawals from the Note Payment Account and deposits into
the Certificate Distribution Account for distribution on such Payment Date as
required pursuant to Section 5.01(c) of the Sale and Servicing Agreement.
(c) On each Payment Date and Redemption Date, to the extent funds are
available in the Note Payment Account, the Indenture Trustee shall make the
following payments from the amounts on deposit in the Note Payment Account in
the following order of priority (except as otherwise provided in Section 5.04(b)
hereof):
(i) (A) to the Master Servicer, the Master Servicing Compensation and
all unpaid Master Servicing Compensation from prior Payment Dates (B) to
the Servicer, the Servicing Compensation (net of any amounts retained prior
to deposit into the Collection Account pursuant to Section 5.01(b)(1) of
the Sale and Servicing Agreement) and all unpaid Servicing Compensation
from prior Payment Dates, (C) to the Securities Insurer, an amount equal to
the Guaranty Insurance Premium and all unpaid Guaranty Insurance Premiums
from prior Due Periods, (D) to the Indenture Trustee, an amount equal to
the Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior
Payment Dates, (E) to the Owner Trustee, an amount equal to the Owner
Trustee Fee and all unpaid Owner Trustee Fees from prior Due Periods, (F)
to the Custodian, an amount equal to the Custodian Fee, if any, and all
unpaid Custodian Fees from prior
<PAGE>
Payment Dates, and (G) to the Grantor Trustee, an amount equal to the
Grantor Trustee Fee and all unpaid Grantor Trustee Fees from prior Payment
Dates; and
(ii) to the Noteholders and the Securities Insurer, the amounts set
forth in Sections 5.01(d) and (e) of the Sale and Servicing Agreement.
(d) On each Payment Date and each Redemption Date, to the extent of
the interest of the Indenture Trustee in the Certificate Distribution Account
(as described in Section 5.03(a) of the Sale and Servicing Agreement), the
Indenture Trustee hereby authorizes the Owner Trustee or the Paying Agent, as
applicable, to make the distributions from the Certificate Distribution Account
as required pursuant to Sections 5.01(d) and (e) of the Sale and Servicing
Agreement.
(e) (i) No later than four Business Days prior to each Payment Date,
the Indenture Trustee shall determine whether a Deficiency Amount (as defined in
the Guaranty Policy) exists. If the Indenture Trustee determines that a
Deficiency Amounts exists, the Indenture Trustee shall complete a notice in the
form of Exhibit A to the Guaranty Policy (the "Notice") and submit the Notice to
the Securities Insurer or its agent no later than 12:00 noon New York City time
on the third Business Day preceding such Payment Date, as a claim for an Insured
Payment (as defined in the Guaranty Policy) in an amount equal to such
Deficiency Amount. The Indenture Trustee shall, as necessary, make a claim on
the Guaranty Policy in respect of Preference Amounts in accordance with the
terms of the Guaranty Policy.
(ii) The Indenture Trustee shall establish and maintain an Eligible
Account for the benefit of the Noteholders for the exclusive use as an account
into which to deposit any proceeds of the Guaranty Policy (the "Insurance
Account"). Upon receipt of an Insured Payment from the Insurer, the Indenture
Trustee shall deposit such Insured Payment in the Insurance Account. All amounts
on deposit in the Insurance Account shall remain uninvested. On each Payment
Date, the Indenture Trustee shall (i) transfer any Deficiency Amount then on
deposit in the Insurance Account to the Note Payment Account and (ii) return any
money in the Insurance Account which does not constitute an Insured Payment to
the Securities Insurer. The Indenture Trustee shall distribute on each Payment
Date, to the Noteholders, the Deficiency Amount for such Payment Date from the
Note Payment Account in accordance with the priorities set forth in Section
8.02(c) hereof.
(iii) The Indenture Trustee shall (i) receive as attorney-in-fact of
each Noteholder any Insured Payment from the Securities Insurer and (ii)
distribute such Insured Payment as set forth in subsection (b) above. Insured
Payments disbursed by the Indenture Trustee from proceeds of the Guaranty Policy
shall not be considered payment by the Issuer with respect to the Notes, nor
shall such disbursement of such Insured Payments discharge the obligations of
the Issuer with respect to the amounts thereof, and the Insurer shall become the
owner of such amounts as the deemed assignee and subrogee of such Noteholders.
The Indenture Trustee hereby agrees on behalf of each Noteholder (and each
Noteholder, by its acceptance of the Notes, hereby agrees) for the benefit of
the Securities Insurer that the Indenture Trustee shall recognize that to the
extent the Securities Insurer makes Insured
<PAGE>
Payments, either directly or indirectly (as by paying through the Indenture
Trustee), to the Noteholders, the Securities Insurer will be entitled to receive
the reimbursements in accordance with the priority set forth in Section
5.01(d)(iii) of the Sale and Servicing Agreement.
Section 8.03. General Provisions Regarding Accounts. (a) So long as no
Default or Event of Default shall have occurred and be continuing, all or a
portion of the funds in the Trust Accounts shall be invested in Permitted
Investments and reinvested by the Indenture Trustee at the direction of the
Master Servicer in accordance with the provisions of Article V of the Sale and
Servicing Agreement. All income or other gain from investments of moneys
deposited in the Trust Accounts shall be deposited by the Indenture Trustee into
the Note Payment Account (and any such income or gain in respect of the
Collection Account shall be treated as a distribution in respect of the Grantor
Trust Certificate), and any loss resulting from such investments shall be
charged to such account.
(b) Subject to Section 6.01(c) hereof, the Indenture Trustee shall not
in any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Eligible Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Eligible Investments issued by the Indenture Trustee, in its
commercial capacity as principal obligor and not as trustee, in accordance with
their terms.
(c) If (i) the Issuer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Indenture Trustee by 11:00
a.m. Eastern Time (or such other time as may be agreed by the Issuer and
Indenture Trustee) on any Business Day or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Notes but the Notes
shall not have been declared due and payable pursuant to Section 5.02 hereof or
(iii) if such Notes shall have been declared due and payable following an Event
of Default, amounts collected or receivable from the Collateral are being
applied in accordance with Section 5.05 hereof as if there had not been such a
declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Eligible Investments.
Section 8.04. Servicer's Monthly Statements. On each Payment Date, the
Indenture Trustee shall deliver the Servicer's Monthly Remittance Report (as
defined in the Sale and Servicing Agreement) with respect to such Payment Date
to DTC, the Master Servicer, the Rating Agencies and the Securities Insurer.
Section 8.05. Release of Collateral. (a) Subject to Section 11.01 and
the terms of the Basic Documents, the Indenture Trustee may, and when required
by the provisions of this Indenture shall, execute instruments to release
property from the lien of this Indenture, or convey the Indenture Trustee's
interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or
<PAGE>
see to the application of any moneys. The Indenture Trustee shall surrender the
Guaranty Policy to the Securities Insurer upon the conditions in Section 4.01
hereof.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Certificateholders pursuant to Section
5.02(b) of the Sale and Servicing Agreement, to the Master Servicer pursuant to
Section 8.02(c)(i)(A) hereof, to the Servicer pursuant to Section 8.02(c)(i)(B)
hereof, to the Securities Insurer pursuant to Section 8.02(c)(i)(C) hereof, to
the Indenture Trustee pursuant to Section 8.02(c)(i)(D) hereof, to the Owner
Trustee pursuant to Section 8.02(c)(i)(E) hereof, to the Custodian pursuant to
Section 8.02(c)(i)(F) hereof and to the Grantor Trustee pursuant to Section
8.02(c)(i)(G) hereof have been paid, release any remaining portion of the
Collateral that secured the Notes from the lien of this Indenture and release to
the Issuer or any other Person entitled thereto any funds then on deposit in the
Trust Accounts. The Indenture Trustee shall release property from the lien of
this Indenture pursuant to this Subsection (b) only upon receipt by it and the
Securities Insurer of an Issuer Request accompanied by an Officer's Certificate,
an Opinion of Counsel and (if required by the TIA) Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(1) meeting the applicable
requirements of Section 11.01 hereof.
Section 8.06. Opinion of Counsel. The Indenture Trustee and the
Securities Insurer shall receive at least seven days' prior notice when
requested by the Issuer to take any action pursuant to Section 8.05(a) hereof,
accompanied by copies of any instruments involved, and the Indenture Trustee and
the Securities Insurer may also require, as a condition to such action, an
Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee
and the Securities Insurer, stating the legal effect of any such action,
outlining the steps required to complete the same, and concluding that all
conditions precedent to the taking of such action have been complied with and
such action will not materially and adversely impair the security for the Notes
or the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with prior notice to the
Rating Agencies and with the prior written consent of the Securities Insurer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any
time and from time to time, may enter into one or more indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as in
force at the date of the execution thereof), in form satisfactory to the
Indenture Trustee, for any of the following purposes:
<PAGE>
(i) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture that may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided, however, that such
action shall not adversely affect the interests of the Holders of the
Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to
facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI hereof; or
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Securities Insurer, when authorized by an Issuer Order, may, also
without the consent of any of the Holders of the Notes but with prior consent of
the Rating Agencies, enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by (i) an Opinion of Counsel
or (ii) satisfaction of the Rating Agency Condition, adversely affect in any
material respect the interests of any Noteholder including the interests of the
Securities Insurer to the extent it is, or will become,
<PAGE>
upon payment in full of all amounts due to any Noteholder hereunder or pursuant
to a Note, a Noteholder pursuant to Section 2.06(b) hereof.
Section 9.02. Supplemental Indentures with Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with prior consent of the Rating Agencies, the Securities Insurer and with the
consent of the Holders of not less than a majority of the Outstanding Notes, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby and the Securities Insurer if affected
thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the Note Principal Balance thereof, the interest
rate thereon or the Termination Price with respect thereto, change the
provisions of this Indenture relating to the application of collections on, or
the proceeds of the sale of, the Collateral to payment of principal of or
interest on the Notes, or change any place of payment where, or the coin or
currency in which, any Note or the interest thereon is payable, or impair the
right to institute suit for the enforcement of the provisions of this Indenture
requiring the application of funds available therefor, as provided in Article V
hereof, to the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage of the Outstanding Notes, the consent of the
Holders of which is required for any such supplemental indenture, or the consent
of the Holders of which is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;
(c) modify or alter the provisions of the proviso to the definition of
the term "Outstanding" or "Voting Rights";
(d) reduce the percentage of the Outstanding Notes required to direct
the Indenture Trustee to direct the Issuer to sell or liquidate the Collateral
pursuant to Section 5.04 hereof;
(e) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Basic Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby;
(f) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Payment Date (including the calculation of any of the
individual components of such
<PAGE>
calculation) or to affect the rights of the Holders of Notes to the benefit of
any provisions for the mandatory redemption of the Notes contained herein; or
(g) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the Holder of
any Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
In connection with requesting the consent of the Noteholders pursuant
to this Section 9.02, the Indenture Trustee shall mail to the Holders of the
Notes to which such amendment or supplemental indenture relates a notice setting
forth in general terms the substance of such supplemental indenture. It shall
not be necessary for any Act of Noteholders under this Section 9.02 to approve
the particular form of any proposed supplemental indenture, but it shall be
sufficient if such Act shall approve the substance thereof.
Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
Section 9.04. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
<PAGE>
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
Section 9.07. Amendments to Owner Trust Agreement.
Subject to Section 11.1 of the Owner Trust Agreement, the Indenture
Trustee shall, upon Issuer Order, consent to any proposed amendment to the Owner
Trust Agreement or an amendment to or waiver of any provision of any other
document relating to the Owner Trust Agreement, such consent to be given without
the necessity of obtaining the consent of the Holders of any Notes upon
satisfaction of the requirements under Section 11.1 of the Owner Trust
Agreement. Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the subject
of the proposed amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Redemption.
The Majority Residual Interestholders (as defined in the Owner Trust
Agreement) may, at its option, effect an early redemption of the Notes on any
Payment Date on or after the Payment Date on which the Pool Principal Balance
declines to 10% or less of the Original Pool Principal Balance. The Securities
Insurer or the Master Servicer may, at their respective options, effect an early
termination of the Notes on any Payment Date on which the Pool Principal Balance
declines to 5% or less of the Original Pool Principal Balance. The Majority
Residual Interestholders, the Master Servicer or the Securities Insurer, as
applicable, shall effect such early termination in the manner specified in and
subject to the provisions of Section 11.02(b) of the Sale and Servicing
Agreement and Section 7.01 of the Grantor Trust Agreement.
The Servicer or the Issuer shall furnish the Rating Agencies, the
Master Servicer and, if redemption is effected by the Majority Residual
Interestholders, the Securities Insurer notice of any such redemption in
accordance with Section 10.02 hereof.
Section 10.02. Form of Redemption Notice. Notice of redemption under
Section 10.01 hereof shall be given by the Indenture Trustee by first-class
mail, postage
<PAGE>
prepaid, or by facsimile mailed or transmitted not later than 10 days prior to
the applicable Redemption Date to the Securities Insurer and each Holder of
Notes, as of the close of business on the Record Date preceding the applicable
Redemption Date, at such Holder's address or facsimile number appearing in the
Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) that on the Redemption Date Noteholders shall receive the Note
Redemption Amount; and
(iii) the place where such Notes are to be surrendered for payment of
the Termination Price (which shall be the office or agency of the Issuer to
be maintained as provided in Section 3.02 hereof).
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give to any Holder of any Note notice of redemption, or any defect therein,
shall not impair or affect the validity of the redemption of any other Note.
Section 10.03. Notes Payable on Redemption Date; Provision for Payment
of Indenture Trustee and Securities Insurer. The Notes to be redeemed shall,
following notice of redemption as required by Section 10.02 hereof (in the case
of redemption pursuant to Section 10.01) hereof, on the Redemption Date become
due and payable at the Note Redemption Amount and (unless the Issuer shall
default in the payment of the Note Redemption Amount) no interest shall accrue
thereon for any period after the date to which accrued interest is calculated
for purposes of calculating the Note Redemption Amount. The Issuer may not
redeem the Notes unless (i) all outstanding obligations under the Notes have
been paid in full and (ii) the Indenture Trustee has been paid all amounts to
which it is entitled hereunder and the Securities Insurer has been paid all
Securities Insurer Reimbursement Amounts to which it is entitled as of the
applicable Redemption Date.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture (except with respect to the Servicer's
servicing activity in the ordinary course of its business), the Issuer shall
furnish to the Indenture Trustee and the Securities Insurer (i) an Officer's
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with, (ii) an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with and (iii) (if required by
the TIA) an Independent Certificate from a firm of certified public accountants
meeting the applicable requirements of this Section,
<PAGE>
except that, in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and
the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion
as to whether or not such covenant or condition has been complied
with; and
(4) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
(b) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.01(a) hereof
or elsewhere in this Indenture, furnish to the Indenture Trustee and the
Securities Insurer an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such deposit) to the Issuer of the Collateral or other property or securities to
be so deposited.
(c) Whenever the Issuer is required to furnish to the Indenture
Trustee and the Securities Insurer an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the matters described in
subsection (b) above, the Issuer shall also deliver to the Indenture Trustee an
Independent Certificate as to the same matters, if the fair value to the Issuer
of the securities to be so deposited and of all other such securities made the
basis of any such withdrawal or release since the commencement of the
then-current fiscal year of the Issuer, as set forth in the certificates
delivered pursuant to subsection (b) above and this subsection (c), is 10% or
more of the Outstanding Amount of the Notes, but such a certificate need not be
furnished with respect to any securities so deposited, if the fair value thereof
to the Issuer as set forth in the related Officer's Certificate is less than
$25,000 or less than one percent of the Outstanding Amount of the Notes.
(d) Whenever any property or securities are to be released from the
lien of this Indenture, the Issuer shall also furnish to the Indenture Trustee
and the Securities Insurer an Officer's Certificate certifying or stating the
opinion of each person signing such certificate
<PAGE>
as to the fair value (within 90 days of such release) of the property or
securities proposed to be released and stating that in the opinion of such
person the proposed release will not impair the security under this Indenture in
contravention of the provisions hereof.
(e) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in subsection (d) above, the Issuer shall
also furnish to the Indenture Trustee and the Securities Insurer an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property, other than securities released from the
lien of this Indenture since the commencement of the then-current calendar year,
as set forth in the certificates required by subsection (d) above and this
subsection (e), equals 10% or more of the Outstanding Amount of the Notes, but
such certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the then
Outstanding Amount of the Notes.
Section 11.02. Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Master Servicer, the Transferor, the
Issuer or the Administrator, stating that the information with respect to such
factual matters is in the possession of the Servicer, the Master Servicer, the
Transferor, the Issuer or the Administrator, unless such counsel knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such
<PAGE>
application, or as evidence of the Issuer's compliance with any term hereof, it
is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application granted
or to the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Indenture Trustee's right to rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Article VI hereof.
Section 11.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 11.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies and Securities Insurer. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder, the Securities Insurer or
by the Issuer shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Indenture Trustee at
its Corporate Trust Office, or
(ii) the Issuer by the Indenture Trustee, the Securities Insurer or by
any Noteholder shall be sufficient for every purpose hereunder if in
writing and made, given, furnished or filed with the Issuer addressed to:
Empire Funding Home Loan Owner Trust 1998-3, in care of Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Emmett R.
<PAGE>
Harmon, or at any other address previously furnished in writing to the
Indenture Trustee by the Issuer or the Administrator. The Issuer shall
promptly transmit any notice received by it from the Noteholders to the
Indenture Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee, the Securities Insurer or the Owner Trustee shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested, to (i) in the case of Moody's, at the following address: 99 Church
Street, Corporate Department - 4th Floor, New York, New York 10007, Attention:
Residential Mortgage Monitoring Department, (ii) in the case of S&P, 25
Broadway, 12th Floor, New York, New York 10004 Attention: Residential Mortgage
Group, and (iii) in the case of Fitch, One State Street Plaza, New York, New
York 10004, Attention: Asset Backed Surveillance Department.
Notices required to be given to the Securities Insurer by the Issuer,
the Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to the
following address: MBIA Insurance Corporation, 113 King Street, Armonk, New York
10504, Attention: Insured Portfolio Management - Structured Finance (IPM-SF)
(Empire Funding Home Loan Owner Trust 1998-3) Facsimile No.: (914) 765-3816,
Telephone No.: (914) 273-4545, or at such other address as shall be designated
by written notice to the other parties.
Notices required to be given to the Master Servicer by the Issuer, the
Indenture Trustee, the Securities Insurer or the Owner Trustee shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested to the following address: Norwest Bank Minnesota, National
Association, 11000 Broken Land Parkway, Columbia, Maryland 21044-3562,
Attention: Master Servicing Manager (Empire Funding 1998-3).
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have duly been given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this
<PAGE>
Indenture, then any manner of giving such notice as shall be satisfactory to the
Indenture Trustee shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
Section 11.06. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 11.07. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 11.08. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 11.09. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.10. Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person (other than the parties
hereto and their successors hereunder, the Noteholders, any other party secured
hereunder, any other Person with an ownership interest in any part of the
Collateral) any benefit or any legal or equitable right, remedy or claim under
this Indenture, except that the Securities Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.19..
Section 11.11. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 11.12. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
<PAGE>
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 11.13. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.14. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at the expense of the Servicer accompanied by an
Opinion of Counsel (which may be counsel to the Indenture Trustee or any other
counsel reasonably acceptable to the Indenture Trustee and the Securities
Insurer) to the effect that such recording is necessary either for the
protection of the Noteholders or any other Person secured hereunder or for the
enforcement of any right or remedy granted to the Indenture Trustee under this
Indenture.
Section 11.15. Owner Trust Obligation. No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the Owner
Trustee or the Indenture Trustee on the Notes or, except as expressly provided
for in Article VI hereof, under this Indenture or any certificate or other
writing delivered in connection herewith or therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director, employee or agent of the Indenture Trustee or the
Owner Trustee in its individual capacity, any holder of a beneficial interest in
the Issuer, the Owner Trustee or the Indenture Trustee or of any successor or
assign of the Indenture Trustee or the Owner Trustee in its individual capacity,
except as any such Person may expressly have agreed (it being understood that
the Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity. For all purposes of this Indenture, in
the performance of any duties or obligations of the Issuer hereunder, the Owner
Trustee shall be subject to, and entitled to the benefits of, the terms and
provisions of Articles VI, VII and VIII of the Owner Trust Agreement.
Section 11.16. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Transferor, the
Servicer, the Master Servicer or the Issuer, or join in any institution against
the Transferor, the Servicer, the Master Servicer or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law, in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 11.17. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the
Securities Insurer, during the
<PAGE>
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may reasonably be requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 11.18 Grant of Noteholder Rights to Securities Insurer. In
consideration for the guarantee of the Notes by the Securities Insurer pursuant
to the Guaranty Policy, the Noteholders hereby grant to the Securities Insurer
the right to act as the holder of 100% of the outstanding Notes for the purpose
of exercising the rights of the Holders of the Notes hereunder, including the
voting rights of such Holders, but excluding those rights requiring the consent
of all such Holders under Section 9.02 and any rights of such Holders to
payments under Section 8.02 hereof; provided that the preceding grant of rights
to the Securities Insurer by the Noteholders shall be subject to Section 11.20
hereof. The rights of the Securities Insurer to direct certain actions and
consent to certain actions of the Noteholders hereunder will terminate at such
time as the Note Principal Balance of the Notes has been reduced to zero and the
Securities Insurer has been reimbursed for all Insured Payments and any other
amounts owed under the Guaranty Policy and the Insurance Agreement and the
Securities Insurer has no further obligation under the Guaranty Policy.
Section 11.19 Third Party Beneficiary. The parties hereto acknowledge
that the Securities Insurer is an express third party beneficiary hereof
entitled to enforce any rights reserved to it hereunder as if it were actually a
party hereto.
Section 11.20 Suspension and Termination of Securities Insurer's
Rights.
(a) During the continuation of a Securities Insurer Default, rights
granted or reserved to the Securities Insurer hereunder shall vest instead in
the Noteholders; provided that the Securities Insurer shall be entitled to any
payments in reimbursement of the Securities Insurer Reimbursement Amount, and
the Securities Insurer shall retain those rights under Sections 9.01 and 9.02
hereof to consent to any supplement to this Indenture.
(b) At such time as the Note Principal Balance of the Notes has been
reduced to zero and the Securities Insurer has been reimbursed for all Insured
Payments and any other amounts owed under the Guaranty Policy and the Insurance
Agreement (and the Securities Insurer no longer has any obligation under the
Guaranty Policy, except for breach thereof by the Securities Insurer), then the
rights and benefits granted or reserved to the Securities Insurer hereunder
(including the rights to direct certain actions and receive certain notices)
shall terminate and the Noteholders shall be entitled to the exercise of such
rights and to receive such benefits of the Securities Insurer following such
termination to the extent that such rights and benefits are applicable to the
Noteholders.
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
EMPIRE FUNDING HOME LOAN
OWNER TRUST 1998-3
By: Wilmington Trust Company
not in its individual capacity but
solely as Owner Trustee
By:
----------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION,
as Indenture Trustee
By:
----------------------------------
Name:
Title:
<PAGE>
STATE OF __________
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ___________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as
Owner Trustee on behalf of EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3, a
Delaware business trust, and that such person executed the same as the act of
said business trust for the purpose and consideration therein expressed, and in
the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of _______,
1998.
______________________________________________
Notary Public in and for the State of New York
My commission expires:
__________________________________
<PAGE>
STATE OF __________
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared __________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of U.S.
BANK NATIONAL ASSOCIATION, a national banking association, and that such person
executed the same as the act of said corporation for the purpose and
consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of _______,
1998.
______________________________________________
Notary Public in and for the State of New York
(Seal)
My commission expires:
__________________________________
<PAGE>
EXHIBIT A
FORM OF NOTE
NOTE
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is registered
in the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
EACH TRANSFEREE OF THIS NOTE OR A BENEFICIAL INTEREST HEREIN THAT IS A PLAN, OR
IS A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN, SHALL BE
DEEMED TO REPRESENT THAT THE RELEVANT CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT
LEAST ONE OF THE FOLLOWING PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN
SATISFIED: PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO
TRANSACTIONS EFFECTED BY AN "IN-HOUSE ASSET MANAGER"), PTCE 95-60 (RELATING TO
TRANSACTIONS INVOLVING INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING
TO TRANSACTIONS INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING
TO TRANSACTIONS INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE
84-14 (RELATING TO TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET
MANAGER").
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF.
<PAGE>
$283,580,654
No. [__] CUSIP NO. 291701 CV 0
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
6.75% HOME LOAN ASSET BACKED NOTE
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3, a business trust
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of Two Hundred Eighty-Three Million Five
Hundred Eighty Thousand Six Hundred Fifty-Four Dollars ($283,580,654) payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is the initial principal amount of this Note and
the denominator of which is the aggregate principal amount of all Notes by (ii)
the aggregate amount, if any payable from the Note Payment Account in respect of
principal on the Notes pursuant to Section 5.01(d) and (e) of the Sale and
Servicing Agreement; provided, however, that the entire unpaid principal amount
of this Note shall be due and payable on the earlier of (i) the applicable
Maturity Date, (ii) the Termination Date, if any, pursuant to Section 11.01 of
the Sale and Servicing Agreement, (iii) the date on which either the Majority
Residual Interestholders, the Securities Insurer or the Master Servicer, as
applicable, exercises its option to terminate the Issuer pursuant to Section
11.02 of the Sale and Servicing Agreement or (iv) the date on which an Event of
Default shall have occurred and be continuing if the Securities Insurer declares
the Notes due and payable, or, if a Securities Insurer Default has occurred and
is continuing, then if the Indenture Trustee declares or is directed by the
Majority Noteholders to declare the Notes to be immediately due and payable, in
each case in the manner provided in Section 5.02 of the Indenture. Capitalized
terms used but not defined herein are defined in Article I of the Indenture (the
"Indenture") dated as of November 1, 1998 between the Issuer and U.S. Bank
National Association, a national banking association, which also contains rules
as to construction that shall be applicable herein.
The Issuer will pay interest on this Note at the rate per annum shown
above on each Payment Date until the principal of this Note is paid or made
available for payment in full, on the principal amount of this Note outstanding
on the preceding Payment Date (after giving effect to all payments of principal
made on the preceding Payment Date); provided, however, that commencing on the
first day of the month in which the Clean-up Call Date occurs, the rate of
interest payable on this Note shall be increased by a per annum rate equal to
0.50%. Interest on this Note will accrue for each Payment Date during the
calendar month preceding such Payment Date, or, in the case of the first Payment
Date, during the period commencing on November 5, 1998 and ending on November
30, 1998 (each, an "Accrual Period"). Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Such principal of and interest on this
Note shall be paid in the manner specified on the reverse hereof.
<PAGE>
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer, as of the date set
forth below.
Date: _______ __, 1998
EMPIRE FUNDING HOME LOAN OWNER
TRUST 1998-3
By: Wilmington Trust Company,
not in its individual capacity but
solely as Owner Trustee under the
Owner Trust Agreement
By:
------------------------------------
Authorized Signatory
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: _______ __, 1998
U.S. BANK NATIONAL ASSOCIATION,
not in its individual capacity but
solely as Indenture Trustee
By:
------------------------------------
Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its 6.75% Home Loan Asset Backed Notes (herein called the
"Notes"), as issued under the Indenture, to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indenture.
The Notes will be secured by the collateral pledged as security
therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the 25th day of each
month, or, if any such date is not a Business Day, the next succeeding Business
Day, commencing in December 1998.
As described on the face hereof, the entire unpaid principal amount of
this Note shall be due and payable on the earlier of the applicable Maturity
Date, the optional termination of the Issuer pursuant to Section 11.02 of the
Sale and Servicing Agreement and the termination of the Sale and Servicing
Agreement pursuant to Section 11.01(a) thereof. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable on the
date on which an Event of Default shall have occurred and be continuing and if
the Securities Insurer declares the Notes due and payable, or if a Securities
Insurer Default has occurred and is continuing, if the Indenture Trustee
declares, or is directed by the Majority Noteholders to declare, the Notes to be
immediately due and payable in the manner provided in Section 5.02 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
holders of the Notes entitled thereto.
Payments of interest on this Note due and payable on each Payment
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Registered Holder of this Note (or one or more Predecessor
Notes) on the Note Register as of the close of business on each Record Date,
except that with respect to Notes registered on the Record Date in the name of
the nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Payment Date shall be binding upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not noted hereon. If funds are expected to be available,
as provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Payment Date, then the Indenture Trustee, in
the name of and on behalf of the Issuer, will
<PAGE>
notify the Person who was the Registered Holder hereof as of the Record Date
preceding such Payment Date by notice mailed or transmitted by facsimile prior
to such Payment Date, and the amount then due and payable shall be payable only
upon presentation and surrender of this Note at the Indenture Trustee's
principal Corporate Trust Office or at the office of the Indenture Trustee's
agent appointed for such purposes located in (St. Paul, Minnesota).
MBIA Insurance Corporation, as the Securities Insurer, has issued a
Guaranty Policy for the benefit of the Noteholders, which policy guarantees
payments on each Payment Date to the Indenture Trustee for the benefit of the
Noteholders of the related Noteholders' Interest Payment Amount and the
Noteholders' Principal Deficiency Amount then payable on the Notes. Unless a
Securities Insurer Default shall be continuing, the Securities Insurer shall be
deemed to be the Holder of 100% of the outstanding Notes for the purpose of
exercising certain rights, including voting rights, of the Noteholders under the
Indenture and the Sale and Servicing Agreement. In addition, on each Payment
Date, after the Noteholders have been paid all amounts to which they are
entitled, the Securities Insurer will be entitled to be reimbursed for any
unreimbursed Insured Payments and any other amounts owed under the Guaranty
Policy.
As provided in the Indenture and the Sale and Servicing Agreement, the
Notes may be redeemed in whole, but not in part, (a) at the option of the
holders of greater than 50% of the Residual Interest Certificates on any Payment
Date on and after the date on which the Pool Principal Balance is less than 10%
of the Original Pool Principal Balance or (b) at the option of the Securities
Insurer or the Master Servicer on any Payment Date on and after the date on
which the Pool Principal Balance is less than 5% of the Original Pool Principal
Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged to a Holder or the Securities
Insurer for any registration of transfer or exchange of this Note, but the
Issuer may require a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any such registration of transfer
or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be
<PAGE>
taken, directly or indirectly, with respect to the obligations of the Issuer,
the Owner Trustee or the Indenture Trustee on the Notes or under the Indenture
or any certificate or other writing delivered in connection therewith, against
(i) the Indenture Trustee or the Owner Trustee in its individual capacity, (ii)
any owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director or employee of the Indenture Trustee or
the Owner Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer, the Owner Trustee or the Indenture Trustee or of any
successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed and
except that any such partner, owner or beneficiary shall be fully liable, to the
extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note, covenants and agrees by
accepting the benefits of the Indenture that such Noteholder or Note Owner will
not at any time institute against the Transferor, the Servicer, the Master
Servicer or the Issuer, or join in any institution against the Transferor, the
Servicer, the Master Servicer or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is issued with
the intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Owner Trust Estate. Each Noteholder, by acceptance of a Note (and
each Note Owner by acceptance of a beneficial interest in a Note), agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Securities Insurer, the Indenture Trustee and any agent of
the Issuer, the Securities Insurer or the Indenture Trustee may treat the Person
in whose name this Note (as of the day of determination or as of such other date
as may be specified in the Indenture) is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and none of the Issuer, the
Securities Insurer, the Indenture Trustee or any such agent shall be affected by
notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Rating Agencies, the Securities
Insurer and the Holders of Notes representing not less than a majority of the
Outstanding Notes. The Indenture also contains provisions permitting the
Securities Insurer, or if a Securities Insurer Default has occurred and is
continuing, the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes, on behalf of the Holders of all the Notes, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and
<PAGE>
their consequences. Any such consent or waiver by the Holder of this Note (or
any one or more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee or the Securities Insurer to amend or waive
certain terms and conditions set forth in the Indenture without the consent of
Holders of the Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of the Issuer in its individual capacity,
the Owner Trustee in its individual capacity, any owner of a beneficial interest
in the Issuer, or any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on this Note or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in the
Indenture. The Holder of this Note by its acceptance hereof agrees that, except
as expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: _______
*/
---------------------------
Signature Guaranteed:
*/
---------------------------
- ----------
*/NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
================================================================================
SALE AND SERVICING AGREEMENT
Dated as of November 1, 1998
among
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
(Issuer)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Depositor)
EMPIRE FUNDING CORP.
(Transferor and Servicer)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Master Servicer)
and
U.S. BANK NATIONAL ASSOCIATION
(Indenture Trustee and Grantor Trustee)
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
HOME LOAN ASSET BACKED NOTES
SERIES 1998-3
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01 Definitions .....................................................1
Section 1.02 Other Definitional Provisions ..................................24
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate ....................24
Section 2.02 Ownership and Possession of Grantor Trust Certificate ..........25
Section 2.03 Books and Records; Principal Place of Business .................25
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances ......26
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor ................26
Section 3.02 Representations and Warranties of the Transferor ...............28
Section 3.03 Representations, Warranties and Covenants of the Servicer ......30
Section 3.03A Representations and Warranties of the Master Servicer .........32
Section 3.04 Representations and Warranties Regarding Individual Home Loans..34
Section 3.05 Purchase and Substitution ......................................42
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer .........................................45
Section 4.01A Appointment and Term of the Servicer ..........................47
Section 4.02 Appointment and Duties of the Master Servicer ..................48
Section 4.03 Fidelity Bond; Errors and Omissions Insurance ..................50
Section 4.04 Filing of Continuation Statements ..............................50
Section 4.05 [Reserved] .....................................................51
Section 4.06 Subservicing ...................................................51
Section 4.07 Successor Servicers ............................................53
Section 4.08 Collections from Property Insurance Policies ...................53
Section 4.09 Reports to the Securities and Exchange Commission ..............54
Section 4.10 Recovery from Defaulted Home Loans and Liquidated Home Loans....54
Section 4.11 Title, Management and Disposition of Foreclosure Property ......58
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ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account ....................59
Section 5.01A Claims Under Guaranty Policy ..................................63
Section 5.02 Certificate Distribution Account ...............................64
Section 5.03 Trust Accounts; Trust Account Property .........................65
Section 5.04 Allocation of Losses ...........................................68
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements .....................................................68
Section 6.02 Withholding ....................................................71
ARTICLE VII
GENERAL SERVICING PROCEDURES
Section 7.01 Due-On-Sale; Due-on-Encumbrance ................................72
Section 7.02 Release of Home Loan Files .....................................73
Section 7.03 Servicing Compensation .........................................74
Section 7.04 Statement as to Compliance and Financial Statements ............74
Section 7.05 Independent Public Accountants'Servicing Report ................75
Section 7.06 Right to Examine Servicer Records ..............................75
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements ...................................................76
Section 7.08 Financial Statements ...........................................76
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims ............................77
Section 9.02 Merger or Consolidation of the Servicer ........................78
Section 9.03 Limitation on Liability of the Servicer and Others 78
Section 9.04 Servicer Not to Resign; Assignment .............................78
Section 9.05 Relationship of Servicer to the Grantor Trust and the
Grantor Trustee ..............................................79
Section 9.06 Servicer May Own Securities ....................................79
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ARTICLE X
DEFAULT
Section 10.01 Events of Default .............................................80
Section 10.02 Master Servicer to Act; Appointment of Successor ..............83
Section 10.03 Waiver of Defaults ............................................85
Section 10.04 Accounting Upon Termination of Servicer .......................86
ARTICLE XI
TERMINATION
Section 11.01 Termination ...................................................86
Section 11.02 Optional Termination ..........................................87
Section 11.03 Notice of Termination .........................................87
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders ...........................................88
Section 12.02 Amendment .....................................................88
Section 12.03 Recordation of Agreement ......................................89
Section 12.04 Duration of Agreement .........................................89
Section 12.05 Governing Law .................................................89
Section 12.06 Notices .......................................................89
Section 12.07 Severability of Provisions ....................................90
Section 12.08 No Partnership ................................................90
Section 12.09 Counterparts ..................................................90
Section 12.10 Successors and Assigns ........................................91
Section 12.11 Headings ......................................................91
Section 12.12 Actions of Securityholders ....................................91
Section 12.13 Reports to Rating Agencies ....................................91
Section 12.14 Holders of the Residual Interest Certificates .................92
Section 12.15 Year 2000 Compliance ..........................................92
Section 12.16 Grant of Noteholder Rights to Securities Insurer ..............92
Section 12.17 Third Party Beneficiary .......................................93
Section 12.18 Suspension and Termination of Securities Insurer's Rights .....93
EXHIBITS:
A - Home Loan Schedule
B - Form of Servicer's Monthly Remittance Report to Indenture Trustee
C - Form of Loan Liquidation Report
D - Form of Servicer Renewal Notice
<PAGE>
This Sale and Servicing Agreement is entered into effective as of November
1, 1998, among EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3, a Delaware business
trust (the "Issuer" or the "Owner Trust"), PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, a Delaware corporation, as Depositor (the "Depositor"), EMPIRE
FUNDING CORP., an Oklahoma corporation ("Empire Funding"), as Transferor (in
such capacity, the "Transferor") and Servicer (in such capacity, the
"Servicer"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association, as Master Servicer (the "Master Servicer"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee") and as Grantor
Trustee on behalf of the holder of the Grantor Trust Certificate (in such
capacity, the "Grantor Trustee").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the parties
hereto hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Notes issued under the Indenture, the Residual
Interest Certificates issued under the Owner Trust Agreement and the Grantor
Trust Certificate issued under the Grantor Trust Agreement and the Securities
Insurer for issuing the Guaranty Policy:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year consisting of twelve 30-day
months.
Accepted Servicing Procedures: Servicing procedures that satisfy the
following: (a) meet at least the same standards the Servicer would follow in
exercising reasonable care in servicing mortgage loans such as the Home Loans
held for its own account; (b) comply with applicable state and federal law; (c)
comply with the provisions of the related Debt Instruments and Mortgages; and
(d) give due consideration to the accepted standards of practice of prudent
consumer loan servicers that service mortgage loans comparable to the Home Loans
and the reliance placed by the Grantor Trust Holders, the Securities Insurer,
the Master Servicer and Securityholders on the Servicer for the servicing of the
Home Loans, but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
Affiliate of the Servicer or any Subservicer may have with the related
Obligor;
(ii) the ownership of any Notes, the Grantor Trust Certificate or the
Residual Interest Certificates by the Servicer or any Affiliate of the
Servicer;
(iii) the Servicer's obligation to make Servicing Advances; or
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(iv) the Servicer's or any Subservicer's right to receive compensation
for its services hereunder with respect to any particular transaction.
In determining whether to undertake certain servicing actions with respect
to one or more delinquent or defaulted Home Loans, the Servicer is expected to
consider the reasonable likelihood of (A) recovering an economically significant
amount attributable to the outstanding interest and principal owing on such Home
Loan as a result of such actions, in excess of (B) the costs and expenses to
obtain such recovery (including without limitation any Servicing Advances and,
if applicable, the outstanding indebtedness of all Superior Liens), and in
relation to (C) the expected timing of such recovery therefrom.
Accrual Period: With respect to the Notes, the calendar month preceding the
month in which the related Payment Date occurs (except in the case of the first
Payment Date, the partial monthly period commencing on the Closing Date and
ending on the last day of the month in which the Closing Date occurs).
Affiliate: With respect to any specified Person, any other Person
controlling, controlled by, or under common control with such specified Person.
For the purposes of this definition, the term "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
Agreement: This Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
Assignment of Mortgage: With respect to each Home Loan (other than an
Unsecured Home Loan), an assignment, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect or record the sale of the related Home Loan which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering Mortgages secured by Mortgaged
Properties located in the same county, if permitted by law.
Available Collection Amount: With respect to any Payment Date, an amount
without duplication equal to the sum of: (i) all amounts received on the Home
Loans or required to be paid by the Servicer or the Transferor during the
related Due Period (exclusive of amounts not required to be deposited by the
Servicer in the Collection Account pursuant to Section 5.01(b)(1) hereof and
amounts permitted to be withdrawn by the Indenture Trustee from the Collection
Account pursuant to Section 5.01(b)(3) hereof); (ii) any and all income or gain
from investments in the Collection Account, Note Payment Account and Certificate
Distribution Account; (iii) upon exercise of optional termination of the Notes
pursuant to Section 11.02 hereof, the Termination Price; and (iv) the Purchase
Price paid for any Home Loans purchased pursuant to Section 3.05 hereof prior to
the related Determination Date and the Substitution Adjustment to be deposited
in the Collection Account in connection with any substitution, in each case
prior to the related Determination Date.
Available Payment Amount: With respect to any Payment Date, the Available
Collection Amount deposited into the Note Payment Account, minus the amount
required to be
<PAGE>
paid from the Note Payment Account pursuant to Section 5.01(c)(i) hereof (which
consists of the Trust Fees and Expenses).
Business Day: Any day other than (a) a Saturday or Sunday, or (b) a day on
which the banking institutions are authorized or obligated by law or executive
order to be closed in a city at any of the following locations: (i) The City of
New York, (ii) where the Securities Insurer is located, (iii) where the
corporate trust office of the Indenture Trustee or Grantor Trustee is located,
(iv) where the servicing operations of the Servicer are located or (v) where the
master servicing operations of the Master Servicer are located.
Certificate Distribution Account: The account designated as such,
established and maintained pursuant to Section 5.02 hereof.
Certificate Register: The register established pursuant to Section 3.4 of
the Owner Trust Agreement.
Certificateholder: A holder of a Residual Interest Certificate.
Clean-up Call Date: The first Payment Date on which the Pool Principal
Balance declines to 10% or less of the Original Pool Principal Balance.
Closing Date: November 5, 1998.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
Treasury Regulations promulgated thereunder.
Collection Account: The Eligible Account established and maintained by the
Indenture Trustee pursuant to Section 5.01(a)(1) hereof.
Combination Loan: A loan, including an Unsecured Home Loan, the proceeds of
which were used by the Obligor in combination to finance property improvements
and for debt consolidation, cash out refinancing or other purposes.
Combined Loan-to-Value Ratio: With respect to any Home Loan (other than an
Unsecured Home Loan), the fraction, expressed as a percentage, (a) the numerator
of which is the principal balance of such Home Loan at origination plus, in the
case of a junior lien Home Loan, the aggregate outstanding principal balance of
each related Superior Lien on the date of origination of such Home Loan, and (b)
the denominator of which is the value as determined pursuant to the Transferor's
underwriting guidelines of the related Mortgaged Property at the time of
origination of such Home Loan.
Credit Score: The credit evaluation scoring methodology developed by Fair,
Isaac and Company.
Custodial Agreement: The custodial agreement dated as of November 1, 1998
by and among the Depositor, Empire Funding, as the Transferor and the Servicer,
and U.S. Bank National Association, a national banking association, as the
custodian and the Grantor Trustee, providing for the retention of the applicable
Grantor Trustee's Home Loan Files by such
<PAGE>
custodian on behalf of the Grantor Trustee.
Custodian: Any custodian acceptable to the Securities Insurer and appointed
by the Grantor Trustee pursuant to the Custodial Agreement, which custodian
shall not be affiliated with the Servicer, the Transferor, any Subservicer or
the Depositor. U.S. Bank National Association, shall be the initial Custodian
pursuant to the terms of the Custodial Agreement.
Custodian Fee: If applicable, the annual fee payable to any Custodian,
calculated and payable monthly on each Payment Date pursuant to Section
5.01(c)(i) hereof equal to the fee, if any, set forth in the Custodial
Agreement.
Custodian's Final Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Custodian's Initial Certification: As defined in Section 2.06(a) of the
Grantor Trust Agreement.
Custodian's Updated Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Cut-Off Date: The close of business on October 31, 1998.
Debt Consolidation Loan: A loan, including any Unsecured Home Loan, the
proceeds of which were primarily used by the related Obligor for debt
consolidation or cash out refinance purposes or for purposes other than to
finance property improvements.
Debt Instrument: The note or other evidence of indebtedness evidencing the
indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: With respect to any date of determination, any Home
Loan, including, without limitation, any Liquidated Home Loan with respect to
which any of the following has occurred as of the end of the preceding Due
Period: (a) foreclosure or similar proceedings have been commenced; (b) any
portion of a Monthly Payment becomes 180 days past due by the related Obligor;
or (c) the Servicer or any Subservicer has determined in good faith and in
accordance with the Accepted Servicing Procedures that such Home Loan is in
default for a period in excess of 30 days or imminent default and that such
default or imminent default involves the nonpayment of any Monthly Payment or a
default which has or would have a material adverse affect on such Home Loan.
Defective Home Loan: As defined in Section 3.05 hereof.
Deficiency Amount: As of any Payment Date, the sum of (a) the amount by
which (1) the Noteholders' Interest Payment Amount for the Notes on such Payment
Date, exceeds (2) the Available Payment Amount for such Payment Date, and (b)
the Noteholders' Principal Deficiency Amount for such Payment Date.
Deleted Home Loan: A Home Loan replaced or to be replaced by one or more
than one Qualified Substitute Home Loan.
<PAGE>
Delinquent: A Home Loan is "Delinquent" if any Monthly Payment due thereon
is not made by the close of business on the day such Monthly Payment is
scheduled to be paid; provided, that such Home Loan shall not be "Delinquent" if
the Monthly Payment for such Home Loan has been modified pursuant to a Chapter
13 bankruptcy proceeding by the Obligor and such modified Monthly Payment due
thereon is made by the close of business on the day such modified Monthly
Payment is scheduled to be paid. A Home Loan is "30 days Delinquent" if such
Monthly Payment has not been received by the close of business on the thirtieth
(30th) day following the Due Date for such Monthly Payment (e.g., delinquency
status is determined based on the actual number of days elapsed from a Due
Date). The determination of whether a Home Loan is "60 days Delinquent," "90
days Delinquent", etc. shall be made in like manner.
Delivery: When used with respect to Trust Account Property means the
delivery of such Trust Account Property in a manner that results in the
transferee having either the status of a perfected security interest free of any
adverse claims or a holder in due course in accordance with the following: (a)
in the case of "certificated securities" or "uncertificated securities" (in
either case as defined in Article 8 of the UCC), the applicable provisions of
Article 8 of the UCC, and in the case of "instruments", "accounts" or "general
intangibles" (in either case as defined in Article 9 of the UCC), the applicable
provisions of Article 9 of the UCC; or (b) in the case of book-entry securities
governed by Federal law, the applicable provisions of Federal law.
Denomination: With respect to a Note, the portion of the Original Note
Principal Balance represented by such Note as specified on the face thereof.
Depositor: PaineWebber Mortgage Acceptance Corporation IV, a Delaware
corporation, and any successor thereto.
Determination Date: With respect to any Payment Date, the 14th calendar day
of the month in which such Payment Date occurs or if such day is not a Business
Day, the immediately preceding Business Day.
Due Date: With respect to a Monthly Payment, the day of the month on which
such Monthly Payment is due from the Obligor on a Home Loan.
Due Period: With respect to any Determination Date or Payment Date, the
calendar month immediately preceding such Determination Date or Payment Date, as
the case may be.
EFHC: Empire Funding Holding Corporation, a Delaware corporation.
Eligible Account: At any time, an account that is either:
(a) A segregated account or accounts maintained with an institution
that satisfies the following: (1) whose deposits are insured by the FDIC;
(2) whose unsecured and uncollateralized long-term debt obligations of
which are then rated by each Rating Agency in one of their two highest
long-term rating categories and short-term debt obligations of which are
then rated by each Rating Agency in their highest short-term rating
category; and (3) which is either (i) a federal savings and loan
association duly
<PAGE>
organized, validly existing and in good standing under the federal banking
laws, (ii) an institution duly organized, validly existing and in good
standing under the applicable banking laws of any state, (iii) a national
banking association duly organized, validly existing and in good standing
under the federal banking laws, (iv) a principal subsidiary of a bank
holding company, or (v) an institution approved in writing by the
Securities Insurer and each Rating Agency;
(b) A segregated trust account or accounts maintained with the
corporate trust department of a federal or state chartered depository
institution that satisfies the following: (1) is acceptable to the
Securities Insurer and each Rating Agency; (2) has capital and surplus of
not less than $100,000,000; and (3) is acting in its fiduciary capacity.
Eligible Servicer: A Person that (i) has demonstrated the ability
professionally and competently to service a portfolio of mortgage loans similar
to the Home Loans, (ii) has a net worth calculated in accordance with GAAP of at
least $500,000, and (iii) is acceptable to the Securities Insurer.
Empire Funding: Empire Funding Corp., an Oklahoma corporation.
Event of Default: As described in Section 10.01 hereof.
Excess Spread: With respect to any Payment Date, the excess of (a) the
Available Payment Amount over (b) the Regular Payment Amount.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FHLMC: Freddie Mac (f/k/a Federal Home Loan Mortgage Corporation) and any
successor thereto.
Fidelity Bond: As described in Section 4.03 hereof.
Fitch: Fitch IBCA, Inc. or any successor thereto.
FNMA: Fannie Mae (f/k/a Federal National Mortgage Association) and any
successor thereto.
Foreclosed Loan: As of any date of determination, any Home Loan that has
been discharged as a result of (i) the completion of foreclosure or comparable
proceedings; (ii) the Grantor Trustee's acceptance of the deed or other evidence
of title to any related Mortgaged Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition by the Grantor Trustee of title
to any related Mortgaged Property by operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that has
been acquired by the Servicer through foreclosure, deed in lieu of foreclosure
or similar proceedings in respect of the related Home Loan.
GAAP: Generally accepted accounting principles as in effect in the United
States.
<PAGE>
Grantor Trust: Empire Funding Grantor Trust 1998-3, formed pursuant to the
Grantor Trust Agreement.
Grantor Trust Agreement: The Grantor Trust Agreement dated as of November
1, 1998, among PaineWebber Mortgage Acceptance Corporation IV, as Depositor,
Empire Funding and the Grantor Trustee.
Grantor Trust Certificate: The trust certificate issued by the Grantor
Trust evidencing an undivided beneficial ownership interest of 100% of the
Grantor Trust.
Grantor Trust Holder: The holder of the Grantor Trust Certificate.
Grantor Trustee: U.S. Bank National Association, a national banking
association, as Grantor Trustee under the Grantor Trust Agreement, or any
successor Grantor Trustee hereunder.
Grantor Trustee Fee: As to any Payment Date, $0.00.
Grantor Trustee's Home Loan File: As defined in Section 2.05(a) of the
Grantor Trust Agreement.
Guaranty Insurance Premium: The premium payable monthly that is specified
in the Securities Insurer Commitment.
Guaranty Policy: That certain financial guaranty insurance policy for the
Securities, number 27890 dated November 5, 1998, and issued by the Securities
Insurer to the Indenture Trustee and guaranteeing payment of any Insured Payment
thereunder.
Home Loan: Any Debt Consolidation Loan or Combination Loan that is included
in the Home Loan Pool. As applicable, a Home Loan shall be deemed to refer to
the related Debt Instrument, the Mortgage (except with respect to any Unsecured
Home Loans) and any related Foreclosure Property, and shall include, among other
items, all Monthly Payments collected after the Cut-Off Date, except that the
Transferor shall retain 13.33% of the interest collected thereon during the
first Due Period.
Home Loan File: As to each Home Loan, the Grantor Trustee's Home Loan File
and the Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a Debt
Instrument, as shown on the related Home Loan Schedule as the same may be
modified by the Servicer in accordance with Section 4.01(c) or 4.10 hereof.
Home Loan Pool: The pool of Home Loans conveyed to the Grantor Trustee
pursuant to the Grantor Trust Agreement on the Closing Date, together with the
rights and obligations of a holder thereof, and the payments thereon and
proceeds therefrom received after the applicable Cut-Off Date, as identified on
the Home Loan Schedule annexed hereto as Exhibit A.
Home Loan Purchase Agreement: The Home Loan Purchase Agreement between the
<PAGE>
Transferor and the Depositor, dated as of November 1, 1998.
Home Loan Schedule: The schedule of Home Loans set forth on Exhibit A
attached hereto, as amended or supplemented from time to time specifying, with
respect to each Home Loan, the following information: (i) the Transferor's Home
Loan number; (ii) the Obligor's name and the street address; (iii) the current
principal balance; (iv) the original principal amount with respect to any Home
Loan originated by the Transferor and the principal amount purchased by the
Transferor with respect to a Home Loan acquired by the Transferor subsequent to
its origination; (v) any related Combined Loan-to-Value Ratio as of the date of
the origination of the related Home Loan; (vi) the paid through date; (vii) the
Home Loan Interest Rate; (viii) the final maturity date under the Debt
Instrument; (ix) the Monthly Payment; (x) the occupancy status of the Mortgaged
Property, if any; (xi) the lien priority of the Mortgage, if any; (xii) the
original term of the Debt Instrument; (xiii) the Credit Score, if applicable;
and (xiv) the debt to income ratio of the related Obligor.
Indenture: The Indenture, dated as of November 1, 1998, between the Issuer
and the Indenture Trustee.
Indenture Trustee: U.S. Bank National Association, a national banking
association, as Indenture Trustee under the Indenture and this Agreement acting
on behalf of the Noteholders, or any successor indenture trustee under the
Indenture or this Agreement.
Indenture Trustee Fee: As to any Payment Date, the greater of (a)
one-twelfth (1/12) of the Indenture Trustee Fee Rate times the Pool Principal
Balance as of the opening of business on the first day of the calendar month
preceding the calendar month of such Payment Date (or, with respect to the first
Payment Date, the Original Pool Principal Balance) and (b) one-twelfth (1/12) of
$8,400.00.
Indenture Trustee Fee Rate: 0.0067% (0.67 basis points) per annum.
Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Transferor, the Servicer, the Master Servicer,
the Depositor, the Securities Insurer or any of their respective Affiliates,
(ii) does not have any direct financial interest in, or any material indirect
financial interest in, any of the Transferor, the Servicer, the Master Servicer,
the Depositor, the Securities Insurer or any of their respective Affiliates and
(iii) is not connected with any of the Transferor, the Servicer, the Depositor
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the
Transferor, the Servicer, the Depositor or any of their respective Affiliates
merely because such Person is the beneficial owner of 1% or less of any the
securities issued by the Transferor, the Servicer, the Depositor or any of their
respective Affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified public
accountants, which is Independent.
Insurance Agreement: The Insurance and Indemnification Agreement, dated as
of November 1, 1998, among the MBIA Insurance Corporation, as Securities
Insurer, Empire
<PAGE>
Funding Corp., as Transferor and Servicer, PaineWebber Mortgage Acceptance
Corporation IV, as Depositor, Empire Funding Home Loan Owner Trust 1998-3, as
Issuer, U.S. Bank National Association, as Indenture Trustee, Grantor Trustee,
Paying Agent, Administrator and Custodian, and Norwest Bank Minnesota, National
Association, as Master Servicer.
Insured Payment: With respect to the Guaranty Policy, (i) as of any Payment
Date any Deficiency Amount and (ii) any Preference Amount.
Insured Securities: Each of the Notes.
Liquidated Home Loan: With respect to any date of determination, any
Foreclosure Property or any Home Loan in respect of which a Monthly Payment is
in excess of 30 days past due and as to which the Servicer has determined that
all amounts which it reasonably and in good faith expects to collect have been
recovered from or on account of such Home Loan or the related Foreclosure
Property; provided, however, that in any event any Home Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore be a Liquidated
Home Loan upon the earliest to occur of: (i) the liquidation or disposition of
such Home Loan or the related Foreclosure Property; (ii) the determination by
the Servicer in accordance with the Accepted Servicing Procedures that there is
no reasonable likelihood of (A) recovering an economically significant amount
attributable to the outstanding interest and principal owing on such Home Loan
from either the related Mortgaged Property or the Obligor, in excess of (B) the
costs and expenses to obtain such recovery (including without limitation any
Servicing Advances and, if applicable, the outstanding indebtedness of all
Superior Liens), and in relation to (C) the expected timing of such recovery
therefrom, or (iii) the date on which any portion of a Monthly Payment on any
Home Loan is in excess of 180 days past due.
Liquidation Proceeds: With respect to a Liquidated Home Loan, any cash
amounts received in connection with the liquidation or disposition of such
Liquidated Home Loan, whether through trustee's sale, foreclosure sale or other
disposition, any cash amounts received in connection with the management of the
Foreclosure Properties from Foreclosed Home Loans and any other amounts required
to be deposited in the Collection Account pursuant to Section 5.01(b) hereof, in
each case other than Property Insurance Proceeds and Released Mortgaged Property
Proceeds.
Majority Noteholders: Until such time as the Note Principal Balance of all
Notes has been reduced to zero, the holder or holders of in excess of 50% of the
Note Principal Balance of all the Notes then Outstanding.
Majority Residual Interestholders: The holder or holders of more than 50%
of the Residual Interest.
Master Servicer: Norwest Bank Minnesota, National Association, a national
banking association, as Master Servicer hereunder, or any successor Master
Servicer hereunder.
Master Servicer Compensation: The Master Servicer Fee and other amounts to
which the Master Servicer is entitled pursuant to Section 4.02(a) hereof.
Master Servicer Fee: As to each Home Loan (including any Home Loan that has
been
<PAGE>
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Home Loan), the fee payable monthly to the Master Servicer on each Payment Date,
which shall equal the product of (a) one-twelfth (1/12) of 0.045% (4.5 basis
points) and (b) the Principal Balance of such Home Loan as of the beginning of
the immediately preceding Due Period.
Maturity Date means, with respect to the Notes, the Payment Date occurring
in November 2024.
Monthly Cut-Off Date: The last day of any calendar month and, with respect
to any Payment Date, the last day of the calendar month immediately preceding
such Payment Date.
Monthly Payment: The scheduled monthly payment of principal and/or interest
required to be made by an Obligor on the related Home Loan, as set forth in the
related Debt Instrument.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other security instrument creating
a lien in accordance with applicable law on a Mortgaged Property to secure the
Debt Instrument which evidences a Home Loan (other than any Unsecured Home
Loan).
Mortgaged Property: The real property encumbered by the Mortgage that
secures the Debt Instrument evidencing a Home Loan (other than an Unsecured Home
Loan).
Mortgaged Property States: Each state in which any Mortgaged Property
securing a Home Loan is located as set forth in the Home Loan Schedule.
Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the related Due Period, net of any reimbursements to
the Servicer made from such amounts for the following: (i) any unreimbursed
Servicing Compensation; and (ii) Servicing Advances (including Nonrecoverable
Servicing Advances) made and any other fees and expenses paid in connection with
the foreclosure, conservation or liquidation of the related Liquidated Home Loan
or Foreclosure Property pursuant to Sections 4.10 or 4.11 hereof.
Net Loan Losses: With respect to any Defaulted Home Loan that is subject to
a modification pursuant to Section 4.10 hereof or pursuant to a legal proceeding
(including a Chapter 13 bankruptcy proceeding), an amount equal to the portion
of the Principal Balance, if any, released in connection with such modification.
Nonrecoverable Servicing Advance: With respect to any Defaulted Home Loan
or any Foreclosure Property, any Servicing Advance previously made and not
reimbursed from late or other fee collections, Liquidation Proceeds, Property
Insurance Proceeds or the Released Mortgaged Property Proceeds following the
liquidation or disposition of such Defaulted Home Loan or Foreclosure Property,
as evidenced by an Officer's Certificate delivered to the Indenture Trustee, the
Master Servicer and the Securities Insurer.
Note: Any of the Notes.
<PAGE>
Note Factor: With respect to any date of determination, the Note Principal
Balance divided by the Original Note Principal Balance.
Note Interest Rate: The annual rate of interest payable to the holders of
the Notes will be 6.75%. Commencing on the first day of the Accrual Period in
which the Clean-up Call Date occurs, the Note Interest Rate shall be increased
by 0.50% per annum.
Note Payment Account: The Eligible Account established and maintained
pursuant to Section 5.01(a)(2) hereof.
Note Principal Balance: As of any date of determination, the Original Note
Principal Balance reduced by the sum of all amounts previously distributed in
respect of principal of such Notes on all previous Payment Dates.
Note Redemption Amount: As of any date of determination, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of all Notes plus all accrued and unpaid interest thereon, (ii) any Trust Fees
and Expenses due and unpaid on such date, (iii) any Servicing Advance
Reimbursement Amount, and (iv) any Securities Insurer Reimbursement Amount.
Noteholder: A holder of a Note.
Noteholders' Interest Carry-Forward Amount: With respect to any Payment
Date, the excess, if any, of (A) the Noteholders' Monthly Interest Payment
Amount for the preceding Payment Date plus any outstanding Noteholders' Interest
Carry-Forward Amount on such preceding Payment Date, over (B) the amount in
respect of interest that is actually deposited in the Note Payment Account on
such preceding Payment Date.
Noteholders' Interest Payment Amount: With respect to any Payment Date, the
sum of the Noteholders' Monthly Interest Payment Amount for such Payment Date
and the Noteholders' Interest Carry-Forward Amount for such Payment Date.
Noteholders' Monthly Interest Payment Amount: With respect to each Payment
Date and the Notes, the interest accrued during the related Accrual Period at
the Note Interest Rate on the Note Principal Balance of the Notes immediately
preceding such Payment Date (or, in the case of the first Payment Date,
beginning on the Closing Date), after giving effect to all payments of principal
to the holders of the Notes on or prior to such preceding Payment Date.
Noteholders' Principal Deficiency Amount: (1) With respect to any Payment
Date, the excess, if any, of (a) the Note Principal Balance as of such Payment
Date (after giving effect to all payments of principal on such Payment Date, but
without giving effect to any payments in respect of this Noteholders' Principal
Deficiency Amount to be made on such Payment Date), over (b) the Pool Principal
Balance as of the end of the related Due Period; and (2) with respect to the
Maturity Date of the Notes or any Payment Date upon which the Securities Insurer
has exercised its option to accelerate the Notes under the Indenture, the excess
of (a) the Note Principal Balance (after giving effect to all payments of
principal on such Payment Date, but without giving effect to any payments in
respect of this Noteholders' Principal Deficiency Amount to be made on such
Payment Date), over (b) the Available Payment
<PAGE>
Amount remaining after the payment of the Noteholders' Interest Payment Amount
and the Regular Principal Payment Amount for such Payment Date.
Obligor: Each obligor on a Debt Instrument.
OC Trigger Increase Event: With respect to any Payment Date, the occurrence
of any of the following: (1) the Six-Month Average Delinquency equals or exceeds
4%; (2) Three-Month Average Annualized Losses exceed 4%; or (3) cumulative
Realized Losses (subject to adjustment pursuant to Section 3.05(b) hereof), as a
percentage of the Original Pool Principal Balance, equal or exceed the following
percentages based on the month of determination after the Closing Date:
-------------------------------------------------------------
Month of Cumulative
Determination Realized Losses
------------- ---------------
-------------------------------------------------------------
0 - 18 2.0%
-------------------------------------------------------------
19 - 32 5.0%
-------------------------------------------------------------
33 - 42 8.0%
-------------------------------------------------------------
43 - 54 11.0%
-------------------------------------------------------------
55+ 12.5%
-------------------------------------------------------------
OC Trigger Reversal Event: With respect to any Payment Date, the occurrence
for six consecutive months of each of the following: (1) the Six-Month Average
Delinquency is less than 4%; (2) Three-Month Average Annualized Losses are less
than 4%; and (3) cumulative Realized Losses (subject to adjustment pursuant to
Section 3.05(b) hereof), as a percentage of the Original Pool Principal Balance,
are less than the percentages based on the relevant month of determination after
the Closing Date as set forth in the definition of OC Trigger Increase Event
above.
Officer's Certificate: A certificate delivered to the Indenture Trustee,
the Master Servicer, the Securities Insurer or the Issuer signed by the
President or a Vice President or an Assistant Vice President or other officer of
the Depositor, the Servicer, the Master Servicer or the Transferor, in each
case, as required by this Agreement.
Opinion of Counsel: A written opinion of counsel issued by counsel (a) who
is acceptable to the Servicer, the Rating Agencies and the Securities Insurer,
and (b) who may be employed or retained by the Transferor, the Servicer, the
Master Servicer, the Depositor, the Securities Insurer or any of their
respective Affiliates.
Original Note Principal Balance: $283,580,654.
Original Pool Principal Balance: $299,607,584.50, which is the Pool
Principal Balance as of the Cut-Off Date.
Outstanding: As defined in the Indenture.
Overcollateralization Amount: With respect to any Payment Date, the amount
equal to
<PAGE>
the excess of (A) the Pool Principal Balance as of the end of the preceding Due
Period, over (B) the Note Principal Balance (after giving effect to the payments
made on such date pursuant to Section 5.01(d) and (e) hereof). As of the Closing
Date, the initial Overcollateralization Amount attributable to such excess shall
equal approximately 5.35% of the Original Pool Principal Balance, which is
approximately $16,029,123.
Overcollateralization Reduction Amount: With respect to any Payment Date
that occurs on or after the Stepdown Date, the lesser of (1) the excess, if any,
of (a) the Overcollateralization Amount (assuming principal payments on the
Notes on such Payment Date are equal to the Regular Principal Payment Amount
without deduction of this Overcollateralization Reduction Amount), over (b) the
Overcollateralization Target Amount, and (2) the Regular Principal Payment
Amount (as determined without the deduction of this Overcollateralization
Reduction Amount therefrom) on such Payment Date. Prior to the occurrence of a
Stepdown Date, the Overcollateralization Reduction Amount shall be zero.
Overcollateralization Deficiency Amount: With respect to any Payment Date,
the excess, if any, of the Overcollateralization Target Amount over the
Overcollateralization Amount.
Overcollateralization Target Amount: With respect to any Payment Date, an
amount determined as follows:
(1) with respect to any Payment Date occurring prior to the Stepdown
Date, the amount equal to 12.65% of the Original Pool Principal Balance;
(2) with respect to any other Payment Date occurring on or after the
Stepdown Date, an amount equal to the greater of (a) 25.30% of the Pool
Principal Balance as of the end of the related Due Period, and (b) 1.0% of
the Original Pool Principal Balance;
(3) with respect to any Payment Date occurring on or after an Insured
Payment is made, notwithstanding the preceding clause (2), an amount equal
to 12.65% of the Original Pool Principal Balance; and
(4) with respect to any Payment Date occurring on or after an OC
Trigger Increase Event, notwithstanding any of the preceding clauses (1)
through (3), an amount equal to 16.00% of the Original Pool Principal
Balance; provided, however, that with respect to any Payment Date occurring
on or after an OC Trigger Reversal Event, an amount determined pursuant to
clause (1), (2) or (3) above, as applicable;
provided, however, with respect to any Payment Date, notwithstanding any of
the preceding clauses (1) through (4), the Overcollateralization Target Amount
shall not exceed the Note Principal Balance of the Notes.
Owner Trust: The Issuer.
Owner Trust Agreement: The Owner Trust Agreement dated as of November 1,
1998, among the Depositor, Empire Funding, the Owner Trustee and U.S. Bank
National
<PAGE>
Association, a national banking association.
Owner Trust Estate: The assets subject to this Agreement, the Owner Trust
Agreement and the Indenture and assigned to the Issuer, which assets consist of:
(i) the contribution of $1 referred to in Section 2.5 of the Owner Trust
Agreement, (ii) the Grantor Trust Certificate, (iii) all payments on and
distributions in respect of the Grantor Trust Certificate, (iv) such assets and
funds as are from time to time deposited in the Trust Accounts, including
amounts on deposit in such accounts which are invested in Permitted Investments,
and (v) all proceeds of every kind and nature whatsoever in respect of any or
all of the foregoing.
Owner Trustee: Wilmington Trust Company, as owner trustee under the Owner
Trust Agreement, and any successor owner trustee under the Owner Trust
Agreement.
Owner Trustee Fee: The annual fee of $4,000 in equal monthly installments
to the Servicer which shall in turn pay such $4,000 to the Owner Trustee on the
Payment Date occurring in November each year during the term of this Agreement
commencing in November, 1999; provided, however, that the initial Owner Trustee
fee shall be paid by the Transferor on the Closing Date.
Ownership Interest: As to any Note, any ownership or security interest in
such Note, including any interest in such Note as the holder thereof and any
other interest therein, whether direct or indirect, legal or beneficial, as
owner or as pledgee.
Payment Date: The 25th day of any month or if such 25th day is not a
Business Day, the first Business Day immediately following such day, commencing
in December, 1998.
Payment Statement: As defined in Section 6.01 hereof.
Percentage Interest: As defined in the Owner Trust Agreement.
Permitted Investments: Each of the following:
(1) direct obligations of, and obligations fully guaranteed by, the
United States of America, FHLMC, FNMA, the Federal Home Loan Banks or any
agency or instrumentality of the United States of America the obligations
of which are backed by the full faith and credit of the United States of
America;
(2) (i) demand and time deposits in, certificates of deposit of,
bankers acceptances issued by, or federal funds sold by, any depository
institution or trust company (including the Indenture Trustee or its agent
acting in their respective commercial capacities) incorporated under the
laws of the United States of America or any state thereof and subject to
supervision and examination by federal or state authorities, so long as, at
the time of such investment or contractual commitment providing for such
investment, such depository institution or trust company or its ultimate
parent has a short-term unsecured debt rating in one of the two highest
available rating categories of S&P and the highest available rating
category of Moody's and provided that each such investment has an original
maturity of no more than 365 days, and (ii) any other demand or time
deposit or deposit which is fully insured by the
<PAGE>
FDIC;
(3) repurchase obligations with a term not to exceed 30 days with
respect to any security described in clause (a) above and entered into with
a depository institution or trust company (acting as principal) rated "A"
or higher by S&P and rated "A2" or higher by Moody's; provided, however,
that collateral transferred pursuant to such repurchase obligation must be
of the type described in clause (a) above and must (i) be valued daily at
current market price plus accrued interest, (ii) pursuant to such
valuation, be equal, at all times, to at least 105% of the cash transferred
by the Indenture Trustee in exchange for such collateral, and (iii) be
delivered to the Indenture Trustee, or if the Indenture Trustee is
supplying the collateral, an agent for the Indenture Trustee, in such a
manner as to accomplish perfection of a security interest in the collateral
by possession of certificated securities;
(4) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which has a long-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the
time of such investment;
(5) commercial paper having an original maturity of less than 365 days
and issued by an institution having a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies at the
time of such investment;
(6) a guaranteed investment contract approved by each of the Rating
Agencies and the Securities Insurer and issued by an insurance company or
other corporation having a long-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of
such investment;
(7) money market funds having one of the two highest available rating
categories of S&P and the highest available rating category of Moody's at
the time of such investment, which invests only in other Permitted
Investments, including any such money market funds for which the Master
Servicer or any affiliate of the Master Servicer acts as the investment
manager or advisor; provided that any such money market funds which provide
for demand withdrawals shall be conclusively deemed to satisfy any maturity
requirements for Permitted Investments set forth in this Agreement; and
(8) any investment approved in writing by the Securities Insurer and
for which the Ratings Confirmations have been obtained with respect to such
investment.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Permitted Investments listed above. All Permitted
Investments in a trust account under this Agreement shall be made in the name of
the Indenture Trustee for the benefit of the Securityholders and the Securities
Insurer; provided, that the Master Servicer shall be entitled to all investment
earnings from the Note Payment Account as part of its Master Servicer
Compensation hereunder.
Person: Any individual, corporation, partnership, joint venture, limited
liability
<PAGE>
company, association, joint-stock company, trust, estate, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Home Loans as of the end of the preceding
Due Period; provided, however, that the Pool Principal Balance on any Payment
Date on which the Termination Price is to be paid to Noteholders will be deemed
to have been equal to zero as of such date.
Preference Amount: Any amount previously distributed to the holder of an
Insured Security that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final,
non-appealable order of a court having jurisdiction.
Principal Balance: With respect to any Home Loan or related Foreclosure
Property, (i) at the Cut-Off Date, the outstanding unpaid principal balance of
the Home Loan as of the Cut-Off Date and (ii) with respect to any date of
determination, the outstanding unpaid principal balance of the Home Loan as of
the last day of the preceding Due Period (after giving effect to all payments
received thereon and the allocation of any Net Loan Losses with respect thereto
which relates to such Due Period), without giving effect to amounts received in
respect of such Home Loan or related Foreclosure Property after such Due Period;
provided, however, that any Liquidated Home Loan shall have a Principal Balance
of zero and with respect to the valuation of the Issuer's assets such Liquidated
Home Loan shall not accrue interest thereon.
Principal Prepayment: With respect to any Home Loan and any Due Period, any
principal amount received on a Home Loan in excess of the principal of the
Monthly Payment due in such Due Period.
Property Insurance Policies: With respect to any Mortgaged Property, any
related insurance policy that insures such Mortgaged Property or the related
Obligor.
Property Insurance Proceeds: With respect to any Mortgaged Property, all
amounts collected in respect of Property Insurance Policies and not required to
be applied to the restoration of any such Mortgaged Property or paid to the
related Obligor (but excluding any Insured Payments).
Prospectus: The Depositor's final Prospectus dated November 3, 1998 as
supplemented by the Prospectus Supplement dated November 3, 1998.
Prospectus Supplement: The Prospectus Supplement dated November 3, 1998
prepared by the Depositor and Transferor in connection with the issuance and
sale of the Notes.
Purchase Price: With respect to a Defective Home Loan, the Principal
Balance thereof as of the date of purchase, plus all accrued and unpaid interest
on such Defective Home Loan to and including the date of repurchase computed at
the applicable Home Loan Interest Rate, plus the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Defective Home Loan
(after deducting therefrom any amounts received in respect of such
<PAGE>
repurchased Defective Home Loan and being held in the Collection Account for
future distribution to the extent such amounts represent recoveries of principal
not yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase).
Qualified Substitute Home Loan: A home loan or home loans substituted for a
Deleted Home Loan pursuant to Section 2.06 of the Grantor Trust Agreement or
Section 3.05 hereof, which satisfies the following: (i) has or have an interest
rate or rates of (a) no lower than the Home Loan Interest Rate for the Deleted
Home Loan, and (b) not more than 2.0 percentage points greater than the Home
Loan Interest Rate for the Deleted Home Loan; (ii) matures or mature not more
than one year than, and not more than one year earlier, than the maturity date
of Deleted Home Loan, has a maturity date no later than October 1, 2023 and an
original term to maturity of less than or equal to 25 years; (iii) has or have a
principal balance or principal balances (after application of all payments
received on or prior to the date of substitution) equal to or less than the
Principal Balance or Balances of the Deleted Home Loan or Loans as of such date;
(iv) has a Credit Score not less than the Credit Score of the Deleted Home Loan;
(v) has or have a lien priority equal or superior to that of the Deleted Home
Loan or Loans; (vi) has or have a borrower or borrowers with a debt-to-income
ratio no higher than the debt-to-income ratio of the Obligor with respect to the
Deleted Loan; and (vii) complies or comply as of the date of substitution with
each representation and warranty set forth in Section 3.04 hereof and is or are
not more than 29 days delinquent as of the date of substitution for such Deleted
Home Loan or Loans. For purposes of determining whether multiple mortgage loans
proposed to be substituted for one or more Deleted Home Loans pursuant to
Section 2.06 of the Grantor Trust Agreement or Section 3.05 hereof are in fact
"Qualified Substitute Home Loans" as provided above, the criteria specified in
clauses (i), (ii) and (iii) above may be considered on an aggregate or weighted
average basis, rather than on a loan-by-loan basis (i.e., so long as the
weighted average Home Loan Interest Rate of any loans proposed to be substituted
is not less than the Home Loan Interest Rate for the designated Deleted Home
Loan or Loans and not more than two percentage points greater than the Home Loan
Interest Rate for the designated Deleted Home Loan or Loans, the requirements of
clause (i) above would be deemed satisfied).
Rating Agencies: Fitch, Moody's and S&P. If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person designated
by the Servicer and approved by the Securities Insurer, notice of which
designation shall have been given to the Indenture Trustee, the Securities
Insurer, the Master Servicer and the Issuer.
Ratings: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
Ratings Confirmation: With respect to a contemplated action to be
undertaken or performed pursuant to this Agreement, a written confirmation from
each Rating Agency to the effect that such action will not result in or cause
the downgrading, withdrawal or qualification of the rating that would otherwise
be assigned by such Rating Agency to the Notes without the benefit of the
Guaranty Policy provided by the Securities Insurer.
<PAGE>
Realized Losses: As of any Payment Date, the sum of (1) with respect to all
Home Loans that have become Liquidated Home Loans during the related Due Period,
the difference between (a) the aggregate Principal Balances of such Liquidated
Home Loans and accrued and unpaid interest thereon, minus (b) the aggregate Net
Liquidation Proceeds collected during the related Due Period, and (2) with
respect to all Defaulted Home Loans, the aggregate Net Loan Losses that occurred
during the related Due Period; provided, however, that for purposes of
determining whether an OC Trigger Increase Event or an OC Trigger Reversal Event
has occurred, the amount of such Realized Losses shall be increased by the
aggregate Principal Balances of all Defaulted Home Loans that have been
repurchased pursuant to Section 3.05(b) hereof during the related Due Period,
but only the excess, if any, of the aggregate Principal Balances of all
Defaulted Home Loans repurchased pursuant to such Section 3.05(b) during such
Due Period and all preceding Due Periods, over 2% of the Original Pool Principal
Balance.
Record Date: With respect to each Payment Date, the close of business on
the last Business Day of the month immediately preceding the month in which such
Payment Date occurs.
Regular Payment Amount: With respect to any Payment Date, the lesser of (a)
the Available Payment Amount and (b) the sum of (i) the Noteholders' Interest
Payment Amount and (ii) the Regular Principal Payment Amount.
Regular Principal Payment Amount: On each Payment Date, an amount equal to
the lesser of:
(A) the Note Principal Balance of the Notes immediately prior to such
Payment Date; and
(B) the sum of (i) each scheduled payment of principal collected by
the Servicer in the related Due Period, (ii) all Principal Prepayments
applied by the Servicer during such related Due Period, (iii) the principal
portion of all Net Liquidation Proceeds, Property Insurance Proceeds and
Released Mortgaged Property Proceeds received during the related Due
Period, (iv) that portion of the Purchase Price of any repurchased Home
Loan which represents principal received prior to the related Determination
Date, (v) the principal portion of any Substitution Adjustments required to
be deposited in the Collection Account as of the related Determination Date
and (vi) on the Payment Date on which the Issuer and the Grantor Trust are
to be terminated pursuant to Section 11.02 hereof, the Termination Price
(net of any accrued and unpaid interest, Trust Fees and Expenses due and
unpaid on such date and Servicing Advance Reimbursement Amount);
provided, however, that if such Payment Date is on or after a Stepdown
Date, then with respect to the payment of principal to the Noteholders the
foregoing amount will be reduced (but not less than zero) by the
Overcollateralization Reduction Amount, if any, for such Payment Date.
Released Mortgaged Property Proceeds: With respect to any Home Loan (other
than an
<PAGE>
Unsecured Home Loan), proceeds received by the Servicer in connection with (i) a
taking of an entire Mortgaged Property by exercise of the power of eminent
domain or condemnation or (ii) any release of part of the Mortgaged Property
from the lien of the related Mortgage, whether by partial condemnation, sale or
otherwise; which proceeds in either case are not released to the Obligor in
accordance with applicable law, Accepted Servicing Procedures and this
Agreement.
Residual Interest: The meaning assigned thereto in the Owner Trust
Agreement.
Residual Interest Certificate: The meaning assigned thereto in the Owner
Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee or
Grantor Trustee, any officer within the Corporate Trust Office of the Indenture
Trustee or Grantor Trustee, as the case may be, including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary or any other officer of
the Indenture Trustee or Grantor Trustee, as the case may be, customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Issuer,
any officer in the Corporate Trust Administration Department of the Owner
Trustee with direct responsibility for the administration of the Owner Trust
Agreement and this Agreement on behalf of the Issuer. When used with respect to
the Depositor, the Transferor, the Servicer or any Custodian, the President or
any Vice President, Assistant Vice President, or any Secretary or Assistant
Secretary.
S&P: Standard and Poor's Ratings Services, or any successor thereto.
Securities: The Notes or Residual Interest Certificates.
Securities Insurer: MBIA Insurance Corporation, as issuer of the Guaranty
Policy, and its successors and assigns.
Securities Insurer Commitment: The Commitment to Issue a Financial Guaranty
Insurance Policy (Application No. 1998-010258-01) dated November 4, 1998 issued
by the Securities Insurer regarding the Series 1998-3; provided that with
respect to any conflict or inconsistency between the provisions of such
commitment and this Agreement, the provisions of this Agreement shall govern and
control the relevant action or matter.
Securities Insurer Default: The existence and continuation of any of the
following:
(a) the Securities Insurer fails to make a payment required under the
Guaranty Policy in accordance with its terms; or
(b) the entry by a court having jurisdiction in the premises of (1) a
decree or order for relief in respect of the Securities Insurer in an
involuntary case or proceeding under any applicable United States federal
or state bankruptcy, insolvency, rehabilitation, reorganization or other
similar law and the continuance of any such
<PAGE>
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 90 consecutive days, or (2) a final and
non-appealable decree or order adjudging the Securities Insurer as bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition of
or in respect of the Securities Insurer under any applicable United States
federal or state law, or appointing a custodian, receiver, liquidator,
rehabilitator, assignee, indenture trustee, sequestrator or other similar
official of the Securities Insurer or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs; or
(c) (1) the commencement by the Securities Insurer of a voluntary case
or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated as a bankrupt or insolvent, or (2) the
consent of the Securities Insurer to the entry of a decree or order for
relief in respect of the Securities Insurer in an involuntary case or
proceeding against the Securities Insurer under any applicable United
States federal or state bankruptcy, insolvency, reorganization or other
similar law, or (3) the filing against the Securities Insurer of any
petition for such an involuntary case or proceeding, or (3) the appointment
of or the taking possession by a custodian, receiver, liquidator,
rehabilitator, assignee, indenture trustee, sequestrator or other similar
official of the Securities Insurer or of any substantial part of its
property, or (4) the failure of the Securities Insurer to pay its debts
generally as they become due, or (5) the admission by the Securities
Insurer in writing of its inability to pay its debts generally as they
become due.
Securities Insurer Reimbursement Amount: At any time, an amount owed to the
Securities Insurer for any unreimbursed Insured Payments made under the Guaranty
Policy, together with interest thereon at the rate specified in the Insurance
Agreement and any other amounts then owing to the Securities Insurer under the
Insurance Agreement, which have not previously been reimbursed.
Securityholder: Any Noteholder or Certificateholder.
Series or Series 1998-3: Empire Funding Home Loan Asset Backed Notes,
Series 1998-3.
Servicer: Empire Funding, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.
Servicer Termination Event: The termination of the Servicer hereunder,
including a resignation or a termination pursuant to Section 4.01A or 10.01(b)
hereof.
Servicer's Fiscal Year: January 1st through December 31st of each year.
Servicer's Home Loan Files: In respect of each Home Loan, all documents
customarily included in the Servicer's loan file for the related type of Home
Loan as specifically set forth in Section 2.05(b) of the Grantor Trust
Agreement.
<PAGE>
Servicer's Monthly Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.
Servicing Advance Reimbursement Amount: With respect to any date of
determination and with respect to the receipt of proceeds from or the
liquidation of a Home Loan for which any Servicing Advances have been made, the
amount of any such Servicing Advances that have not been reimbursed as of such
date, including Nonrecoverable Servicing Advances.
Servicing Advances: Subject to Section 4.01(b) hereof, all reasonable,
customary and necessary "out of pocket" costs and expenses advanced or paid by
the Servicer with respect to the Home Loans in accordance with the performance
by the Servicer of its servicing obligations hereunder, including, but not
limited to, the costs and expenses for (i) the preservation, restoration and
protection of any related Mortgaged Property, including without limitation
advances in respect of real estate taxes and assessments, (ii) any collection,
enforcement or judicial proceedings, including without limitation foreclosures,
collections and liquidations pursuant to Section 4.10 hereof, (iii) the
conservation, management and sale or other disposition of a Foreclosure Property
pursuant to Section 4.11 hereof, (iv) the preservation of the security for a
Home Loan if any lienholder under a Superior Lien has accelerated or intends to
accelerate the obligations secured by such Superior Lien pursuant to Section
4.10 hereof, and (v) the satisfaction, cancellation, release or discharge of any
Home Loan or any related Mortgage in accordance with this Agreement; provided,
however, that such Servicing Advances (plus accrued interest thereon from the
date of such advance to the date of reimbursement and at the rate equal to the
Servicer's cost of funds) are reimbursable to the Servicer out of the expected
late collections, Liquidation Proceeds, Property Insurance Proceeds or Released
Mortgaged Property Proceeds from the related Home Loan, Obligor or Mortgaged
Property.
Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 7.03 hereof.
Servicing Fee: As to each Home Loan (including any Home Loan that has been
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Home Loan), the fee payable monthly to the Servicer on each Payment Date, which
shall equal the product of (a) one-twelfth (1/12) of 0.75% (75 basis points) and
(b) the Principal Balance of such Home Loan as of the beginning of the
immediately preceding Due Period. The Servicing Fee includes any servicing fees
owed or payable to any Subservicer, which fees shall be paid from the Servicing
Fee.
Servicing Officer: Any officer of the Servicer, Master Servicer or
Subservicer involved in, or responsible for, the administration and servicing of
the Home Loans whose name and specimen signature appears on a list of servicing
officers annexed to an Officer's Certificate furnished by the Servicer, the
Master Servicer or the Subservicer, respectively, to the Grantor Trustee, the
Securities Insurer, the Master Servicer and the Indenture Trustee, on behalf of
the Securityholders and the Securities Insurer, as such list may from time to
time be amended.
Six-Month Average Delinquency: With respect to any Payment Date, the
average for
<PAGE>
such Payment Date and the five preceding Payment Dates of the respective ratios,
expressed as a percentage, equal to (x) the aggregate Principal Balances of all
Home Loans that are 60 days or more Delinquent (excluding any Liquidated Home
Loans) as of the end of each of the related Due Periods, divided by (y) the
respective Pool Principal Balance as of the end of the applicable Due Period.
Stepdown Date: The first Payment Date occurring on the later of: (a) the
thirty-sixth month after the month in which the Closing Date occurs; or (b) the
Payment Date on which the Pool Principal Balance as of the end of the related
Due Period has been reduced to an amount that is less than or equal to 50% of
the Original Pool Principal Balance.
Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.06(a) hereof in respect of the
qualifications of a Subservicer.
Subservicing Account: An account established by a Subservicer pursuant to a
Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Home
Loans as provided in Section 4.06(a) hereof, copies of which shall be made
available, along with any modifications thereto, to the Issuer, the Grantor
Trustee, the Securities Insurer, the Master Servicer and the Indenture Trustee.
Substitute Collateral: Any Substitute Collateral as defined in Section
4.10(c) hereof.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Sections 2.06 of the Grantor Trust Agreement or Section 3.05 hereof,
the amount, if any, by which (a) the sum of the aggregate principal balance
(after application of principal payments received on or before the date of
substitution) of any Qualified Substitute Home Loans as of the date of
substitution, plus any accrued and unpaid interest thereon to the date of
substitution, is less than (b) the sum of the Principal Balance, together with
accrued and unpaid interest thereon to the date of substitution, of the related
Deleted Home Loans.
Superior Lien: With respect to any Home Loan (other than an Unsecured Home
Loan) which is secured by a lien other than a first priority lien, the mortgage
loan(s) having a superior priority lien on the related Mortgaged Property.
Tangible Net Worth: As defined in Section 10.01(a)(x) hereof.
Three-Month Average Annualized Losses: With respect to any Payment Date,
the average for this Payment Date and the two preceding Payment Dates of the
respective ratios, expressed as a percentage, equal to (x) the Realized Losses
for each of the related Due Periods (net of any Insurance Proceeds, Net
Liquidation Proceeds and Released Mortgaged Property Proceeds), divided by (y)
the respective Pool Principal Balance as of the beginning of each such Due
Period, and multiplied by (z) twelve.
Termination Price: As of any date of determination, an amount without
duplication
<PAGE>
equal to the greater of (A) the Note Redemption Amount and (B) the sum of (i)
the Principal Balance of each Home Loan included in the Grantor Trust as of the
applicable Monthly Cut-Off Date; (ii) all unpaid interest accrued on the
Principal Balance of each such Home Loan at the related Home Loan Interest Rate
to such Monthly Cut-Off Date; (iii) the aggregate fair market value of each
Foreclosure Property included in the Grantor Trust on such Monthly Cut-Off Date,
as determined by an Independent appraiser acceptable to the Indenture Trustee as
of a date not more than 30 days prior to such Monthly Cut-Off Date; and (iv) any
Securities Insurer Reimbursement Amount.
Transferor: Empire Funding, in its capacity as the transferor hereunder.
Treasury Regulations: Regulations, including proposed or temporary
regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Note Payment Account, the Certificate Distribution
Account, the Collection Account and any escrow or reserve account established
pursuant to Section 10.01(c) hereof.
Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Master Servicer Compensation (which includes the Master Servicer Fee), the
Servicing Compensation (which includes the Servicing Fee), Guaranty Insurance
Premium, the Indenture Trustee Fee, the Grantor Trustee Fee, the Owner Trustee
Fee and the Custodian Fee, if any.
UCC: The Uniform Commercial Code as in effect in the State of New York.
Unsecured Home Loan: Any Home Loan that is evidenced by the related Debt
Instrument and has been underwritten to substantially the same standards as a
secured Home Loan, except that such Home Loan is not secured by a Mortgage.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Indenture and the Owner Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in
<PAGE>
any such certificate or other document, and accounting terms partly defined in
this Agreement or in any such certificate or other document to the extent not
defined, shall have the respective meanings given to them under GAAP. To the
extent that the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of such terms
under GAAP, the definitions contained in this Agreement or in any such
certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes and the Residual Interest Certificates to the Depositor or its
designee, upon the order of the Depositor, the Depositor, as of the Closing Date
and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Owner Trust Estate. The
foregoing sale, transfer, assignment, set over and conveyance does not, and is
not intended to, result in a creation or an assumption by the Issuer of any
obligation of the Depositor, the Transferor or any other person in connection
with the Owner Trust Estate or under any agreement or instrument relating
thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it of
the Owner Trust Estate, including all right, title and interest of the Depositor
in and to the Owner Trust Estate, receipt of which is hereby acknowledged by the
Issuer. Concurrently with such delivery and in exchange therefor, the Issuer has
pledged the Owner Trust Estate to the Indenture Trustee for the benefit of the
Noteholders and the Securities Insurer, and the Indenture Trustee, pursuant to
the written instructions of the Issuer, has executed and caused the Notes to be
authenticated and delivered to the Depositor or its designee, upon the order of
<PAGE>
the Issuer. In addition, concurrently with such delivery and in exchange
therefor, the Owner Trustee, pursuant to the instructions of the Depositor, has
executed (not in its individual capacity, but solely as Owner Trustee on behalf
of the Issuer) and caused the Residual Interest Certificates to be authenticated
and delivered to the Depositor or its designee, upon the order of the Depositor.
Section 2.02 Ownership and Possession of Grantor Trust Certificate.
Upon the issuance of the Notes, the ownership of the Grantor Trust
Certificate shall be vested in the Indenture Trustee for the benefit of the
Securityholders and the Securities Insurer.
Section 2.03 Books and Records; Principal Place of Business.
The sale of the Grantor Trust Certificate shall be reflected on the balance
sheets and other financial statements of the Depositor, as a sale of assets by
the Depositor under GAAP.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the
Grantor Trust Certificate and the other property specified in Section 2.01(a)
hereof from the Depositor to the Issuer and such property shall not be property
of the Depositor. If the assignment and transfer of the Grantor Trust
Certificate and the other property specified in Section 2.01(a) hereof to the
Owner Trustee pursuant to this Agreement or the conveyance of the Grantor Trust
Certificate or any of such other property to the Owner Trustee is held or deemed
not to be a sale or is held or deemed to be a pledge of security for a loan, the
Depositor intends that the rights and obligations of the parties shall be
established pursuant to the terms of this Agreement and that, in such event, (i)
the Depositor shall be deemed to have granted and does hereby grant to the Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Grantor Trust Certificate and all other
property conveyed to the Owner Trustee pursuant to Section 2.01 hereof and all
proceeds thereof and (ii) this Agreement shall constitute a security agreement
under applicable law. Within ten (10) days of the Closing Date, the Depositor
shall cause to be filed UCC-1 financing statements naming the Owner Trustee as
"secured parties" and describing the Grantor Trust Certificate being sold by the
Depositor to the Issuer with the office of the Secretary of State of the state
in which the Depositor is located.
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances.
(a) The Depositor shall, on the Closing Date, upon the order of the Issuer,
deliver or cause to be delivered, the Grantor Trust Certificate registered in
the name of U.S. Bank National Association, as Indenture Trustee for Empire
Funding Home Loan Owner Trust 1998-3, to the Indenture Trustee for the benefit
of the Noteholders and the Securities Insurer.
(b) The Depositor shall execute and deliver all such other instruments,
documents and certificates and take all such other actions deemed necessary by
the Owner Trustee in connection with, or in furtherance of, the transactions
contemplated hereby.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to the Transferor, the Master
Servicer, the Servicer, the Grantor Trustee, the Indenture Trustee, the Owner
Trustee, the Securities Insurer and the Noteholders that as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has, and had at all
relevant times, full power to own its property, to carry on its business as
currently conducted, to enter into and perform its obligations under this
Agreement and to create the Owner Trust pursuant to the Owner Trust Agreement.
(b) The execution and delivery of this Agreement by the Depositor and its
performance of and compliance with the terms of this Agreement will not violate
the Depositor's certificate of incorporation or by-laws or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Depositor is a party or
which may be applicable to the Depositor or any of its assets.
(c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by this Agreement, has duly authorized
the execution, delivery and performance of this Agreement and has duly executed
and delivered this Agreement. This Agreement, assuming due authorization,
execution and delivery by the Owner Trustee, the Indenture Trustee, the Grantor
Trustee, the Transferor, the Master Servicer and the Servicer, constitutes a
valid, legal and binding obligation of the Depositor, enforceable against it in
accordance with the terms hereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or other
similar laws relating to or affecting the rights of creditors generally, and by
general equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law).
(d) The Depositor is not in violation of, and the execution and delivery of
this Agreement by the Depositor and its performance and compliance with the
terms of this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or its properties or materially and adversely affect
the performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Depositor currently pending with regard to which the Depositor has received
service of process and no action or proceeding against, or investigation of, the
Depositor is, to the knowledge of the Depositor, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render the Notes
invalid, (B) seek to prevent the issuance of the Notes or the consummation of
<PAGE>
any of the transactions contemplated by this Agreement or (C) if determined
adversely, would prohibit or materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or enforceability of,
this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, this
Agreement or the Notes, or for the consummation of the transactions contemplated
by this Agreement, except for such consents, approvals, authorizations and
orders, if any, that have been obtained prior to the Closing Date.
(g) The Depositor is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Agreement or its obligations hereunder; no petition of bankruptcy (or
similar insolvency proceeding) has been filed by or against the Depositor prior
to the date hereof.
(h) The Depositor did not sell (i) the Home Loans to the Grantor Trustee or
(ii) the Grantor Trust Certificate to the Issuer, with any intent to hinder,
delay or defraud any of its creditors; the Depositor will not be rendered
insolvent as a result of the sale of the Home Loans to the Grantor Trustee and
the sale of the Grantor Trust Certificate to the Issuer.
(i) As of the Closing Date, the Depositor had good title to, and was the
sole beneficial owner of, the Grantor Trust Certificate and had good and
marketable title thereto, free and clear of any lien or options in favor of, or
claims of, any other Person, other than any such lien released simultaneously
with the sale contemplated herein, and, immediately upon each transfer and
assignment herein contemplated, the Depositor will have delivered to the Issuer
good title to, and the Issuer will be the sole beneficial owner of, the Grantor
Trust Certificate free and clear of any lien or options in favor of, or claims
of, any other Person.
(j) The Grantor Trust Certificate has been validly issued, and is fully
paid and non-assessable and not subject to preemptive rights, and the Grantor
Trust Certificate has been offered, issued and sold in compliance with all
applicable laws and (A) there are no outstanding rights, options, warrants or
agreements for the purchase from, or sale or issuance, in connection with the
Grantor Trust Certificate; (B) there are no agreements on the part of the
Depositor to issue, sell or distribute the Grantor Trust Certificate; and (C)
the Depositor has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any securities or any interest therein or to pay any dividend
or make any distribution in respect of the Grantor Trust Certificate.
(k) The Depositor acquired title to the Grantor Trust Certificate in good
faith, without notice of any adverse claim.
(l) No Officers' Certificate, statement, report or other document prepared
by the Depositor and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
<PAGE>
(m) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
Section 3.02 Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Securities
Insurer, the Noteholders and the Depositor that as of the Closing Date (except
as otherwise specifically provided herein):
(a) The Transferor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oklahoma and has and had at all
relevant times, full corporate power to originate or purchase the Home Loans, to
own its property, to carry on its business as presently conducted and to enter
into and perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Transferor and its
performance of and compliance with the terms of this Agreement will not violate
the Transferor's certificate of incorporation or by-laws or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Transferor is a party or
which may be applicable to the Transferor or any of its assets.
(c) The Transferor has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be consummated by
it, has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This Agreement,
assuming due authorization, execution and delivery by the Owner Trustee, the
Indenture Trustee, the Grantor Trustee, the Master Servicer, and the Depositor,
constitutes a valid, legal and binding obligation of the Transferor, enforceable
against it in accordance with the terms hereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(d) The Transferor is not in violation of, and the execution and delivery
of this Agreement by the Transferor and its performance and compliance with the
terms of this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Transferor or its properties or materially and adversely
affect the performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Transferor currently pending with regard to which the Transferor has received
service of process and no action or proceeding against, or investigation of, the
Transferor is, to the knowledge of the Transferor, threatened or otherwise
pending, before any court, administrative agency or other tribunal that (A) if
determined adversely, would
<PAGE>
prohibit its entering into this Agreement or render the Notes invalid, (B) seek
to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or (C) if determined adversely,
would prohibit or materially and adversely affect the sale of the Home Loans to
the Depositor, the performance by the Transferor of its obligations under, or
the validity or enforceability of, this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Transferor of, or compliance by the Transferor with, this
Agreement or the Grantor Trust Agreement, (2) the issuance of the Notes, (3) the
sale of the Home Loans under the Home Loan Purchase Agreement or (4) the
consummation of the transactions required of it by this Agreement, except such
as shall have been obtained before the Closing Date.
(g) The Transferor acquired title to the Home Loans in good faith, without
notice of any adverse claim.
(h) The collection practices used by the Transferor with respect to the
Home Loans have been, in all material respects, legal, proper, prudent and
customary in the servicing of loans of the same type as the Home Loans.
(i) No Officer's Certificate, statement, report or other document prepared
by the Transferor and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(j) The Transferor is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Agreement or by the performance of its obligations hereunder; no petition
of bankruptcy (or similar insolvency proceeding) has been filed by or against
the Transferor prior to the date hereof.
(k) The Prospectus Supplement does not contain an untrue statement of a
material fact and does not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Transferor makes no statement with
respect to: (1) the statements set forth in the final two paragraphs of the
cover of the Prospectus Supplement; and (2) statements set forth under the
following captions: (i) "SUMMARY - Tax Status", "-- ERISA Considerations", and
"-- Legal Investment"; (ii) "DESCRIPTION OF CREDIT ENHANCEMENT - The Guaranty
Policy", and "-- The Securities Insurer"; (iii) "FEDERAL INCOME TAX
CONSEQUENCES"; (iv) "ERISA CONSIDERATIONS"; (v) "LEGAL INVESTMENT MATTERS"; and
(vi) "UNDERWRITING" (except for the last paragraph thereunder).
(l) The Transferor has transferred the Home Loans without any intent to
hinder, delay or defraud any of its creditors.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Grantor
Trustee's Home Loan Files to the Custodian (as the agent of the Grantor Trustee)
and shall inure to the benefit of the Securityholders, the Securities Insurer,
the Depositor, the Master Servicer, the Servicer, the
<PAGE>
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Grantor Trust and
the Owner Trust. Upon discovery by any of the Transferor, the Securities
Insurer, the Depositor, the Master Servicer, the Servicer, the Indenture
Trustee, the Grantor Trustee or the Owner Trustee of a breach of any of the
foregoing representations and warranties that materially and adversely affects
the value of any Home Loan or the interests of the Grantor Trust Holder therein,
the party discovering such breach shall give prompt written notice (but in no
event later than two Business Days following such discovery) to the other
parties. The obligations of the Transferor set forth in Section 3.05 hereof
shall constitute the sole remedies available hereunder to the Securityholders,
the Depositor, the Master Servicer, the Servicer, the Indenture Trustee, the
Grantor Trustee or the Owner Trustee respecting a breach of the representations
and warranties contained in this Section 3.02.
Section 3.03 Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents and warrants to and covenants with the Owner
Trustee, the Indenture Trustee, the Grantor Trustee, the Securities Insurer, the
Noteholders, the Depositor, the Master Servicer and the Transferor that as of
the Closing Date or as of such date specifically provided herein:
(a) The Servicer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oklahoma and is or will be in
compliance with the laws of each state in which any Mortgaged Property is
located to the extent necessary to ensure the enforceability of each Loan in
accordance with the terms of this Agreement.
(b) The execution and delivery of this Agreement by the Servicer and its
performance of and compliance with the terms of this Agreement will not violate
the Servicer's certificate of incorporation or by-laws or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Servicer is a party or
which may be applicable to the Servicer or any of its assets.
(c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly authorized
the execution, delivery and performance of this Agreement and has duly executed
and delivered this Agreement. This Agreement, assuming due authorization,
execution and delivery by the Indenture Trustee, the Owner Trustee, the Grantor
Trustee, the Master Servicer, and the Depositor, constitutes a valid, legal and
binding obligation of the Servicer, enforceable against it in accordance with
the terms hereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(d) The Servicer is not in violation of, and the execution and delivery of
this Agreement by the Servicer and its performance and compliance with the terms
of this Agreement will not constitute a violation with respect to, any order or
decree of any court or any order or regulation of any federal, state, municipal
or governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or
<PAGE>
otherwise) or operations of the Servicer or materially and adversely affect the
performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Servicer currently pending with regard to which the Servicer has received
service of process and no action or proceeding against, or investigation of, the
Servicer is to the knowledge of the Servicer, threatened or otherwise pending,
before any court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render the Notes
invalid, (B) seek to prevent the issuance of the Notes or the consummation of
any of the transactions contemplated by this Agreement or (C) if determined
adversely, would prohibit or materially and adversely affect the performance by
the Servicer of its obligations under, or the validity or enforceability of,
this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, this
Agreement or the Notes, or for the consummation of the transactions contemplated
by this Agreement, except for such consents, approvals, authorizations and
orders, if any, that have been obtained prior to the Closing Date.
(g) The Servicer is duly licensed where required as a "Licensee" or is
otherwise authorized or qualified in each state in which it transacts business
and is not in default of such state's applicable licensing, authorization or
qualification laws, rules and regulations, except where the failure to be so
authorized or qualified or such default would not have a material adverse effect
on the ability of the Servicer to conduct its business or perform its
obligations hereunder.
(h) The Servicer is an Eligible Servicer and services mortgage loans in
accordance with Accepted Servicing Procedures.
(i) No Officer's Certificate, statement, report or other document prepared
by the Servicer and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(j) The Servicer is solvent and will not be rendered insolvent as a result
of the performance of its obligations pursuant to this Agreement.
(k) With respect to any Mortgage that evidences a first lien on the related
Mortgaged Property, the Servicer will cause to be performed any and all acts
required to be performed by the Servicer to preserve the rights and remedies of
the Grantor Trustee, the Owner Trustee, the Securities Insurer and the Indenture
Trustee in any Property Insurance Policies applicable to the Home Loans
including, without limitation, in each case, any necessary notifications of
insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Grantor
Trustee, the Owner Trustee and the Indenture Trustee.
(l) The Servicer shall comply with, and shall service, or cause to be
serviced, each
<PAGE>
Home Loan, in accordance with the Accepted Servicing Procedures.
(m) The Servicer agrees that, so long as it shall continue to serve in the
capacity contemplated under the terms of this Agreement, it shall remain in good
standing under the laws governing its creation and existence and authorized or
qualified to transact business under the laws of each state in which it is
necessary to perform its obligations under this Agreement or in which the nature
of its business requires such authorization or qualification; it shall maintain
all licenses, permits and other approvals required by any law or regulations as
may be necessary to perform its obligations under this Agreement and to retain
all rights to service the Loans; and it shall not dissolve or otherwise dispose
of all or substantially all of its assets.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Grantor Trustee's Home Loan Files to the Indenture Trustee and shall
inure to the benefit of the Depositor, the Noteholders, the Owner Trustee, the
Grantor Trustee, the Securities Insurer, the Master Servicer, and the Indenture
Trustee. Upon discovery by any of the Transferor, the Depositor, the Master
Servicer, the Servicer, the Indenture Trustee, the Grantor Trustee, the
Securities Insurer or the Owner Trustee of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the value of any Home Loan or the interests of such Person therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties.
Section 3.03A Representations and Warranties of the Master Servicer.
The Master Servicer hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Securities
Insurer, the Noteholders and the Depositor that as of the Closing Date (except
as otherwise specifically provided herein):
(a) The Master Servicer a national banking association duly organized,
validly existing, and in good standing under the laws of the United States of
America and has, and had at all relevant times, full power to own its property,
to carry on its business as presently conducted and to enter into and perform
its obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Master Servicer and
its performance of and compliance with the terms of this Agreement will not
violate the Master Servicer's articles of association or by-laws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach or acceleration of, any
material contract, agreement or other instrument to which the Master Servicer is
a party or which may be applicable to the Master Servicer or any of its assets.
(c) The Master Servicer has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be consummated by
it, has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This Agreement,
assuming due authorization, execution and delivery by the Owner Trustee, the
Indenture Trustee, the Grantor Trustee, the Servicer and Transferor, and the
Depositor, constitutes a valid, legal and binding obligation of the Master
Servicer, enforceable against it in accordance with the terms hereof, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership,
<PAGE>
moratorium or other similar laws relating to or affecting the rights of
creditors generally, and by general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
(d) The Master Servicer is not in violation of, and the execution and
delivery of this Agreement by the Master Servicer and its performance and
compliance with the terms of this Agreement will not constitute a violation with
respect to, any order or decree of any court or any order or regulation of any
federal, state, municipal or governmental agency having jurisdiction, which
violation would materially and adversely affect the condition (financial or
otherwise) or operations of the Master Servicer or its properties or materially
and adversely affect the performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Master Servicer currently pending with regard to which the Master Servicer has
received service of process and no action or proceeding against, or
investigation of, the Master Servicer is, to the knowledge of the Master
Servicer, threatened or otherwise pending, before any court, administrative
agency or other tribunal that (A) if determined adversely, would prohibit its
entering into this Agreement or render the Notes invalid, (B) seek to prevent
the issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or (C) if determined adversely, would prohibit or
materially and adversely affect the sale of the Home Loans to the Depositor, the
performance by the Master Servicer of its obligations under, or the validity or
enforceability of, this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Master Servicer of, or compliance by the Master Servicer
with, this Agreement or the Notes, or (2) the consummation of the transactions
required of it by this Agreement, except such as shall have been obtained before
the Closing Date.
(g) No Officer's Certificate, statement, report or other document prepared
by the Master Servicer and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(h) The statements set forth in the section of Prospectus Supplement under
the caption "THE MASTER SERVICER" do not contain an untrue statement of a
material fact and do not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(i) The Master Servicer shall not solicit any refinancing of any of the
Home Loans; provided, however, that this covenant shall not prevent or restrict
either (1) the Master Servicer from making general solicitations, by mail,
advertisement or otherwise of the general public or persons on a targeted list,
so long as the list was not generated from the Home Loan Schedule or (2) any
refinancing in connection with an Obligor's unsolicited request for refinancing.
(m) The Master Servicer shall not sell, transfer, assign or otherwise
dispose of a
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customer or similar list comprised of the names of the Obligors under the Home
Loans to any third party.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03A shall survive the execution and
delivery of the Agreement by the Master Servicer and shall inure to the benefit
of the Depositor, the Noteholders, the Owner Trustee, the Grantor Trustee, the
Securities Insurer, the Servicer, the Transferor and the Indenture Trustee. Upon
discovery by any of the Depositor, the Servicer, the Transferor, the Master
Servicer, the Indenture Trustee, the Grantor Trustee, the Securities Insurer or
the Owner Trustee of a breach of any of the foregoing representations,
warranties and covenants that materially and adversely affects the value of any
Home Loan or the interests of such Person therein, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties.
Section 3.04 Representations and Warranties Regarding Individual Home
Loans.
The Transferor hereby represents and warrants to the Depositor, the Issuer,
the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the Securities
Insurer, the Master Servicer and the Noteholders, with respect to each Home Loan
as of the Closing Date, except as otherwise expressly stated:
(1) Loan Information. The information pertaining to each Home Loan set
forth in the Home Loan Schedule was true and correct in all material respects as
of the Cut-Off Date.
(2) Payments Current; No Transferor Advances or Payments. As of the
applicable Cut-Off Date, none of the Home Loans was 30 or more days past due
(without giving effect to any grace period); the Transferor has not advanced
funds, induced, solicited or knowingly received any advance of funds from a
party other than the Obligor, directly or indirectly, for the payment of any
amount required by any Home Loan and there is no obligation on the part of the
Transferor or any other party other than the Obligor to make payments with
respect to the Home Loan and the Obligor is not entitled to any refund of any
amounts paid or due to the lender pursuant to the Debt Instrument or any related
Mortgage.
(3) No Waiver or Modification. The terms of the Debt Instrument and any
related Mortgage contain the entire agreement of the parties thereto and have
not been impaired, waived, altered or modified in any respect, except by written
instruments reflected in the related Grantor Trustee's Home Loan File and
recorded, if necessary, to maintain the lien priority of the any related
Mortgage, or except in connection with an assumption agreement which assumption
agreement is part of the related Grantor Trustee's Home Loan File and the
payment terms of which are reflected in the related Home Loan Schedule, and to
the extent required by the applicable title insurance policy for any Mortgaged
Property secured by a first lien Mortgage at origination, the substance of any
waiver, alteration or modification has been approved by the applicable title
insurer and its terms are reflected in the related Home Loan Schedule. No
Obligor has been released, in whole or in part from the Debt Instrument and any
related Mortgage.
(4) No Defenses. The Debt Instrument and any related Mortgage are not
subject to any set-off, claims, counterclaim or defense, including the defense
of usury or of fraud in the
<PAGE>
inducement, and will not be so subject in the future with respect to any goods
and services provided under the Debt Instrument; and neither the operation of
any of the terms of the Debt Instrument and any related Mortgage, nor the
exercise of any right thereunder, will render such Debt Instrument or any such
Mortgage unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto.
(5) Compliance with Laws. Any and all requirements of any federal, state or
local law applicable to the Home Loan (including, without limitation, any usury,
truth-in-lending, real estate settlement procedures, consumer protection, equal
credit opportunity, environmental and any other law applicable to the
origination, servicing and collection practices with respect thereto) have been
complied with. With respect to each Home Loan that is a "mortgage" as such term
is defined in 15 U.S.C. 1602(aa) (the "Riegle Act"), no Obligor has or will have
a claim or defense under the Riegle Act with respect to such Home Loan. No fraud
or misrepresentation was committed by any Person in connection with the
origination and servicing of such Home Loan.
(6) No Satisfaction or Release of Lien. No Debt Instrument or any related
Mortgage has been satisfied, canceled, rescinded or subordinated, in whole or
part; and the Transferor, except as otherwise permitted by subsection (3) of
this Section 3.04, has not waived the performance by the Obligor of any action,
if the Obligor's failure to perform such action would cause the Debt Instrument
or Home Loan to be in default; and, any related Mortgaged Property has not been
released from the lien of any related Mortgage, in whole or in part, nor has any
instrument been executed that would effect any such satisfaction, subordination,
release, cancellation or rescission.
(7) Valid Lien. Any related Mortgage is a valid, subsisting and enforceable
lien on any related Mortgaged Property, including the land and all buildings on
any such Mortgaged Property.
(8) Validity and Enforceability of Loan Documents. The Debt Instrument and
any related Mortgage (i) are genuine and each is the legal, valid and binding
obligation of the maker thereof, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights in general and
by general principles of equity and (ii) contain customary and enforceable
provisions so as to render the rights and remedies of the holder thereof
adequate for the realization against any related Mortgaged Property of the
benefits of the security provided thereby, including, (A) in the case of any
related Mortgage designated as a deed of trust, by trustee's sale, and (B)
otherwise by judicial foreclosure. There are no proceedings pending, or to the
Transferor's knowledge, threatened, wherein the Obligor or any governmental
agency has alleged that any Home Loan is illegal or unenforceable.
(9) Capacity of Parties. To the best of the Transferor's knowledge, all
parties to the Debt Instrument and any related Mortgage had legal capacity at
the time to enter into the Home Loan and to execute and deliver the Debt
Instrument and any related Mortgage, and the Debt Instrument and any related
Mortgage have been duly and properly executed by such parties.
<PAGE>
(10) Full Disbursement of Proceeds. As of the applicable Cut-Off Date, the
proceeds of the Home Loan have been fully disbursed and there is no requirement
for future advances thereunder, and any and all requirements applicable to the
disbursement of proceeds set forth in the Home Loan documents have been complied
with; the Obligor is not entitled to any refund of any amounts paid or due under
the Debt Instrument or any related Mortgage.
(11) Ownership by Transferor. Immediately prior to the sale, transfer and
assignment to the Depositor, the Transferor will have good and indefeasible
legal title to the Home Loan, the related Debt Instrument and any related
Mortgage and the full right to transfer such Home Loan, the related Debt
Instrument and any related Mortgage, and the Transferor will have been the sole
owner thereof, subject to no liens, pledges, charges, mortgages, encumbrances or
rights of others, except for such liens as will be released simultaneously with
the transfer and assignment of the Home Loans to the Depositor (and the Grantor
Trustee's Home Loan File will contain no evidence inconsistent with the
foregoing) ; and immediately upon the sale, transfer and assignment contemplated
by the Home Loan Purchase Agreement, the Depositor will hold good title to, and
be the sole owner of each Home Loan, the related Debt Instrument and any related
Mortgage, free of all liens, pledges, charges, mortgages, encumbrances or rights
of others.
(12) No Defaults. Except for those Home Loans referred to in subsection (2)
of this Section 3.04 that are delinquent as of the Cut-Off Date, there is no
default, breach, violation or event of acceleration known to the Transferor
under the Home Loan, the related Debt Instrument and any related Mortgage and
there is no event known to the Transferor which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration thereunder and neither the
Transferor nor its predecessors have waived any such default, breach, violation
or event of acceleration.
(13) Interest, Term and Amortization. Each Home Loan is a fixed rate loan;
the Debt Instrument shall mature within not more than 25 years from the date of
origination of the Home Loan; the Debt Instrument is payable in substantially
equal Monthly Payments, with interest payable in arrears, and requires a Monthly
Payment which is sufficient to fully amortize the original principal balance
over the original term and to pay interest at the related Home Loan Interest
Rate; interest on each Home Loan is calculated on the basis of a 360-day year
consisting of twelve 30-day months, and the Debt Instrument does not provide for
any extension of the original term.
(14) Security. The related Debt Instrument is not and has not been secured
by any collateral except, the lien of any related Mortgage.
(15) Deed of Trust. If any related Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in any such Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees or expenses
are or will become payable to the trustee under the deed of trust, except in
connection with default proceedings and a trustee's sale after default by the
Obligor.
<PAGE>
(16) Value and Marketability. The Transferor has no knowledge of any
circumstances or conditions not reflected in the representations set forth
herein, or in the Home Loan Schedule, or in the related Grantor Trustee's Home
Loan File with respect to any related Mortgage, related Mortgaged Property or
the Obligor which could reasonably be expected to materially and adversely
affect the value of any such Mortgaged Property or the marketability of the Home
Loan or cause the Home Loan to become delinquent or otherwise be in default.
(17) Loan Documents and Delivery of Loan File. There exists a Home Loan
File relating to each Home Loan and such Home Loan File contains all of the
original or certified documentation listed in Section 2.04 hereof for such Home
Loan. Each Grantor Trustee's Home Loan File has been delivered to the applicable
Custodian and each Servicer's Home Loan File is being held in trust by the
Servicer for the benefit of, and as agent for, the Grantor Trust Holder and the
Grantor Trustee as their respective interest appear herein. Each document
included in the Home Loan File, which is required to be executed by the Obligor,
has been executed by the Obligor in the appropriate places. With respect to each
Home Loan, any related Assignment of Mortgage to the Grantor Trustee is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the related Mortgaged Property is located. All blanks on
any form required to be completed have been so completed.
(18) Mortgaged Property. Any related Mortgaged Property is improved by a
residential dwelling and is not a Home Loan in respect of a manufactured home or
mobile home or the land on which a manufactured home or mobile home has been
placed, unless such manufactured home or mobile home is treated as real estate
under applicable law. In the aggregate, no more than 1.0% of the Home Loans (as
calculated on the basis of the Original Pool Principal Balance) are secured by
manufactured homes or mobile homes.
(19) Underwriting and Origination. Each Home Loan was (i) underwritten or
re-underwritten in accordance with the Transferor's underwriting guidelines by
the Transferor or another lender that has been granted "delegated underwriting
authority" by the Transferor (except for any Home Loans acquired through the
Transferor's portfolio acquisition program, which have been reviewed on a sample
basis for compliance with the originating seller's underwriting guidelines),
(ii) originated by the Transferor or through the Transferor's network of
brokers, dealers and correspondents (including Home Loans acquired by such
correspondents) or through the Transferor's portfolio acquisition program, and
(iii) originated no earlier than September 1996.
(20) Flood and Hazard Insurance. To the best of the Transferor's knowledge,
if any related Mortgaged Property securing any Home Loan is in an area
identified by the Federal Emergency Management Agency ("FEMA") as having special
flood hazards, unless the community in which the area is situated is not
participating in the National Flood Insurance Program and the regulations
thereunder or less than a year has passed since FEMA notification regarding such
hazards, a flood insurance policy is in effect with respect to any related
Mortgaged Property with a generally acceptable carrier which complies with
section 102(a) of the Flood Disaster Protection Act of 1968, as amended. With
respect to each Home Loan that is secured by a first lien priority Mortgage at
origination, all improvements upon any related Mortgaged Property securing a
Home Loan are insured by a generally acceptable insurer against loss by fire,
hazards of extended coverage and such other hazards as are customary in
<PAGE>
the area where any such Mortgaged Property is located and such insurance
policies satisfy the applicable requirements of the Federal Housing
Administration and conform to the requirements of the FNMA Seller's Guide and
FNMA Servicer's Guide, and the Transferor has caused to be performed or shall
cause to be performed within a reasonable time following the Closing Date any
and all acts required to preserve the rights and remedies of the Servicer, on
behalf of the Grantor Trustee, in any such hazard insurance or flood Property
Insurance Policies applicable to any such Mortgaged Properties, including
without limitation any necessary notifications of insurers, assignments of
policies or interests therein, and establishment of co-insured, joint loss payee
and mortgagee rights in favor of the Servicer, on behalf of the Grantor Trustee.
(21) Superior Lien. At the time of origination of the Home Loan (other than
an Unsecured Home Loan), each related Superior Lien, if any, was certified by
the Obligor or verified by the applicable Superior Lien lender as not being 30
or more days delinquent.
(22) Licensing and Qualification. To the best of the Transferor's
knowledge, each party which had any interest as an owner of servicer of the Home
Loan, whether as mortgagee, assignee, or servicer, is (or, during the period in
which they held and disposed of such interest, was) (i) in compliance with any
and all applicable licensing requirements of the laws of the state wherein any
related Mortgaged Property, or with respect to an Unsecured Loan, the related
Obligor is located, and (ii) either (A) organized under the laws of such state,
or (B) authorized or qualified to do business in such state, or (C) a federal
savings and loan association or a national bank having principal offices in such
state, or (D) not doing business in such state.
(23) Assumption. Any related Mortgage contains an enforceable provision
requiring the acceleration of the payment of the unpaid principal balance in the
event that the related Mortgaged Property is sold or transferred without the
consent of the mortgagee.
(24) No Homestead or Relief Act. There is no homestead or other exemption
available to the mortgagor which would materially interfere with the right to
sell any related Mortgaged Property at a trustee's sale or the right to
foreclose any related Mortgage; no relief has been requested or allowed to the
Obligor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(25) Ownership of Mortgaged Property. The related Servicer's Home Loan File
for each Home Loan (other than an Unsecured Home Loan) contains a title document
with respect to such Home Loan reflecting that title to any related Mortgaged
Property is vested at least 50% in the related Obligor or (ii) a lease agreement
with an attorney's opinion letter with respect to such Home Loan reflecting that
the leasehold in a ground lease which is included as part of the Mortgaged
Property is vested at least 50% in the related Obligor.
(26) No Condemnation or Damage. To the best of the Transferor's knowledge,
each related Mortgaged Property (including each residential dwelling improvement
thereon) is free of damage which materially and adversely affects the value
thereof and there is no proceeding pending for the total or partial condemnation
of any such Mortgaged Property.
(27) No Bulk Transfer or Adverse Selection. The transfer, assignment and
<PAGE>
conveyance of the Debt Instruments and the related Mortgages by the Transferor
to the Depositor were not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction; no Home Loan was
adversely selected as to credit risk from the pool of home loans owned by the
Transferor.
(28) No Current Bankruptcy. As of the applicable Cut-Off Date, no Obligor
is a debtor under proceedings under the United States Bankruptcy Code, and no
Obligor has defaulted in payments on a Home Loan after the filing of such
bankruptcy case, whether under a plan or reorganization or otherwise.
(29) Environmental Compliance. To the best of the Transferor's knowledge,
any related Mortgaged Property is free from any and all toxic and hazardous
substances and there exists no violation of any environmental law, rule or
regulation (whether local, state or federal) in respect of any such Mortgaged
Property which violation has or could have a material adverse effect on the
market value of such Mortgaged Property. The Transferor has no knowledge of any
pending action or proceeding directly involving any related Mortgaged Property
in which compliance with any environmental law, rule or regulation is in issue;
and, to the Transferor's best knowledge, nothing further remains to be done to
satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Mortgaged Property.
(30) No Taxable Mortgage Pool. With respect to Home Loans, on the Closing
Date, 55% or more (by aggregate Principal Balance) of the Home Loans do not
constitute "real estate mortgages" for the purpose of Treasury Regulations
Section 301.7701(i). For this purpose, a Home Loan does not constitute a "real
estate mortgage" if:
(i) The Home Loan is not secured by an interest in real property, or
(ii) The Home Loan is not an "obligation principally secured by an
interest in real property." For this purpose an "obligation is principally
secured by an interest in real property", if it satisfies either test set
out in paragraph (1) or paragraph (2) below.
(1) The 80-percent test. An obligation is principally secured by
an interest in real property if the fair market value of the interest
in real property securing the obligation (A) was at least equal to 80
percent of the adjusted issue price of the obligation at the time the
obligation was originated (or, if later, the time the obligation was
significantly modified); or (B) is at least equal to 80 percent of the
adjusted issue price of the obligation on the Closing Date.
For purposes of this paragraph (1), the fair market value of the
real property interest must be first reduced by the amount of any lien
on the real property interest that is senior to the obligation being
tested, and must be further reduced by a proportionate amount of any
lien that is in parity with the obligation being tested, in each case
before the percentages set forth in (1)(A) and (1)(B) are determined.
The adjusted issue price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of the date of
determination.
<PAGE>
(2) Alternative test. An obligation is principally secured by an
interest in real property if substantially all of the proceeds of the
obligation were used to acquire or to improve or protect an interest
in real property that, at the origination date, is the only security
for the obligation. For purposes of this test, loan guarantees made by
the United States or any state (or any political subdivision, agency,
or instrumentality of the United States or of any state), or other
third party credit enhancement are not viewed as additional security
for a loan. An obligation is not considered to be secured by property
other than real property solely because the obligor is personally
liable on the obligation. For this purpose only, substantially all of
the proceeds of the obligations means 66 2/3% or more of the gross
proceeds.
(31) Consent of Superior Lien. With respect to each Home Loan (other than
Unsecured Home Loans) that is not a first lien mortgage loan, either (i) no
consent for the Home Loan was required by the holder of the related Superior
Lien or (ii) such consent has been obtained and has been delivered to the
Indenture Trustee.
(32) Loan Types; Owner Occupied Properties. Each Home Loan is a Combination
Loan, a Debt Consolidation Loan or a home equity loan and at the time of its
origination no Home Loan was secured by a Mortgage on a non-owner occupied
Mortgaged Property.
(33) Debt Instrument. Each Debt Instrument is comprised of an original
promissory note and each promissory note constitutes an "instrument" or "chattel
paper" for purposes of Article 9 of the UCC; each Debt Instrument has been
delivered to the Custodian.
(34) No Encroachment. To the best of the Transferor's knowledge, all
improvements which were considered in determining the appraised value of any
related Mortgaged Property lay wholly within the boundaries and building
restriction lines of any such Mortgaged Property and no improvements on
adjoining properties encroach upon any such Mortgaged Property. No improvement
located on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation.
(35) Enforcement Against Originator. If the Home Loan was originated by an
entity (such entity, the "Originator") other than the Transferor or an affiliate
of the Transferor, then the Grantor Trustee and the Indenture Trustee may
enforce any remedies for breach of representations and warranties made by the
Transferor with respect to such Home Loan.
(36) No Buydown or GPM Loans. The Home Loan does not contain provisions
pursuant to which Monthly Payments are paid or partially paid with funds
deposited in any separate account established by the Transferor, the Obligor or
anyone on behalf of the Obligor, or paid by any source other than the Obligor,
nor does it contain any other similar provisions currently in effect which may
constitute a "buydown" provision. The Home Loan is not a graduated payment Home
Loan and the Home Loan does not have a shared appreciation or other contingent
interest feature.
(37) No Tax or Mechanics Liens. With respect to any related Mortgaged
Property, at origination there were no liens against such Mortgaged Property for
delinquent taxes and there were no mechanics' or similar liens or claims which
had been filed for work, labor or
<PAGE>
material (and to the Transferor's knowledge, no rights were outstanding which
could have given rise to such liens) affecting such Mortgaged Property, which
were or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage.
(38) Conformity to Prospectus Supplement. Each Home Loan conforms, and the
Home Loans in the aggregate conform, in all material respects to the applicable
description thereof set forth in the Prospectus Supplement. The computer data,
from which the Home Loans being acquired by the Issuer on the Closing Date were
selected, was made available to the accountants of the Transferor who are
providing the comfort letter to the Securities Insurer and the Underwriter in
connection with information contained in the Prospectus Supplement regarding the
Home Loan Pool; and such data was complete and accurate as of its date and with
respect to its intended use and includes a description of the same Home Loans
that are included on the Home Loan Schedule, including the Principal Balances
thereof as the Cut-Off Date or the Statistical Calculation Date (as defined in
the Prospectus Supplement).
(39) Characteristics of Home Loans. (i) Coupon Rate. The Debt Instrument
bears a Home Loan Interest Rate of at least 9.5% per annum. (ii) Combined
Loan-to-Value Ratio. At origination, each Home Loan had a Combined Loan-to-Value
Ratio that was not greater than 133%. (iii) Geographic Concentration. In the
aggregate as of the Cut-Off Date, no more than 0.2% of the Home Loans are
secured by Mortgaged Properties sharing a single zip code. (iv) First Payment
Date. The first Due Date for each Home Loan is no later than November 30, 1998.
(v) Remaining Term. At origination, no Home Loan had a remaining term to
maturity in excess of 25 years. (vi) Date-of-Payment Loans. As of the Cut-Off
Date, none of the Home Loans are being serviced under a date-of-payment, daily
accrual or simple interest method. (vii) Condominiums & PUDs. No more than 1.0%
of the Home Loans are secured by Mortgaged Properties that consist of
condominiums, townhouses or planned unit developments.
(40) Current Servicing. Each Home Loan is being serviced by the Servicer or
its Affiliate, which is qualified to service Home Loans.
(41) No Transfer Taxes. The sale, transfer, assignment and conveyance of
the Home Loans by the Transferor pursuant to the relevant Transaction Documents
is not subject to and will not result in any governmental tax, fee or charge
payable by the Transferor, the Depositor or the Grantor Trustee to any federal,
state or local government ("Taxes"), other than any Taxes which have or will be
paid by the Transferor as due. If the Transferor receives notice of any Taxes
arising out of the sale, transfer, assignment and conveyance of the Home Loans,
the Transferor shall pay all such Taxes (It being understood that the
Securityholders, the Grantor Trustee, Indenture Trustee and the Securities
Insurer shall not have any obligation to pay such Taxes).
(42) No Prior Default. No Home Loan is due from an Obligor who has
defaulted under a previous loan in which the Transferor was lender thereunder or
acting as the servicer thereof at the time of such default.
(43) FTC Holder Regulations. With respect to each Home Loan that is subject
to the FTC regulation contained in 16 C.F.R. Part 433 (the "FTC Holder
Regulation"), no Obligor
<PAGE>
has or will have a claim or defense with respect to goods or services provided
under the FTC Holder Regulation with respect to such Home Loan.
(44) Review of Loan Documents. The Transferor has reviewed all of the
documents constituting the Mortgage File and has made such inquiries, as it
deems reasonable under the circumstances to make and confirm the accuracy of the
representations set forth herein.
Section 3.05 Purchase and Substitution.
(a) Repurchase and Substitution of Defective Home Loans. It is understood
and agreed that the representations and warranties set forth in Section 3.02 and
Section 3.04 hereof shall survive the conveyance of the Home Loans from the
Transferor to the Depositor and from the Depositor to the Grantor Trustee, the
conveyance of the Grantor Trust Certificate to the Issuer, the pledge of the
Grantor Trust Certificate to the Indenture Trustee and the delivery of the Notes
to the Noteholders. Upon discovery by the Depositor, the Master Servicer, the
Servicer, the Transferor, any Custodian, the Issuer, the Indenture Trustee, the
Grantor Trustee, the Owner Trustee, the Securities Insurer or any Securityholder
of a breach of any of the representations and warranties set forth in Section
3.02 and Section 3.04 which materially and adversely affects the value of the
Home Loans or the interests of the Grantor Trustee, the Owner Trustee, the
Securities Insurer or the Indenture Trustee in the related Home Loan
(notwithstanding that such representation and warranty was made to the
Transferor's best knowledge), the party discovering such breach shall give
prompt written notice to the others. The Transferor shall within 60 days of the
earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, including any breach of the representation set forth
in Section 3.04(30) hereof regarding No Taxable Mortgage Pool as a result of an
aggregate of Home Loans which would not otherwise cause a breach of any other
representation or warranty, promptly cure such breach in all material respects
unless such requirement is waived by the Securities Insurer. If within 60 days
after the earlier of the Transferor's discovery of such breach or the
Transferor's receiving notice thereof such breach has not been remedied by the
Transferor or waived by the Securities Insurer and such breach materially and
adversely affects the interests of the Grantor Trustee, the Owner Trustee or the
Indenture Trustee in, or the value of, the related Home Loan (the "Defective
Home Loan"), the Transferor shall on or before the Determination Date next
succeeding the end of such 60-day period either (i) remove such Defective Home
Loan from the Grantor Trust (in which case it shall become a Deleted Home Loan)
and substitute one or more Qualified Substitute Home Loans in the manner and
subject to the conditions set forth in this Section 3.05 or (ii) purchase such
Defective Home Loan at a purchase price equal to the Purchase Price by
depositing such Purchase Price in the Collection Account. The Transferor shall
provide the Master Servicer, the Servicer, the Indenture Trustee, the Grantor
Trustee, the Securities Insurer and the Owner Trustee with a certification of a
Responsible Officer on the Determination Date next succeeding the end of such
60-day period indicating whether the Transferor is purchasing the Defective Home
Loan or substituting in lieu of such Defective Home Loan a Qualified Substitute
Home Loan.
Any substitution of Home Loans pursuant to this Section 3.05(a) shall be
accompanied by payment by the Transferor of the Substitution Adjustment, if any,
to be deposited in the Collection Account. For purposes of calculating the
Available Collection Amount for any Payment Date, amounts paid by the Transferor
pursuant to this Section 3.05 in connection with
<PAGE>
the repurchase or substitution of any Defective Home Loan that are on deposit in
the Collection Account as of the Determination Date for such Payment Date shall
be deemed to have been paid during the related Due Period and shall be
transferred to the Note Payment Account as part of the Available Collection
Amount to be retained therein or transferred to the Certificate Distribution
Account, if applicable, pursuant to Section 5.01(c) hereof.
In addition to such cure, repurchase or substitution obligation, the
Transferor shall indemnify the Issuer, the Depositor, the Master Servicer, the
Indenture Trustee, the Grantor Trustee, the Securities Insurer and the
Securityholders against any losses, damages, penalties, fines, forfeitures,
reasonable and necessary legal fees and related costs, judgments, and other
costs and expenses resulting from any claim, demand, defense or assertion based
on or grounded upon, or resulting from, a breach by the Transferor of any of it
representations and warranties contained in Section 3.02 and Section 3.04.
(b) Repurchase of Defaulted Home Loans. In addition to the preceding
repurchase obligations, each of the Transferor and Servicer shall have the
option, exercisable in its sole discretion at any time, to repurchase from the
Grantor Trustee any Defaulted Home Loan (in which case such Defaulted Home Loan
shall become a Deleted Home Loan); provided, however, that any such repurchase
of a Defaulted Home Loan pursuant to this Subsection shall be conducted in the
same manner as the repurchase of a Defective Home Loan pursuant to this Section
3.05. If the Defaulted Home Loans are repurchased pursuant to this Subsection
3.05(b) in excess of 2% of the Original Pool Principal Balance, then the
Principal Balances of such repurchased Defaulted Home Loans that exceed 2% of
the Original Pool Principal Balance shall be included as Realized Losses for
purposes of determining the Realized Losses under the OC Trigger Increase Event
and the OC Trigger Reversal Event (but not with respect to the determination of
a Servicer Event of Default under Section 10.01(a) hereof).
(c) Substitutions. As to any Deleted Home Loan for which the Transferor
substitutes a Qualified Substitute Home Loan(s), the Transferor shall effect
such substitution by delivering to the Indenture Trustee, the Master Servicer
and Grantor Trustee (i) a certification executed by a Responsible Officer of the
Transferor to the effect that the Substitution Adjustment has been credited to
the Collection Account and (ii) the documents constituting the Grantor Trustee's
Home Loan File for such Qualified Substitute Home Loan(s).
In accordance with Section 5.01(b)(1) hereof, the Servicer shall deposit in
the Collection Account all payments received in connection with such Qualified
Substitute Home Loan(s) after the date of such substitution. Monthly Payments
received with respect to Qualified Substitute Home Loans on or before the date
of substitution will be retained by the Transferor. The Indenture Trustee will
be entitled to all payments received on the Deleted Home Loan on or before the
date of substitution and the Transferor shall thereafter be entitled to retain
all amounts subsequently received in respect of such Deleted Home Loan. The
Transferor shall give written notice to the Grantor Trustee, the Master
Servicer, the Servicer (if the Transferor is not then acting as such), the
Indenture Trustee, the Securities Insurer and Owner Trustee that such
substitution has taken place and the Servicer shall amend the Home Loan Schedule
pursuant to Subsection (g) below. Upon such substitution, such Qualified
Substitute Home Loan(s) shall be subject to the terms of this Agreement in all
respects, and
<PAGE>
the Transferor shall be deemed to have made with respect to such Qualified
Substitute Home Loan(s), as of the date of substitution, the covenants,
representations and warranties set forth in Section 3.02 and Section 3.04
hereof. On the date of such substitution, the Transferor will deposit into the
Collection Account an amount equal to the related Substitution Adjustment, if
any.
(d) Reassignment of Defective Home Loans. With respect to all Defective
Home Loans or other Home Loans repurchased by the Transferor pursuant to this
Agreement, upon the deposit of the Purchase Price therefor into the Collection
Account, the Grantor Trustee shall assign to the Transferor, without recourse,
representation or warranty, all the Grantor Trustee's right, title and interest
in and to such Defective Home Loans or other Home Loans, which right, title and
interest were conveyed to the Grantor Trustee pursuant to the Grantor Trust
Agreement. The Grantor Trustee shall take any actions as shall be reasonably
requested by the Transferor to effect the repurchase of any such Home Loans.
(e) Sole Remedies Against Transferor. It is understood and agreed that the
obligations of the Transferor to cure or to repurchase or substitute any such
Home Loan, and to indemnify for any breach of any representation or warranty
with respect thereto, pursuant to this Section 3.05 shall constitute the sole
remedies against it with respect to such breach of the foregoing representations
or warranties or the existence of the foregoing conditions, except for section
3.04(b) of the Insurance Agreement. Any cause of action against the Transferor
relating to or arising out of a defect in a Grantor Trustee's Home Loan File as
contemplated by Section 2.06 of the Grantor Trust Agreement or against the
Transferor relating to or arising out of a breach of any representations and
warranties made in Section 3.02 and Section 3.04 hereof shall accrue as to any
Home Loan upon (i) discovery of such defect or breach by any party and notice
thereof to the Transferor or notice thereof by the Transferor to the Indenture
Trustee, (ii) failure by the Transferor to cure such defect or breach or
purchase or substitute such Home Loan as specified above, and (iii) demand upon
the Transferor, as applicable, by the Grantor Trustee or the Grantor Trust
Holder for all amounts payable in respect of such Home Loan.
(f) No Duty to Investigate. Neither the Securities Insurer, the Master
Servicer, the Grantor Trustee, the Owner Trustee nor the Indenture Trustee shall
have any duty to conduct any affirmative investigation other than as
specifically set forth in this Agreement as to the occurrence of any condition
requiring the repurchase or substitution of any Home Loan pursuant to this
Section or the eligibility of any Home Loan for purposes of this Agreement.
(g) Amendment of Home Loan Schedule. In connection with a repurchase or
substitution of any Home Loan pursuant to this Section 3.05, the Servicer shall
amend the Home Loan Schedule to reflect (i) the removal of the applicable
Deleted Home Loan from the terms of this Agreement, and (ii) if applicable, the
substitution of the applicable Qualified Substitute Home Loan. In connection
with its monthly reporting here under, the Servicer shall deliver a copy of the
amended Home Loan Schedule to the Securities Insurer, the Master Servicer, the
Grantor Trustee, the Indenture Trustee, and the Transferor (if Empire Funding is
not then acting as the Servicer).
<PAGE>
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor, shall
service and administer the Home Loans and shall have full power and authority,
acting alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement and the Accepted Servicing Procedures.
Notwithstanding anything to the contrary contained herein, the Servicer, in
servicing and administering the Home Loans, shall employ or cause to be employed
procedures (including collection, modification, foreclosure and liquidation
procedures) that conform to the Accepted Servicing Procedures. In performing its
obligations hereunder, the Servicer shall at all times act in good faith and in
a commercially reasonable manner. The Servicer shall provide to the Obligors any
reports and statements that are required by applicable state or federal law. The
Servicer has and shall maintain the facilities, procedures and experienced
personnel that are reasonably necessary to comply with the servicing standard
set forth in this Section 4.01(a) and the duties of the Servicer set forth in
this Agreement relating to the servicing and administration of the Home Loans.
(b) Servicing Advances. In accordance with the preceding general servicing
standard, the Servicer, or any Subservicer on behalf of the Servicer, shall make
all Servicing Advances in connection with the servicing of each Home Loan
hereunder. Notwithstanding any provision to the contrary herein, neither the
Servicer nor any Subservicer on behalf of the Servicer shall have any obligation
to advance its own funds (i) for any delinquent scheduled payments of principal
and interest on any Home Loan, (ii) to cure, keep current or, in connection with
any proceeding against the related Mortgaged Property, satisfy the indebtedness
secured by any Superior Liens on such Mortgaged Property. No costs incurred by
the Servicer or any Subservicer in respect of Servicing Advances shall, for the
purposes of distributions in respect of the Grantor Trust Certificate to
Securityholders, be added to the amount owing under the related Home Loan.
Notwithstanding any obligation by the Servicer to make a Servicing Advance
hereunder with respect to a Home Loan, the Servicer shall only make a Servicing
Advance for such Home Loan, if the Servicer, in good faith, determines there is
a reasonable likelihood of (i) recovering such Servicing Advance, together with
any expected future Servicing Advances and any prior Servicing Advances for such
Home Loan, and (ii) recovering an economically significant amount attributable
to the outstanding interest and principal owing on such Home Loan for the
benefit of the Securityholders and the Securities Insurer in excess of the costs
and expenses to obtain such recovery, including without limitation any Servicing
Advances therefor and, if applicable, the outstanding indebtedness of all
Superior Liens. Pursuant to this Agreement the Servicer will be entitled to be
reimbursed for any Servicing Advances pursuant to Section 5.01(b) hereof and for
any Nonrecoverable Servicing Advance pursuant to Section 5.01(e) hereof.
(c) Waivers, Modifications and Extensions; Subordination. In accordance
with the servicing standard in Section 4.01(a), the Servicer shall collect all
payments called for under the terms and provisions of the Home Loans. The
Servicer in its discretion may waive or
<PAGE>
permit to be waived any penalty interest or any other fee or charge which the
Servicer would be entitled to retain hereunder as servicing compensation and
extend the Due Date on a Debt Instrument for a period (with respect to each
payment as to which the Due Date is extended) not greater than 90 days after the
initially scheduled Due Date for such payment. Notwithstanding anything in this
Agreement to the contrary, the Servicer shall not permit any additional
extension or modification with respect to any Home Loan other than that
permitted by the immediately preceding sentence, unless the Home Loan is a
Defaulted Home Loan. (See Section 4.10 hereof for a description of the recovery
procedures for Defaulted Home Loans.) The Servicer may in its discretion enter
in subordination agreements with respect to any Home Loan, provided that the
Servicer determines, consistent with this Agreement and the Accepted Servicing
Procedures, that the entering into of such subordination agreement is in the
best interests of the Grantor Trust. The Servicer may grant a waiver or enter
into a subordination agreement with respect to the refinancing of the
indebtedness secured by a Superior Lien on the related Mortgaged Property,
provided that the Obligor is in a better financial or cash flow position as a
result of such refinancing, which may include a reduction in the Obligor's
scheduled monthly payment on the indebtedness secured by such Superior Lien or
the conversion of an adjustable rate loan into a new fixed rate loan. The
Servicer shall notify the Securities Insurer, the Master Servicer, the Grantor
Trustee and the Indenture Trustee of any modification, waiver or amendment of
any provision of any Home Loan and the date thereof, and shall deliver to the
Custodian for deposit in the related Grantor Trustee's Home Loan File, a true
and correct copy or, if available, an original of the agreement relating to such
modification, waiver or amendment promptly following the execution thereof.
(d) Instruments of Satisfaction or Release. Without limiting the generality
of Section 4.01(c), the Servicer, in its own name or in the name of a
Subservicer, is hereby authorized and empowered, when the Servicer believes it
appropriate in its best judgment, to execute and deliver, on behalf of the
Grantor Trust Holder, the Grantor Trustee, the Securities Insurer or any of
them, and upon notice to the Grantor Trustee and the Securities Insurer, any and
all instruments of satisfaction or cancellation or of partial or full release or
discharge, and all other comparable instruments with respect to the Home Loans
and the Mortgaged Properties and to institute foreclosure proceedings or obtain
a deed in lieu of foreclosure so as to convert the ownership of such properties,
and to hold or cause to be held title to such properties, on behalf of the
Grantor Trustee and the Grantor Trust Holder, subject to Section 4.10(f) hereof.
(e) Powers of Attorney. The Grantor Trustee shall execute, at the written
direction of the Servicer or the Master Servicer, any limited or special powers
of attorney and other documents reasonably acceptable to the Grantor Trustee to
enable the Servicer, the Master Servicer or any Subservicer to carry out their
servicing and administrative duties hereunder, including, without limitation,
limited or special powers of attorney with respect to any Foreclosure Property,
and the Grantor Trustee shall not be accountable for the actions of the
Servicer, the Master Servicer or any Subservicers under such powers of attorney
and shall be indemnified by such parties with respect to such actions.
Section 4.01A Appointment and Term of the Servicer.
(a) Initial Appointment. The Issuer, the Securityholders, the Master
Servicer, the
<PAGE>
Securities Insurer and the Indenture Trustee hereby appoint the Servicer to act
as the Servicer for the Home Loans (including all of the duties, obligations and
rights of the Servicer) under this Agreement, which appointment shall be for an
initial term that begins on the Closing Date and ends on February 28, 1999. The
Servicer hereby accepts its appointment as Servicer hereunder.
(b) Two Month Renewal of Servicer Term. Beginning with March 1999, the term
of the Servicer shall be extended for successive two calendar month terms that
end on April 30, June 30, August 31, October 31, December 31 and February 28,
until the Notes are paid in full; provided that the Indenture Trustee delivers
written notice of renewal (the "Servicer Renewal Notice") prior to expiration of
the preceding two month term. The Indenture Trustee, on behalf of the Securities
Insurer, shall send such Servicer Renewal Notice at least 30 days prior to the
beginning of the next successive two calendar month term, unless at least 45
days prior to such next two calendar month term the Securities Insurer delivers
written notice to the Indenture Trustee (with a copy to the Master Servicer)
that instructs the Indenture Trustee not to renew the term of the Servicer
hereunder. Each such Servicer Renewal Notice shall be delivered by the Indenture
Trustee to the other parties hereto and the Securities Insurer.
The Servicer agrees that, as of the date hereof and upon its receipt of any
such Servicer Renewal Notice, the Servicer shall be bound for the duration of
the initial term and each successive two month term covered by such Servicer
Renewal Notice to act as the Servicer for the Home Loans hereunder, unless the
Servicer is otherwise terminated in accordance with Section 4.01A(c) or Article
X hereof. If the Indenture Trustee has not sent the Servicer Renewal Notice at
least 30 days prior to expiration of the preceding two month term, then the
Securities Insurer may deliver the Servicer Renewal Notice to the Servicer,
which shall be binding upon the parties hereto, with the same effect as if the
Indenture Trustee had delivered such Servicer Renewal Notice.
(d) Non-renewal or Termination. Upon any non-renewal or termination of the
Servicer pursuant to this Section 4.01A, the servicing of the Home Loans
hereunder shall be transferred to a successor servicer in accordance with
Section 10.02 hereof.
Section 4.02 Appointment and Duties of the Master Servicer.
(a) Appointment and Compensation of Master Servicer. The Issuer, the
Securityholders and the Indenture Trustee hereby assign and appoint the Master
Servicer to act as the Master Servicer for the Home Loans (including all of the
duties, obligations and rights of the Master Servicer) under this Agreement. The
Master Servicer hereby accepts its appointment as the Master Servicer hereunder.
The Master Servicer shall not consent to any material amendment, modification or
waiver of the servicing provisions of this Agreement, without the consent of the
Securities Insurer and the Indenture Trustee.
As compensation for its services hereunder, the Master Servicer shall be
entitled to receive from the Note Payment Account the Master Servicer Fee. In
addition to the Master Servicer Fee, additional compensation attributable to the
investment earnings from the Note
<PAGE>
Payment Account shall be part of the Master Servicer Compensation payable to the
Master Servicer pursuant to Section 5.01(c) hereof. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its Master
Servicer duties and activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein.
(b) Master Servicer Assumes Servicing Responsibility. If a Servicer
Termination Event occurs, then the Master Servicer shall be obligated (1) to
select a successor Servicer, that is reasonably acceptable to the Indenture
Trustee and the Securities Insurer, or (2) to act as the Servicer of the Home
Loans hereunder.
(c) Monitoring of Servicing. The Master Servicer shall: (i) review the
servicing reports, loan level information or other relevant information prepared
by the Servicer (1) to determine whether such reports are inaccurate or
incomplete, in any material respect, (2) to ascertain that the Servicer is in
compliance, in all material respects, with its duties and obligations with
respect to such reports under this Agreement and (3) in the event that any
servicing report is inaccurate or incomplete, to prepare and deliver an
exception report to the Indenture Trustee, the Grantor Trustee, the Securities
Insurer and the Rating Agencies, which describes such inaccuracy or
incompleteness; (ii) otherwise monitor the performance by the Servicer of its
duties and obligations hereunder and notify the Indenture Trustee, the Grantor
Trustee, the Securities Insurer and the Rating Agencies of any Event of Default
of which it has received notice or has actual knowledge; and (iii) be obligated
to verify that the Servicer has deposited all payments and proceeds required to
be deposited into the Collection Account pursuant to Section 5.01(b)(1) hereof.
On the 19th calendar day of each month (or the next Business Day, if the 19th is
not a Business Day), the Master Servicer shall provide the Indenture Trustee
with an Officer's Certificate to the effect that the Master Servicer has
performed its obligations under this Subsection 4.02(c) with respect to the
servicing information for such month.
(d) Successor Servicer. The Master Servicer agrees that it shall at all
times be prepared (and shall take all steps reasonably required by the
Securities Insurer to ensure such preparation), to perform the duties and
obligations of the Servicer and become the successor servicer, if the Servicer
fails to perform its duties and obligations hereunder.
(e) Servicer Termination. At the direction of the Securities Insurer, or
the Master Servicer (with the prior consent of the Securities Insurer) or the
Majority Noteholders (with the prior consent of the Securities Insurer), the
Indenture Trustee, on behalf of the Issuer and the Securityholders, shall
terminate the Servicer upon the occurrence and continuance of an Event of
Default pursuant to Article X hereof.
(f) Servicing Transfer Report. No later than December 28, 1998, the Master
Servicer shall provide the Securities Insurer with a report indicating that the
Master Servicer has completed the preliminary planning necessary to assure that
the Master Servicer or an Affiliate of the Master Servicer is capable of
assuming the servicing of the Home Loans hereunder within 30 days of any
Servicer Termination Event, including without limitation the planning to effect
the transfer, in a compatible computer readable format, of necessary data for
the servicing of the Home Loans and generation of the Servicer's Monthly
Remittance Report.
<PAGE>
(g) Servicer Cooperation. The Servicer shall act, in a good faith and
reasonable manner, to assist and cooperate with the Master Servicer in
performing its duties and obligations under this Section 4.02. On a monthly
basis pursuant to Section 6.01 hereof, the Servicer shall provide the Master
Servicer with its Servicer's Monthly Remittance Report in a compatible computer
readable format.
(h) Resignation of Master Servicer. The Master Servicer shall resign as
Master Servicer hereunder if it determines that its duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it and cannot be cured,
provided that such determination shall be evidenced by an Opinion of Counsel
(which shall be Independent) to such effect delivered to the Grantor Trustee,
the Indenture Trustee and the Securities Insurer. In addition, the Master
Servicer may resign for any reason with 30 day's prior written notice to the
Grantor Trustee, the Indenture Trustee and the Securities Insurer. No
resignation of the Master Servicer shall become effective until a successor
master servicer reasonably acceptable to the Indenture Trustee and the
Securities Insurer shall have assumed the obligations of the Master Servicer
hereunder.
(i) Limitation on Liability of Master Servicer. Neither the Master Servicer
nor any other the directors, officers, employees or agents of the Master
Servicer shall be under any liability to the Grantor Trustee, the Indenture
Trustee, the Servicer, the Securities Insurer, the Noteholders or any other
Person for any action taken or for refraining from the taking of any action in
good faith pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Master Servicer or any such
Person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in its performance of its duties or
by reason of reckless disregard for its obligations and duties under this
Agreement. The Master Servicer and any directors, officer, employee or agent of
the Master Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder.
Section 4.03 Fidelity Bond; Errors and Omissions Insurance.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy in
such amounts as required by, and satisfying any other requirements of, the
Federal Housing Administration and the FHLMC, with broad coverage on all
officers, employees or other persons acting in any capacity requiring such
persons to handle funds, money, documents or papers relating to the Home Loans
("Servicer Employees"). Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer against losses, including losses
resulting from forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts (including acts relating to the origination and servicing of
loans of the same type as the Home Loans) of such Servicer Employees. Such
fidelity bond shall also protect and insure the Servicer against losses in
connection with the release or satisfaction of a Home Loan without having
obtained payment in full of the indebtedness secured thereby. In the event of
any loss of principal or interest on a Home Loan for which reimbursement is
received from the Servicer's fidelity bond or
<PAGE>
errors and omissions insurance, the proceeds from any such insurance will be
deposited in the Collection Account. No provision of this Section 4.03 requiring
such fidelity bond and errors and omissions insurance shall diminish or relieve
the Servicer from its duties and obligations as set forth in this Agreement.
Upon the request of the Securities Insurer, the Master Servicer, the Grantor
Trustee or the Indenture Trustee, the Servicer shall deliver to the requesting
party a certified true copy of such fidelity bond and insurance policy.
Section 4.04 Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by the Transferor and the Depositor, respectively, with respect to
the assets conveyed to the Grantor Trustee or to the Owner Trust, the Transferor
and the Depositor shall prepare, have executed by the necessary parties and file
in the proper jurisdictions at their expense all financing and continuation
statements necessary to maintain the liens, security interests and priorities of
such liens and security interests that have been granted by the Transferor and
the Depositor, respectively, the Transferor and the Depositor shall continue to
file on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Owner Trust and Grantor Trust have terminated pursuant to Section 9.1
of the Owner Trust Agreement and Section 7.01 of the Grantor Trust Agreement,
respectively. The Indenture Trustee and Grantor Trustee agree to cooperate with
the Transferor and the Depositor in preparing, executing and filing such
statements. The Indenture Trustee and Grantor Trustee agree to notify the
Transferor and the Depositor on the third Payment Date prior to each such fifth
anniversary of the requirement that they file such financing and continuation
statements. The filing of any such statement with respect to the Transferor and
the Depositor shall not be construed as any indication of an intent of any party
contrary to the expressed intent set forth in Section 2.03 hereof and Section
2.04 of the Grantor Trust Agreement. If the Transferor or the Depositor has
ceased to do business whenever any such financing and continuation statements
must be filed or the Transferor or the Depositor fails to file any such
financing statements or continuation statements at least one month prior to the
expiration thereof, each of the Transferor and the Depositor does hereby make,
constitute and appoint the Grantor Trustee its attorney-in-fact, with full power
and authority, to execute and file in its name and on its behalf any such
financing statements or continuation statements required under this Section 4.04
relating to assets conveyed to the Grantor Trustee and the Depositor does hereby
make, constitute and appoint the Indenture Trustee its attorney-in-fact, with
full power and authority, to execute and file in its name and on its behalf any
such financing statements or continuation statements required under this Section
4.04 relating to assets conveyed to the Owner Trust.
Section 4.05 [Reserved]
Section 4.06 Subservicing.
(a) Appointment and Termination of Subservicers. The Servicer may enter
into Subservicing Agreements for any servicing and administration of Home Loans
with any institution that satisfies the following: (1) is an Eligible Servicer;
(2) is approved by the Master Servicer and the Securities Insurer; and (3) is in
compliance with the laws of each state necessary to enable it to perform its
obligations under such Subservicing Agreement. The
<PAGE>
Servicer shall give prior written notice to the Master Servicer, the Securities
Insurer, the Grantor Trustee and the Indenture Trustee of the appointment of any
Subservicer. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and to either service the related Home Loans directly or enter into a
Subservicing Agreement with a successor subservicer which qualifies hereunder.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Home Loans.
Each Subservicing Agreement shall include the provision that such agreement
may be immediately terminated by the Master Servicer or the Grantor Trustee in
the event that the Servicer shall, for any reason, no longer be the Servicer. In
no event shall any Subservicing Agreement require the Grantor Trustee, as
Successor Servicer, for any reason whatsoever to pay compensation to a
Subservicer in order to terminate such Subservicer.
(b) Servicer Liability. Notwithstanding any Subservicing Agreement, any of
the provisions of this Agreement relating to agreements or arrangements between
the Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Servicer shall remain obligated and primarily
liable to the Master Servicer, the Securities Insurer, the Grantor Trustee and
the Grantor Trust Holder for the servicing and administration of the Home Loans
in accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Subservicing Agreements or
arrangements or by virtue of indemnification from the Subservicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Home Loans. For purposes of this Agreement,
the Servicer shall be deemed to have received payments on Home Loans when the
Subservicer has actually received such payments and, unless the context
otherwise requires, references in this Agreement to actions taken or to be taken
by the Servicer in servicing the Home Loans include actions taken or to be taken
by a Subservicer on behalf of the Servicer. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
by such Subservicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
(c) Assumption by Successor Servicer. In the event the Servicer shall for
any reason no longer be the Servicer (including by reason of an Event of
Default), the successor Servicer, on behalf of the Grantor Trustee, the
Indenture Trustee, the Securities Insurer, the Securityholders and the Grantor
Trust Holder pursuant to Section 4.07 hereof, shall thereupon assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into, unless the successor servicer elects to
terminate any Subservicing Agreement in accordance with its terms. The successor
servicer shall be deemed to have assumed all of the Servicer's interest therein
and to have replaced the Servicer as a party to each Subservicing Agreement to
the same extent as if the Subservicing Agreements had been assigned to the
assuming party, except that the Servicer shall not thereby be relieved of any
liability or obligations under the Subservicing Agreements which accrued prior
to the transfer of servicing to the successor Servicer. The Servicer, at its
expense and without right
<PAGE>
of reimbursement therefor, shall, upon request of the successor Servicer,
deliver to the assuming party all documents and records relating to each
Subservicing Agreement and the Home Loans then being serviced and an accounting
of amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Subservicing Agreements to the
assuming party.
(d) Enforcement of Subservicing. As part of its servicing activities
hereunder, the Servicer, for the benefit of the Securities Insurer, the Grantor
Trustee, the Grantor Trust Holder, the Indenture Trustee and the
Securityholders, shall enforce the obligations of each Subservicer under the
related Subservicing Agreement. Such enforcement, including, without limitation,
the legal prosecution of claims and the pursuit of other appropriate remedies,
shall be in such form and carried out to such an extent and at such time as the
Servicer, in its good faith business judgment, would require were it the owner
of the related Home Loans. The Servicer shall pay the costs of such enforcement
at its own expense and shall be reimbursed therefor only (i) from a general
recovery resulting from such enforcement to the extent, if any, that such
recovery exceeds all amounts due in respect of the related Home Loan or (ii)
from a specific recovery of costs, expenses or attorneys' fees against the party
against whom such enforcement is directed.
(e) Limitations on Parties. Any Subservicing Agreement that may be entered
into and any other transactions or services relating to the Home Loans involving
a Subservicer shall be deemed to be between the Subservicer and the Servicer
alone and none of the Master Servicer, the Securities Insurer, the Grantor
Trustee, the Owner Trustee, the Indenture Trustee, the Securityholders or the
Grantor Trust Holder shall be deemed parties thereto or shall have any claims,
rights, obligations, duties or liabilities with respect to the Subservicer in
its capacity as such, except as set forth in Section 4.06(c) hereof.
(f) Subservicing Account. In those cases where a Subservicer receives or
collects any payments from a Home Loan, the Subservicer will be required to
establish and maintain one or more accounts (collectively, the "Subservicing
Account"). The Subservicing Account shall be an Eligible Account. The
Subservicer will be required to deposit into the Subservicing Account, no later
than the first Business Day after receipt, all proceeds of Home Loans received
by the Subservicer and remit such proceeds to the Servicer for deposit in the
Collection Account not later than the Business Day following receipt thereof by
the Subservicer. Notwithstanding anything in this Subsection to the contrary,
the Subservicer shall only be able to withdraw funds from the Subservicing
Account for the purpose of remitting such funds to the Servicer for deposit into
the Collection Account. The Servicer shall require the Subservicer to cause any
collection agent of the Subservicer to send a copy to the Servicer of each
statement of monthly payments collected by or on behalf of the Subservicer
within five Business Days after the end of every month, and the Servicer shall
compare the information provided in such reports with the deposits made by the
Subservicer into the Collection Account for the same period. The Servicer shall
be deemed to have received payments on the Home Loans on the date on which the
Subservicer has received such payments.
Section 4.07 Successor Servicers.
In the event that the Servicer is terminated pursuant to Section 10.01
hereof, or resigns
<PAGE>
pursuant to Section 9.04 hereof or otherwise becomes unable to perform its
obligations under this Agreement, the Master Servicer or the Grantor Trustee, as
applicable, will become the successor servicer or will appoint a successor
servicer in accordance with the provisions of Section 10.02 hereof; provided,
however, that any successor servicer, excluding the Master Servicer or the
Grantor Trustee, as applicable, shall satisfy the requirements of an Eligible
Servicer and shall be approved by the Securities Insurer and have received the
Ratings Confirmation.
Section 4.08 Collections from Property Insurance Policies.
Any amounts collected by the Servicer under any Property Insurance Policies
shall be paid over or applied by the Servicer as follows:
(i) In the case of amounts received in respect of any Home Loan:
(A) for the restoration or repair of the affected Mortgaged
Property, in which event such amounts shall be released to the Obligor
in accordance with the terms of the related Debt Instrument or
Mortgage, or
(B) to the extent not so used, in reduction of the Principal
Balance of the related Home Loan, in which event such amounts shall be
deposited into the Collection Account,
unless the related Debt Instrument or Mortgage require a different
application, in which case such amounts shall be applied in the manner
provided therein; and
(ii) Subject to Section 4.10 and 4.11(c) hereof, in the case of
amounts received in respect of any Foreclosure Property, for the
restoration or repair of such Foreclosure Property, unless the Servicer
determines, consistent with the servicing standard set forth in Section
4.01 hereof, that such restoration or repair is not in the best economic
interest of the Grantor Trust Holder, in which event such amounts shall be
deposited into the Collection Account pursuant to Section 5.01(b)(1) hereof
as a payment received from the operation of such Foreclosure Property.
Section 4.09 Reports to the Securities and Exchange Commission.
(a) The Indenture Trustee shall, on behalf of the Issuer, cause to be filed
with the Securities and Exchange Commission all monthly reports on Form 8-K and
annual reports on Form 10-K required to be filed under the provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission thereunder. Upon the request of the
Indenture Trustee, each of the Servicer and the Transferor shall cooperate with
the Indenture Trustee in the preparation of any such report and shall provide to
the Indenture Trustee in a timely manner all such information or documentation
as the Indenture Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section 4.09. The Indenture
Trustee shall indemnify and hold harmless each of the Issuer and the Depositor
for any costs, expenses or liability arising as a result of the failure of the
Indenture Trustee to perform its duties and obligations under this Section 4.09.
<PAGE>
(b) [Reserved]
Section 4.10 Recovery from Defaulted Home Loans and Liquidated Home Loans.
(a) General Standard. If any Home Loan becomes a Defaulted Home Loan, then
the Servicer, in accordance with the servicing standard in Section 4.01(a),
shall take such action as it shall deem to be in the best interest of the
Grantor Trust Holder and Securityholders, including but not limited to (i)
repurchasing or substituting such Defaulted Home Loan pursuant to Section 3.05,
(ii) accepting short payoffs or short sales, (iii) entering into assumptions and
modifications, (iv) referring such Defaulted Home Loan to a collection agency or
attorney, or pursuing collection litigation or alternative court proceedings to
foreclosure actions, (v) selling such Defaulted Home Loan to another person, or
(vi) foreclosing or proceeding against the Mortgaged Property securing such
Defaulted Home Loan. The Servicer shall be acting in the best interests of the
Grantor Trust Holder and Securityholders, when the Servicer, in accordance with
the Accepted Servicing Procedures, undertakes actions to collect a Defaulted
Home Loan that have a higher likelihood of a reasonable recovery within a
shorter time period, and foregoes taking actions that have a lower likelihood of
a larger recovery over a longer time period. If with respect to a Defaulted Home
Loan the Servicer decides not to proceed against the Mortgaged Property or
Obligor, as applicable, then the Servicer shall determine in accordance with the
Accepted Servicing Procedures that there is not a reasonable likelihood of (A)
recovering an economically significant amount attributable to the outstanding
interest and principal owing on such Home Loan as a result of such proceeding,
in excess of (B) the costs and expenses to obtain such recovery (including
without limitation any Servicing Advances and, if applicable, the outstanding
indebtedness of all Superior Liens), and in relation to (C) the expected timing
of such recovery therefrom. If the Servicer makes a determination not to proceed
either against the Mortgaged Property or the Obligor, then the Servicer shall
give notice to such effect to the Master Servicer, the Securities Insurer, the
Grantor Trustee and the Indenture Trustee.
In connection with the monthly reporting in Section 6.01(a) hereof, the
Servicer shall deliver to the Indenture Trustee, the Master Servicer and the
Securities Insurer a report (in the form of Exhibit C attached hereto) (the
"Loan Liquidation Report"), which sets forth the liquidation information for
each Home Loan that became a Liquidated Home Loan during the preceding Due
Period. In addition, on a monthly basis, the Servicer shall provide a report to
the Master Servicer that summarizes the final actions of the Servicer taken
during the preceding Due Period with respect to any Home Loans pursuant to this
Section.
None of the Master Servicer, the Grantor Trustee, the Indenture Trustee,
the Issuer nor the Depositor shall have any responsibility or obligation to
review or verify any determination or approve any actions, made by the Servicer
pursuant to this Section 4.10.
(b) Modifications of Defaulted Home Loans. Notwithstanding Section 4.01(c)
hereof, in accordance with Section 4.10(a), the Servicer may modify, vary or
waive the terms of any Defaulted Home Loan in a manner that will be likely to
obtain a reasonable recovery of net proceeds therefrom under the circumstances,
including without limitation the deferment or forgiveness of any principal or
interest payments due or to become due thereon; provided, however, that no such
modification, variation or waiver of a Home Loan shall involve the
<PAGE>
execution by the related Obligor of a new Debt Instrument. Notwithstanding the
preceding sentence, if the aggregate Principal Balances of Defaulted Home Loans
modified pursuant to this Subsection 4.10(b) exceeds 1% of the Original Pool
Principal Balance, then the Servicer shall obtain the prior written consent of
the Securities Insurer to any such modification of a Defaulted Home Loan. If a
Defaulted Home Loan is modified pursuant to this Section in a manner that
releases a portion of the Principal Balance thereof, then such released amount
shall be included as "Net Loan Losses" hereunder.
(c) Short Sales and Substitutions of Collateral. In accordance with the
Accepted Servicing Procedures, the Servicer may permit an Obligor, who is
selling their Mortgaged Property that constitutes such Obligor's principal
residence and relocating to another location, to substitute as collateral for
the related Home Loan the Obligor's new single family residence in place of the
Mortgaged Property being sold or any other real or personal property of the
Obligor, which may include an interim substitution of personal property pending
the Obligor's acquisition of a new residence; provided, however, that the
Servicer shall obtain the prior written consent of the Securities Insurer to any
such substitution of collateral. Other than the pledge of any incident or
ancillary personal property in connection with the pledge of real property, any
pledge of personal property by an Obligor as for the related Home Loan pursuant
to this Subsection ("Substitute Collateral") shall be limited to personal
property consisting of one or more of the following types: (1) a deposit account
at any federally insured depository institution; (2) a certificate of deposit or
time deposit of any federally insured depository institution; or (3) such other
types of personal property that have been approved by the Grantor Trustee, the
Indenture Trustee, the Securities Insurer and each Rating Agency as a form of
Substitute Collateral hereunder, which may include an instrument (within the
meaning of Section 9-105(1) of the UCC) or a security (within the meaning of
Section 8-102(1) of the UCC). Under certain circumstances, if such Obligor has
received net proceeds from the sale of the prior residence that will not be
applied to the purchase of the new residence, then the Servicer, in its
discretion, may require that such Obligor either (i) make a partial prepayment
in reduction of the principal balance of the Home Loan, or (ii) place such funds
into a depository account or certificate of deposit as collateral for the
related Home Loan. The Servicer shall undertake all actions, as deemed necessary
or appropriate by the Servicer to effectuate the substitution of any real or
personal property by an Obligor as collateral for the related Home Loan pursuant
to this Subsection and the release of the then existing Mortgaged Property
including all such actions to effectuate: (1) the inclusion of the security
interests in such Substitute Collateral as part of the Grantor Trust Estate; (2)
the delivery to the Custodian for inclusion in the related Grantor Trustee's
Home Loan File of an appropriate security agreement with respect to such
Substitute Collateral (including a new Mortgage with respect to any real
property being substituted); (3) the delivery and pledge of the security
interests in such Substitute Collateral to the Grantor Trustee under the Grantor
Trust Agreement, including the delivery of any substitute Collateral consisting
of primarily personal property in the same manner as provided by the definition
of "Delivery" in Section 1.01 hereof; and (4) any other actions as reasonably
requested by the Grantor Trustee or Indenture Trustee to accomplish such
substitution of Substitute Collateral.
In addition, if an Obligor is selling their Mortgaged Property and the
circumstances relating to such sale involve compensating factors or a distressed
situation, in each case as determined solely by the Servicer, then in accordance
with the Accepted Servicing Procedures
<PAGE>
the Servicer may: (i) accept a partial prepayment by the Obligor of the
Principal Balance in consideration for a release of the Mortgaged Property as
security for the Home Loan, but with a continuation of the Debt Instrument and
the Home Loan on an unsecured basis (i.e., a "short sale"); or (ii) accept a
settlement involving a partial payment by the Obligor in consideration for the
termination of the Home Loan, the cancellation of the Debt Instrument and the
release of the Mortgaged Property (i.e., a "short pay-off"); provided, however,
that if the aggregate Principal Balances of Home Loans disposed of through short
sales or short pay-offs exceeds 1% of the Original Pool Principal Balance, then
the Servicer shall obtain the prior written consent of the Securities Insurer to
any such short sale or short pay-off.
(d) Sale and Charge-Off of Defaulted Home Loans. In accordance with Section
4.10(a) hereof, the Servicer, in its discretion, shall have the power and
authority to sell any Defaulted Home Loan or Liquidated Home Loan, on behalf of
the Grantor Trustee for the benefit of the Grantor Trust Holder, the Securities
Insurer and the Securityholders, to one or more Persons in a manner that will be
likely to obtain a reasonable recovery of net proceeds therefrom under the
circumstances. Notwithstanding the preceding sentence, an Affiliate of the
Servicer shall have the right to purchase any Defaulted Home Loan, if at the
time of such purchase none of the original ratings assigned to the Notes by any
Rating Agency have been downgraded, or, if a ratings downgrade has occurred,
each Rating Agency consents to such purchase; provided, however, that the
Servicer shall obtain the prior written consent of the Securities Insurer to any
such sale of Defaulted Home Loans to an Affiliate of the Servicer. The purchase
price paid for any Defaulted Home Loan sold to an Affiliate of the Servicer
shall not be less than the price that, in the reasonable judgment of the
Servicer, would have been paid for such Defaulted Home Loan by Person who is not
an Affiliate of the Servicer. The Servicer shall promptly deposit the Net
Liquidation Proceeds from the sale of any Defaulted Home Loans or Liquidated
Home Loans into the Collection Account in accordance with Section 5.01 hereof.
(e) Defaulted Superior Liens. If the Servicer is notified that any
lienholder under a Superior Lien has accelerated or intends to accelerate the
obligations secured by such Superior Lien, or has declared or intends to declare
a default under the related mortgage or the promissory note secured thereby, or
has filed or intends to file an election to have any Mortgaged Property sold or
foreclosed, then, in accordance with the Section 4.10(a) hereof and on behalf of
the Grantor Trust and the Grantor Trustee, the Servicer shall take all
reasonable actions that are necessary to protect the interests of the Grantor
Trust Holder and/or to preserve the security of the related Home Loan. The
Servicer shall promptly notify the Grantor Trustee if it determines not to take
action with respect to such Superior Lien.
(f) Foreclosure Actions. In accordance with the criteria for proceeding
against the Mortgaged Property set forth in Section 4.10(a) hereof, unless
otherwise prohibited by applicable law or court or administrative order, the
Servicer, on behalf of the Grantor Trust Holders, may, at any time, institute
foreclosure proceedings to the extent permitted by law, exercise any power of
sale to the extent permitted by law, obtain a deed in lieu of foreclosure, or
otherwise acquire possession of or title to the related Mortgaged Property, by
operation of law or otherwise. In accordance with Section 4.10(a) hereof, and
(i) in the case of any Mortgage in a first lien position the Servicer shall, or
(ii) in the case of any Mortgage in a subordinate lien position the Servicer
shall have the option to, institute foreclosure
<PAGE>
proceedings, repossess, exercise any power of sale to the extent permitted by
law, obtain a deed in lieu of foreclosure or otherwise acquire possession of or
title to any Mortgaged Property, by operation of law or otherwise; provided,
however, that in each case the Servicer shall have determined there is a
reasonable likelihood of (A) recovering an economically significant amount
attributable to the outstanding interest and principal owing on such Home Loan
as a result of such actions, in excess of (B) the costs and expenses to obtain
such recovery (including without limitation any Servicing Advances and, if
applicable, the outstanding indebtedness of all Superior Liens), and in relation
to (C) the expected timing of such recovery therefrom.
Prior to acquiring any Foreclosure Property, however, the Servicer shall
cause a review to be performed, in accordance with the Accepted Servicing
Procedures, on the related Mortgaged Property by a company such as Equifax, Inc.
or Toxicheck, and the scope of such review shall be limited to the review of
public records and documents for indications that such Mortgaged Property has on
it, has under it, or is near hazardous or toxic material or waste. If such
review reveals that the Mortgaged Property has on it, under it or is near
hazardous or toxic material or waste or reveals any other environmental problem,
and the Servicer decides to proceed with the acquisition of such Mortgaged
Property, then the Servicer shall provide to the Master Servicer, the Securities
Insurer, the Grantor Trustee and the Indenture Trustee an Officer's Certificate
with a copy of the related report that substantiates such decision. Such
Officer's Certificate shall provide that based on an analysis of all available
information in the report (including potential clean up costs and liability
claims) at the time it is the best judgment of the Responsible Officer making
such certification that such foreclosure shall increase Net Liquidation Proceeds
to the Grantor Trust. Upon the receipt of any such Officer's Certificate, the
Grantor Trustee, in its reasonable discretion, shall instruct the Servicer
whether to take title to such Mortgaged Property; provided, however, that the
Grantor Trustee and the Servicer shall obtain the prior written consent of the
Securities Insurer to take title to such Mortgaged Property. The Grantor Trustee
shall promptly forward such report and Officer's Certificate to the Grantor
Trust Holder.
(g) Powers of Attorney. The Grantor Trustee shall furnish the Servicer,
within 5 days after request of the Servicer therefor, any powers of attorney and
other documents necessary and appropriate to carry out its duties under Sections
4.10 and 4.11 hereof, including any documents or powers of attorney necessary to
foreclose any Mortgage. The forms of any such powers or documents shall be
appended to such requests.
(h) Post Liquidation Proceeds. During any Due Period occurring after a Home
Loan becomes a Liquidated Home Loan, the Servicer shall deposit into the
Collection Account any Net Liquidation Proceeds received by it with respect to
such Liquidated Home Loan or the related Foreclosure Property.
Section 4.11 Title, Management and Disposition of Foreclosure Property.
(a) General Standard. If any Mortgaged Property is acquired in foreclosure
or by deed in lieu of foreclosure (a "Foreclosure Property") pursuant to Section
4.10, the deed or certificate of sale shall be taken in the name of the Grantor
Trustee for the benefit of the Grantor Trust Holder. The Servicer, or its
agents, shall manage, conserve, protect, operate,
<PAGE>
market, sell and liquidate each Foreclosure Property for the Grantor Trustee and
the Grantor Trust Holder solely for the purpose of the prudent and prompt
disposition and sale of such Foreclosure Property in accordance with the
Accepted Servicing Procedures. The Servicer shall be responsible for all costs
and expenses incurred by it with respect to any Foreclosure Property; provided,
however, that such costs and expenses will be recoverable as Servicing Advances
by the Servicer as contemplated herein.
(b) Sale of Foreclosure Property. The Servicer may offer to sell to any
Person any Foreclosure Property, if and when the Servicer determines, in a
manner consistent with the Accepted Servicing Procedures, that such a sale would
be in the best interests of the Grantor Trust. The Servicer shall give the
Master Servicer, the Securities Insurer, the Grantor Trustee and the Indenture
Trustee notice of its intention to sell any Foreclosure Property and shall
accept the highest bid received from any Person that is determined to be a fair
price for such Foreclosure Property by the Servicer, if the highest bidder is a
Person other than an Affiliate of the Servicer, or by an Independent appraiser
retained by the Servicer, if the highest bidder is an Affiliate of the Servicer.
In the absence of any bid determined to be fair as aforesaid, the Servicer shall
offer the affected Foreclosure Property for sale to any Person, other than an
Affiliate of the Servicer, in a commercially reasonable manner for a period of
not less than 10 or more than 30 days, and shall accept the highest cash bid
received therefor in excess of the highest bid previously submitted. If no such
bid is received, any Affiliate of the Servicer may resubmit its original bid and
the Servicer shall accept the highest outstanding cash bid, regardless of from
whom received. No Affiliate of the Servicer shall be obligated to submit a bid
to purchase any Foreclosure Property and, notwithstanding anything to the
contrary herein, neither the Grantor Trustee, the Owner Trustee or the Indenture
Trustee, in its individual capacity, nor any of its Affiliates may bid for or
purchase any Foreclosure Property pursuant hereto.
Subject to the provisions of Section 4.10 hereof, the Servicer shall act on
behalf of the Grantor Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Foreclosure
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosure Property shall be without recourse to the
Grantor Trustee, the Master Servicer, the Servicer or the Grantor Trust and, if
consummated in accordance with the terms of this Agreement, neither the Servicer
nor the Grantor Trustee shall have any liability to any Grantor Trust Holder,
the Master Servicer, the Securities Insurer or Securityholder with respect to
the purchase price therefor accepted by the Servicer or the Grantor Trustee.
(c) Restoration of Foreclosure Property. If a Foreclosure Property has
suffered damage and the complete restoration of such property is not fully
reimbursable by the proceeds from any hazard Property Insurance Policies, then
the Servicer shall not be required to make any Servicing Advance for the
restoration of such Foreclosure Property, unless in the reasonable judgment of
the Servicer, as evidenced by an Officer's Certificate (which shall be delivered
to the Master Servicer, the Grantor Trustee and the Securities Insurer), such
restoration is likely to increase the net proceeds from the liquidation of the
related Home Loan after reimbursement for all Servicing Advances. (See also
Section 4.08 regarding collections from Property Insurance Policies.)
<PAGE>
(d) Contracting for Operation of Foreclosure Property. In accordance with
the Accepted Servicing Procedures, the Servicer may contract with any
independent contractor for the operation, management, marketing or sale of any
Foreclosure Property; provided, however, that the terms and conditions of any
such contract shall not be inconsistent with this Agreement; provided further
that none of the provisions of this Section 4.11 relating to any such contract
or to actions taken through any such independent contractor shall be deemed to
relieve the Servicer of any of its duties and obligations hereunder with respect
to the operation, management, marketing or sale of any such Foreclosure
Property. The Servicer shall be entitled to enter into any agreement with any
independent contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Servicer by such independent
contractor, and nothing in this Agreement shall be deemed to limit or modify
such indemnification. The Servicer shall not be liable for any fees owed by it
to any such independent contractor and any amounts so expended shall be deemed
Servicing Advances.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account.
(a) (1) Establishment of Collection Account. The Servicer, for the benefit
of the Securityholders, the Indenture Trustee and the Securities Insurer,
shall cause to be established and maintained in the name of the Indenture
Trustee one or more Collection Accounts (collectively, the "Collection
Account"), which shall be separate Eligible Accounts and may be
interest-bearing, and which shall be entitled "Collection Account of U.S.
Bank National Association, as Indenture Trustee, in trust for the Empire
Funding Home Loan Asset Backed Notes, Series 1998-3". The Collection
Account may be maintained with the Indenture Trustee or any other
depository institution, which satisfies the requirements set forth in the
definition of Eligible Account. The creation of any Collection Account
other than one maintained with the Indenture Trustee shall be evidenced by
a letter agreement between the Servicer and the depository institution
acceptable to the Indenture Trustee and the Securities Insurer. A copy of
such letter agreement shall be furnished to the Securities Insurer, the
Indenture Trustee and, upon request of any Grantor Trust Holder, to such
Grantor Trust Holder. Funds in the Collection Account shall be invested in
accordance with Section 5.03 hereof.
The Collection Account shall be established, as of the Closing Date,
with the Indenture Trustee as an Eligible Account pursuant to the
definition thereof. The Collection Account may, upon written notice to the
Indenture Trustee, and upon the written consent of the Securities Insurer,
be transferred to a different depository institution so long as such
transfer is to an Eligible Account acceptable to the Indenture Trustee.
(2) Establishment of Note Payment Account. No later than the Closing
Date, the Servicer, for the benefit of the Noteholders and the Securities
Insurer, shall cause to be established and maintained with the Indenture
Trustee one or more Note Payment Accounts (collectively, the "Note Payment
Account"), which shall be separate
<PAGE>
Eligible Accounts and may be interest-bearing, and which shall be entitled
"Note Payment Account of U.S. Bank National Association, as Indenture
Trustee, in trust for the Empire Funding Home Loan Asset Backed Notes,
Series 1998-3". Funds in the Note Payment Account shall be invested in
accordance with Section 5.03 hereof.
(b) (1) Deposits to Collection Account. The Servicer shall use its best
efforts to deposit or cause to be deposited (without duplication), within
two (2) Business Days after receipt thereof, into the Collection Account
and retain therein in trust for the benefit of the Grantor Trust Holder and
the Securities Insurer:
(i) all payments of principal and interest on the Home Loans
collected after the Cut-Off Date, except for 13.33% of the interest
collected on the Home Loans during the first Due Period, which shall
be retained by the Transferor;
(ii) all Net Liquidation Proceeds pursuant to Section 4.11
hereof;
(iii) all Property Insurance Proceeds;
(iv) all Released Mortgaged Property Proceeds;
(v) any amounts payable in connection with the repurchase of any
Home Loan and the amount of any Substitution Adjustment pursuant to
Section 2.06 of the Grantor Trust Agreement and Section 3.05 hereof;
(vi) the deposit of the Termination Price under Section 11.01
hereof; and
(vii) interest and gains on funds held in the Collection Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received with respect to a Home Loan that
constitute additional servicing compensation pursuant to Section 7.03
hereof, and such amounts retained by the Servicer during a Due Period shall
be excluded from the calculation of the Servicing Compensation that is
distributable to the Servicer from the Note Payment Account on the next
Payment Date following such Due Period.
(2) Deposits to Note Payment Account. On the seventh (7th) Business
Day prior to each Payment Date, the Indenture Trustee (based on information
provided by the Servicer for such Payment Date) shall withdraw from the
Collection Account the Available Collection Amount as a distribution in
respect of the Grantor Trust Certificate pursuant to Section 5.01 of the
Grantor Trust Agreement and deposit such into the Note Payment Account for
such Payment Date.
(3) Withdrawals from Collection Account. The Indenture Trustee, at the
direction of the Servicer, shall also make the following withdrawals from
the Collection Account, in no particular order of priority:
<PAGE>
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) to withdraw any Servicing Advance Reimbursement Amounts; and
(iii) to clear and terminate the Collection Account in connection
with the termination of this Agreement.
(c) Initial Withdrawals from Note Payment Account. To the extent funds are
available in the Note Payment Account, the Indenture Trustee (based on the
information provided by the Servicer contained in the Servicer's Monthly
Remittance Report for such Payment Date) shall make withdrawals therefrom by
9:00 a.m. (New York City time) on each Payment Date, for application in the
following order of priority:
(i) to distribute on such Payment Date the following amounts
related to such Payment Date pursuant to the Indenture in the
following order: (1) to the Master Servicer an amount equal to the
Master Servicer Compensation and all unpaid Master Servicer
Compensation from prior Payment Dates; (2) to the Servicer, on behalf
of the Grantor Trustee, an amount equal to the Servicing Compensation
(net of the sum of any amounts retained prior to deposit into the
Collection Account pursuant to subsection (b)(1) above) and all unpaid
Servicing Compensation from prior Payment Dates; (3) to the Securities
Insurer, an amount equal to the Guaranty Insurance Premium and all
unpaid Guaranty Insurance Premiums from prior Payment Dates; (4) to
the Indenture Trustee, an amount equal to the Indenture Trustee Fee
and all unpaid Indenture Trustee Fees from prior Payment Dates; (5) to
the Owner Trustee, an amount equal to the Owner Trustee Fee and all
unpaid Owner Trustee Fees from prior Payment Dates; (6) to the
Custodian on behalf of the Grantor Trustee, an amount equal to the
Custodian Fee, if any, and all unpaid Custodian Fees from prior
Payment Dates; and (7) to the Grantor Trustee, an amount equal to the
Grantor Trustee Fee, if any, and all unpaid Grantor Trustee Fees from
prior Payment Dates; and
(ii) subject to the priority of payments in Subsections 5.01(d)
and (e) below, to deposit into the Certificate Distribution Account
the applicable portions of the Available Payment Amount payable to the
holders of the Residual Interest Certificates as calculated pursuant
to Subsection 5.01(e) below on such Payment Date.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Collection Account and
the Note Payment Account hereunder until the Note Principal Balance of each Note
has been reduced to zero.
(d) Regular Payment Amount Withdrawals from Note Payment Account. On each
Payment Date, the Indenture Trustee (based on the information provided by the
Servicer contained in the Servicer's Monthly Remittance Report for such Payment
Date) shall distribute the Regular Payment Amount and any Insured Payment from
the Note Payment Account (in the case of all amounts distributable to
Noteholders) and from the Certificate Distribution
<PAGE>
Account (in the case of all amounts distributable to Certificateholders), in the
following order of priority:
(i) to pay the holders of the Notes the Noteholders' Interest
Payment Amount for such Payment Date;
(ii) to pay the holders of the Notes principal thereof in an
amount up to the sum of the Regular Principal Payment Amount and the
Noteholders' Principal Deficiency Amount, until the Note Principal
Balances thereof are reduced to zero; and
(iii) to apply any remaining amount together with Excess Spread
in the manner specified in Subsection (e) below.
(e) Excess Spread Withdrawals from Note Payment Account. On each Payment
Date, the Indenture Trustee (based on the information provided by the Servicer
contained in the Servicer's Monthly Remittance Report for such Payment Date)
shall distribute the Excess Spread, if any, in the following order of priority
(in each case after giving effect to all payments specified in Section 5.01(d)
hereof):
(i) to pay the Securities Insurer in an amount up to the
Securities Insurer Reimbursement Amount;
(ii) to pay the holders of the Notes, as principal thereof, any
remaining Excess Spread in an amount up to any Overcollateralization
Deficiency Amount (after giving effect to payments made pursuant to
subsection (d) above), until the Note Principal Balances thereof are
reduced to zero; and
(iii) to pay any remaining Excess Spread (A) first, to the
Servicer in an amount equal to any outstanding Nonrecoverable
Servicing Advances, and (B) then, for deposit into the Certificate
Distribution Account for payment to the holders of the Residual
Interest Certificates any amount remaining after the preceding clause
(A).
(f) All payments made on the Notes on each Payment Date will be made on a
pro rata basis among the Noteholders of record of such Notes on the next
preceding Record Date, without preference or priority of any kind, and, except
as otherwise provided in the next sentence, shall be made by wire transfer of
immediately available funds to the account of such Noteholder, if such
Noteholder shall own of record Notes in original Denominations aggregating at
least $250,000 and shall have so notified the Indenture Trustee, and otherwise
by check mailed to the address of such Noteholder appearing in the Notes
Register. The final payment on each Note will be made in like manner, but only
upon presentment and surrender of such Note at the location specified in the
notice to Noteholders of such final payment.
<PAGE>
Section 5.01A Claims Under Guaranty Policy.
(a) The Notes will be insured by the Guaranty Policy pursuant to the terms
set forth therein, notwithstanding any provisions to the contrary contained in
the Indenture or this Agreement. All amounts received under the Guaranty Policy
shall be used solely for the payment to Noteholders of principal and interest on
the Notes.
(b) (i) If for any Payment Date a Deficiency Amount exists, the Indenture
Trustee shall complete a notice in the form set forth as Exhibit A to the
Guaranty Policy (the "Notice") and shall submit such Notice to the Fiscal
Agent designated in the Guaranty Policy no later than 12:00 noon, New York
time, on the third Business Day preceding such Date. The Notice shall
constitute a claim for an Insured Payment pursuant to the Guaranty Policy
for an amount equal to such Deficiency Amount. Upon receipt of the Insured
Payments, at or prior to the latest time payments of the Insured Payments
are to be made by the Securities Insurer pursuant to the Guaranty Policy,
on behalf of the Noteholders, the Indenture Trustee shall distribute such
Insured Payments as part of the Regular Payment Amount under the Indenture
to the extent such Insured Payments relate to the Notes.
(ii) In addition, if the Indenture Trustee has notice that any of the
Noteholders have been required to disgorge payments of interest or
principal on the Notes pursuant to a final judgment by a court of competent
jurisdiction that such payment constitutes a voidable preference to such
Noteholders within the meaning of any applicable bankruptcy laws, then the
Indenture Trustee shall notify the Securities Insurer as set forth in the
Guaranty Policy for making a claim for a Preference Amount. Such payment
for a Preference Amount shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Noteholders and not to any Noteholder directly unless such
Noteholder has returned principal or interest paid on the Notes to such
receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Noteholder.
(c) The Securities Insurer is entitled to the benefit of the following
provisions in the event that an Insured Payment has been made. Notwithstanding
any other provision hereof:
(i) The Indenture Trustee shall immediately apply all moneys
constituting an Insured Payment to the payment to Noteholders of principal
and interest on the Notes by depositing such amounts in the Note Payment
Account for Insured Payments payable on the Notes. All amounts received
under the Guaranty Policy shall be used solely for the payment to
Noteholders of principal and interest on the Notes. The Securities
Insurer's obligations under the Guaranty Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Indenture Trustee,
whether or not such funds are properly applied by the Indenture Trustee,
the Owner Trustee or the Paying Agent. The parties hereto recognize that
the making of the Insured Payment does not relieve any of the parties
hereto of any obligation hereunder or any of the Basic Documents.
<PAGE>
(ii) The parties hereto recognize that, to the extent that the
Securities Insurer makes payments, directly or indirectly, on account of
principal of or interest on the Notes, the Securities Insurer shall be
subrogated to the rights of the Noteholders of the Notes to receive
payments of principal and interest in accordance with the terms hereof.
(iii) To the extent the Securities Insurer is owed any Securities
Insurer Reimbursement Amount (including without limitation any unreimbursed
Insured Payments made under the Guaranty Policy plus interest accrued
thereon as provided in the Insurance Agreement), the Securities Insurer
shall be entitled to payments pursuant to Section 5.01(e), and the
Indenture Trustee and the Paying Agent shall otherwise treat the Securities
Insurer as the owner of such rights to payments of any Securities Insurer
Reimbursement Amount.
(iv) The Securities Insurer shall have the right to institute any
suit, action or proceeding at law or in equity under the same terms as a
Noteholder of a Note may institute any action.
Section 5.02 Certificate Distribution Account.
(a) Establishment of Certificate Distribution Account. No later than the
Closing Date, the Servicer, for the benefit of the Certificateholders, shall
cause to be established and maintained with the Indenture Trustee for the
benefit of the Owner Trustee, on behalf of the Issuer and the
Certificateholders, one or more Certificate Distribution Accounts (collectively,
the "Certificate Distribution Account"), which shall be separate Eligible
Accounts and may be interest-bearing, entitled "Certificate Distribution
Account, U.S. Bank National Association, as Indenture Trustee, in trust for the
Empire Funding Home Loan Owner Trust Series 1998-3". Funds in the Certificate
Distribution Account shall be invested in accordance with Section 5.03 hereof.
(b) Deposits to and Distributions from Certificate Distribution Account. On
each Payment Date the Indenture Trustee shall withdraw from the Note Payment
Account all amounts required to be deposited into the Certificate Distribution
Account with respect to such Payment Date pursuant to Section 5.01(c)(ii) hereof
and, on behalf of the Owner Trustee, shall deposit such amounts into the
Certificate Distribution Account. The Indenture Trustee shall make payments of
all remaining amounts on deposit in the Note Payment Account to the holders of
the Notes to the extent of amounts due and unpaid on the Notes for principal
thereof and interest thereon in accordance with Section 5.01(d) and (e) hereof.
The Indenture Trustee, on behalf of the Owner Trustee, shall distribute all
amounts on deposit in the Certificate Distribution Account to the holders of the
Residual Interest Certificates. The Indenture Trustee, on behalf of the Owner
Trustee, also shall withdraw from the Certificate Distribution Account any
amount not required to be deposited in the Certificate Distribution Account or
deposited therein in error.
(c) Distributions on the Residual Interest Certificates. All distributions
made on the Residual Interest Certificates on each Payment Date will be made pro
rata among the holders of the Residual Interest Certificates of record on the
next preceding Record Date based on their
<PAGE>
percentage holdings in the Residual Interest, without preference or priority of
any kind, and, except as otherwise provided in the next succeeding sentence,
shall be made by wire transfer of immediately available funds to the account of
each such holder, if such holder shall own of record a Residual Interest
Certificate in an original denomination aggregating at least a 50% holding of
the Residual Interest and shall have so notified the Indenture Trustee at least
5 Business Days prior thereto, and otherwise by check mailed to the address of
such Residual Interest holder appearing in the Certificate Register. The final
distribution on each Residual Interest Certificate will be made in like manner,
but only upon presentment and surrender of such Residual Interest Certificate at
the location specified in the notice to holders of the Residual Interest
Certificates of such final distribution. Any amount distributed to the holders
of the Residual Interest Certificates on any Payment Date shall not be subject
to any claim or interest of holders of the other Notes.
Section 5.03 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts (or interests
therein) established hereunder has been pledged by the Issuer to the Indenture
Trustee under the Indenture and shall be subject to the lien of the Indenture.
In addition to the provisions hereunder, each of the Trust Accounts shall also
be established and maintained pursuant to the Indenture. Amounts distributed
from each Trust Account in accordance with the Indenture and this Agreement
shall be released from the lien of the Indenture upon such distribution
thereunder or hereunder. Subject to Sections 5.01 and 5.02 hereof, the Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account) and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Owner Trust Estate. If, at any time, any Trust Account
ceases to be an Eligible Account, the Indenture Trustee (or the Servicer on its
behalf) shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, as to which each Rating Agency and the Securities Insurer may
consent) (i) establish a new Trust Account as an Eligible Account, (ii)
terminate the ineligible Trust Account, and (iii) transfer any cash and
investments from such ineligible Trust Account to such new Trust Account.
With respect to the Trust Accounts (other than the Certificate Distribution
Account), the Indenture Trustee agrees, by its acceptance hereof, that each such
Trust Account shall be subject to the sole and exclusive custody and control of
the Indenture Trustee for the benefit of the Securityholders, the Securities
Insurer and the Issuer, as the case may be, and the Indenture Trustee shall have
sole signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder shall also be subject to and
established and maintained in accordance with the Owner Trust Agreement. Subject
to rights of the Indenture Trustee, the Noteholders and the Securities Insurer
hereunder and under the Indenture, the Owner Trustee shall possess for the
benefit of the Certificateholders and the Securities Insurer all right, title
and interest in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Owner Trust Estate. Subject to the rights of the
Indenture Trustee, the Noteholders and the Securities Insurer, the Owner Trustee
<PAGE>
agrees, by its acceptance hereof, that such Certificate Distribution Account
shall be subject to the sole and exclusive custody and control of the Owner
Trustee for the benefit of the Issuer and the parties entitled to payments and
distributions therefrom, including, without limitation, the Certificateholders
and the Securities Insurer, and the Owner Trustee shall have sole signature and
withdrawal authority with respect to the Certificate Distribution Account.
Notwithstanding the preceding, the distribution of amounts from the Certificate
Distribution Account in accordance with Section 5.01(c)(ii) hereof shall also be
made for the benefit of the Indenture Trustee (including without limitation with
respect to its duties under the Indenture and this Agreement relating to the
Owner Trust Estate), and the Indenture Trustee (in its capacity as Indenture
Trustee) shall have the right, but not the obligation, to take custody and
control of the Certificate Distribution Account and to cause the distribution of
amounts therefrom in the event that the Owner Trustee fails to distribute such
amounts in accordance with subsections (c) and (d) of Section 5.02.
In accordance with Sections 5.01 and 5.02 hereof, the Servicer or the
Master Servicer shall have the power, revocable by the Indenture Trustee or by
the Owner Trustee with the consent of the Indenture Trustee, to instruct the
Indenture Trustee or Owner Trustee to make withdrawals and payments from the
Trust Accounts for the purpose of permitting the Servicer, the Master Servicer
or the Issuer to carry out their respective duties hereunder or permitting the
Indenture Trustee or Owner Trustee to carry out their respective duties herein
or under the Indenture, the Owner Trust Agreement or the Grantor Trust
Agreement, as applicable.
(b) (1) Investment of Funds. So long as no Event of Default shall have
occurred and be continuing, the funds held in any Trust Account (other than
the Note Payment Account) may be invested (to the extent practicable and
consistent with any requirements of the Code) in Permitted Investments, as
directed by the Transferor. The funds held in the Note Payment Account
shall be invested in Permitted Investments, as directed by the Master
Servicer. Any directions for investment of funds in any Trust Account shall
be made in writing or by telephone or facsimile transmission with
confirmation in writing. In any case, funds in any Trust Account must be
available for withdrawal without penalty, and any Permitted Investments
must mature or otherwise be available for withdrawal, not later than the
Business Day immediately preceding the Payment Date next following the date
of such investment and shall not be sold or disposed of prior to its
maturity subject to subsection (b)(2) of this Section. All interest and any
other investment earnings on amounts or investments held in any Trust
Account shall be deposited into such Trust Account immediately upon receipt
by the Indenture Trustee. All Permitted Investments in which funds in any
Trust Account (other than the Certificate Distribution Account) are
invested must be held by or registered in the name of U.S. Bank National
Association, as Indenture Trustee, in trust for the Empire Funding Home
Loan Asset Backed Notes, Series 1998-3. While the Indenture Trustee holds
the Certificate Distribution Account, on behalf of the Owner Trustee, all
Permitted Investments in which funds in the Certificate Distribution
Account are invested shall be held by or registered in the name U.S. Bank
National Association, on behalf of the Owner Trustee, in trust for the
Empire Funding Home Loan Asset Backed Notes, Series 1998-3.
(2) Insufficiency and Losses in Trust Accounts. If any amounts are
needed
<PAGE>
for disbursement from any Trust Account held by or on behalf of the
Indenture Trustee and sufficient uninvested funds are not available to make
such disbursement, the Indenture Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Trust Account. The Indenture Trustee shall not be liable for any investment
loss or other charge resulting therefrom, unless such loss or charge is
caused by the failure of the Indenture Trustee or Owner Trustee,
respectively, to perform in accordance with this Section 5.03 hereof or the
Indenture Trustee is the obligor under the Permitted Investment and has
defaulted thereon.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then the
Transferor, in the case of the Collection Account, and the Master Servicer,
in the case of the Note Payment Account, shall deposit the amount of such
losses (to the extent not offset by income from other investments in such
Trust Account) into such Trust Account immediately upon the realization of
such loss. All interest and any other investment earnings on amounts held
in any Trust Account shall be the income of the Issuer (or, when there is a
single beneficial owner of a Residual Interest Certificate, such owner),
and for federal and state income tax purposes the Issuer (or such single
beneficial owner) shall be the owner (or beneficial owner in the case of
the Collection Account).
(c) No Liability for Losses. Subject to section 6.01 of the Indenture, the
Indenture Trustee shall not in any way be held liable by reason of any
insufficiency in any Trust Account held by the Indenture Trustee resulting from
any investment loss on any Permitted Investment included therein (except to the
extent that the Indenture Trustee is the obligor and has defaulted thereon).
(d) Delivery of Trust Account Property. With respect to the Trust Account
Property, the Indenture Trustee acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts shall
be held solely in the Eligible Accounts, subject to the last sentence of
subsection (a) of this Section 5.03; and each such Eligible Account shall
be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;
(2) any Trust Account Property that constitutes property within clause
(a) of the definition of "Delivery" in Section 1.1 hereof shall be
delivered to and maintained by the Indenture Trustee in accordance with the
definition of "Delivery" in Section 1.1 hereof and shall be held, pending
maturity or disposition, solely by or on behalf of the Indenture Trustee;
and
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered to and maintained by the Indenture Trustee
in accordance with the definition of "Delivery" in Section 1.1 hereof.
<PAGE>
Section 5.04 Allocation of Losses.
(a) In the event that Net Liquidation Proceeds, Property Insurance Proceeds
or Released Mortgaged Property Proceeds on a Liquidated Home Loan are less than
the related Principal Balance plus accrued interest thereon, or any Obligor
makes a partial payment of any Monthly Payment due on a Home Loan, such Net
Liquidation Proceeds, Property Insurance Proceeds, Released Mortgaged Property
Proceeds or partial payment shall be applied to payment of the related Debt
Instrument, first, to interest accrued at the Home Loan Interest Rate and, then,
to principal.
(b) [Reserved]
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver to
the Indenture Trustee and the Master Servicer by facsimile, the receipt and
legibility of which shall be confirmed by telephone, and with hard copy thereof
to be delivered no later than one (1) Business Day after such Determination
Date, the Servicer's Monthly Remittance Report, setting forth the date of such
Report (day, month and year), the name of the Issuer (i.e. "Empire Funding Home
Loan Owner Trust 1998-3"), the Series designation of the Notes (i.e. "Series
1998-3") and the date of this Agreement, all in substantially the form set out
in Exhibit B hereto. Furthermore, the Servicer shall deliver to the Master
Servicer and the Indenture Trustee no later than each Determination Date, a
magnetic tape or computer disk providing such information regarding the
Servicer's activities in servicing the Home Loans during the related Due Period
as the Indenture Trustee or the Master Servicer may reasonably require. The
Servicer also shall deliver any Loan Liquidation Reports pursuant to Section
4.10(a) hereof.
(b) On each Payment Date, Indenture Trustee shall distribute, based on
information provided by the Servicer, a monthly statement (the "Payment
Statement") to the Depositor, the Securities Insurer, the Master Servicer, the
Securityholders and the Rating Agencies, stating the date of original issuance
of the Notes (day, month and year), the name of the Issuer (i.e. "Empire Funding
Home Loan Owner Trust 1998-3"), the Series designation of the Notes (i.e.,
"Series 1998-3"), the date of this Agreement and the following information:
(1) the Available Collection Amount, Available Payment Amount, the
Regular Payment Amount and the Excess Spread for the related Payment Date;
(2) the Note Principal Balance of the Notes before and after giving
effect to payments made to the holders of such Notes on such Payment Date,
and the Pool Principal Balance as of the first and last day of the related
Due Period;
(3) the Note Factor with respect to the Notes then outstanding;
<PAGE>
(4) the amount of principal, if any, and interest to be distributed to
the Notes on the related Payment Date;
(5) [Reserved];
(6) as of such Payment Date, the Overcollateralization Amount, the
Overcollateralization Target Amount and any Overcollateralization
Deficiency Amount or any Overcollateralization Reduction Amount, and any
such amount to be distributed to the Noteholders or the holders of the
Residual Interest on such Payment Date;
(7) the Master Servicer Compensation, the Servicing Compensation, the
Indenture Trustee Fee, the Grantor Trustee Fee, the Owner Trustee Fee, the
Guaranty Insurance Premium, and, the Custodian Fee, if any, for such
Payment Date;
(8) as of such Payment Date, the Net Loan Losses incurred during the
related Due Period, the cumulative Net Loan Losses as of such Payment Date;
(9) the weighted average maturity of the Home Loans and the weighted
average Home Loan Interest Rate of the Home Loans;
(10) certain performance information, including, without limitation,
delinquency and foreclosure information with respect to the Home Loans as
set forth in the Servicer's Monthly Remittance Report;
(11) the number of and aggregate Principal Balance of all Home Loans
in foreclosure proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(12) the number of and the aggregate Principal Balance of the Home
Loans in bankruptcy proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(13) the number of Foreclosure Properties, the aggregate Principal
Balance of the related Home Loans, the book value of such Foreclosure
Properties and the percent of the aggregate Principal Balances of such Home
Loans to the aggregate Principal Balances of all Home Loans, all as of the
close of business on the last day of the related Due Period;
(14) during the related Due Period (and cumulatively, from the Closing
Date through the most current Due Period), the number and aggregate
Principal Balance of Home Loans for each of the following: (A) that became
Defaulted Home Loans, (B) that became Liquidated Home Loans, (C) that
became Deleted Home Loans pursuant to Section 3.05 hereof as a result of
such Deleted Home Loans being Defective Home Loans, and (D) that became
Deleted Home loans pursuant to Section 3.05 hereof as a result of such
Deleted Home Loans being Defaulted Home Loans or a Home Loan in default or
imminent default, including the foregoing amounts by loan type (i.e.,
<PAGE>
Combination Loans, or Debt Consolidation Loans);
(15) the scheduled principal payments and the principal prepayments
received with respect to the Home Loans during the Due Period;
(16) the number and aggregate Principal Balance of Home Loans that
were 30, 60 or 90 days Delinquent as of the close of business on the last
day of the related Due Period and the Six Month Average Delinquency, the
Three-Month Average Annualized Losses and the cumulative Realized Losses;
(17) the amount of any Insured Payment included in the amounts
distributed to the Noteholders on such Payment Date; and
(18) the amount of any Securities Insurer Reimbursement Amount to be
paid to the Securities Insurer on such Payment Date and the amount of any
Securities Insurer Reimbursement Amount remaining unsatisfied following
such payment.
In the case of information furnished to Noteholders pursuant to subclause
(b)(4) of this Section 6.01, the amounts shall be expressed as a dollar amount
per Note with a $1,000 Denomination.
All reports prepared by the Indenture Trustee of the withdrawals from and
deposits in the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a Noteholder such information as is reasonably
necessary to provide to such Person a statement containing the information set
forth in subclauses (b)(iv) of this Section 6.01, aggregated for such calendar
year or applicable portion thereof during which such Person was a Noteholder.
(d) On each Payment Date, the Indenture Trustee shall forward to The
Depository Trust Company and to the holders of the Residual Interest
Certificates a copy of the Payment Statement in respect of such Payment Date and
a statement setting forth the amounts actually distributed to such holders of
the Residual Interest Certificates on such Payment Date, together with such
other information as the Indenture Trustee deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a holder of Residual Interest Certificates, if
requested in writing by such Person, a statement containing the information
provided pursuant to the previous paragraph aggregated for such calendar year or
applicable portion thereof during which such Person was a holder of Residual
Interest Certificates.
(f) The Indenture Trustee shall forward to each Noteholder and each holder
of a Residual Interest Certificate, during the term of this Agreement, such
periodic, special or other
<PAGE>
reports, including information tax returns or reports required with respect to
the Notes and the Residual Interest Certificates, as shall be necessary,
reasonable, or appropriate with respect to the Noteholders or the holders of
Residual Interest Certificates, or otherwise with respect to the purposes of
this Agreement, all such reports or information in the case of the Residual
Interest Certificates to be provided by and in accordance with such applicable
instructions and directions as the Majority Residual Interestholders may
reasonably require.
(g) Reports and computer tapes furnished by the Servicer and the Indenture
Trustee, the Master Servicer and the Securities Insurer pursuant to this
Agreement shall be deemed confidential and of a proprietary nature and shall not
be copied or distributed except in connection with the purposes and requirements
of this Agreement. No Person entitled to receive copies of such reports or tapes
shall use the information therein for the purpose of soliciting the customers of
the Depositor or the Servicer or for any other purpose except as set forth in
this Agreement.
Section 6.02 Withholding.
The Indenture Trustee shall comply with all requirements of the Code, and
applicable state and local laws, with respect to the withholding from any
payments made to any Noteholder of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements in connection
therewith, giving due effect to any applicable exemptions from such withholding
and effective certifications or forms provided by the recipient. Any amounts
withheld pursuant to this Section 6.02 shall be deemed to have been paid to the
Noteholders for all purposes of this Agreement or the Indenture.
ARTICLE VII
GENERAL SERVICING PROCEDURES
Section 7.01 Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a "due-on-
sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related lender's
option) become due and payable upon the sale or other transfer of an
interest in any related Mortgaged Property; or
(ii) provides that such Home Loan may not be assumed without the
consent of the related lender in connection with any such sale or other
transfer,
then, for so long as such Home Loan is included in the Grantor Trust, the
Servicer, on behalf of the Grantor Trustee, shall exercise any right the Grantor
Trustee may have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to any such sale
or other transfer, in a manner consistent with the Accepted Servicing Procedures
and subject to Section 4.10 or 7.01(c) hereof.
(b) If any Home Loan contains a provision in the nature of a "due-on-
<PAGE>
encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related lender's
option) become due and payable upon the creation of any lien or other
encumbrance on any related Mortgaged Property; or
(ii) requires the consent of the related lender to the creation of any
such lien or other encumbrance on any related Mortgaged Property,
then, for so long as such Home Loan is included in the Grantor Trust, the
Servicer, on behalf of the Grantor Trustee, shall exercise any right the Grantor
Trustee may have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to the creation
of any such lien or other encumbrance, in a manner consistent with the Accepted
Servicing Standards and subject to Section 4.10 or 7.01(c) hereof.
(c) If a Home Loan does not contain a "due-on-sale" clause or such clause
is reasonably believed by the Servicer not to be enforceable under applicable
law, then the Servicer shall enter into an assumption and modification agreement
with the Person to whom any related Mortgaged Property has been or is about to
be conveyed, pursuant to which such person becomes liable under the Debt
Instrument and, unless prohibited by applicable law or the Home Loan documents,
the Obligor remains liable thereon. In accordance with the Accepted Servicing
Procedures, the Servicer shall have the authority to enter into a substitution
of liability agreement with such person, pursuant to which the original Obligor
is released from liability and such Person is substituted as Obligor and becomes
liable under the Debt Instrument. The Servicer shall notify the Custodian and
the Master Servicer that any such substitution or assumption agreement has been
completed by forwarding to the Custodian a true and correct copy or, if
available, an original of such substitution or assumption agreement, which copy
or original shall be added by the Custodian to the related Grantor Trustee's
Home Loan File. In connection with any assumption or substitution agreement
entered into pursuant to this Section 7.01(c) hereof, the Servicer shall not
change the Home Loan Interest Rate or the Monthly Payment, defer or forgive the
payment of principal or interest, reduce the outstanding principal amount or
extend the final maturity date on such Home Loan. Any fee collected by the
Servicer for consenting to any such conveyance or entering into an assumption or
substitution agreement shall be retained by or paid to the Servicer as
additional Servicing Compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Home Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
(d) Nothing in this Section 7.01 shall constitute a waiver of the Grantor
Trustee's right to receive notice of any assumption of a Home Loan, any sale or
other transfer of the related Mortgaged Property or the creation of any lien or
other encumbrance with respect to such Mortgaged Property.
<PAGE>
Section 7.02 Release of Home Loan Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
(ii) the Servicer shall have received, in escrow, payment in full of
such Home Loan in a manner customary for such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Grantor Trustee pursuant to Section 3.05 hereof;
(iv) such Home Loan or the related Foreclosure Property has been sold
in connection with the termination of the Issuer and the Grantor Trust
pursuant to Section 11.01 hereof; or
(v) such Home Loan is a Defaulted Home Loan or a Liquidated Home Loan
that is liquidated or disposed of pursuant to Section 4.10 hereof or the
related Foreclosure Property has been sold pursuant to Section 4.11 hereof;
then in each such case, the Servicer shall deliver an Officer's Certificate
to the effect that the Servicer has complied with all of its obligations under
this Agreement with respect to such Home Loan and requesting that the Grantor
Trustee release to the Servicer the related Grantor Trustee's Home Loan File.
Upon the receipt of such Officer's Certificate, the Grantor Trustee shall,
within five Business Days or such shorter period as may be required by
applicable law, release, or cause the applicable Custodian to release (unless
such Grantor Trustee's Home Loan File has previously been released), the related
Grantor Trustee's Home Loan File to the Servicer and execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest ownership of such Home Loan in the Servicer or such other
Person as may be specified in such certificate, the forms of any such instrument
to be appended to such certificate.
(b) If a temporary release of the Grantor Trustee's Home Loan File is
necessary or appropriate for the servicing (which may include any modification
or foreclosure) of any Home Loan, then upon the request of the Servicer pursuant
to Section 3(b) of the Custodial Agreement the Grantor Trustee shall release the
related Grantor Trustee's Home Loan File (or any requested portion thereof) to
the Servicer.
Section 7.03 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be entitled
to receive from the Collection Account the Servicing Fee (which Servicing Fee is
an expense of the Grantor Trust), out of which the Servicer shall pay any
subservicing fees to the Subservicer. Additional servicing compensation in the
form of assumption fees, modification fees, and other administrative fees,
insufficient funds charges, amounts remitted pursuant to Section 7.01 hereof and
late payment charges shall be part of the Servicing Compensation payable to the
<PAGE>
Servicer hereunder and shall be paid either by the Servicer retaining such
additional servicing compensation prior to deposit in the Collection Account
pursuant to Section 5.01(b)(1) hereof or, if deposited in the Collection
Account, as part of the Servicing Compensation withdrawn from the Note Payment
Account pursuant to Section 5.01(c)(1) hereof.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The Servicer
also agrees to pay (i) pursuant to Section 10.02 hereof all reasonable costs and
expenses incurred by any successor Servicer, the Master Servicer or the Grantor
Trustee in replacing the Servicer upon the resignation or termination of the
Servicer and (ii) the annual monitoring fees of the Rating Agencies.
Section 7.04 Statement as to Compliance and Financial Statements.
The Servicer will deliver to the Indenture Trustee, the Grantor Trustee,
the Depositor, the Securities Insurer, the Master Servicer and the Rating
Agencies not later than 90 days following the end of each fiscal year of the
Servicer (beginning in 1999), an Officer's Certificate stating that (i) a review
of the activities of the Servicer during the preceding year and of performance
under this Agreement has been made under such officer's supervision and (ii) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all of its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and what action the Servicer proposes to take with respect thereto.
Contemporaneously with the submission of the Officer's Certificate required
by the preceding paragraph, the Servicer shall deliver to the Indenture Trustee,
the Securities Insurer, the Master Servicer and the Grantor Trustee a copy of
its annual audited financial statements prepared in the ordinary course of
business. The Servicer shall, upon the request of the Depositor, deliver to such
party any unaudited quarterly financial statements of the Servicer.
The Servicer shall also furnish and certify to the requesting party such
other information as to (i) its organization, activities and personnel relating
to the performance of the obligations of the Servicer hereunder, (ii) its
financial condition, (iii) the Home Loans and (iv) the performance of the
obligations of any Subservicer under the related Subservicing Agreement, in each
case as the Indenture Trustee, the Grantor Trustee, the Master Servicer, the
Securities Insurer or the Depositor may reasonably request from time to time.
Section 7.05 Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each fiscal year of the
Servicer (beginning with fiscal year 1999), the Servicer at its expense shall
cause any nationally recognized firm of Independent Certified Public Accountants
(which may also render other services to the Servicer) to furnish a statement to
the Indenture Trustee, the Grantor Trustee, the Rating Agencies, the Securities
Insurer, the Master Servicer and the Depositor to the effect that such firm has
examined certain documents and records relating to the servicing of the Home
Loans under this Agreement or of mortgage loans under pooling or sale and
servicing
<PAGE>
agreements (including the Home Loans and this Agreement) substantially similar
to one another (such statement to have attached thereto a schedule setting forth
the pooling or sale and servicing agreements covered thereby) and that, on the
basis of such examination conducted substantially in compliance with the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC, such firm confirms that such servicing has been
conducted in compliance with such pooling or sale and servicing agreements
except for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Attestation Program for Mortgage Bankers or the
Attestation Program for Mortgages serviced for FHLMC requires it to report, each
of which errors and omissions shall be specified in such statement. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of independent public
accountants with respect to the related Subservicer.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee, the Owner Trustee, Depositor, the Securities Insurer, the
Master Servicer and each of their respective agents shall have the right upon
reasonable prior notice, during normal business hours and as often as reasonably
required, to examine, audit and copy, at the expense of the Person making such
examination, any and all of the books, records or other information of the
Servicer (including without limitation any Subservicer to the extent provided in
the related Subservicing Agreement), whether held by the Servicer or by another
on behalf of the Servicer, which may be relevant to the performance or
observance by the Servicer of the terms, covenants or conditions of this
Agreement. In the case of the supervisory agents and examiners of the Issuer,
the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the Grantor Trust
Holder, the Securities Insurer, the Master Servicer and the Securityholders,
access to the documentation regarding the Home Loans required by applicable
state and federal regulations shall be afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer designated by it.
The Servicer also agrees to make available on a reasonable basis to the
Depositor, the Securityholders or any prospective Securityholder a knowledgeable
financial or accounting officer for the purpose of answering reasonable
questions respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Depositor, the Securityholders and
any prospective Securityholder to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying that the Servicer has
the ability to service the Home Loans in accordance with this Agreement.
Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee, the Securities Insurer, the Master Servicer and the Owner
Trustee agree that any information obtained pursuant to the terms of this
Agreement shall be held confidential.
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements.
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Servicer shall forward
to the Indenture Trustee, the
<PAGE>
Securities Insurer and the Master Servicer, a statement, certified by a
Servicing Officer, setting forth the status of the Collection Account as of the
close of business on the preceding Record Date and showing, for the period
covered by such statement, the aggregate of deposits into the Collection Account
for each category of deposit specified in Section 5.01(b)(1) hereof, the
aggregate of withdrawals from the Collection Account for each category of
withdrawal specified in Section 5.01(b)(2) and (3) hereof, in each case, for the
related Due Period.
Section 7.08 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Notes, Noteholders and the Securities Insurer may request that the Servicer make
available to the Noteholders and to prospective Noteholders annual audited
financial statements of the Servicer for one or more of the most recently
completed five fiscal years for which such statements are available, which
request shall not be unreasonably denied.
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer shall indemnify the Transferor, the Owner Trustee, the
Issuer, the Grantor Trust, the Depositor, the Grantor Trustee, the Securities
Insurer, the Master Servicer and the Indenture Trustee (each an "Indemnified
Party") and hold harmless each of them against any and all claims, losses,
damages, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
any of the Servicer's representations and warranties and covenants contained in
this Agreement or in any way relating to the failure of the Servicer to perform
its duties and service the Home Loans in compliance with the terms of this
Agreement.
(b) The Transferor, the Depositor, the Grantor Trustee, the Owner Trustee,
the Securities Insurer, the Master Servicer or the Indenture Trustee, as the
case may be, shall promptly notify the Servicer if a claim is made by a third
party with respect to a breach of any of the Servicer's representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Home Loans in
compliance with the terms of this Agreement. The Servicer shall promptly notify
the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the Securities
Insurer, the Master Servicer and the Depositor of any claim of which it has been
notified pursuant to this Section 9.01 by a Person other than the Depositor,
and, in any event, shall promptly notify the Depositor of its intended course of
action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon notice to
the
<PAGE>
Indemnified Party, assume the defense of any such action or claim in reasonable
cooperation with, and with the reasonable cooperation of, the Indemnified Party.
The Indemnified Party will have the right to employ its own counsel in any such
action in addition to the counsel of the Servicer, but the fees and expenses of
such counsel will be at the expense of such Indemnified Party, unless (i) the
employment of counsel by the Indemnified Party at its expense has been
authorized in writing by the Servicer, (ii) the Servicer has not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both the Servicer and one or more Indemnified Parties, and the
Indemnified Parties shall have been advised by counsel that there may be one or
more legal defenses available to them which are different from or additional to
those available to the Servicer. The Servicer shall not be liable for any
settlement of any such claim or action unless the Servicer shall have consented
thereto or be in default on its obligations hereunder. Any failure by an
Indemnified Party to comply with the provisions of this Section 9.01 shall
relieve the Servicer of liability only if such failure is materially prejudicial
to the position of the Servicer and then only to the extent of such prejudice.
(d) The provisions of this Section 9.01 shall survive the replacement of
the Servicer pursuant to a Servicer Termination Event; provided, that no
successor servicer shall be liable for (or required to indemnify any party for)
any act or omission of any predecessor servicer.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and franchises
as a corporation, and will obtain and preserve its authorization or
qualification to do business as a foreign corporation and maintain, or cause an
affiliate previously approved by the Master Servicer to maintain, such other
licenses and permits in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Home Loans and to perform its
duties under this Agreement; provided, however, that the Servicer may merge or
consolidate with any other corporation upon the satisfaction of the conditions
set forth in the following paragraph.
Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee, the Grantor
Trustee, the Securities Insurer, the Master Servicer and the Issuer.
Section 9.03 Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 9.01
hereof, the Servicer shall have no obligation to appear
<PAGE>
with respect to, prosecute or defend any legal action which is not incidental to
the Servicer's duty to service the Home Loans in accordance with this Agreement.
Section 9.04 Servicer Not to Resign; Assignment.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Grantor Trustee, the Securities
Insurer, the Master Servicer and Indenture Trustee or (b) upon determination
that its duties hereunder are no longer permissible under applicable law. Any
such determination pursuant to clause (b) of the preceding sentence permitting
the resignation of the Servicer shall be evidenced by an independent opinion of
counsel to such effect delivered (at the expense of the Servicer) to the Grantor
Trustee, the Securities Insurer, the Master Servicer and the Indenture Trustee.
No resignation of the Servicer shall become effective until the Master Servicer,
the Grantor Trustee or a successor servicer, appointed pursuant to the
provisions of Section 10.02 hereof and satisfying the requirements of Section
4.07 hereof with respect to the qualifications of a successor Servicer, shall
have assumed the Servicer's responsibilities, duties, liabilities (other than
those liabilities arising prior to the appointment of such successor) and
obligations under this Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.
Pursuant to Section 10.02 hereof, the Servicer agrees to cooperate with any
successor Servicer and the Master Servicer in effecting the transfer of the
Servicer's servicing responsibilities and rights hereunder pursuant to the first
paragraph of this Section 9.04, including, without limitation, the transfer to
such successor of all relevant records and documents (including any Home Loan
Files in the possession of the Servicer) and all amounts received with respect
to the Home Loans and not otherwise permitted to be retained by the Servicer
pursuant to this Agreement. In addition, the Servicer, at its sole cost and
expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer including all Home Loan Files in its
possession and do or accomplish all other acts necessary or appropriate to
effect such termination and transfer of servicing responsibilities.
Section 9.05 Relationship of Servicer to the Grantor Trust and the Grantor
Trustee.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Grantor Trust and the Grantor Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Issuer or the Indenture Trustee.
Section 9.06 Servicer May Own Securities.
Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein.
<PAGE>
Securities so owned by or pledged to the Servicer or such Affiliate shall have
an equal and proportionate benefit under the provisions of this Agreement,
without preference, priority, or distinction as among all of the Securities;
provided, however, that any Securities owned by the Servicer or any Affiliate
thereof, during the time such Securities are owned by them, shall be without
voting rights for any purpose set forth in this Agreement. The Servicer shall
notify the Indenture Trustee and the Securities Insurer promptly after it or any
of its Affiliates becomes the owner or pledgee of a Security.
ARTICLE X
DEFAULT
Section 10.01 Events of Default.
(a) Event of Default. An Event of Default by the Servicer shall include the
occurrence and continuation of one or more of the following:
(i) (1) Any failure by the Servicer to deposit in the Collection
Account in accordance with Section 5.01(b) hereof any payments in respect
of the Home Loans received by the Servicer no later than the second
Business Day following the day on which such payments were received; or (2)
any failure of the Servicer to pay when due any amount payable by it under
this Agreement and such failure results in a draw under the Guaranty
Policy.
(ii) The failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in this Agreement, which failure continues unremedied
for a period of 30 days after the date on which a Notice of Default
requiring such failure to be remedied shall have been given (a) to the
Servicer by the Indenture Trustee, the Grantor Trustee, the Securities
Insurer or the Master Servicer, or (b) to the Servicer, the Indenture
Trustee, the Grantor Trustee, the Securities Insurer and the Master
Servicer by the Majority Noteholders.
(iii) A decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days.
(iv) The Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) The Servicer shall admit in writing its inability to pay its debts
as they become due, file a petition to take advantage of any applicable
insolvency or
<PAGE>
reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations; or
(vi) The Majority Noteholders, the Securities Insurer, the Master
Servicer and the Grantor Trust Holder, collectively, or the Securities
Insurer, individually, shall determine, in their reasonable judgment and
based upon published reports (including wire services), which they
reasonably believe in good faith to be reliable, and shall give the
Servicer a Notice of Default, that:
(1) the Servicer has experienced a material adverse change in its
business, assets, liabilities, operations, condition (financial or
otherwise) or prospects (which, without limitation, shall be deemed to
have occurred upon the payment of any claim under another guaranty
policy issued by the Securities Insurer that insures another series of
asset backed securities previously issued and currently serviced by
Empire Funding or its Affiliates and for which sufficient funds are
not then available through an escrow or reserve arrangement to
reimburse such claims payment in full); or
(2) the Servicer or any of its subsidiaries or its parent has
defaulted on any of its material obligations (which, without
limitation, shall be deemed to have occurred upon a default in the
payment of any indebtedness having an outstanding principal amount at
the time of default in excess of $500,000 and the expiration of any
applicable cure period for such default); or
(3) the Servicer is no longer able to discharge its duties under
this Agreement; or
(4) the Servicer has ceased to conduct its business in the
ordinary course;
provided, however, that the Servicer shall have five Business Days
from the receipt of such Notice of Default to cure such Event of
Default by providing the foregoing parties with written assurances
that, in a reasonable and good faith manner, substantiate the
financial and operational well-being of the Servicer and adequately
refute the occurrence of a material adverse change, including, without
limitation, information, reports or written assurances obtained from
certain of its lenders.
(vii) The occurrence of the any of the following: (1) the ratio,
expressed as a percentage, of the cumulative Realized Losses over the
Original Pool Principal Balance equals or exceeds the following percentages
during the following calendar months after the Closing Date: (i) 3.0%
during months 0 to 18, (ii) 6.0% during months 19 to 32, (iii) 9.0% during
months 33 to 42, (iv) 12.0% during months 43 to 54, and (v) 13.0% on or
after month 55; or (2) the aggregate Realized Losses during any preceding
twelve-month period exceeds 3.0% of the Original Pool Principal Balance; or
(3) the Six-Month Average Delinquency exceeds 4%.
(viii) Subject to Section 10.01(d) below, a Change in Control of
Empire
<PAGE>
Funding occurs. Where a "Change in Control" is deemed to have occurred if
ContiFinancial Corporation ("ContiFinancial") ceases to own at least 20% of
the common stock of EFHC, the parent corporation of Empire Funding;
provided, however, that a Change in Control shall not occur if (1) EFHC
completes an initial public offering, or (2) another investor, approved in
writing by the Securities Insurer (which approval shall not be unreasonably
withheld) replaces ContiFinancial with respect to its stock ownership or
otherwise becomes the owner of not less than 20% of the common stock of
EFHC.
(ix) Subject to Section 10.01(d) below, during January or February
1999, Empire Funding fails to maintain unused capacity attributable to its
committed warehouse financing facilities that at least is equal to its HLTV
loan production for the preceding two months, and during March 1999, and
each month thereafter, Empire Funding fails to maintain unused capacity
attributable to its committed warehouse financing facilities that at least
is equal to its HLTV loan production for the preceding three months.
(x) Subject to Section 10.01(d) below, EFHC has a Tangible Net Worth
(defined below) that is less than the sum of (A) 95% of approximately
$42,176,000, which is its Tangible Net Worth as of June 30, 1998, plus (B)
75% of its cumulative after tax net income for each fiscal quarter after
June 30, 1998; where "Tangible Net Worth" is equal to the excess of (a) the
tangible assets of EFHC calculated in accordance with GAAP, on a
consolidated basis, as reduced by adequate reserves as appropriate, over
(b) all indebtedness of EFHC calculated in accordance with GAAP, on a
consolidated basis; provided, however, that (1) the calculation of Tangible
Net Worth shall not include any intangible assets (including patents,
trademarks, trade names, copyrights, licenses, goodwill, organizational
costs, advances or loans to, or receivables from, directors, officers,
employees or affiliates, prepaid assets, amounts relating to covenants not
to compete, pension assets, deferred charges or treasury stock or any
securities of EFHC or its affiliates or any other securities, unless such
securities are readily marketable in the United States of America or
entitled to be used as a credit against federal income tax liabilities, (2)
such calculation shall include securities, that are included as such
intangible assets, at their current fair marker price or cost, whichever is
lower, and (3) such calculation shall not include any write-up in book
value of any assets.
(b) Remedies. If an Event of Default shall occur and be continuing, then,
and in each and every such case, so long as an Event of Default shall not have
been remedied, Securities Insurer or the Indenture Trustee, the Grantor Trustee,
the Grantor Trust Holder, the Master Servicer or the Majority Noteholders, by a
Notice of Default to the Servicer may, in addition to whatever rights such
Person may have at law or in equity to damages, including injunctive relief and
specific performance, and with the consent of the Securities Insurer (which
consent shall not be unreasonably withheld), may terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Home Loans
and the proceeds thereof, as servicer under this Agreement. Upon termination of
the Servicer following such Notice of Default, subject to Section 10.02 hereof,
all authority and power of the Servicer under this Agreement, whether with
respect to the Home Loans or otherwise,
<PAGE>
shall pass to, be transferred to, and be vested in either: (1) a successor
servicer selected by the Master Servicer and reasonably acceptable to the
Securities Insurer; (2) the Master Servicer, if a successor servicer cannot be
retained in a timely manner; or (3) the Grantor Trustee, if the Master Servicer
cannot act as the successor servicer, as evidenced by an Opinion of Counsel to
such effect that is delivered by the Master Servicer, at its expense, to the
Securities Insurer and the Grantor Trustee.
Upon the termination of the Servicer and transfer to a successor, the
successor servicer, the Master Servicer or the Grantor Trustee, as applicable,
is hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Home Loans and
related documents. The Servicer agrees to cooperate with the successor servicer
in effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the successor servicer
for administration by it of all amounts which shall at the time be credited by
the Servicer to each Collection Account or thereafter received with respect to
the Home Loans.
(c) Reallocation of Servicing Fee and Establishment of Escrow Account. If
an Event of Default occurs and has not been remedied, then, until the servicing
of the Home Loans hereunder is transferred to a successor servicer, the Master
Servicer or the Grantor Trustee, as applicable, the Servicing Fee otherwise
payable to the Servicer hereunder shall be paid as follows: (1) first, to the
Servicer an amount equal to the portion of the Servicing Fee as calculated based
on 0.50% (50 basis points); (2) second, to the Indenture Trustee any remaining
amount for the deposit into an escrow or reserve account for the transfer of
servicing for this Series, until the balance of such account equals $75,000; and
(3) third, to the Servicer any remaining amount. Such escrow or reserve account
shall be an Eligible Account and a Trust Account, and, except as otherwise
provided herein, such account shall be established and maintained by the
Indenture Trustee in a manner that is consistent with Collection Account
hereunder. In connection with the transfer of servicing to a successor servicer,
amounts on deposit in such escrow account shall be remitted pursuant to Section
10.02 hereof; provided, that any amounts remaining in such escrow account after
all payments have been made pursuant to Section 10.02 hereof shall be paid to
the terminated Servicer.
(d) Elimination of Certain Events of Default. Upon an additional capital
contribution to the Servicer or EFHC that is contributed as cash and is
represented by either equity securities or subordinated debt securities, and
subject to the prior written consent of the Securities Insurer, the preceding
Event of Defaults set forth in clauses (viii), (ix) and (x) of Subsection (a)
above, together with the parenthetical language included in subclauses (vi) (1)
and (2) of Subsection (a) above, shall be deemed to be eliminated and deleted
from this Agreement in their entirety and shall be of no further force or effect
hereunder.
Section 10.02 Master Servicer to Act; Appointment of Successor.
(a) Appointment of Successor. On and after the date of a Servicer
Termination Event (including a Servicer termination pursuant to Section 10.01
hereof, or a resignation of
<PAGE>
the Servicer as evidenced by an Opinion of Counsel or accompanied by the
consents required by Section 9.04 hereof, or a removal pursuant to this Article
X, or a non-renewal pursuant to Section 4.01A hereof), then, subject to Section
4.07 hereof, the Master Servicer with the consent of the Securities Insurer
shall appoint a successor servicer to be the successor in all respects to the
Servicer in its capacity as Servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof; provided, however, that the successor
servicer shall not be liable for any actions of any servicer prior to it. If a
successor servicer cannot be retained in a timely manner, then the Master
Servicer shall act as the successor servicer, or if the Master Servicer cannot
act as the successor servicer (as evidenced by an Opinion of Counsel delivered
by the Master Servicer to the Grantor Trustee, Indenture Trustee and the
Securities Insurer), then the Grantor Trustee shall act as successor servicer.
If the Master Servicer or the Grantor Trustee, as applicable, assumes the
responsibilities of the Servicer pursuant to this Section 10.02, then the Master
Servicer or the Grantor Trustee, as applicable, will make reasonable efforts
consistent with applicable law to become licensed, qualified and in good
standing in each Mortgaged Property State the laws of which require licensing or
qualification in order to perform its obligations as Servicer hereunder or,
alternatively, shall retain an agent that is so licensed, qualified and in good
standing in any such Mortgaged Property State.
If the Master Servicer or the Grantor Trustee, as applicable, serves as
successor servicer, then the Master Servicer or the Grantor Trustee, as
applicable, in such capacity shall not be liable for any servicing of the Home
Loans prior to its date of appointment and shall not be subject to any
obligations to repurchase any Home Loans. The successor servicer shall be
obligated to make Servicing Advances hereunder.
Any successor Servicer, the Master Servicer or the Grantor Trustee shall be
reimbursed for all reasonable costs and expenses incurred in connection with the
appointment of the successor servicer and the replacement of the Servicer
following a Servicer Termination Event hereunder, which reimbursement shall be
paid (1) first, by the Indenture Trustee to the extent that funds are available
in the escrow account established pursuant to Section 10.01(c) hereof, and (2)
second, by the Servicer pursuant to Section 7.03 hereof, to the extent of any
unpaid reimbursement.
(b) Successor Servicer Compensation. The compensation of any successor
servicer (including, without limitation, the Grantor Trustee) so appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. As compensation therefor, the successor servicer appointed pursuant to
the following paragraph, shall be entitled to all funds relating to the Home
Loans which the Servicer would have been entitled to receive from the Note
Payment Account pursuant to Section 5.01(c) hereof as if the Servicer had
continued to act as servicer hereunder, together with any other Servicing
Compensation.
(c) Termination Fee to Prior Servicer. The Master Servicer shall deduct
from any sum received by the Master Servicer from the successor to the Servicer
in respect of the sale, transfer and assignment of the servicing rights for the
Home Loans the sum of (1) all costs and expenses of any public announcement and
of any sale, transfer and assignment of such servicing rights, (2) the amount of
any unpaid Servicing Fees and unreimbursed Servicing
<PAGE>
Advances made by the Master Servicer and (3) all costs and expenses of the
Master Servicer incurred in connection with the appointment of the successor
servicer. After such deductions, the remainder of such sum shall be paid by the
Master Servicer to the Servicer at the time of such sale, transfer and
assignment to the Servicer's successor. The Servicer shall not be entitled to
any termination fee, if it is terminated pursuant to Section 10.01 hereof but
shall be entitled to any accrued and unpaid Servicing Compensation to the date
of termination.
(d) Cooperation of Prior Servicer with Succession. The Master Servicer, the
Grantor Trustee, any Custodian, the Servicer and any such successor servicer
shall take such action, consistent with this Agreement, as shall be necessary to
effect any such succession. Any collections received by the Servicer after
removal or resignation shall be endorsed by it to the Grantor Trustee or the
Indenture Trustee, as assignee of the Grantor Trust Certificate, and remitted
directly to the Grantor Trustee or the Indenture Trustee or, at the direction of
the Grantor Trustee or the Indenture Trustee, to the successor servicer. The
Servicer agrees to cooperate with the Master Servicer, the Grantor Trustee and
any successor servicer, as applicable, in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Master Servicer, the Grantor Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Grantor Trustee or the Indenture Trustee, as assignee of the Grantor Trust
Certificate, or such successor servicer, as applicable, all amounts which then
have been or should have been deposited in any Trust Account maintained by the
Servicer or which are thereafter received with respect to the Home Loans.
(e) Effectiveness of Appointment. Neither the Master Servicer, the Grantor
Trustee nor any other successor servicer, as applicable, shall be held liable by
reason of any failure to make, or any delay in making, any payment or
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until (1) the Depositor, the Grantor Trust Holder,
the Securities Insurer, the Master Servicer and the Majority Noteholders shall
have consented thereto, except in the case of the appointment of the Master
Servicer or the Grantor Trustee as successor to the Servicer (when no consent
shall be required), and (2) written notice of such proposed appointment shall
have been provided by the Master Servicer or the Grantor Trustee, as applicable,
to the Indenture Trustee, each Securityholder, each Grantor Trust Holder, the
Owner Trustee, the Securities Insurer and the Depositor.
Pending appointment of a successor to the Servicer hereunder, the Master
Servicer or the Grantor Trustee, as applicable, shall act as servicer hereunder
as provided herein. In connection with such appointment and assumption, the
Master Servicer or the Grantor Trustee, as applicable, may make such
arrangements for the compensation of such successor servicer out of payments on
the Home Loans as it and such successor servicer shall agree; provided, however,
that no such compensation shall be in excess of that permitted the Servicer
pursuant to Section 7.03 hereof, together with other Servicing Compensation as
provided herein.
<PAGE>
Section 10.03 Waiver of Defaults.
The Majority Noteholders may with prior consent of the Securities Insurer
and the Master Servicer, on behalf of all Noteholders, waive any events
permitting removal of the Servicer as servicer pursuant to this Article X;
provided, however, that the Majority Noteholders may not waive a default in
making a required payment on a Note or distribution on a Residual Interest
Certificate without the consent of the related Noteholder or holder of the
Residual Interest Certificate. Upon any waiver of a past default, such default
shall cease to exist and any Event of Default arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereto
except to the extent expressly so waived.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer shall,
at its own expense:
(a) deliver to its successor or, if none shall yet have been appointed, to
the Indenture Trustee the funds in any Trust Account maintained by the Servicer;
(b) deliver to its successor or, if none shall yet have been appointed, to
the Master Servicer or the Grantor Trustee, as applicable, all Home Loan Files
and related documents and statements held by it hereunder and a Home Loan
portfolio computer tape and other necessary data for the servicing of the Home
Loans hereunder in compatible computer readable format;
(c) deliver to its successor or, if none shall yet have been appointed, to
the Master Servicer, the Grantor Trustee, the Indenture Trustee, the Securities
Insurer and the Securityholders a full accounting of all funds, including a
statement showing the Monthly Payments collected by it and a statement of monies
held in trust by it for payments or charges with respect to the Home Loans;
(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Home Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement; and
(e) make available on a reasonable basis Servicing Officers and other
servicing personnel for the purpose of facilitating the transfer of servicing
hereunder to the successor servicer.
ARTICLE XI
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either:
(a) the later of (i) the satisfaction and discharge of the Indenture and
the provisions
<PAGE>
thereof, or (ii) the disposition of all funds with respect to the last Home Loan
and the remittance of all funds due hereunder and the payment of all amounts due
and payable to the Servicer, the Indenture Trustee, the Grantor Trustee, the
Owner Trustee, the Issuer, the Master Servicer, the Securities Insurer and any
Custodian; or
(b) the mutual consent of the Servicer, the Master Servicer, the Depositor,
the Transferor, the Securities Insurer and all Securityholders in writing.
Section 11.02 Optional Termination.
On or after any Payment Date on which the Pool Principal Balance declines
to 10% or less of the Original Pool Principal Balance, then the Majority
Residual Interestholders may, at their option, effect an early termination of
the Issuer and the Grantor Trust. On or after any Payment Date on which the Pool
Principal Balance declines to 5% or less of the Original Pool Principal Balance,
then the Securities Insurer or the Master Servicer may, at their respective
options, effect an early termination of the Issuer and the Grantor Trust. The
Majority Residual Interestholders, the Securities Insurer or the Master
Servicer, as applicable, shall effect such early termination by providing prior
notice thereof to the Servicer, the Indenture Trustee, the Grantor Trustee, the
Master Servicer, the Securities Insurer and Owner Trustee and by purchasing all
of the Home Loans from the Grantor Trustee at a purchase price, payable in cash,
equal to or greater than the Termination Price. The expense of any Independent
appraiser required under this Section 11.02 shall be a nonreimbursable expense
of Majority Residual Interestholders, the Securities Insurer or the Master
Servicer, as applicable.
Any such early termination by the Majority Residual Interestholders, the
Securities Insurer or the Master Servicer, as applicable, shall be accomplished
by depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts not required to have been deposited
therein pursuant to Section 5.01(b)(1) hereof and any amounts withdrawn
therefrom by the Indenture Trustee pursuant to Section 5.01(b)(3) hereof) shall
be transferred to the Note Payment Account pursuant to Section 5.01(b)(2) hereof
as a terminating distribution in respect of the Grantor Trust Certificate
pursuant to Section 5.02 of the Grantor Trust Agreement for payment to
Noteholders and the Securities Insurer on the succeeding Payment Date; and any
amounts received with respect to the Home Loans and Foreclosure Properties
subsequent to the Due Period immediately preceding such final Payment Date shall
belong to the purchaser thereof or the Securities Insurer, as applicable. For
purposes of calculating the Available Payment Amount for such final Payment
Date, amounts transferred to the Note Payment Account immediately preceding such
final Payment Date shall in all cases be deemed to have been received during the
related Due Period, and amounts so transferred shall be applied pursuant to
Section 5.01(d) and (e) hereof.
Section 11.03 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Issuer and the Grantor Trust shall be sent (i) by the
Indenture Trustee to the Noteholders and the Securities Insurer in accordance
with section 10.02 of the Indenture, (ii) by the Owner
<PAGE>
Trustee to the Certificateholders in accordance with section 9.1(d) of the Owner
Trust Agreement, and (iii) by the Grantor Trustee to the Grantor Trust Holder
and the Securities Insurer in accordance with section 7.02 of the Grantor Trust
Agreement.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders.
Except as otherwise specifically provided herein, whenever action, consent
or approval of the Noteholders is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Noteholders if the Majority Noteholders agree to
take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Master Servicer, the Transferor, the Indenture Trustee, the
Grantor Trustee and the Issuer by written agreement with notice thereof to the
Securityholders, without the consent of any of the Securityholders, but with the
consent of the Securities Insurer, to cure any error or ambiguity, to correct or
supplement any provisions hereof which may be defective or inconsistent with any
other provisions hereof or to add any other provisions with respect to matters
or questions arising under this Agreement; provided, however, that such action
will not adversely affect in any material respect the interests of the
Noteholders. An amendment described above shall be deemed not to adversely
affect in any material respect the interests of the Noteholders if either (i) an
Opinion of Counsel is obtained to such effect or (ii) the party requesting the
amendment obtains the Ratings Confirmations with respect to such amendment.
(b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Master Servicer, the Transferor, the Indenture Trustee, the
Grantor Trustee and the Issuer by written agreement, with the prior written
consent of the Majority Noteholders and the Securities Insurer, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, collections of payments on Home
Loans or distributions which are required to be made on any Note, without the
consent of the holders of 100% of the Notes affected thereby and the Securities
Insurer, (ii) adversely affect in any material respect the interests of the
holders of any of the Notes or the Securities Insurer in any manner other than
as described in clause (i), without the consent of the holders of 100% of such
Notes or the Securities Insurer, or (iii) reduce the percentage of any of the
Notes, the consent of which is required for any such amendment, without the
consent of the holders of 100% of such Notes and the Securities Insurer.
(c) It shall not be necessary for the consent of Noteholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
<PAGE>
Prior to the execution of any amendment to this Agreement, the Issuer, the
Grantor Trustee and the Indenture Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Issuer, the Grantor Trustee and
the Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Issuer's own rights, duties or immunities of the
Issuer, the Grantor Trustee or the Indenture Trustee, as the case may be, under
this Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Noteholders' expense on
direction of the Majority Noteholders or the Securities Insurer, but only when
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Noteholders or is
necessary for the administration or servicing of the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as
herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
overnight mail, certified mail or registered mail, postage prepaid, to:
(a) in the case of the Depositor, PaineWebber Mortgage Acceptance
Corporation IV, 1285 Avenue of the Americas, New York, New York 10019,
Attention: John Fearey, Esq., or such other addresses as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Depositor;
(b) in the case of the Issuer, at Empire Funding Home Loan Owner Trust
1998-3, c/o Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Emmett R. Harmon, or such other
address as may hereafter be furnished to the Securityholders and the other
parties hereto;
<PAGE>
(c) in the case of the Transferor and Servicer, Empire Funding Corp., 9737
Great Hills Trail, Austin, Texas 78759, Attention: Richard N. Steed or such
other address as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by the Servicer or the Transferor;
(d) in the case of the Indenture Trustee and Grantor Trustee, U.S. Bank
National Association, 180 East Fifth Street, St. Paul, Minnesota 55101;
Attention: Structured Finance/Empire Funding 1998-3;
(e) in the case of the Securityholders, as set forth in the applicable Note
Register;
(f) in the case of a claim under the Guaranty Policy, State Street Bank and
Trust Company, as Fiscal Agent, 61 Broadway, 15th Floor, New York, New York,
10006, Attention: Municipal Registrar, or such other address as may be furnished
to the Securityholders and the other parties hereto in writing by such Fiscal
Agent or the Securities Insurer;
(g) in the case of the Securities Insurer, MBIA Insurance Corporation, 113
King Street, Armonk, New York 10504, Attention: Insured Portfolio Management -
Structured Finance (IPM-SF) (Empire Funding Home Loan Asset Backed Notes, Series
1998-3); or
(h) in the case of the Master Servicer, Norwest Bank Minnesota, National
Association, 11000 Broken Land Parkway, Columbia, Maryland 21044-3562,
Attention: Master Servicing Manager (Empire Funding Series 1998-3).
Any such notices shall be deemed to be effective with respect to any party
hereto upon the receipt of such notice by such party, except that notices to the
Securityholders shall be effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
<PAGE>
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Depositor, the Indenture Trustee, the Grantor
Trustee, the Issuer, the Noteholders, the Securities Insurer, the Master
Servicer and the Grantor Trust Holder and their respective successors and
permitted assigns.
Section 12.11 Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Servicer, the Indenture Trustee or the Issuer.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Agreement and conclusive in
favor of the Depositor, the Servicer, the Indenture Trustee and the Issuer if
made in the manner provided in this Section 12.12.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner, which the
Depositor, the Servicer, the Indenture Trustee or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer, the Indenture Trustee, the Securities Insurer or the
Issuer in reliance thereon, whether or not notation of such action is made upon
such Security.
(d) The Depositor, the Servicer, the Indenture Trustee or the Issuer may
require additional proof of any matter referred to in this Section 12.12 as it
shall deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared in
connection herewith, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger or
consolidation of the Servicer, the Master Servicer, any Custodian or the
Issuer;
<PAGE>
(iv) notice of final payment on the Notes;
(v) any Notice of Default;
(vi) copies of the annual independent accountants' report delivered
pursuant to Section 7.05 hereof, and copies of any compliance reports
delivered by the Servicer including under Section 7.04 hereof; and
(vii) copies of any Payment Date Statement pursuant to Section 6.01(b)
hereof.
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies, such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's Ratings Services, 25 Broadway, New York,
New York, 10004, Attention: Residential Mortgage Group; (ii) if to Moody's
Investors Service, Inc., 99 Church Street, Corporate Department - 4th Floor, New
York, New York 10007, Attention: Residential Mortgage Monitoring Department; and
(iii) if to Fitch IBCA, Inc., One State Street Plaza, New York, New York 10004,
Attention: Asset Backed Surveillance Department.
Section 12.14 Holders of the Residual Interest Certificates.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Owner Trust Agreement to the holders of the Residual Interest Certificates shall
be paid to such holders pro rata based on their percentage holdings in the
Residual Interest;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Certificates, such
consent or approval shall be capable of being given by the holder or holders of
not less than 51% of the Residual Interest in aggregate.
Section 12.15 Year 2000 Compliance.
Each of the Servicer, the Master Servicer and the Indenture Trustee shall
assure that their respective computer systems are year 2000 compliant by January
1, 2000.
Section 12.16 Grant of Noteholder Rights to Securities Insurer.
In consideration for the guarantee of the Insured Securities by the
Securities Insurer pursuant to the Guaranty Policy, and by acceptance of an
Insured Security, the Noteholders hereby grant to the Securities Insurer the
right to act as the holder of 100% of the outstanding Insured Securities for the
purpose of exercising the rights of the holders of the Insured Securities under
this Agreement, without the consent of any such Noteholders, including the
voting rights of such holders, but excluding those rights requiring the consent
of all such holders under Section 12.02(b), and any rights of such holders to
payments under Section 5.01 (d) and (e) hereof and under section 8.02(c) of the
Indenture; provided that the preceding grant of rights to the Securities Insurer
by the Noteholders shall be subject to Section 12.18 hereof. The rights of the
Securities Insurer to direct certain actions and consent to certain actions of
the
<PAGE>
Majority Noteholders hereunder will terminate at such time as the Principal
Balance of Insured Securities have been reduced to zero and the Securities
Insurer has been paid the Securities Insurer Reimbursement Amount in full and
all other amounts owed under the Guaranty Policy and Insurance Agreement and the
Securities Insurer has no further obligation under the Guaranty Policy.
Section 12.17 Third Party Beneficiary.
The parties hereto acknowledge that the Securities Insurer is an express
third party beneficiary hereof entitled to enforce any rights reserved to it
hereunder as if it were actually a party hereto.
Section 12.18 Suspension and Termination of Securities Insurer's Rights.
(a) During the continuation of a Securities Insurer Default, the rights
granted or reserved to the Securities Insurer hereunder shall vest instead in
the Majority Noteholders; provided, however, that the Securities Insurer shall
be entitled to any payments of the Securities Insurer Reimbursement Amount, and
the Securities Insurer shall retain those rights under Section 11.01 to consent
to the termination of this Agreement and Section 12.02 to consent to any
amendment of this Agreement.
(b) At such time as either (i) the Principal Balances of the Insured
Securities have been reduced to zero or (ii) the Guaranty Policy has been
terminated, and in either case of (i) or (ii) the Securities Insurer has been
paid the Securities Insurer Reimbursement Amount in full and all other amounts
owed under the Guaranty Policy and the Insurance Agreement (and the Securities
Insurer no longer has any obligation under the Guaranty Policy, except for
breach thereof by the Securities Insurer), then the rights and benefits granted
or reserved to the Securities Insurer hereunder (including the rights to direct
certain actions and receive certain notices) shall terminate and the Noteholders
(including in certain instances the Majority Noteholders) shall be entitled to
the exercise of such rights and to receive such benefits of the Securities
Insurer following such termination to the extent that such rights and benefits
are applicable to the Noteholders (including the Majority Noteholders).
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Depositor, the Transferor, the
Servicer, the Master Servicer, the Grantor Trustee and the Indenture Trustee
have caused their names to be signed by their respective officers thereunto duly
authorized, as of the day and year first above written, to this Sale and
Servicing Agreement.
EMPIRE FUNDING HOME LOAN OWNER TRUST
SERIES 1998-3, as Issuer
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner Trustee
By:
--------------------------------------------
Name:
Title:
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor
By:
-----------------------------------------------------
Name:
Title:
EMPIRE FUNDING CORP., as Transferor and Servicer
By:
-----------------------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Master Servicer
By:
-----------------------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as Indenture
Trustee and Grantor Trustee
By:
-----------------------------------------------------
Name:
Title:
<PAGE>
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
November 1998, personally appeared _______________, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said WILMINGTON TRUST
COMPANY, not in its individual capacity but in its capacity as Owner Trustee of
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3 as Issuer, and that she executed the
same as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____ day
of November, 1998.
Notary Public, State of_______________
<PAGE>
THE STATE OF [_________] )
)
COUNTY OF [____________] )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
November 1998, personally appeared _______________, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV, as the Depositor, and that he/she executed the same
as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION
IV, this the ____ day of November, 1998.
Notary Public, State of_______________
<PAGE>
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this __ day of
November 1998, personally appeared _______________________, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said EMPIRE FUNDING CORP.,
as the Transferor and Servicer, and that he executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF EMPIRE FUNDING CORP., this the ____ day of
November 1998.
Notary Public, State of_______________
<PAGE>
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this __ day of
November 1998, personally appeared ____________________, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as the Master Servicer, and that she executed the same as
the act of such entity for the purposes and consideration therein expressed, and
in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, this the __ day of November 1998.
Notary Public, State of_______________
<PAGE>
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this __ day of
November 1998, personally appeared ____________________, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said U.S. BANK NATIONAL
ASSSOCIATION, as the Indenture Trustee and Grantor Trustee, and that she
executed the same as the act of such entity for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF U.S. BANK NATIONAL ASSSOCIATION, this the
__ day of November 1998.
Notary Public, State of_______________
<PAGE>
EXHIBIT A
HOME LOAN SCHEDULE
[Original delivered to U.S. Bank National Association,
as Indenture Trustee and Grantor Trustee, on the Closing Date.
To obtain a copy, please contact:
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attn: Structured Finance/
Empire Funding 1998-3]
<PAGE>
EXHIBIT B
Form of Servicer's Monthly Remittance Report to Indenture Trustee
Servicer Monthly Activity Report Empire Funding Corp.
Empire Funding Home Loan Owner Trust 1998-3 Report Date:
Home Loan Asset Backed Notes, Series 1998-3 Report Period:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
LOAN ACTIVITY INTEREST PRINCIPAL TOTALS
------------ ------------- ----------
<S> <C> <C> <C>
Aggregate Beginning UPB 0.00
============
Loans- Repurchased 0.00
Scheduled Payments Collected 0.00 0.00 0.00
Unscheduled Payments Collected
Curtailments 0.00 0.00
Pay-offs 0.00 0.00 0.00
Prepayments 0.00 0.00 0.00
Delinquencies 0.00 0.00 0.00
Other 0.00 0.00 0.00
----------- ------------ ----------
Total Funds Collected 0.00 0.00 0.00
----------- ------------ ----------
Principal Losses 0.00
Beginning Balance of New Liquidated Loans 0.00
Aggregate Ending Balance 0.00
===========
- -----------------------------------------------------------------------------------------------
POOL SUMMARY
Beginning Period
Weighted Average Coupon 0.000%
------------
Weighted Average Maturity 0
------------
Remaining Number of Loans 0
------------
Ending Period
Weighted Average Coupon 0.000%
------------
Weighted Average Remaining Term 0
------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Remaining Number of Loans 0
------------
FUNDS DEPOSITED
Total P & I Funds Collected 0.00
------------
Total P & I Funds Collected on Liquidated Loans 0.00
------------
Total Collection Funds Deposited 0.00
============
Total Repurchased Funds Deposited 0.00
------------
Servicing Fees Due Empire Funding Corporation 0.00
------------
</TABLE>
- --------------------------------------------------------------------------------
DELINQUENCY AND FORECLOSURE INFORMATION
# of Accounts % Amount %
------------- ------ ---------- ------
30-59 Days Delinquent 0 0.000% 0.00 0.000%
60-89 Days Delinquent 0 0.000% 0.00 0.000%
90 or more Days Delinquent 0 0.000% 0.00 0.000%
Bankruptcy Filed 0 0.000% 0.00 0.000%
Real Estate Owned 0 0.000% 0.00 0.000%
Loans in Foreclosure 0 0.000% 0.00 0.000%
NET LOSS INFORMATION
Current Collection Period
Net Losses (Gains) 0.00
Write Off Mortgage Loans 0.00
Gross Principal Losses on Write Off Loans 0.00
Write Off Proceeds 0.00
Write Off Expenses 0.00
Cumulative
Net Losses (Gains) 0.00
Write Off Mortgage Loans 0.00
Gross Principal Losses on Write Off Loans 0.00
Write Off Proceeds 0.00
Write Off Expenses 0.00
<PAGE>
EXHIBIT C
Form of Loan Liquidation Report
Customer Name:
Account No.:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short pay-off) __________
Date last paid __________
a. Foreclosure
Date of Foreclosure __________
Date of REO __________
Date of REO Disposition __________
Property Sale Price/Estimated Market Value at disposition $ __________
b. Settlement (short pay-off and collection actions)
Date of Settlement Payment __________
c. Defaulted Loan Sale
Date of Sale __________
d. Charge-off or Bankruptcy
Date of Charge-off or Bankruptcy Discharge __________
2. Liquidation Proceeds
Principal Prepayment $ __________
Property Sale Proceeds $ __________
Insurance Proceeds $ __________
Settlement Payment Loan Sale Proceeds $ __________
Other (Itemize) $ __________
Total Proceeds $ __________
3. Liquidation Expenses
Servicing Advances $ __________
Servicing Fees $ __________
Other Servicing Compensation $ __________
Collection Agent or Attorney's Fees $ __________
Total Advances $ __________
4. Net Liquidation Proceeds $ __________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $ __________
6. Loss, if any (Item 5 minus Item 4) $ __________
<PAGE>
EXHIBIT D
Form of Servicer Renewal Notice
Empire Funding Corp.
9737 Great Hills Trail
Austin, Texas 78759
Attn: Richard N. Steed
Re: Empire Funding Home Loan Asset Backed Notes, Series 1998-3
Dear Ladies and Gentlemen:
Reference is hereby made to the Sale and Servicing Agreement dated as of
November 1, 1998 (the "Agreement") among Empire Funding Home Loan Owner Trust
1998-3, as Issuer, PaineWebber Mortgage Acceptance Corporation IV, as Depositor,
Empire Funding Corp., as Transferor and Servicer, Norwest Bank Minnesota,
National Association, as Master Servicer, and U.S. Bank National Association, as
Indenture Trustee and Grantor Trustee. The Indenture Trustee has not received
notification from MBIA Insurance Corporation, as the Securities Insurer, that
instructs the Indenture Trustee not to renew the term of Empire Funding Corp. as
the Servicer under the Agreement. Therefore, pursuant to Section 4.01A of the
Agreement, the Indenture Trustee hereby notifies Empire Funding Corp. that its
term as Servicer has been extended for a successive two calendar month period
beginning with the month of __________, _____.
U.S. BANK NATIONAL ASSOCIATION,
as Indenture Trustee
By:
--------------------------
Name:
--------------------
Title:
--------------------
cc: MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attn: Insured Portfolio Management--SF (Empire Funding Home Loan Asset
Backed Notes, Series 1998-3)
Norwest Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044 - 3562
Attn: Master Servicing Manager (Empire Funding Series 1998-3)
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
Attn: John Fearey, Esq.
Empire Funding Home Loan Owner Trust 1998-3
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Emmett R. Harmon
================================================================================
ADMINISTRATION AGREEMENT
dated as of November 1, 1998
among
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
(the "Issuer"),
U.S. BANK NATIONAL ASSOCIATION,
(the "Administrator")
and
EMPIRE FUNDING CORP.
(the "Company" and "Servicer")
Home Loan Asset Backed Notes, Series 1998-3
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Duties of the Administrator.......................................2
Section 2. Duties of the Company with Respect to the Indenture...............4
Section 3. Records...........................................................6
Section 4. Compensation......................................................6
Section 5. Additional Information to Be Furnished to the Issuer..............7
Section 6. Independence of the Administrator.................................7
Section 7. No Joint Venture..................................................7
Section 8. Other Activities of Administrator and Servicer....................7
Section 9. Term of Agreement; Resignation and Removal of Administrator or
Servicer .........................................................7
Section 10. Action upon Termination, Resignation or Removal of the
Administrator ...................................................9
Section 11. Notices..........................................................9
Section 12. Amendments......................................................10
Section 13. Successor and Assigns...........................................11
Section 14. Governing Law...................................................11
Section 15. Headings........................................................11
Section 16. Counterparts....................................................12
Section 17. Severability....................................................12
Section 18. Not Applicable to U.S. Bank in Other Capacities.................12
Section 19. Limitation of Liability of Owner Trustee........................12
Section 20. Benefit of Agreement............................................12
Section 21. Bankruptcy Matters..............................................12
Section 22. Capitalized Terms...............................................13
Section 23. Third Party Beneficiary.........................................13
<PAGE>
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT dated as of November 1, 1998, among EMPIRE
FUNDING HOME LOAN OWNER TRUST 1998-3, a Delaware business trust, as Issuer (the
"Issuer"), U.S. BANK NATIONAL ASSOCIATION, a national banking association, not
in its individual capacity but solely as Administrator ("U.S. Bank" and in such
capacity, the "Administrator") and EMPIRE FUNDING CORP., an Oklahoma
corporation, as the Company and Servicer (respectively, the "Company" and
"Servicer").
W I T N E S S E T H:
WHEREAS, the Issuer is a business trust (the "Owner Trust") under the
Delaware Business Trust Act (12 Del. C. Section 3801 et seq.) created by a Trust
Agreement relating to the Owner Trust dated as of November 1, 1998 (the "Owner
Trust Agreement"), among PaineWebber Mortgage Acceptance Corporation IV, as
depositor (the "Depositor"), Wilmington Trust Company, as Owner Trustee, U.S.
Bank, as Paying Agent (in such capacity, the "Paying Agent") and Empire Funding
Corp.;
WHEREAS, the Issuer will issue Home Loan Asset Backed Notes (the
"Notes"), Series 1998-3;
WHEREAS, the Notes will be secured by certain collateral, as more
particularly set forth in the Indenture dated as of November 1, 1998 (the
"Indenture"), between the Issuer and U.S. Bank, as Indenture Trustee (in such
capacity, the "Indenture Trustee");
WHEREAS, the Issuer has entered into certain agreements in connection
with the issuance of the Notes, including (i) a Sale and Servicing Agreement
dated as of November 1, 1998 (the "Sale and Servicing Agreement"), among the
Issuer, Empire Funding Corp., as servicer and transferor (in such capacities,
the "Servicer" and the "Transferor," respectively), Norwest Bank Minnesota,
National Association (the "Master Servicer"), the Depositor and U.S. Bank, as
Indenture Trustee and grantor trustee (in such capacity the "Grantor Trustee"),
(ii) a Grantor Trust Agreement dated as of November 1, 1998 (the "Grantor Trust
Agreement"), among the Depositor, the Grantor Trustee and the Transferor, (iii)
the Letter of Representations, among the Issuer, the Indenture Trustee and The
Depository Trust Company relating to the Notes (the "Note Depository
Agreement"), (iv) the Insurance and Indemnification Agreement, dated as of
November 1, 1998 (the "Insurance Agreement"), among the Securities Insurer,
Empire Funding Corp., as transferor and servicer, the Depositor, the Issuer,
Empire Funding Grantor Trust 1998-3, the Indenture Trustee, the Grantor Trustee
and the Master Servicer, (v) the Indenture and (vi) the Owner Trust Agreement
(the Sale and Servicing Agreement, the Note Depository Agreement, the Grantor
Trust Agreement, the Insurance Agreement, the Indenture and the Owner Trust
Agreement being hereinafter referred to collectively as the "Related
Agreements");
<PAGE>
WHEREAS, pursuant to the Related Agreements, the Issuer is required to
perform certain duties in connection with the Notes and the collateral therefor
pledged pursuant to the Indenture (the "Collateral");
WHEREAS, the Issuer desires to have the Administrator and the
Servicer, respectively, perform certain of the duties of the Issuer referred to
in the preceding clause, and to provide such additional services consistent with
the terms of this Agreement and the Related Agreements as the Issuer may from
time to time request; and
WHEREAS, the Administrator and the Servicer have the capacity to
provide the respective services required hereby and are willing to perform such
services for the Issuer on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
Section 1. Duties of the Administrator.
(a) Duties with Respect to the Note Depository Agreement, the Sale
and Servicing Agreement, the Insurance Agreement and the
Indenture.
(i) The Administrator agrees to perform all of the duties of the
Issuer under the Note Depository Agreement and those duties set forth
herein. In addition, the Administrator shall consult with the Owner Trustee
regarding the duties of the Issuer under the Sale and Servicing Agreement,
the Insurance Agreement, the Indenture and the Note Depository Agreement.
The Administrator shall notify the Owner Trustee when action is necessary
to comply with the Issuer's duties under the Sale and Servicing Agreement,
the Insurance Agreement, the Indenture and the Note Depository Agreement.
In addition to the foregoing, the Administrator shall take all appropriate
action that is the duty of the Issuer to take with respect to the following
matters under the Sale and Servicing Agreement and the Indenture
(parenthetical section references are to sections of the Indenture):
(A) the preparation of the Notes and the execution of the
Notes upon their issuance and upon the registration of any transfer or
exchange of the Notes (Sections 2.02 and 2.03);
(B) the duty to cause the Note Register to be kept and to
give the Indenture Trustee notice of any appointment of a new Note
Registrar and the location, or change in location, of the Note
Register (Section 2.03);
(C) the notification of Noteholders and the Securities
Insurer of the final principal payment on the Notes or of the
redemption of the Notes or the duty to cause the Indenture Trustee to
provide such notification (Sections 2.06(b) and 10.02);
<PAGE>
(D) performing the function of the Issuer with respect to
the cancellation of the Notes (Section 2.07);
(E) the preparation of or obtaining of the documents and
instruments required for authentication of the Notes and delivery of
the same to the Indenture Trustee (Section 2.08);
(F) the maintenance of an office in the City of St. Paul,
Minnesota, for registration of transfer or exchange of Notes (Section
3.02);
(G) the delivery to the Indenture Trustee, the Securities
Insurer and the Rating Agencies of prompt written notice of each Event
of Default under the Indenture (Section 3.13);
(H) the duty to act as Paying Agent for the Issuer and the
duty to cause newly appointed Paying Agents, if any, to deliver to the
Indenture Trustee the instrument specified in the Indenture regarding
funds held in trust (Section 3.03);
(I) directing the Indenture Trustee to deposit moneys with
Paying Agents, if any, other than the Indenture Trustee (Section
3.03);
(J) notifying the Indenture Trustee, the Securities Insurer
and the Rating Agencies of the occurrence of an Event of Default under
the Sale and Servicing Agreement by the Servicer or the Transferor
and, if such an Event of Default arises from the failure of the
Servicer or the Transferor to perform any of their respective duties
under the Sale and Servicing Agreement, the taking of all reasonable
steps available to remedy such failure (Section 3.07(d));
(K) monitoring the Issuer's obligations as to the
satisfaction and discharge of the Indenture (Section 4.01);
(L) opening one or more accounts in the Owner Trust's name
(Section 8.02);
(M) notifying the Rating Agencies, the Master Servicer and
the Securities Issuer of a redemption of the Notes and the duty to
cause the Majority Residual Interestholders or the Securities Insurer,
as applicable, to deposit the Termination Price into the Note Payment
Account and the Certificate Distribution Account (Section 10.01);
(N) providing the Indenture Trustee with calculations
pertaining to original issue discount, if any, on the Notes and, if
applicable, the accrual of market discount or the amortization of
premium on the Notes to the extent the Administrator has received from
the Servicer sufficient information to calculate such amounts (Section
3.03);
<PAGE>
(O) the preparation and filing of all documents and reports
by the Issuer on Forms 8-K and 10-K as required under the Exchange
Act, the rules and regulations of the Commission thereunder and the
TIA (Section 7.03); and
(P) filing Internal Revenue Service Form 8811 within 30 days
of the Closing Date, designating the officer of the Indenture Trustee
that Noteholders may contact for original issue discount information
with respect to the Notes, and updating such Form at the time or times
required by the Code.
(Q) executing and delivering any financing statement,
continuation statement or other instrument necessary or required
pursuant to Section 3.05 of the Indenture (Section 3.05).
(ii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for
performance of the duties of the Owner Trustee set forth in the Owner Trust
Agreement with respect to, among other things, accounting and reports to
Owners, and the Administrator shall be responsible for the performance of
the tax duties set forth in (i) Sections 5.2(c) and (ii) 5.5 of the Owner
Trust Agreement upon receipt of the Opinion of Counsel specified in Section
5.5 of the Owner Trust Agreement stating that it is necessary to perform
such tax duties; provided, however, that the Owner Trustee shall retain
responsibility for the distribution of the Schedule K-1's necessary to
enable each Owner to prepare its federal and state income tax returns;
provided further, that the Indenture Trustee shall receive written
notification if there shall be two or more beneficial owners of the Owner
Trust.
(b) (i) The Administrator shall perform the duties of the
Administrator specified in Section 10.02 of the Owner Trust Agreement
required to be performed in connection with the resignation or removal of
the Owner Trustee, and any other duties expressly required to be performed
by the Administrator under the Owner Trust Agreement.
(ii) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Administrator may enter into
transactions with or otherwise deal with any of its affiliates; provided,
however, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in
the Administrator's opinion, no less favorable to the Issuer than would be
available from unaffiliated parties.
Section 2. Duties of the Company with Respect to the Indenture.
(a) The Company shall take all appropriate action that is the duty of
the Issuer to take with respect to the following matters under the Indenture
(parenthetical section references are to sections of the Indenture):
<PAGE>
(i) preparing, obtaining or filing of the instruments, opinions
and certificates and other documents required for the release of Collateral
(Section 2.09);
(ii) preparation and execution of all supplements, amendments,
financing statements, continuation statements, instruments of further
assurance and other instruments, in accordance with Section 3.05 of the
Indenture, necessary to protect the Owner Trust Estate (Section 3.05);
(iii) the annual delivery of Opinions of Counsel, in accordance
with Section 3.06 of the Indenture, as to the Owner Trust Estate, and the
annual delivery of the Officers' Certificate and certain other statements,
in accordance with Section 3.09 of the Indenture, as to compliance with the
Indenture (Sections 3.06 and 3.09);
(iv) monitoring the Issuer's compliance with its negative
covenants (Section 3.08) and the compliance of the Servicer with certain of
its obligations under the Sale and Servicing Agreement (Section 3.07);
(v) compliance with any directive of the Indenture Trustee with
respect to the sale of the Owner Trust Estate in a commercially reasonable
manner if an Event of Default shall have occurred and be continuing under
the Indenture (Section 5.04);
(vi) appointing a successor Indenture Trustee pursuant to Section
6.08 of the Indenture (Section 6.08);
(vii) causing one or more accounts to be opened in the Owner
Trust's name and preparing Issuer Orders, Officers' Certificates and
Opinions of Counsel and all other actions necessary with respect to
investment and reinvestment of funds in the Trust Accounts (Sections 8.02
and 8.03);
(viii) preparing an Issuer Request and Officers' Certificate and
obtaining an Opinion of Counsel and Independent Certificates, if necessary,
for the release of the Owner Trust Estate as defined in the Indenture
(Sections 8.05 and 8.06);
(ix) preparing Issuer Orders and obtaining of Opinions of Counsel
with respect to any proposed amendment of the Owner Trust Agreement or
amendment to or waiver of any provision of any other document relating to
the Owner Trust Agreement pursuant to Section 9.07 of the Indenture
(Section 9.07);
(x) notifying the Rating Agencies, the Securities Insurer or the
Master Servicer upon the failure of the Indenture Trustee to give such
notification, of the information required pursuant to Section 11.04 of the
Indenture (Section 11.04); and
(xi) where applicable, the preparation and delivery on behalf of
the Issuer, certificates of fair value of the Collateral.
<PAGE>
(b) The Company will indemnify the Owner Trustee and its agents for,
and hold them harmless against, any losses, liability or expense incurred
without gross negligence or bad faith on their part, arising out of or in
connection with the acceptance or administration of the transactions
contemplated by the Owner Trust Agreement, including the reasonable costs and
expenses of defending themselves against any claim or liability in connection
with the exercise or performance of any of their powers or duties under the
Owner Trust Agreement.
(i) Additional Duties. In addition to the duties of the Company
set forth above, the Company shall prepare for execution by the Issuer or
shall cause the preparation by other appropriate persons of all such
documents, reports, filings, instruments, certificates and opinions as it
shall be the duty of the Issuer to prepare, file or deliver pursuant to the
Related Agreements, and at the request of the Owner Trustee shall take all
appropriate action that it is the duty of the Issuer to take pursuant to
the Related Agreements. Subject to Section 5 hereof and in accordance with
the directions of the Owner Trustee, the Company shall administer, perform
or supervise the performance of such other activities in connection with
the Collateral (including the Related Agreements) as are not covered by any
of the foregoing provisions and as are expressly requested by the Owner
Trustee and are reasonably within the capability of the Company.
(ii) Notwithstanding anything in this Agreement or the Related
Agreements to the contrary, the Administrator shall be responsible for
promptly notifying the Owner Trustee in the event that any withholding tax
is imposed on the Owner Trust's payments (or allocations of income) to an
Owner as contemplated in Section 5.2(c) of the Owner Trust Agreement. Any
such notice shall specify the amount of any withholding tax required to be
withheld by the Owner Trustee pursuant to such provision.
Section 3. Records.
The Administrator shall maintain appropriate books of account and
records relating to services performed hereunder, which books of account and
records shall be accessible for inspection by the Issuer, the Servicer and the
Master Servicer at any time during normal business hours.
Section 4. Compensation.
The Administrator will perform the duties and provide the services
called for under Section 1 hereof without any separate compensation therefor for
so long as the Indenture and the Sale and Servicing Agreement remain in effect,
and thereafter for such compensation as shall be agreed upon among the
Administrator, the Owner Trustee and the Servicer.
Section 5. Additional Information to Be Furnished to the Issuer.
The Administrator shall furnish to the Issuer from time to time such
additional information regarding the Collateral as the Issuer shall reasonably
request.
<PAGE>
Section 6. Independence of the Administrator.
For all purposes of this Agreement, the Administrator shall be an
independent contractor and shall not be subject to the supervision of the Issuer
or the Owner Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder. Unless expressly authorized by the
Issuer, the Administrator shall have no authority to act for or represent the
Issuer or the Owner Trustee in any way and shall not otherwise be deemed an
agent of the Issuer or the Owner Trustee.
Section 7. No Joint Venture.
Nothing contained in this Agreement (i) shall constitute the
Administrator or the Servicer, respectively, and either the Issuer or the Owner
Trustee as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
Section 8. Other Activities of Administrator and Servicer.
Nothing herein shall prevent the Administrator, the Servicer or their
respective Affiliates from engaging in other businesses or, in its sole
discretion, from acting in a similar capacity as an administrator for any other
person or entity even though such person or entity may engage in business
activities similar to those of the Issuer or the Owner Trustee.
Section 9. Term of Agreement; Resignation and Removal of Administrator or
Servicer.
(a) This Agreement shall continue in force until the termination of
the Owner Trust Agreement in accordance with its terms, upon which event this
Agreement shall automatically terminate.
(b) Subject to Section 9(e) hereof, the Administrator or the Servicer
may resign their respective duties hereunder by providing the Issuer with at
least 60 days' prior written notice.
(c) Subject to Section 9(e) hereof, the Issuer may remove the
Administrator without cause by providing the Administrator with at least 60
days' prior written notice.
(d) Subject to Section 9(e) hereof, the Issuer may remove the
Administrator immediately upon written notice of termination from the Issuer to
the Administrator if any of the following events occurs:
(i) the Administrator defaults in the performance of any of its
duties under this Agreement and, after notice of such default, does not
cure such default
<PAGE>
within ten days (or, if such default cannot be cured in such time, does not
give within ten days such assurance of cure as shall be reasonably
satisfactory to the Issuer);
(ii) a court having jurisdiction in the premises enters a decree
or order for relief, and such decree or order shall not have been vacated
within 60 days, in respect of the Administrator in any involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for the Administrator
or any substantial part of its property or orders the winding-up or
liquidation of its affairs; or
(iii) the Administrator commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, consents to the entry of an order for relief in an involuntary case
under any such law, consents to the appointment of a receiver, liquidator,
assignee, trustee, custodian, sequestrator or similar official for the
Administrator or any substantial part of its property, consents to the
taking of possession by any such official of any substantial part of its
property, makes any general assignment for the benefit of creditors or
fails generally to pay its debts as they become due.
The Administrator agrees that if any of the events specified in clause
(ii) or clause (iii) of this Section 9(d) shall occur, it shall give written
notice thereof to the Issuer, the Securities Insurer and the Indenture Trustee
within seven days after the happening of such event.
(e) No resignation or removal of the Administrator or Servicer,
respectively, pursuant to this Section 9(d) shall be effective until (i) a
successor Administrator or Servicer, as the case may be, shall have been
appointed by the Issuer and (ii) such successor Administrator or Servicer shall
have agreed in writing to be bound by the terms of this Agreement in the same
manner as the Administrator or Servicer is bound hereunder.
(f) The appointment of any successor Administrator shall be effective
only after satisfaction of the Rating Agency Condition with respect to the
proposed appointment.
(g) Subject to Section 9(e) and (f) hereof, the Administrator
acknowledges that upon the appointment of a successor Indenture Trustee pursuant
to Section 6.08 of the Indenture, the Administrator shall immediately resign and
such successor Indenture Trustee shall automatically become the Administrator
under this Agreement. Any such successor Indenture Trustee shall be required to
agree to assume the duties of the Administrator under the terms and conditions
of this Agreement in its acceptance of appointment as successor Indenture
Trustee.
(h) The Servicer's appointment hereunder will terminate automatically
on the Servicer's resignation or removal under the Sale and Servicing Agreement.
<PAGE>
Section 10. Action upon Termination, Resignation or Removal of the
Administrator.
Promptly upon the effective date of termination of this Agreement
pursuant to Section 9(a) or the resignation or removal of the Administrator
pursuant to Section 9(b) or (c), respectively, the Administrator shall be
entitled to be paid all reimbursable expenses accruing to it to the date of such
termination, resignation or removal. The Administrator shall forthwith upon such
termination pursuant to Section 9(a) deliver to the Issuer all property and
documents of or relating to the Collateral then in the custody of the
Administrator and, in the event of the resignation or removal of the
Administrator pursuant to Section 9(b), (c) or (d), the Administrator shall
cooperate with the Issuer and take all reasonable steps requested to assist the
Issuer in making an orderly transfer of the duties of the Administrator.
Section 11. Notices.
Any notice, report or other communication given hereunder shall be in
writing and addressed as follows:
(a) if to the Issuer, to
Empire Funding Home Loan Owner Trust 1998-3
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
with a copy to the Company at
Empire Funding Corp.
9737 Great Hills Trail
Austin, Texas 78759
Attention: Richard N. Steed
(b) if to the Administrator, to
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance/Empire
Funding 1998-3
<PAGE>
(c) if to the Servicer, to
Empire Funding Corp.
9737 Great Hills Trail
Austin, Texas 78759
Attention: Richard N. Steed
(d) if to the Master Servicer, to
Norwest Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Master Servicing Manager
(Empire Funding 1998-3)
with a copy to:
Norwest Bank Minnesota, National Association
625 Marquette Avenue, MS0070
Minneapolis, MN 55479-0070
Attention: Mortgage Document Custody
(e) if to the Securities Insurer, to
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio Management-Structured
Finance (IPM-SF)
(Empire Funding Home Loan Owner Trust 1998-3)
or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand delivered
to the address of such party as provided above.
Section 12. Amendments.
This Agreement may be amended from time to time by a written amendment
duly executed and delivered by the Issuer, the Administrator and the Servicer,
with the prior written consent of the Owner Trustee without the consent of the
Noteholders or the Securities Insurer, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Agreement or of modifying in any manner, the rights of the Noteholders or the
Securities Insurer; provided, however, that such amendment will not materially
and adversely affect the interest of any Noteholder or the Securities Insurer.
An amendment described above shall be deemed not to adversely affect in any
material respects
<PAGE>
the interests of any Noteholder or the Securities Insurer if either (i) an
Opinion of Counsel is obtained to such effect or (ii) the party requesting the
amendment satisfies the Rating Agency Condition with respect to such amendment.
This Agreement may also be amended by the Issuer, the Administrator and the
Servicer with the prior written consent of the Owner Trustee and, if no
Securities Insurer Default has occurred and is continuing, the Securities
Insurer or, if a Securities Insurer Default has occurred and is continuing, the
holders of Notes evidencing at least a majority of the Outstanding Amount of the
Notes, for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Securities Insurer or the Noteholders; provided,
however, that no such amendment may (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments in
respect of the Home Loans or payments that are required to be made for the
benefit of the Securities Insurer or Noteholders or (ii) reduce the aforesaid
percentages of the holders of Notes which are required to consent to any such
amendment, in the case of either clause (i) or clause (ii) hereof, without the
consent of the holders of all the Outstanding Notes. Notwithstanding the
foregoing, the Administrator may not amend this Agreement without the permission
of the Servicer, which permission shall not be withheld unreasonably.
Section 13. Successor and Assigns.
This Agreement may not be assigned by the Administrator unless such
assignment is previously consented to in writing by the Owner Trustee, the
Securities Insurer and the Servicer, subject to the satisfaction of the Rating
Agency Condition in respect thereof. An assignment with such consent and
satisfaction, if accepted by the assignee, shall bind the assignee hereunder in
the same manner as the Administrator is bound hereunder. Notwithstanding the
foregoing, this Agreement may be assigned by the Administrator without the
consent of the Owner Trustee or the Servicer to a corporation or other
organization that is a successor (by merger, consolidation or purchase of
assets) to the Administrator; provided, however, that such successor
organization executes and delivers to the Issuer, the Owner Trustee and the
Servicer an agreement in which such corporation or other organization agrees to
be bound hereunder by the terms of said assignment in the same manner as the
Administrator is bound hereunder. Subject to the foregoing, this Agreement shall
bind any successors or assigns of the parties hereto.
Section 14. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 15. Headings.
The section headings hereof have been inserted for convenience of
reference only and shall not be construed to affect the meaning, construction or
effect of this Agreement.
<PAGE>
Section 16. Counterparts.
This Agreement may be executed in counterparts, each of which when so
executed shall together constitute but one and the same agreement.
Section 17. Severability.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 18. Not Applicable to U.S. Bank in Other Capacities.
Nothing in this Agreement shall affect any obligation that U.S. Bank
may have in any other capacity.
Section 19. Limitation of Liability of Owner Trustee.
Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Wilmington Trust Company not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall Wilmington Trust Company in its individual capacity or any
beneficial owner of the Issuer have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer hereunder,
as to all of which recourse shall be had solely to the assets of the Issuer. For
all purposes of this Agreement, in the performance of any duties or obligations
of the Issuer hereunder, the Owner Trustee shall be subject to, and entitled to
the benefits of, the terms and provisions of Articles VI, VII and VIII of the
Owner Trust Agreement.
Section 20. Benefit of Agreement.
It is expressly agreed that in performing its duties under this
Agreement, the Administrator will act for the benefit of holders of the Notes
and the Securities Insurer as well as for the benefit of the Owner Trust, and
that such obligations on the part of the Administrator shall be enforceable at
the insistence of the Indenture Trustee, the Securities Insurer and the Owner
Trust.
Section 21. Bankruptcy Matters.
No party to this Agreement shall take any action to cause the Owner
Trust to dissolve in whole or in part or file a voluntary petition or otherwise
initiate proceedings to have the Owner Trust adjudicated bankrupt or insolvent,
or consent to the institution of bankruptcy or insolvency proceedings against
the Owner Trust, or file a petition seeking or consenting to reorganization or
relief of the Owner Trust as debtor under any applicable federal or state law
relating to bankruptcy, insolvency or other relief for debtors with respect
<PAGE>
to the Owner Trust; or seek or consent to the appointment of any trustee,
receiver, conservator, assignee, sequestrator, custodian, liquidator (or other
similar official) of the Owner Trust or of all or any substantial part of the
properties and assets of the Owner Trust, or cause the Owner Trust to make any
general assignment for the benefit of creditors of the Owner Trust or take any
action in furtherance of any of the above actions.
Section 22. Capitalized Terms.
Capitalized terms used and not defined herein have the meanings
assigned to them in the Indenture. Capitalized terms used and not defined herein
or in the Indenture have the meanings assigned to them in the Sale and Servicing
Agreement.
Section 23. Third Party Beneficiary.
The parties hereto acknowledge that the Securities Insurer is an
express third party beneficiary hereof entitled to enforce any rights reserved
to it hereunder as if it were actually a party hereto.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
By: Wilmington Trust Company,
not in its individual capacity
but solely as Owner Trustee,
By:
--------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, not in
its individual capacity but solely as
Administrator,
By:
--------------------------------------
Name:
Title:
EMPIRE FUNDING CORP.,
as the Company and as Servicer,
By:
--------------------------------------
Name:
Title:
================================================================================
OWNER TRUST AGREEMENT
among
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV,
as Depositor,
EMPIRE FUNDING CORP.,
as the Company,
WILMINGTON TRUST COMPANY,
as Owner Trustee
U.S. BANK NATIONAL ASSOCIATION,
as Paying Agent
Dated as of November 1, 1998
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
Home Loan Asset Backed Notes, Series 1998-3
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.1 Capitalized Terms...............................................1
SECTION 1.2 Other Definitional Provisions...................................4
ARTICLE II
ORGANIZATION
SECTION 2.1 Name............................................................5
SECTION 2.2 Office..........................................................5
SECTION 2.3 Purposes and Powers.............................................5
SECTION 2.4 Appointment of Owner Trustee....................................6
SECTION 2.5 Initial Capital Contribution of Owner Trust Estate..............6
SECTION 2.6 Declaration of Trust............................................6
SECTION 2.7 Title to Trust Property.........................................7
SECTION 2.8 Situs of Trust..................................................7
SECTION 2.9 Representations and Warranties of the Depositor and the
Company; Covenant of the Company ...............................7
ARTICLE III
RESIDUAL INTEREST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 Initial Ownership...............................................9
SECTION 3.2 The Residual Interest Certificates..............................9
SECTION 3.3 Execution, Authentication and Delivery of Residual Interest
Certificates ..................................................9
SECTION 3.4 Registration of Transfer and Exchange of Residual Interest
Certificates ..................................................10
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Residual Interest
Certificates ..................................................11
SECTION 3.6 Persons Deemed Owners..........................................11
SECTION 3.7 Access to List of Owners'Names and Addresses...................11
SECTION 3.8 Maintenance of Office or Agency................................12
SECTION 3.9 Appointment of Paying Agent....................................12
SECTION 3.10 Restrictions on Transfer of Residual Interest Certificates....13
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters;
Covenants .....................................................15
SECTION 4.2 Action by Owners with Respect to Certain Matters...............18
<PAGE>
SECTION 4.3 Action by Owners with Respect to Bankruptcy....................18
SECTION 4.4 Restrictions on Owners'Power...................................18
SECTION 4.5 Majority Control...............................................18
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 Establishment of Trust Account.................................19
SECTION 5.2 Application Of Trust Funds.....................................19
SECTION 5.3 Method of Payment..............................................20
SECTION 5.4 Segregation of Moneys; No Interest.............................20
SECTION 5.5 Accounting and Reports to the Certificateholder, Owners,
the Internal Revenue Service and Others .......................21
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 General Authority..............................................22
SECTION 6.2 General Duties.................................................22
SECTION 6.3 Action upon Instruction........................................22
SECTION 6.4 No Duties Except as Specified in this Agreement, the Basic
Documents or in Instructions ..................................23
SECTION 6.5 No Action Except Under Specified Documents or Instructions.....24
SECTION 6.6 Restrictions...................................................24
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties................................24
SECTION 7.2 Furnishing of Documents........................................25
SECTION 7.3 Representations and Warranties.................................26
SECTION 7.4 Reliance; Advice of Counsel....................................27
SECTION 7.5 Not Acting in Individual Capacity..............................27
SECTION 7.6 Owner Trustee Not Liable for Residual Interest Certificates
or Home Loans .................................................27
SECTION 7.7 Owner Trustee May Own Residual Interest Certificates and
Notes .........................................................28
SECTION 7.8 Licenses.......................................................28
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND PAYING AGENT
SECTION 8.1 Fees and Expenses..............................................28
SECTION 8.2 Indemnification................................................28
SECTION 8.3 Payments to the Owner Trustee and Paying Agent.................29
<PAGE>
ARTICLE IX
TERMINATION OF OWNER TRUST AGREEMENT
SECTION 9.1 Termination of Owner Trust Agreement...........................29
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee....................30
SECTION 10.2 Resignation or Removal of Owner Trustee.......................31
SECTION 10.3 Successor Owner Trustee.......................................31
SECTION 10.4 Merger or Consolidation of Owner Trustee......................32
SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee.....32
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Supplements and Amendments....................................34
SECTION 11.2 No Legal Title to Owner Trust Estate in Owners................35
SECTION 11.3 Limitations on Rights of Others...............................35
SECTION 11.4 Notices.......................................................35
SECTION 11.5 Severability..................................................36
SECTION 11.6 Separate Counterparts.........................................36
SECTION 11.7 Successors and Assigns........................................36
SECTION 11.8 No Petition...................................................36
SECTION 11.9 No Recourse...................................................36
SECTION 11.10 Headings.....................................................37
SECTION 11.11 Governing Law................................................37
SECTION 11.12 Residual Interest Transfer Restrictions......................37
SECTION 11.13 Third-Party Beneficiary......................................37
EXHIBIT A Form of Residual Interest Certificate
EXHIBIT B Form of Certificate of Trust
<PAGE>
THIS OWNER TRUST AGREEMENT, dated as of November 1, 1998, among
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV, a Delaware corporation, as
Depositor (the "Depositor"), EMPIRE FUNDING CORP., an Oklahoma corporation (the
"Company"), WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Owner
Trustee (the "Owner Trustee") and U.S. BANK NATIONAL ASSOCIATION, a national
banking association (the "Paying Agent").
WITNESSETH:
In consideration of the mutual agreements and covenants herein
contained, the Depositor, the Company, the Paying Agent and the Owner Trustee
hereby agree for the benefit of each of them and the holders of the Residual
Interest Certificates as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Administration Agreement" shall mean the Administration Agreement,
dated as of November 1, 1998 among the Issuer, the Company, as the Company and
the Servicer, and U.S. Bank National Association, as Administrator as the same
may be amended from time to time.
"Administrator" shall mean U.S. Bank National Association, or any
successor in interest thereto, in its capacity as Administrator under the
Administration Agreement.
"Agreement" shall mean this Owner Trust Agreement, as the same may be
amended and supplemented from time to time.
"Basic Documents" shall mean the Certificate of Owner Trust,
Certificate of Grantor Trust, this Agreement, the Grantor Trust Agreement, the
Indenture, the Sale and Servicing Agreement, the Administration Agreement, the
Insurance Agreement, the Custodial Agreement, the Note Depository Agreement, the
Notes, the Home Loan Purchase Agreement and other documents and certificates
delivered in connection herewith or therewith.
"Benefit Plan Investor" shall have the meaning assigned to such term
in Section 3.10(b).
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Codess. 3801 et seq., as the same may be amended from
time to time.
<PAGE>
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Residual Interest Certificate is registered.
"Corporate Trust Office" shall mean, with respect to the Trust, the
principal corporate trust office of the Trust located at Empire Funding Home
Loan Owner Trust, c/o Wilmington Trust Co., Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration; or at such other address in the State of Delaware as the Owner
Trustee may designate by notice to the Owners, the Securities Insurer and the
Company, or the principal corporate trust office of any successor Owner Trustee
(the address (which shall be in the State of Delaware) of which the successor
owner trustee will notify the Owners, the Securities Insurer and the Company).
"Definitive Certificate" means a certificated form of security that
represents a Residual Interest Certificate.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section
8.2.
"Indenture" shall mean the Indenture, dated as of November 1, 1998, by
and between the Issuer and the Indenture Trustee, as the same may be amended or
supplemented from time to time.
"Indenture Trustee" means U.S. Bank National Association, as Indenture
Trustee under the Indenture.
"Issuer" shall mean Empire Funding Home Loan Owner Trust 1998-3, the
Delaware business trust created pursuant to this Agreement.
"Majority Residual Interestholders" shall mean the Holders of more
than an aggregate 50% Percentage Interest of the Residual Interest.
"Master Servicer" shall mean Norwest Bank Minnesota, National
Association, a national banking association, or any successor in interest
thereto.
<PAGE>
"Owner" shall mean each holder of a Residual Interest Certificate.
"Owner Trustee" shall mean Wilmington Trust Company, a Delaware
banking corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor owner trustee hereunder.
"Paying Agent" shall mean the Indenture Trustee or any successor in
interest thereto or any other paying agent or co-paying agent appointed pursuant
to Section 3.9 hereunder and authorized by the Issuer to make payments to and
distributions from the Certificate Distribution Account.
"Percentage Interest" shall mean with respect to each Residual
Interest Certificate, the percentage portion of all of the Residual Interest
evidenced thereby as stated on the face of such Residual Interest Certificate.
"Prospective Owner" shall have the meaning set forth in Section
3.10(a).
"Rating Agency Condition" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Rating Agencies shall have notified the
Depositor, the Servicer, the Master Servicer, the Securities Insurer, the Owner
Trustee and the Issuer in writing that such action will not result in a
reduction, withdrawal or qualification of the then current internal ratings
assigned to the Notes without respect to the Securities Insurer.
"Record Date" shall mean as to each Payment Date the last Business Day
of the month immediately preceding the month in which such Payment Date occurs.
"Residual Interest" shall mean the right to receive distributions of
Excess Spread, if any, and certain other funds, if any, on each Payment Date,
pursuant to Section 5.2 of this Agreement, Sections 5.01(e)(iii) and 5.02(b) of
the Sale and Servicing Agreement and Section 5.04(b) of the Indenture.
"Residual Interest Certificate" shall mean a certificate substantially
in the form attached as Exhibit A hereto and evidencing the Residual Interest.
"Residual Interestholder" shall mean any Holder of a Percentage
Interest of the Residual Interest.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Owner Trust as Issuer,
PaineWebber Mortgage Acceptance Corporation IV, as Depositor, U.S. Bank National
Association, as Indenture Trustee and Grantor Trustee, the Company, as
Transferor and Servicer, and Norwest Bank Minnesota, National Association, as
Master Servicer, as the same may be amended or supplemented from time to time.
<PAGE>
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Securities Insurer" shall mean MBIA Insurance Corporation.
"Trust" shall mean the trust established by this Agreement.
"U.S. Person" shall mean a citizen or resident of the United States, a
corporation, partnership (except as provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, an estate that is subject to United States
federal income tax regardless of the source of its income, or 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 such U.S. Persons have authority to
control all substantial decisions of the trust (or, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to be treated as U.S. Persons).
SECTION 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
<PAGE>
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name. The Trust created hereby shall be known as "Empire
Funding Home Loan Owner Trust 1998-3", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Owners, the
Securities Insurer and the Company.
SECTION 2.3 Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and to sell such
Notes;
(ii) with the proceeds of the sale of the Notes, to pay the
organizational, start-up and transactional expenses of the Trust and to pay
the balance to the Depositor and the Company, as their interests may appear
pursuant to the Sale and Servicing Agreement;
(iii) to purchase, hold, assign, grant, transfer, pledge,
mortgage and convey the Owner Trust Estate pursuant to the Indenture and to
hold, manage and distribute to the Owners pursuant to the terms of the Sale
and Servicing Agreement any portion of the Owner Trust Estate released from
the lien of, and remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith;
<PAGE>
(vi) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation of
the Owner Trust Estate and the making of distributions to the Owners and
the Noteholders; and
(vii) to issue the Residual Interest Certificates pursuant to
this Agreement.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4 Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5 Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Depositor or
the Company shall pay reasonable organizational expenses of the Trust as they
may arise or shall, upon the request of the Owner Trustee, promptly reimburse
the Owner Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Owners, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Trust Statute and that this Agreement constitute the governing instrument of
such business trust. It is the intention of the parties hereto that, solely for
federal, state and local income and franchise tax purposes (i) so long as there
is a sole Owner, the Trust shall be treated as a security arrangement, with the
assets of the Trust being the Grantor Trust Certificate and the other assets
held by the Trust, the owner of the Residual Interest Certificate being the sole
Owner and the Notes being non-recourse debt of the sole Owner, and (ii) if there
is more than one Owner, the Trust shall be treated as a partnership, with the
assets of the partnership being the Grantor Trust Certificate and other assets
held by the Trust, the partners of the partnership being the holders of the
Residual Interest Certificates and the Notes being non-recourse debt of the
partnership. The Trust shall not elect to be treated as an association under
Treasury Regulations Section 301.7701-3(a) for federal income tax purposes. The
parties agree that, unless otherwise required by appropriate tax authorities,
the sole Owner or the Trust will file or cause to be filed annual or other
necessary returns, reports and other forms consistent with the characterization
of the Trust as provided in the second preceding sentence for such tax purposes.
Effective as of the date hereof, the Owner Trustee shall have all rights, powers
and duties set forth herein and in the Business Trust Statute with respect to
accomplishing the purposes of the Trust.
<PAGE>
SECTION 2.7 Title to Trust Property.
(a) Subject to the Indenture, legal title to all the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee and/or a separate
trustee, as the case may be.
(b) The Owners shall not have legal title to any part of the Owner
Trust Estate. No transfer by operation of law or otherwise of any interest of
the Owners shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of any part of
the Owner Trust Estate.
(c) The Owner Trustee shall cause the Grantor Trust Certificate to at
all times be registered in the name of the Indenture Trustee, as assignee of the
Trust and shall cause the Grantor Trust Certificate to be physically delivered
to the Indenture Trustee.
SECTION 2.8 Situs of Trust. The Trust will be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York, except with respect to accounts maintained by the Indenture Trustee on
behalf of the Owner Trustee. The Trust shall not have any employees; provided,
however, that nothing herein shall restrict or prohibit the Owner Trustee from
having employees within or without the State of Delaware. Payments will be
received by the Trust only in Delaware or New York, and payments will be made by
the Trust only from Delaware or New York, except with respect to payments made
by the Indenture Trustee on behalf of the Owner Trustee. The only offices of the
Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.9 Representations and Warranties of the Depositor and the
Company; Covenant of the Company.
(a) The Depositor hereby represents and warrants to the Owner Trustee
and the Securities Insurer that:
(i) The Depositor is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
has all licenses necessary to carry on its business as now being conducted.
The Depositor has the power and authority to execute and deliver this
Agreement and to perform in accordance herewith; the execution, delivery
and performance of this Agreement (including all instruments of transfer to
be delivered pursuant to this Agreement) by the Depositor and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action of the Depositor; this Agreement
evidences the valid, binding and enforceable obligation of the Depositor;
and all requisite action has been taken by the Depositor to make this
Agreement valid, binding and enforceable upon the Depositor in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium and other, similar laws relating to or affecting
<PAGE>
creditors' rights generally or the application of equitable principles in
any proceeding, whether at law or in equity;
(ii) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of
the Articles of Incorporation or Bylaws of the Depositor, (ii) the breach
of any term or provision of, or conflict with or constitute a default under
or result in the acceleration of any obligation under, any material
agreement, indenture or loan or credit agreement or other material
instrument to which the Depositor, or its property is subject, or (iii) the
violation of any law, rule, regulation, order, judgment or decree to which
the Depositor or its respective property is subject;
(iii) The Depositor is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal,
state, municipal or other governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the Depositor or its properties
or might have consequences that would materially and adversely affect its
performance hereunder.
(b) The Company hereby represents and warrants to the Owner Trustee
and the Securities Insurer that:
(i) The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Oklahoma, with
power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently
conducted.
(ii) The Company is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of property
or the conduct of its business shall require such qualifications.
(iii) The Company has the power and authority to execute and
deliver this Agreement and to carry out its terms; and the execution,
delivery and performance of this Agreement has been duly authorized by the
Company by all necessary corporate action.
(iv) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of the Company, or any indenture, agreement or
other instrument to which the Company is a party or by which it is bound;
nor result in the creation or imposition of any lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate any
law or, to the best of the Company's knowledge, any order, rule or
regulation applicable to the Company of any
<PAGE>
court or of any Federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Company or
its properties.
(v) There are no proceedings or investigations pending or, to the
Company's best knowledge, threatened, before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties: (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Company of its obligations under, or the validity or
enforceability of, this Agreement.
(c) The Company covenants with the Owner Trustee that during the
continuance of this Agreement it will comply in all respects with the provisions
of its Articles of Incorporation in effect from time to time.
ARTICLE III
RESIDUAL INTEREST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Residual Interest Certificates, the Depositor shall be the sole Owner of the
Trust.
SECTION 3.2 The Residual Interest Certificates. The Residual Interest
Certificates shall not be issued with a principal amount. The Residual Interest
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of a Trust Officer of the Owner Trustee. Residual Interest
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be valid and binding obligations of the Trust,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Residual Interest
Certificates or did not hold such offices at the date of authentication and
delivery of such Residual Interest Certificates.
A transferee of a Residual Interest Certificate shall become an Owner,
and shall be entitled to the rights and subject to the obligations of an Owner
hereunder and under the Sale and Servicing Agreement, upon such transferee's
acceptance of a Residual Interest Certificate duly registered in such
transferee's name pursuant to Section 3.4.
SECTION 3.3 Execution, Authentication and Delivery of Residual
Interest Certificates. Concurrently with the initial sale of the Grantor Trust
Certificate to the Trust pursuant to the Sale and Servicing Agreement, the Owner
Trustee on behalf of the Trust shall cause the Residual Interest Certificates
representing 100% of the Percentage Interests of the Residual Interest to be
executed, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any vice
president, without
<PAGE>
further corporate action by the Depositor, in authorized denominations. No
Residual Interest Certificate shall entitle its holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Residual Interest Certificate a certificate of authentication substantially in
the form set forth in Exhibit A, executed by the Owner Trustee or the
Administrator, as the Owner Trustee's authenticating agent, by manual or
facsimile signature; such authentication shall constitute conclusive evidence
that such Residual Interest Certificate shall have been duly authenticated and
delivered hereunder. All Residual Interest Certificates shall be dated the date
of their authentication. No Certificates, except the Residual Interest
Certificates, shall be issued by the Trust without the prior written consent of
the Securities Insurer.
SECTION 3.4 Registration of Transfer and Exchange of Residual Interest
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8 a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Residual Interest Certificates and
of transfers and exchanges of Residual Interest Certificates as herein provided.
The Administrator shall be the initial Certificate Registrar. No certificates,
except for Residual Interest Certificates, shall be issued by the Trust without
the prior written consent of the Securities Insurer.
Upon surrender for registration of transfer of any Residual Interest
Certificate at the office or agency maintained pursuant to Section 3.8, the
Owner Trustee shall execute, authenticate and deliver (or shall cause the
Administrator as its authenticating agent to authenticate and deliver), in the
name of the designated transferee or transferees, one or more new Residual
Interest Certificates in authorized denominations of a like aggregate amount
dated the date of authentication by the Owner Trustee or any authenticating
agent provided that prior to such execution, authentication and delivery, the
Owner Trustee, the Administrator, the Securities Insurer and the Certificate
Registrar shall have received an Opinion of Counsel to the effect that the
proposed transfer will not cause the Trust to be characterized as an association
(or a publicly traded partnership) taxable as a corporation or alter the tax
characterization of the Notes for federal income tax or Texas state law
purposes. At the option of an Owner, Residual Interest Certificates may be
exchanged for other Residual Interest Certificates of authorized denominations
of a like aggregate amount upon surrender of the Residual Interest Certificates
to be exchanged at the office or agency maintained pursuant to Section 3.8.
Every Residual Interest Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Owner or his attorney duly authorized
in writing. In addition, each Residual Interest Certificate presented or
surrendered for registration of transfer and exchange must be accompanied by a
letter from the Prospective Owner certifying as to the representations set forth
in Sections 3.10(a) and (b). Each Residual Interest Certificate surrendered for
registration of transfer or exchange shall be in substantially the form attached
hereto as Exhibit A and shall be canceled and disposed of by the Owner Trustee
in accordance with its customary practice.
<PAGE>
No service charge shall be made for any registration of transfer or
exchange of Residual Interest Certificates, but the Owner Trustee or the
Certificate Registrar may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer or
exchange of Residual Interest Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register
transfers or exchanges of Residual Interest Certificates for a period of 15 days
preceding the due date for any payment with respect to the Residual Interest
Certificates.
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Residual Interest
Certificates. If (a) any mutilated Residual Interest Certificate shall be
surrendered to the Certificate Registrar, or if the Certificate Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Residual Interest Certificate and (b) there shall be delivered to the
Certificate Registrar and the Owner Trustee such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Residual Interest Certificate shall have been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner
Trustee, or the Administrator as the Owner Trustee's authenticating agent, shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Residual Interest Certificate, a new Residual Interest
Certificate of like tenor and denomination. In connection with the issuance of
any new Residual Interest Certificate under this Section, the Owner Trustee or
the Certificate Registrar may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Residual Interest Certificate issued pursuant to this
Section shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Residual
Interest Certificate shall be found at any time.
SECTION 3.6 Persons Deemed Owners. Prior to due presentation of a
Residual Interest Certificate for registration of transfer, the Owner Trustee or
the Certificate Registrar may treat the Person in whose name any Residual
Interest Certificate shall be registered in the Certificate Register as the
owner of such Residual Interest Certificate for the purpose of receiving
distributions pursuant to Section 5.2 and for all other purposes whatsoever, and
neither the Owner Trustee nor the Certificate Registrar shall be bound by any
notice to the contrary.
SECTION 3.7 Access to List of Owners' Names and Addresses. The Owner
Trustee shall furnish or cause to be furnished to the Master Servicer, the
Servicer, the Depositor, the Securities Insurer and the Indenture Trustee,
within 15 days after receipt by the Owner Trustee of a request therefor from the
Master Servicer, the Servicer, the Depositor, the Securities Insurer or the
Indenture Trustee in writing, a list, in such form as the Master Servicer, the
Servicer, the Depositor, the Securities Insurer or the Indenture Trustee may
reasonably require, of the names and addresses of the Owners as of the most
recent Record Date. If a Certificateholder applies in writing to the Owner
Trustee, and such application states that the applicant desire to communicate
with other Certificateholders with respect to
<PAGE>
their rights under this Agreement or under the Residual Interest Certificates
and such application is accompanied by a copy of the communication that such
applicants propose to transmit, then the Owner Trustee shall, within five
Business Days after the receipt of such application, afford such applicants
access during normal business hours to the current list of Certificateholders.
Each Owner, by receiving and holding a Residual Interest Certificate, shall be
deemed to have agreed not to hold any of the Depositor, the Company, the
Certificate Registrar, the Securities Insurer or the Owner Trustee accountable
by reason of the disclosure of its name and address, regardless of the source
from which such information was derived.
SECTION 3.8 Maintenance of Office or Agency. The Owner Trustee shall
maintain an office or offices or agency or agencies where Residual Interest
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Owner Trustee in respect of the
Residual Interest Certificates and the Basic Documents may be served. The Owner
Trustee initially designates the Administrator's office in the Borough of
Manhattan, The City of New York as its principal corporate trust office for such
purposes. The Owner Trustee shall give prompt written notice to the Company, the
Securities Insurer and to the Certificateholders of any change in the location
of the Certificate Register or any such office or agency.
SECTION 3.9 Appointment of Paying Agent. The Owner Trustee hereby
appoints the Indenture Trustee as Paying Agent under this Agreement. The Owner
Trustee hereby appoints the Paying Agent to establish and maintain the
Certificate Distribution Account. The Paying Agent shall make distributions to
Residual Interestholders from the Certificate Distribution Account pursuant to
Section 5.2 hereof and Section 5.02 of the Sale and Servicing Agreement and
shall report the amounts of such distributions to the Owner Trustee. The Paying
Agent shall have the revocable power to withdraw funds from the Certificate
Distribution Account for the purpose of making the distributions referred to
above. In the event that the Indenture Trustee shall no longer be the Paying
Agent hereunder, the Owner Trustee shall appoint a successor to act as Paying
Agent (which shall be a bank or trust company) acceptable to the Securities
Insurer. The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver to
the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that as Paying Agent,
such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Owners in trust for the benefit of the
Residual Interestholders entitled thereto until such sums shall be paid to such
Owners. The Paying Agent shall return all unclaimed funds to the Owner Trustee,
and upon removal of a Paying Agent, such Paying Agent shall also return all
funds in its possession to the Owner Trustee. The provisions of Sections 7.1,
7.3, 7.4 and 8.1 shall apply to the Indenture Trustee also in its role as Paying
Agent, for so long as the Indenture Trustee shall act as Paying Agent and, to
the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise. Notwithstanding anything herein to
the contrary, the Paying Agent shall be the same entity as the Indenture Trustee
under the Indenture and the Sale and Servicing Agreement, unless the Securities
Insurer consents to a different Paying Agent or a Securities Insurer Default has
occurred and is continuing. If the
<PAGE>
Paying Agent ceases to be the same entity as the Indenture Trustee under the
Indenture and the Sale and Servicing Agreement, then, unless the Securities
Insurer otherwise consents, the Paying Agent shall resign and the Owner Trustee
shall assume the duties and obligations of the Paying Agent hereunder and under
the Sale and Servicing Agreement.
SECTION 3.10 Restrictions on Transfer of Residual Interest
Certificates.
(a) Each prospective purchaser and any subsequent transferee of a
Residual Interest Certificate (each, a "Prospective Owner"), other than the
Company, shall represent and warrant, in writing, to the Owner Trustee, the
Securities Insurer and the Certificate Registrar and any of their
respective successors that:
(i) Such Person is (A) a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), and is aware that the seller of the Residual
Interest Certificate may be relying on the exemption from the
registration requirements of the Securities Act provided by Rule 144A
and is acquiring such Residual Interest Certificate for its own
account or for the account of one or more qualified institutional
buyers for whom it is authorized to act, or (B) an institutional
"accredited investor" within the meaning of subparagraph (a)(1), (2),
(3) or (7) of Rule 501 under the Securities Act (an "Institutional
Accredited Investor") that is acquiring the Offered Notes for its own
account, or for the account of such an Institutional Accredited
Investor, for investment purposes and not with a view to, or for offer
or sale in connection with any distribution in violation of the
Security Act.
(ii) Such Person understands that the Residual Interest
Certificate have not been and will not be registered under the
Securities Act and may be offered, sold or otherwise transferred only
to a person whom the seller reasonably believes is (A) a qualified
institutional buyer or (B) an Institutional Accredited Investor, and
in accordance with the terms hereof and any applicable securities laws
of any state of the United States.
(iii) Such Person understands that the Residual Interest
Certificates bear a legend to the following effect:
"THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS
RESIDUAL INTEREST CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL INTEREST
CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR
OTHERWISE DISPOSED OF BY THE HOLDER HEREOF ONLY TO (I) A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE
ACT
<PAGE>
AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE
144A OR (II) AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE
501 UNDER THE ACT (INCLUDING, BUT NOT LIMITED TO, EMPIRE
FUNDING CORP.) IN A TRANSACTION THAT IS REGISTERED UNDER THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.
NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INTEREST
CERTIFICATE UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of Section
3.10(b), as applicable, relating to the ERISA restrictions with
respect to the acceptance or acquisition of such Residual Interest
Certificate.
(b) Each Prospective Owner, other than the Company, shall either:
(i) represent and warrant, in writing, to the Owner Trustee, the
Securities Insurer and the Certificate Registrar and any of their
respective successors that the Prospective Owner is not (A) an
"employee benefit plan" within the meaning of Section 3(3) of ERISA,
or (B) a "plan" within the meaning of Section 4975(e)(1) of the Code
or (C) an entity, including an insurance company separate account or
general account, whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a "Benefit Plan Investor")
and is not directly or indirectly purchasing such Residual Interest
Certificate on behalf of, as investment manager of, as named fiduciary
of, as trustee of, or with the assets of a Benefit Plan Investor; or
(ii) furnish to the Owner Trustee, the Securities Insurer and the
Certificate Registrar and any of their respective successors an
opinion of counsel acceptable to such persons that (A) the proposed
transfer of the Residual Interest Certificate to such Prospective
Owner will not cause any assets of the Trust to be deemed "plan
assets" within the meaning of United States Department of Labor
Regulation Section 2510.3-101, or (B) the proposed transfer of the
Residual Interest Certificate will not give rise to a transaction
described in Section 406 of ERISA or Section 4975(c)(1) of the Code
for which a statutory or administrative exemption is unavailable.
(c) The Residual Interest Certificates shall bear an additional legend
referring to the foregoing restrictions contained in paragraph (b) above.
<PAGE>
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters;
Covenants. (a) With respect to the following matters, the Owner Trustee shall
not take action, and the Owners shall not direct the Owner Trustee to take any
action, unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Owners and the Securities Insurer in writing of
the proposed action and (i) the Securities Insurer shall have consented thereto
and (ii) the Owners shall not have notified the Owner Trustee in writing prior
to the 30th day after such notice is given that such Owners have withheld
consent or the Owners have provided alternative direction (any direction by the
Owners shall require the prior consent of the Securities Insurer):
(i) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of the Home
Loans) and the compromise of any action, claim or lawsuit brought by
or against the Trust (except with respect to the aforementioned claims
or lawsuits for collection of the Home Loans);
(ii) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the
Business Trust Statute);
(iii) the amendment or other change to this Agreement or any Basic
Document in circumstances where the consent of any Noteholder or the
Securities Insurer is required;
(iv) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this
Agreement of a successor Certificate Registrar, or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture Trustee or
Certificate Registrar of its obligations under the Indenture or this
Agreement, as applicable;
(v) the consent to the calling or waiver of any default of any Basic
Document;
(vi) the consent to the assignment by the Indenture Trustee, the
Master Servicer or Servicer of their respective obligations under any
Basic Document;
(vii) except as provided in Article IX hereof, dissolve, terminate or
liquidate the Trust in whole or in part;
(viii) merge or consolidate the Trust with or into any other entity,
or convey or transfer all or substantially all of the Trust's assets
to any other entity;
<PAGE>
(ix) cause the Trust to incur, assume or guaranty any indebtedness
other than as set forth in this Agreement;
(x) do any act that conflicts with any other Basic Document;
(xi) do any act which would make it impossible to carry on the
ordinary business of the Trust;
(xii) confess a judgment against the Trust;
(xiii) possess Trust assets, or assign the Trust's right to property,
for other than a Trust purpose;
(xiv) cause the Trust to lend any funds to any entity; or
(xv) change the Trust's purpose and powers from those set forth in
this Owner Trust Agreement.
(b) Without limiting any provision of Section 4.1(a) the Owner Trustee
on behalf of the Trust agrees to abide by the following restrictions:
(i) Other than as contemplated by the Basic Documents and related
documentation, the Trust shall not incur any indebtedness.
(ii) Other than as contemplated by the Basic Documents and
related documentation, the Trust shall not engage in any dissolution,
liquidation, consolidation, merger or sale of assets.
(iii) The Trust shall not engage in any business activity in
which it is not currently engaged other as contemplated by the Basic
Documents and related documentation.
(iv) The Trust shall not form, or cause to be formed, any
subsidiaries and shall not own or acquire any asset other than as
contemplated by the Basic Documents and related documentation.
(v) Other than as contemplated by the Basic Documents and related
documentation, the Trust shall not follow the directions or
instructions of the Company.
(c) The Owner Trustee on behalf of the Trust shall:
(i) Maintain the Trust's books and records separate from any
other person or entity.
(ii) Maintain the Trust's bank accounts separate from any other
person or entity.
<PAGE>
(iii) Not commingle the Trust's assets with those of any other
person or entity.
(iv) Conduct the Trust's own business in its own name.
(v) Other than as contemplated by the Basic Documents and related
documentation, pay the Trust's own liabilities and expenses only out
of its own funds.
(vi) Observe all formalities required under the Business Trust
Statute.
(vii) Enter into transactions with Affiliates or the Company only
if each such transaction is intrinsically fair, commercially
reasonable, and on the same terms as would be available in an arm's
length transaction with a person or entity that is not an Affiliate.
(viii) Not guarantee or become obligated for the debts of any
other entity or person.
(ix) Not hold out the Trust's credit as being available to
satisfy the obligation of any other person or entity.
(x) Not acquire the obligations or securities of the Trust's
Affiliates or the Company.
(xi) Other than as contemplated by the Basic Documents and
related documentation, not make loans to any other person or entity or
buy or hold evidence of indebtedness issued by any other person or
entity.
(xii) Other than as contemplated by the Basic Documents and
related documentation, not pledge the Trust's assets for the benefit
of any other person or entity.
(xiii) Hold the Trust out as a separate entity and conduct any
business only in its own name.
(xiv) Correct any known misunderstanding regarding the Trust's
separate identity.
(xv) Not identify the Trust as a division of any other person or
entity.
(xvi) Maintain appropriate minutes or other records of
appropriate actions and shall maintain its office separate from the
office of the Company, the Depositor and the Master Servicer.
So long as the Notes or any other amounts owed under the Indenture
remain outstanding, the Trust shall not amend this Section 4.1 without the prior
written consent of
<PAGE>
100% of the Voting Interests of the Notes and the consent of each Rating Agency,
in addition to the requirements under Section 11.1.
(d) The Owner Trustee shall not have the power, except upon the
direction of the Owners with the consent of the Securities Insurer or upon the
direction of the Securities Insurer, and, subject to Section 11.16 of the
Indenture, 100% of the Noteholders, and to the extent otherwise consistent with
the Basic Documents, to (i) remove or replace the Servicer, the Master Servicer,
the Indenture Trustee or the Grantor Trustee, (ii) institute proceedings to have
the Trust declared or adjudicated a bankrupt or insolvent, (iii) consent to the
institution of bankruptcy or insolvency proceedings against the Trust, (iv) file
a petition or consent to a petition seeking reorganization or relief on behalf
of the Trust under any applicable federal or state law relating to bankruptcy,
(v) consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or any similar official) of the Trust or a substantial portion of
the property of the Trust, (vi) make any assignment for the benefit of the
Trust's creditors, (vii) cause the Trust to admit in writing its inability to
pay its debts generally as they become due, (viii) take any action, or cause the
Trust to take any action, in furtherance of any of the foregoing (any of the
above, a "Bankruptcy Action"). So long as the Indenture and the Insurance
Agreement remain in effect and no Securities Insurer Default exists, no
Certificateholder shall have the power to take, and shall not take, any
Bankruptcy Action with respect to the Trust or direct the Owner Trustee to take
any Bankruptcy Action with respect to the Trust.
SECTION 4.2 Action by Owners with Respect to Certain Matters. The
Owner Trustee shall not have the power, except upon the direction of the Owners
and with the consent of the Securities Insurer or upon the direction of the
Securities Insurer, to (a) remove the Administrator under the Administration
Agreement pursuant to Section 8 thereof, (b) appoint a successor Administrator
pursuant to Section 8 of the Administration Agreement, (c) remove the Servicer
or the Master Servicer under the Sale and Servicing Agreement pursuant to
Section 10.01 thereof or (d) sell the Grantor Trust Certificate after the
termination of the Indenture. The Owner Trustee shall take the actions referred
to in the preceding sentence only upon written instructions signed by the Owners
and only after obtaining the consent of the Securities Insurer.
SECTION 4.3 Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary Bankruptcy Action
relating to the Trust unless the conditions specified in Section 4.1(d) are
satisfied and the Trust is insolvent.
SECTION 4.4 Restrictions on Owners' Power. The Owners shall not direct
the Owner Trustee to take or refrain from taking any action if such action or
inaction would be contrary to any obligation of the Trust or the Owner Trustee
under this Agreement or any of the Basic Documents or would be contrary to
Section 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
SECTION 4.5 Majority Control. Except as expressly provided herein, any
action that may be taken by the Owners under this Agreement may be taken by the
Majority
<PAGE>
Residual Interestholders. Except as expressly provided herein, any written
notice of the Owners delivered pursuant to this Agreement shall be effective if
signed by the Majority Residual Interestholders at the time of the delivery of
such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 Establishment of Trust Account. The Owner Trustee shall
cause the Servicer, for the benefit of the Owners, the Noteholders and the
Securities Insurer, to establish and maintain with U.S. Bank National
Association for the benefit of the Owner Trustee one or more Eligible Accounts
which, so long as the Indenture Trustee holds such Trust Account on behalf of
the Owner Trustee, shall be entitled "Certificate Distribution Account, U.S.
Bank National Association, on behalf of the Owner Trustee, the Owners, the
Noteholders and the Securities Insurer, in trust for the Empire Funding Home
Loan Asset Backed Securities, Series 1998-3". Funds shall be deposited in the
Certificate Distribution Account as required by the Sale and Servicing
Agreement.
All of the right, title and interest of the Owner Trustee and the
Paying Agent in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the benefit
of the Owners and such other persons entitled to distributions therefrom. Except
as otherwise expressly provided herein or in the Sale and Servicing Agreement,
the Certificate Distribution Account shall be under the sole dominion and
control of the Owner Trustee or Paying Agent for the benefit of the Owners, the
Securities Insurer and the Servicer.
In addition to the foregoing, the Certificate Distribution Account is
a Trust Account under the Sale and Servicing Agreement and constitutes part of
the Owner Trust Estate pledged by the Trust to the Indenture Trustee under the
Indenture. The Certificate Distribution Account shall be subject to and
established and maintained in accordance with the applicable provisions of the
Sale and Servicing Agreement and the Indenture, including, without limitation,
the provisions of Section 5.02(b) of the Sale and Servicing Agreement regarding
distributions from the Certificate Distribution Account.
The Company agrees to direct and shall have the sole authority to
direct the Owner Trustee or Indenture Trustee or their successor in interest, as
to the Permitted Investments in which the funds on deposit in the Trust Accounts
(as such term is defined in the Sale and Servicing Agreement) may be invested.
SECTION 5.2 Application Of Trust Funds.
(a) On each Payment Date, the Owner Trustee or Indenture Trustee, on
behalf of the Owner Trustee, shall direct the Paying Agent to distribute to the
Servicer and the Residual Interestholders from amounts on deposit in the
Certificate Distribution Account the
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distributions as provided in Section 5.02(b) of the Sale and Servicing Agreement
with respect to such Payment Date.
(b) On each Payment Date, the Owner Trustee shall cause the Paying
Agent to send to each Residual Interestholder the statement provided to the
Owner Trustee by the Servicer pursuant to Section 6.01 of the Sale and Servicing
Agreement with respect to such Payment Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to an Owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section. The Owner
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to an Owner
shall be treated as cash distributed to such Owner at the time it is withheld by
the Trust and remitted to the appropriate taxing authority. In the event of any
claimed overwithholding, Owners shall have no claim for recovery against the
Trust or other Owners. If the amount withheld was not withheld from actual
distributions, the Trust may, at its option, (i) require the Owner to reimburse
the Trust for such withholding (and each Owner agrees to reimburse the Trust
promptly following such request) or (ii) reduce any subsequent distributions by
the amount of such withholding. If the Owner Trustee determines that a
withholding tax is payable with respect to a distribution (such as a
distribution to an Owner (or any other beneficial owner of the Owner Trust) that
is not a U.S. Person and that has not established an applicable exemption from
withholding (such as an effective Form W-8, Form 1001 or Form 4224), the Owner
Trustee shall in its sole discretion withhold such amounts as it determines are
required to be withheld in accordance with this paragraph (c). In the event that
an Owner wishes to apply for a refund of any such withholding tax, the Owner
Trustee shall reasonably cooperate with such owner in making such claim so long
as such Owner agrees to reimburse the Owner Trustee for any out-of-pocket
expenses incurred.
SECTION 5.3 Method of Payment. Subject to Section 3.10, distributions
required to be made to Owners on any Payment Date shall be made to each Owner
of, record on the preceding Record Date either by wire transfer, in immediately
available funds, to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if such Owner shall have provided to the
Certificate Registrar appropriate written instructions at least five Business
Days prior to such Payment Date; or, if not, by check mailed to such Owner at
the address of such holder appearing in the Certificate Register.
SECTION 5.4 Segregation of Moneys; No Interest. Subject to Sections
4.1, 5.1 and 5.2, moneys received by the Owner Trustee hereunder and deposited
into the Certificate Distribution Account will be segregated except to the
extent required otherwise by law or the Sale and Servicing Agreement and shall
be invested in Permitted Investments at the
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direction of the Company. The Owner Trustee shall not be liable for payment of
any interest in respect of such moneys.
SECTION 5.5 Accounting and Reports to the Certificateholder, Owners,
the Internal Revenue Service and Others. The Owner Trustee shall deliver to each
Owner and the Securities Insurer, as may be required by the Code and applicable
Treasury Regulations, or as may be requested by such Owner and the Securities
Insurer, such information, reports or statements as may be necessary to enable
each Owner to prepare its federal and state income tax returns. Consistent with
the Trust's characterization for tax purposes as a security arrangement for the
issuance of non-recourse debt so long as the Company or any other Person is the
sole Owner, no federal income tax return shall be filed on behalf of the Trust
unless either (i) the Owner Trustee and the Securities Insurer shall receive an
Opinion of Counsel that, based on a change in applicable law occurring after the
date hereof, or as a result of a transfer by the Company permitted by Section
3.4, the Code requires such a filing or (ii) the Internal Revenue Service shall
determine that the Trust is required to file such a return. In the event that
there shall be two or more beneficial owners of the Trust, the Owner Trustee
shall inform the Indenture Trustee and the Securities Insurer in writing of such
event, (x) the Owner Trustee shall prepare or shall cause to be prepared federal
and, if applicable, state or local partnership tax returns required to be filed
by the Trust and shall remit such returns to the Company (or if the Company no
longer owns any Residual Interest Certificates, the Owner designated for such
purpose by the Company to the Owner Trustee in writing) at least (5) days before
such returns are due to be filed, and (y) capital accounts shall be maintained
for each Owner (or beneficial owner) in accordance with the Treasury Regulations
under Section 704(b) of the Code reflecting each such Owner's (or beneficial
owner's) share of the income, gains, deductions, and losses of the Trust and/or
guaranteed payments made by the Trust and contributions to, and distributions
from, the Trust. The Company (or such designee Owner, as applicable) shall
promptly sign such returns and deliver such returns after signature to the Owner
Trustee and such returns shall be filed by the Owner Trustee with the
appropriate tax authorities. In the event that a "tax matters partner" (within
the meaning of Code Section 6231(a)(7) is required to be appointed with respect
to the Trust, the Company is hereby designated as tax matters partner or, if the
Company is not an Owner, the Owner selected by a majority of the Owners (by
Percentage Interest) shall be designated as tax matters partner. In no event
shall the Owner Trustee or the Company (or such designee Owner, as applicable)
be liable for any liabilities, costs or expenses of the Trust or the Noteholders
arising out of the application of any tax law, including federal, state, foreign
or local income or excise taxes or any other tax imposed on or measured by
income (or any interest, penalty or addition with respect thereto or arising
from a failure to comply therewith) except for any such liability, cost or
expense attributable to any act or omission by the Owner Trustee or the Company
(or such designee Owner, as applicable), as the case may be, in breach of its
obligations under this Agreement.
<PAGE>
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the Notes,
the Residual Interest Certificates and the Basic Documents to which the Trust is
to be a party and each certificate or other document attached as an exhibit to
or contemplated by the Basic Documents to which the Trust is to be a party and
any amendment or other agreement or instrument described in Article III, in each
case, in such form as the Company shall approve, as evidenced conclusively by
the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver the Notes in the aggregate
principal amount of $283,580,654. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust, pursuant to the Basic Documents.
SECTION 6.2 General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Basic Documents
to which the Trust is a party and to administer the Trust in the interest of the
Owners, subject to the Basic Documents and in accordance with the provisions of
this Agreement. Notwithstanding the foregoing, the Owner Trustee shall be deemed
to have discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Administrator or the Indenture Trustee has agreed in
the Administration Agreement or this Agreement, respectively, to perform any act
or to discharge any duty of the Owner Trustee or the Trust hereunder or under
any Basic Document, and the Owner Trustee shall not be held liable for the
default or failure of the Administrator or the Indenture Trustee to carry out
its obligations under the Administration Agreement or this Agreement,
respectively; and
(b) to obtain and preserve, the Issuer's qualification to do business
in each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, the
Collateral and each other instrument and agreement included in the Owner Trust
Estate.
SECTION 6.3 Action upon Instruction.
(a) Subject to the terms of this Agreement and in accordance with the
terms of the Basic Documents, the Owners may by written instruction direct the
Owner Trustee in the management of the Trust but only to the extent consistent
with the limited purpose of the Trust. Such direction may be exercised at any
time by written instruction of the Owners pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the
<PAGE>
Owner Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Owners and the
Securities Insurer requesting instruction from the Owners and the Securities
Insurer as to the course of action to be adopted, and to the extent the Owner
Trustee acts in good faith in accordance with any written instruction of the
Securities Insurer, or with the prior consent of the Securities Insurer, the
Owners received, the Owner Trustee shall not be liable on account of such action
to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period of time
as reasonably may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Securities
Insurer and the Owners requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received from the Securities Insurer, or with the prior consent of
the Securities Insurer, from the Owners, the Owner Trustee shall not be liable,
on account of such action or inaction, to any Person. If the Owner Trustee shall
not have received appropriate instruction within 10 days of such notice (or
within such shorter period of time as reasonably may be specified in such notice
or may be necessary under the circumstances) it may, but shall be under no duty
to, take or refrain from taking such action, not inconsistent with this
Agreement or the Basic Documents, as it shall deem to be in the best interests
of the Owners, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement, the Basic
Documents or in Instructions. The Owner Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Owner Trustee is a party, except as expressly
provided by the terms of this Agreement, any Basic Document or in any document
or written instruction received by the Owner Trustee pursuant to Section 6.3;
and no implied duties or obligations shall be read into this Agreement or any
Basic Document against the Owner Trustee. The Owner Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the
<PAGE>
perfection of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for the Trust or
to record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee that are not
related to the ownership or the administration of the Owner Trust Estate.
SECTION 6.5 No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Owners shall not direct the Owner Trustee to take action that would violate the
provisions of this Section.
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement and the Basic
Documents. The Owner Trustee also agrees to disburse all moneys actually
received by it constituting part of the Owner Trust Estate upon the terms of the
Basic Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct or gross negligence or (ii) in the
case of the inaccuracy of any representation or warranty contained in Section
7.3 expressly made by the Owner Trustee. In particular, but not by way of
limitation (and subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Owners;
(c) no provision of this Agreement or any Basic Document shall require
the Owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or under
any Basic Document if the
<PAGE>
Owner Trustee shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect of
the validity or sufficiency of this Agreement or for the due execution hereof by
the Depositor or the Company or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Basic Documents, other than the
certificate of authentication on the Residual Interest Certificates, and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Noteholder or to any Owner, other than as expressly provided
for herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Depositor, the Company, the Indenture
Trustee, the Grantor Trustee, the Master Servicer or the Servicer under any of
the Basic Documents or otherwise and the Owner Trustee shall have no obligation
or liability to perform the obligations of the Trust under this Agreement or the
Basic Documents that are required to be performed by the Administrator under the
Administration Agreement, the Indenture Trustee under the Indenture, the Grantor
Trustee under the Grantor Trust Agreement or the Master Servicer or Servicer
under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement or any Basic Document, at the request, order or direction of any of
the Owners, unless such Owners have offered to the Owner Trustee security or
indemnity satisfactory to it against the costs, expenses and liabilities that
may be incurred by the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its gross negligence or willful misconduct in the
performance of any such act provided, that the Owner Trustee shall be liable for
its negligence or willful misconduct in the event that it assumes the duties and
obligations of the Indenture Trustee under the Sale and Servicing Agreement
pursuant to Section 10.5.
SECTION 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the Owners and the Securities Insurer promptly upon receipt of a written
request therefor, duplicates or copies of all reports, notices, requests,
demands, certificates, financial statements and any other instruments furnished
to the Owner Trustee under the Basic Documents and (b) to Noteholders promptly
upon written request therefor, copies of the Sale and Servicing Agreement, the
Administration Agreement and the Owner Trust Agreement.
<PAGE>
SECTION 7.3 Representations and Warranties.
(a) The Owner Trustee hereby represents and warrants to the Depositor,
the Securities Insurer and the Company, for the benefit of the Owners, that:
(i) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware. It has
all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any Federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment
or order binding on it, or constitute any default under its charter
documents or by-laws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound.
(b) The Paying Agent hereby represents and warrants to the Depositor,
the Securities Insurer and the Company that:
(i) It is a national banking association duly organized and
validly existing in good standing under the laws of the United States. It
has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any Federal or Minnesota law, governmental rule or regulation
governing the banking or trust powers of the Paying Agent or any judgment
or order binding on it, or constitute any default under its charter
documents or by-laws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound.
<PAGE>
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond, or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall constitute full
protection to the Owner Trustee for any action taken or omitted to be taken by
it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and not contrary to this Agreement or
any Basic Document.
SECTION 7.5 Not Acting in Individual Capacity. Except as provided in
this Agreement, in accepting the trusts hereby created Wilmington Trust Company
acts solely as Owner Trustee hereunder and not in its individual capacity and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6 Owner Trustee Not Liable for Residual Interest
Certificates or Home Loans. The recitals contained herein and in the Residual
Interest Certificates (other than the signature and countersignature of the
Owner Trustee on the Residual Interest Certificates) shall be taken as the
statements of the Depositor and the Company, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Agreement, of any
Basic Document or of the Residual Interest Certificates (other than the
signature and countersignature of the Owner Trustee on the Residual Interest
Certificates and as specified in Section 7.3) or the Notes, or of any Home Loans
or related documents. The Owner Trustee shall at no time have any responsibility
or liability for or with respect to the legality, validity and enforceability of
the Grantor Trust Certificate, any Home Loan, or the perfection and priority of
any security interest created by any Home Loan or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the
<PAGE>
payments to be distributed to Owners under this Agreement or the Noteholders
under the Indenture, including, without limitation: the existence, condition and
ownership of any Mortgaged Property; the existence and enforceability of any
insurance thereon; the existence and contents of any Home Loan on any computer
or other record thereof, the validity of the assignment of the Grantor Trust
Certificate to the Trust or of any intervening assignment; the completeness of
any Home Loan; the performance or enforcement of any Home Loan; the compliance
by the Depositor, the Company, the Master Servicer or the Servicer with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation or any action of
the Administrator, the Indenture Trustee, the Master Servicer or the Servicer or
any subservicer taken in the name of the Owner Trustee.
SECTION 7.7 Owner Trustee May Own Residual Interest Certificates and
Notes. The Owner Trustee in its individual or any other capacity may become the
owner or pledgee of Residual Interest Certificates or Notes and may deal with
the Depositor, the Company, the Administrator, the Indenture Trustee and the
Servicer in banking transactions with the same rights as it would have if it
were not Owner Trustee.
SECTION 7.8 Licenses. The Owner Trustee shall cause the Trust to use
its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Basic Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND PAYING AGENT
SECTION 8.1 Fees and Expenses. The Owner Trustee shall receive as
compensation for its services hereunder such fees as have been separately agreed
upon before the date hereof between the Company and the Owner Trustee, and the
Owner Trustee shall be entitled to be reimbursed by the Company for its other
reasonable expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Owner Trustee may employ in connection with the exercise and performance of its
rights and its duties hereunder. The Paying Agent shall receive as compensation
for its services hereunder such fees, if any, as have been separately agreed
upon before the date hereof between the Company and the Paying Agent.
SECTION 8.2 Indemnification. The Company shall be liable as primary
obligor, and the Servicer as secondary obligor pursuant to the Administration
Agreement, for, and shall indemnify the Owner Trustee, the Paying Agent and
their successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred
<PAGE>
by, or asserted against the Owner Trustee or any Indemnified Party in any way
relating to or arising out of this Agreement, the Basic Documents, the Owner
Trust Estate, the administration of the Owner Trust Estate or the action or
inaction of the Owner Trustee or the Paying Agent hereunder. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the termination of this Agreement. In any event of any claim,
action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee's or Paying Agent's choice of legal counsel shall be
subject to the approval of the Company, which approval shall not be unreasonably
withheld.
SECTION 8.3 Payments to the Owner Trustee and Paying Agent. Any
amounts paid to the Owner Trustee and/or Paying Agent pursuant to this Article
VIII shall be deemed not to be a part of the Owner Trust Estate immediately
after such payment.
ARTICLE IX
TERMINATION OF OWNER TRUST AGREEMENT
SECTION 9.1 Termination of Owner Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust shall
terminate and be of no further force or effect on the earlier of: (i) the
satisfaction and discharge of the Indenture pursuant to Section 4.01 of the
Indenture and the termination of the Sale and Servicing Agreement and the
Insurance Agreement; and (ii) the expiration of 21 years from the death of the
last survivor of the descendants of Joseph P. Kennedy (the late ambassador of
the United States to the Court of St. James's) alive on the date hereof. The
bankruptcy, liquidation, dissolution, death or incapacity of any Owner shall not
(x) operate to terminate this Agreement or the Trust, nor (y) entitle such
Owner's legal representatives or heirs to claim an accounting or to take any
action or proceeding in any court for a partition or winding up of all or any
part of the Trust or Owner Trust Estate nor (z) otherwise affect the rights,
obligations and liabilities of the parties hereto.
(b) The Residual Interest Certificates shall be subject to an early
redemption or termination at the option of the Majority Residual
Interestholders, the Securities Insurer or the Master Servicer in the manner and
subject to the provisions of Section 11.02 of the Sale and Servicing Agreement.
(c) Except as provided in Sections 9.1(a) and (b) above, none of the
Depositor, the Company, the Securities Insurer nor any Owner shall be entitled
to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the Payment
Date upon which the Certificateholders shall surrender their Residual Interest
Certificates to the Paying Agent for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Certificateholders, the
Securities Insurer and the Rating Agencies mailed within five Business Days of
receipt by the Owner Trustee of notice of such termination
<PAGE>
pursuant to Section 9.1(a) or (b) above, which notice given by the Owner Trustee
shall state (i) the Payment Date upon or with respect to which final payment of
the Residual Interest Certificates shall be made upon presentation and surrender
of the Residual Interest Certificates at the office of the Paying Agent therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Payment Date is not applicable, payments being
made only upon presentation and surrender of the Residual Interest Certificates
at the office of the Paying Agent therein specified. The Owner Trustee shall
give such notice to the Certificate Registrar (if other than the Owner Trustee)
and the Paying Agent at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Residual Interest Certificates, the
Paying Agent shall cause to be distributed to Certificateholders amounts
distributable on such Payment Date pursuant to Section 5.02 of the Sale and
Servicing Agreement.
In the event that all of the Certificateholders shall not surrender
their Residual Interest Certificates for cancellation within six months after
the date specified in the above mentioned written notice, the Owner Trustee
shall give a second written notice to the remaining Certificateholders to
surrender their Residual Interest Certificates for cancellation and receive the
final distribution with respect thereto. If within one year after the second
notice all the Residual Interest Certificates shall not have been surrendered
for cancellation, the Owner Trustee may take appropriate steps, or may appoint
an agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Residual Interest Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Paying Agent to the Residual
Interestholders on a pro rata basis.
(e) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; having (or having a
parent which has) a long-term rating of at least "A" by S&P, Fitch and Moody's
and being acceptable to the Securities Insurer. If such corporation shall
publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital
<PAGE>
and surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee . The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Administrator, the Securities Insurer
and the Indenture Trustee. Upon receiving such notice of resignation, the
Administrator shall promptly appoint a successor Owner Trustee (acceptable to
the Securities Insurer) by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to the
successor Owner Trustee. If no successor Owner Trustee shall have been so
appointed and have accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Owner Trustee or the Securities Insurer may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Administrator or the Securities Insurer, or if
at any time the Owner Trustee shall be legally unable to act, or shall be
adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or of its
property shall be appointed, or any public officer shall take charge or control
of the Owner Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Securities Insurer, or the
Administrator with the consent of the Securities Insurer, may remove the Owner
Trustee. If the Securities Insurer or the Administrator shall remove the Owner
Trustee under the authority of the immediately preceding sentence, the
Securities Insurer, or the Administrator with the prior consent of the
Securities Insurer, shall promptly appoint a successor Owner Trustee by written
instrument in duplicate, one copy of which instrument shall be delivered to the
outgoing Owner Trustee so removed and one copy to the successor Owner Trustee
and payment of all fees owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3, Securities Insurer provides written approval
and payment of all fees and expenses owed to the outgoing Owner Trustee. The
Administrator shall provide notice of such resignation or removal of the Owner
Trustee to each of the Rating Agencies and the Securities Insurer.
SECTION 10.3 Successor Owner Trustee . Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Administrator, the Securities Insurer and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee (if acceptable to the Securities Insurer),
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties, and obligations of its predecessor under this
Agreement, with like effect as if originally named as Owner Trustee. The
predecessor
<PAGE>
Owner Trustee shall upon payment of its fees and expenses deliver to the
successor Owner Trustee all documents and statements and monies held by it under
this Agreement; and the Administrator and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Administrator shall mail notice of the successor of such
Owner Trustee to all Owners, the Indenture Trustee, the Noteholders, the
Securities Insurer and the Rating Agencies. If the Administrator fails to mail
such notice within 10 days after acceptance of appointment by the successor
Owner Trustee, the successor Owner Trustee shall cause such notice to be mailed
at the expense of the Administrator.
SECTION 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
further that the Owner Trustee shall mail notice of such merger or consolidation
to the Securities Insurer and the Rating Agencies.
SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner
Trustee. Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Owner Trust Estate or any Mortgaged Property may at the time be
located, and for the purpose of performing certain duties and obligations of the
Owner Trustee with respect to the Trust and the Residual Interest Certificates
under the Sale and Servicing Agreement, the Administrator and the Owner Trustee
acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Owner Trustee and
acceptable to the Securities Insurer to act as co-owner trustee, jointly with
the Owner Trustee, or separate trustee or separate trustees, of all or any part
of the Owner Trust Estate, and to vest in such Person, in such capacity, such
title to the Trust, or any part thereof, and, subject to the other provisions of
this Section, such powers, duties, obligations, rights and trusts as the
Administrator, the Securities Insurer and the Owner Trustee may consider
necessary or desirable. If the Administrator shall not have joined in such
appointment within 25 days after the receipt by it of a request so to do, the
Owner Trustee (with the consent of the Securities Insurer) shall have the power
to make such appointment. No co-owner trustee or separate owner trustee under
this Agreement shall be required to meet the terms of eligibility as a successor
trustee pursuant
<PAGE>
to Section 10.1 and no notice of the appointment of any co-trustee or separate
owner trustee shall be required pursuant to Section 10.3 except that notice to,
and the written consent of, the Securities Insurer shall be required for the
appointment of a co-trustee.
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate owner trustee or co-owner
trustee jointly (it being understood that such separate owner trustee or
co-owner trustee is not authorized to act separately without the Owner
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed,
the Owner Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties, and obligations
(including the holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
owner trustee or co-owner trustee, but solely at the direction of the Owner
Trustee; provided that Paying Agent, in performing its duties and
obligations under the Sale and Servicing Agreement, may act separately in
its capacity as Indenture Trustee without the Owner Trustee joining in such
Acts;
(ii) no owner trustee under this Agreement shall be personally
liable by reason of any act or omission of any other owner trustee under
this Agreement; and
(iii) the Administrator and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate owner trustee
or co-owner trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to the separate owner trustees and co-owner
trustees, as if given to each of them. Every instrument appointing any separate
owner trustee or co-owner trustee, other than this Agreement, shall refer to
this Agreement and to the conditions of this Article. Each separate owner
trustee and co-owner trustee, upon its acceptance of appointment, shall be
vested with the estates specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the liability
of, or affording protection to, the Owner Trustee. Each such instrument shall be
filed with the Owner Trustee and a copy thereof given to the Administrator.
Any separate owner trustee or co-owner trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate owner
trustee or co-owner trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
<PAGE>
The Indenture Trustee, in its capacity as Paying Agent, shall not have
any rights, duties or obligations except as expressly provided in this Agreement
and the Sale and Servicing Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Supplements and Amendments. This Agreement may be amended
by the Depositor, the Company and the Owner Trustee, with the prior consent of
the Securities Insurer, with prior written notice to the Rating Agencies and the
Securities Insurer, but without the consent of any of the Noteholders or the
Owners or the Indenture Trustee, to cure any ambiguity, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the Owners
provided, however, that such action shall not adversely affect in any material
respect the interests of any Noteholder or Owner. An amendment described above
shall be deemed not to adversely affect in any material respect the interests of
any Noteholder or Owner if (i) an opinion of counsel is obtained to such effect,
and (ii) the party requesting the amendment satisfies the Rating Agency
Condition with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with the prior written consent of the Rating
Agencies, the Securities Insurer and with the prior written consent of the
Indenture Trustee, the Holders (as defined in the Indenture) of Notes evidencing
more than 50% of the Outstanding Amount of the Notes and the Majority Residual
Interestholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Noteholders or the Owners; provided, however, that
no such amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on the Grantor Trust
Certificate or distributions that shall be required to be made for the benefit
of the Noteholders or the Certificateholders or (b) reduce the aforesaid
percentage of the Outstanding Amount of the Notes or the Percentage Interests
required to consent to any such amendment, in either case of clause (a) or (b)
without the consent of the holders of all the outstanding Notes, and in the case
of clause (b) without the consent of the holders of all the outstanding Residual
Interest Certificates.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Grantor Trustee, the Securities Insurer and each of the Rating Agencies.
It shall not be necessary for the consent of Owners, the Noteholders
or the Indenture Trustee pursuant to this Section to approve the particular form
of any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance
<PAGE>
thereof. The manner of obtaining such consents (and any other consents of Owners
provided for in this Agreement or in any other Basic Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2 No Legal Title to Owner Trust Estate in Owners. The
Owners shall not have legal title to any part of the Owner Trust Estate. The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Articles V and IX.
No transfer, by operation of law or otherwise, of any right, title, or interest
of the Owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
SECTION 11.3 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Owner Trustee, the Depositor, the
Company, the Owners, the Administrator, the Paying Agent, the Securities Insurer
and, to the extent expressly provided herein, the Indenture Trustee, the Grantor
Trustee and the Noteholders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.4 Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing, mailed by
certified mail, postage prepaid, return receipt requested, and shall be deemed
given upon actual receipt by the intended recipient, at the following addresses:
(i) if to the Owner Trustee, its Corporate Trust Office; (ii) if to the
Depositor, PaineWebber Mortgage Acceptance Corporation IV, 1285 Avenue of the
Americas, New York, New York 10019, Attention: John Fearey, Esq., General
Counsel; (iii) if to the Company, Empire Funding Corp., 9737 Great Hills Trail,
Austin, Texas 78759, Attention: Richard N. Steed; (iv) if to the Indenture
Trustee, its Corporate Trust Office; (v) if to the Paying Agent, U.S. Bank
National Association, 180 East Fifth Street, St. Paul, Minnesota 55101;
Attention: Structured Finance/Empire Funding 1998-3; (vi) if to the Securities
Insurer, MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504,
Attention: IPM-SF (Empire Funding Home Loan Owner Trust 1998-3), telephone:
914-765-
<PAGE>
3810, confirmation: 914-273-4545; or, as to each such party, at such other
address as shall be designated by such party in a written notice to each other
party.
(b) Any notice required or permitted to be given to an Owner shall be
given by first-class mail, postage prepaid, at the address of such Owner as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Owner receives such notice.
SECTION 11.5 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company, the Securities Insurer, the Owner Trustee and its
successors and each owner and its successors and permitted assigns, all as
herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by an Owner shall bind the successors and assigns of such
Owner.
SECTION 11.8 No Petition. The Owner Trustee, by entering into this
Agreement, each Owner, by accepting a Residual Interest Certificate, the
Depositor, the Company and the Indenture Trustee and each Noteholder by
accepting the benefits of this Agreement, hereby covenant and agree that they
will not at any time institute against the Company, the Depositor or the Trust,
as the case may be, or join in any institution against the Company or the Trust
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or law in connection with any obligations relating to the Residual
Interest Certificates, the Notes, this Agreement or any of the Basic Documents.
SECTION 11.9 No Recourse. Each Owner by accepting a Residual Interest
Certificate acknowledges that such Residual Interest Certificate represents a
beneficial interest in the Trust only and does not represent an interest in or
an obligation of the Company, the Servicer, the Depositor, the Administrator,
the Owner Trustee, the Indenture Trustee, the Securities Insurer or any
Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Agreement,
the Residual Interest Certificates or the Basic Documents.
<PAGE>
SECTION 11.10 Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.12 Residual Interest Transfer Restrictions. The Residual
Interest may not be acquired by or for the account of a Benefit Plan Investor.
By accepting and holding a Residual Interest Certificate, the Owner thereof
shall be deemed to have represented and warranted that it is not a Benefit Plan
Investor.
SECTION 11.13 Third-Party Beneficiary. The parties hereto acknowledge
that the Securities Insurer is an express third party beneficiary hereof
entitled to enforce any rights reserved to it hereunder as if it were actually a
party hereto.
<PAGE>
IN WITNESS OF, the parties hereto have caused this Owner Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV,
Depositor
By:
-----------------------------------
Name:
Title:
EMPIRE FUNDING CORP.
By:
-----------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:
-----------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, not in its
individual capacity but solely as Paying
Agent
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
TO THE OWNER TRUST AGREEMENT
FORM OF RESIDUAL INTEREST CERTIFICATE
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INTEREST CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE
DISPOSED OF BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE ACT (INCLUDING, BUT NOT LIMITED TO, EMPIRE
FUNDING CORP.) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INTEREST
UNDER THE ACT OR ANY STATE SECURITIES LAWS.
EXCEPT AS PROVIDED IN SECTION 3.10(B) OF THE OWNER TRUST AGREEMENT, NO TRANSFER
OF THIS RESIDUAL INTEREST CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN SHALL BE
MADE UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO
THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT (A) AN "EMPLOYEE BENEFIT PLAN" WITHIN
THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, (B) A "PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (C) AN ENTITY WHOSE UNDERLYING
ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY (EACH,
A "BENEFIT PLAN INVESTOR"), AND (II) IS NOT DIRECTLY OR INDIRECTLY PURCHASING
SUCH RESIDUAL INTEREST CERTIFICATE ON BEHALF OF, AS INVESTMENT MANAGER OF, AS
NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH THE ASSETS OF A BENEFIT PLAN
INVESTOR.
<PAGE>
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
RESIDUAL INTEREST CERTIFICATE
No. ______
THIS CERTIFIES THAT _______________________________ (the "Owner") is
the registered owner of a ____% residual interest in Empire Funding Home Loan
Owner Trust 1998-3 (the "Trust") existing under the laws of the State of
Delaware and created pursuant to the Owner Trust Agreement dated as of November
1, 1998 (the "Owner Trust Agreement") between PaineWebber Mortgage Acceptance
Corporation IV, as Depositor, Empire Funding Corp., as the Company, Wilmington
Trust Company, not in its individual capacity but solely in its fiduciary
capacity as owner trustee under the Owner Trust Agreement (the "Owner Trustee")
and U.S. Bank National Association, as Paying Agent (the "Paying Agent").
Initially capitalized terms used but not defined herein have the meanings
assigned to them in the Owner Trust Agreement. The Owner Trustee, on behalf of
the Issuer and not in its individual capacity, has executed this Residual
Interest Certificate by one of its duly authorized signatories as set forth
below. This Residual Interest Certificate is one of the Residual Interest
Certificates referred to in the Owner Trust Agreement and is issued under and is
subject to the terms, provisions and conditions of the Owner Trust Agreement to
which the holder of this Residual Interest Certificate by virtue of the
acceptance hereof agrees and by which the holder hereof is bound. Reference is
hereby made to the Owner Trust Agreement and the Sale and Servicing Agreement
for the rights of the holder of this Residual Interest Certificate, as well as
for the terms and conditions of the Trust created by the Owner Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Residual Interest Certificate except in accordance with terms and provisions of
the Owner Trust Agreement.
<PAGE>
THIS RESIDUAL INTEREST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Residual Interest Certificate to be
duly executed.
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under the Owner Trust Agreement
By:
------------------------------------------
Authorized Signatory
DATED: _________ , 1998
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Owner Trust Agreement.
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under the Owner Trust
Agreement, as Authenticating Agent
By:
------------------------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
______________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
______________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
____________________________________________________________________ Attorney to
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated: _______________
____________________________________*/
Signature Guaranteed:
____________________________________*/
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE>
EXHIBIT B
TO THE OWNER TRUST AGREEMENT
CERTIFICATE OF TRUST OF
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
THIS Certificate of Trust of Empire Funding Home Loan Owner Trust
1998-3 (the "Trust"), dated November ___, 1998, is being duly executed and filed
by Wilmington Trust Company, a Delaware banking corporation, as trustee, and
U.S. Bank National Association, as paying agent, to form a business trust under
the Delaware Business Trust Act (12 Del. Code, ss. 3801 et seq.).
1. Name. The name of the business trust formed hereby is Empire
Funding Home Loan Owner Trust 1998-3.
2. Delaware Trustee. The name and business address of the trustee of
the Trust, in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the owner trustee of the
Trust, have executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as owner
trustee under an Owner Trust Agreement
dated as of November 1, 1998
By:
-----------------------------------
Name:
Title:
================================================================================
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Depositor)
and
U.S. BANK NATIONAL ASSOCIATION
(Grantor Trustee)
and
EMPIRE FUNDING CORP.
(Transferor and Servicer)
--------------------------------------
GRANTOR TRUST AGREEMENT
Dated as of November 1, 1998
--------------------------------------
EMPIRE FUNDING GRANTOR TRUST 1998-3
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01. Definitions
ARTICLE II
CONVEYANCE OF HOME LOANS; ORIGINAL ISSUANCE OF GRANTOR TRUST CERTIFICATE
Section 2.01. Conveyance of the Home Loans
Section 2.02. Acceptance by Grantor Trustee; Authentication
of Grantor Trust Certificate
Section 2.03. Ownership and Possession of Home Loan Files
Section 2.04. Books and Records; Sale or Security Interest
Section 2.05. Delivery of Home Loan Documents
Section 2.06. Acceptance by the Grantor Trustee of the Home Loans;
Certain Substitutions; Certification by the Custodian
Section 2.07. Reserved
Section 2.08. Release and Reconveyance of Home Loans
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of the Depositor
ARTICLE IV
THE GRANTOR TRUST CERTIFICATE
Section 4.01. The Grantor Trust Certificate
Section 4.02. Registration, Transfer and Exchange of Grantor Trust Certificate
Section 4.03. Mutilated, Destroyed, Lost or Stolen Grantor Trust Certificate
Section 4.04. Persons Deemed Owners
Section 4.05. Maintenance of Office or Agency
ARTICLE V
GRANTOR TRUST ACCOUNTS; PAYMENTS TO GRANTOR TRUST HOLDER
Section 5.01. Distributions from Collection Account
ARTICLE VI
CONCERNING THE GRANTOR TRUSTEE
Section 6.01. Duties of Grantor Trustee
Section 6.02. Certain Matters Affecting the Grantor Trustee
Section 6.03. Grantor Trustee not Required to Make Investigation
Section 6.04. Grantor Trustee's Fees
Section 6.05. Compliance with Code
Section 6.06. Eligibility Requirements for Grantor Trustee
Section 6.07. Resignation and Removal of Grantor Trustee
Section 6.08. Successor Grantor Trustee
Section 6.09. Merger or Consolidation of Grantor Trustee
Section 6.10. Authenticating Agent
ARTICLE VII
TERMINATION
Section 7.01. Termination
Section 7.02. Procedure Upon Termination of Grantor Trust
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01. Binding Nature of Agreement; Assignment
Section 8.02. Entire Agreement
Section 8.03. Amendment
Section 8.04. Governing Law
Section 8.05. Notices
Section 8.06. Severability of Provisions
Section 8.07. Indulgences; No Waivers
Section 8.08. Headings Not To Affect Interpretation
Section 8.09. Benefits of Agreement
Section 8.10. Counterparts
Section 8.11. Third Party Beneficiary
EXHIBIT A FORM OF GRANTOR TRUST CERTIFICATE
EXHIBIT B FORM OF INVESTMENT REPRESENTATION LETTER
<PAGE>
THIS GRANTOR TRUST AGREEMENT ("Grantor Trust Agreement" or "Agreement"),
dated as of November 1, 1998, by and among PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor, U.S. BANK NATIONAL ASSOCIATION, as Grantor Trustee
and EMPIRE FUNDING CORP., as Transferor and Servicer.
The parties hereto intend that this Grantor Trust Agreement be construed so
as to create an "investment trust" formed to facilitate the direct investment by
the Grantor Trust Holder in the assets of the Grantor Trust Estate, within the
meaning of Section 301.7701-4(c) of the regulations of the U.S. Department of
the Treasury, and not a partnership or an association taxable as a corporation,
and that the rights, duties, and powers of the Grantor Trustee hereunder be
construed so as not to confer on the Grantor Trustee any power to vary the
investment of the Grantor Trust Holder by taking advantage of market
fluctuations to improve its rate of return.
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article. Capitalized terms used without definition
herein shall have the respective meanings assigned to them in the Sale and
Servicing Agreement.
Act: The Securities Act of 1933, as amended, and as it may be amended from
time to time.
Authenticating Agent: Any authenticating agent appointed by the Grantor
Trustee pursuant to Section 6.10.
Certificate Register and Certificate Registrar: Respectively, the register
maintained pursuant to and the registrar provided for in Section 4.02. The
initial Certificate Registrar is the Grantor Trustee.
Corporate Trust Office: The principal office of the Grantor Trustee at
which at any particular time its corporate trust business shall be administered,
which office at date of execution of this Agreement is located at 180 East Fifth
Street, St. Paul, Minnesota 55101; Attention: Corporate Trust Department, or at
such other address as the Grantor Trustee may designate from time to time by
notice to the Securities Insurer, the Grantor Trust Holder and the Issuer, or
the principal corporate trust office of any successor Grantor Trustee at the
address designated by such successor Grantor Trustee by notice to the Securities
Insurer, the Grantor Trust Holder and the Issuer.
Custodian: U.S. Bank National Association, a national banking association,
as custodian pursuant to the Custodial Agreement, or any successor thereto.
Cut-Off Date: Close of business on October 31, 1998.
DCR: Duff & Phelps Credit Rating Co.
ERISA: The Employee Retirement Income Security Act of 1974, as amended from
time to time.
Grantor Trust Certificate: The pass-through certificate issued pursuant to
this Agreement, in substantially the form attached hereto as Exhibit A.
Grantor Trust Estate: The corpus of the trust created by this Agreement,
consisting of (i) such Home Loans as from time to time are subject to this
Agreement as listed in the Home Loan Schedule, as the same may be amended or
supplemented from time to time including by removal of Deleted Home Loans and
the addition of Qualified Substitute Home Loans, together with the Servicer's
Home Loan Files and the Grantor Trustee's Home Loan Files relating thereto and
all proceeds thereof, (ii) except with respect to any Unsecured Home Loans, the
Mortgages and security interests in Mortgaged Properties, (iii) all payments in
respect of interest on the Home Loans received on or after the Cut-Off Date
(less 13.33% of the interest payments received during the first Due Period which
shall be retained by the Transferor) and all payments in respect of principal
received after the Cut-Off Date, (iv) such assets as from time to time are
identified as Foreclosure Property, (v) the Depositor's rights under all
insurance policies with respect to the Home Loans and any Property Insurance
Proceeds, (vi) Net Liquidation Proceeds and Released Mortgaged Property
Proceeds, (vii) all rights of the Depositor under the Home Loan Purchase
Agreement (other than the Depositor's rights under Article V of the Home Loan
Purchase Agreement, which the Depositor shall not assign to the Grantor Trustee)
pursuant to which the Depositor acquired the Home Loans from the Transferor, and
(viii) all proceeds of any of the foregoing.
Grantor Trust Holder: The Person in whose name the Grantor Trust
Certificate is registered in the Certificate Register.
Grantor Trustee: U.S. Bank National Association, or any successor grantor
trustee appointed as herein provided.
Grantor Trustee Fee: With respect to any Payment Date, the fee payable to
the Grantor Trustee pursuant to Section 6.04 as compensation for its activities
hereunder.
Investment Representation Letter: As defined in Section 3.02(d).
Non-Recordation State: Any state with respect to which the Transferor shall
have delivered to the Grantor Trustee (and to each Rating Agency, in the case of
any state in which 10% or more by Principal Balance of the Mortgaged Properties
are located as of the Cut-Off Date) an opinion, memorandum or other written
assurance of counsel in a form reasonably acceptable to the Grantor Trustee
(and, if applicable, to each Rating Agency), to the effect that, as to any Home
Loan with respect to which the related Mortgaged Property is located in such
state, recordation of an Assignment of Mortgage in such state is not necessary
to (i) transfer title to the related Mortgage Note (a) from the Transferor to
the Depositor and (b) from the Depositor to the Grantor Trustee and (ii) pledge
to the Grantor Trustee all of the Depositor's rights under such Mortgage Note.
Non-U.S. Person: A Person that is not considered under the Code (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 any
political subdivision thereof, (iii) an estate whose income from sources without
the United States is includible in gross income for United States federal income
tax purposes 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
such trust, and one or more Persons who are U.S. Persons under this definition
have the authority to control all substantial decisions of such 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 such a
U.S. Person).
Officers' Certificate: Certificate signed on behalf of the applicable
entity by the Chairman of the Board, the Vice Chairman of the Board, the
President, any Senior Vice President or Vice President or Managing Director or
an Assistant Vice President (each, however denominated), the Treasurer, the
Secretary, one of the Assistant Treasurers or Assistant Secretaries, any Trust
Officer or other officer of the Depositor, the Transferor or the Corporate Trust
Office of the Grantor Trustee, as the case may be, customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject, or an authorized officer of the Depositor, and delivered to
the Depositor and/or the Grantor Trustee, as the case may be.
Opinion of Counsel: A written opinion of counsel acceptable to the Grantor
Trustee and the Securities Insurer, who, in the case of an opinion required
pursuant to Section 4.02, may be outside or salaried counsel for the Grantor
Trust Holder or any affiliate of the Grantor Trust Holder.
Percentage Interest: With respect to the Grantor Trust Certificate, the
undivided percentage interest as specified on the face of the Grantor Trust
Certificate.
Plan: As defined in Section 4.02(b).
Sale and Servicing Agreement: The Sale and Servicing Agreement, dated as of
November 1, 1998, among PaineWebber Mortgage Acceptance Corporation, as
depositor, Empire Funding Corp., as servicer and transferor, Norwest Bank
Minnesota, National Association, as master servicer, Empire Funding Home Loan
Owner Trust 1998-3, as issuer, and U.S. Bank National Association, as indenture
trustee and grantor trustee, as the same may be supplemented and amended.
Securities Insurer: MBIA Insurance Corporation, and any successor thereto.
Single Certificate: With respect to the Grantor Trust Certificate, a
certificate representing a minimum denomination of 100% Percentage Interest.
ARTICLE II
CONVEYANCE OF HOME LOANS;
ORIGINAL ISSUANCE OF GRANTOR TRUST CERTIFICATE
Section 2.01. Conveyance of the Home Loans. As of the Closing Date and
concurrently with the execution and delivery hereof, in consideration of the
Grantor Trustee's delivery of the Grantor Trust Certificate to the Issuer or the
Indenture Trustee, as its assignee, as initial Grantor Trust Holder, upon the
order of the Depositor, the Depositor, does hereby sell, transfer, assign, set
over and otherwise convey to the Grantor Trustee, without recourse, but subject
to the other terms and provisions of this Agreement, all of the right, title and
interest of the Depositor in and to the Grantor Trust Estate. The foregoing
sale, transfer, assignment, set over and conveyance does not, and is not
intended to, result in a creation or an assumption by the Grantor Trustee of any
obligation of the Depositor, the Transferor or any other person in connection
with the Grantor Trust Estate or under any agreement or instrument relating
thereto except as specifically set forth herein.
Section 2.02. Acceptance by Grantor Trustee; Authentication of Grantor
Trust Certificate. As of the Closing Date, the Grantor Trustee acknowledges the
conveyance to it of the Grantor Trust Estate, including all right, title and
interest of the Depositor in and to the Grantor Trust Estate, receipt of which
is hereby acknowledged by the Grantor Trustee and declares that the Grantor
Trustee holds and will hold the Grantor Trust Estate, including the Home Loans,
rights and agreements and other property, including property yet to be received
in the Grantor Trust Estate, in trust, upon the trusts herein set forth, for the
benefit of all present and future Grantor Trust Holders. Without limiting the
foregoing, and notwithstanding anything to the contrary herein, so long as the
Indenture Trustee is the Grantor Trust Holder, the Grantor Trustee declares and
agrees to hold the Grantor Trust Estate, in trust, upon the trusts set forth
herein, for the benefit of the Indenture Trustee and the Securities Insurer.
Concurrently with such receipt and assignment, the Grantor Trustee has executed,
authenticated and delivered upon the order of the Depositor, the Grantor Trust
Certificate duly authenticated by the Grantor Trustee in the authorized
percentage of 100% Percentage Interest and evidencing the entire beneficial
ownership of the Grantor Trust Estate. The Grantor Trustee acknowledges and
agrees that so long as the Indenture Trustee is the Grantor Certificate Holder,
the Grantor Trustee holds the Grantor Trust Estate subject to the terms of the
Owner Trust Agreement, the Sale and Servicing Agreement, the Indenture, the
Administration Agreement and the Insurance Agreement. To the extent permitted by
law, the Grantor Trustee agrees that it will, from time to time, execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such supplements hereto and such further instruments as the Securities Insurer
may request and take such actions as necessary in the Securities Insurer's
judgment to effectuate the terms of the Basic Documents.
Section 2.03. Ownership and Possession of Home Loan Files. Upon the
issuance of the Grantor Trust Certificate, with respect to the Home Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of the
related Servicer's Home Loan File and the Grantor Trustee's Home Loan File shall
be vested in the Grantor Trustee for the benefit of the Grantor Trust Holder,
although possession of the Servicer's Home Loan Files (other than items required
to be maintained in the Grantor Trustee's Home Loan Files) on behalf of and for
the benefit of the Grantor Trust Holder shall remain with the Servicer, and the
Custodian shall take possession of the applicable Grantor Trustee's Home Loan
Files as contemplated in Section 2.05 and Section 2.06 hereof.
Section 2.04. Books and Records; Sale or Security Interest. The sale of
each Home Loan shall be reflected on the balance sheets and other financial
statements of the Depositor, as a sale of assets by the Depositor, under GAAP.
Each of the Servicer and the Custodian shall be responsible for maintaining, and
shall maintain, a complete set of books and records for each Home Loan which
shall be clearly marked to reflect the ownership of each Home Loan by the
Grantor Trustee for the benefit of the Grantor Trust Holder.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Home
Loans and the other property specified in Section 2.01 hereof from the Depositor
to the Grantor Trustee and such property shall not be property of the Depositor.
If the assignment and transfer of the Home Loans and the other property
specified in Section 2.01 hereof to the Grantor Trustee pursuant to this
Agreement or the conveyance of the Home Loans or any of such other property to
the Grantor Trustee is held or deemed not to be a sale or is held or deemed to
be a pledge of security for a loan, the Depositor intends that the rights and
obligations of the parties shall be established pursuant to the terms of this
Agreement and that, in such event, (i) the Depositor shall be deemed to have
granted and does hereby grant to the Grantor Trustee a first priority security
interest in the entire right, title and interest of the Depositor in and to the
Grantor Trust Estate pursuant to Section 2.01 hereof and all proceeds thereof
and (ii) this Agreement shall constitute a security agreement under applicable
law. Within ten (10) days of the Closing Date, the Depositor shall cause to be
filed UCC-1 financing statements naming the Grantor Trustee as "secured party"
and describing the Home Loans being sold by the Depositor to the Grantor Trust
with the office of the Secretary of State of the state in which the Depositor is
located.
Section 2.05. Delivery of Home Loan Documents.
(a) With respect to each Home Loan, the Depositor and the Transferor shall,
on the Closing Date, deliver or caused to be delivered to the Custodian, as the
designated agent of the Grantor Trustee, each of the following documents
(collectively, the "Grantor Trustee's Home Loan File"):
(i) The original Debt Instrument, endorsed in blank or in the
following form: "Pay to the order of U.S. Bank National Association, as
Grantor Trustee under the Grantor Trust Agreement, dated as of November
1, 1998, Empire Funding Grantor Trust 1998-3, without recourse", with
all prior and intervening endorsements showing a complete chain of
endorsement from origination of the Home Loan to the Transferor;
(ii) If such Home Loan is secured by a Mortgage, the original
Mortgage with evidence of recording thereon (or, if the original
Mortgage has not been returned from the applicable public recording
office or is not otherwise available, a copy of the Mortgage certified
by a Responsible Officer of the Transferor or by the closing attorney
or by an officer of the title insurer or agent of the title insurer
which issued the related title insurance policy, if any, or commitment
therefor to be a true and complete copy of the original Mortgage
submitted for recording) and, if the Mortgage was executed pursuant to
a power of attorney, the original power of attorney with evidence of
recording thereon (or, if the original power of attorney has not been
returned from the applicable public recording office or is not
otherwise available, a copy of the power of attorney certified by a
Responsible Officer of the Transferor or by the closing attorney or by
an officer of the title insurer or agent of the title insurer which
issued the related title insurance policy, if any, or commitment
therefor, to be a true and complete copy of the original power of
attorney submitted for recording);
(iii) If such Home Loan is secured by a Mortgage, the original
executed Assignment of Mortgage, in recordable form. The Assignment of
Mortgage may be a blanket assignment, to the extent such assignment is
effective under applicable law, for Mortgages covering Mortgaged
Properties situated within the same county. If the Assignment of
Mortgage is in blanket form, an Assignment of Mortgage need not be
included in the individual Grantor Trustee's Home Loan File;
(iv) If such Home Loan is secured by a Mortgage, all original
intervening assignments of mortgage, with evidence of recording
thereon, showing a complete chain of assignment from origination of the
Home Loan to the Transferor (or, if any such assignment of mortgage has
not been returned from the applicable public recording office or is not
otherwise available, a copy of such assignment of mortgage certified by
a Responsible Officer of the Transferor or by the closing attorney or
by an officer of the title insurer or agent of the title insurer which
issued the related title insurance policy, if any, or commitment
therefor to be a true and complete copy of the original assignment
submitted for recording); provided that the chain of intervening
recorded assignments shall not be required to match the chain of
intervening endorsements of the Debt Instrument so long as the chain of
intervening recorded assignments, if applicable, evidences one or more
assignments of the Mortgage from the original mortgagee ultimately to
the person who has executed the Assignment of Mortgage; and
(v) The original, or a copy certified by the Transferor to be
a true and correct copy of the original, of each assumption,
modification, written assurance or substitution agreement, if any.
(b) With respect to each Home Loan, the Transferor and the Depositor shall,
on the Closing Date, deliver or cause to be delivered to the Servicer, as the
designated agent of the Grantor Trustee, each of the following documents
(collectively, the "Servicer's Home Loan Files"): (i) an original or copy of
truth-in-lending disclosure, (ii) an original or copy of the credit application,
(iii) an original or copy of the consumer credit report, (iv) an original or
copy of verification of employment and income, or verification of
self-employment income, (v) if the Home Loan is a Combination Loan, an original
or copy of contract of work or written description with cost estimates, if any,
(vi) if the Home Loan is a Combination Loan for which the Transferor prepares an
inspection report, an original or copy of the report of inspection of
improvements to the Property, (vii) to the extent not included in (clause (ii)
of this Section 2.04(b), an original or copy of a written verification (or a
notice of telephonic verification, with written verification to follow) that the
Obligor at the time of origination was not more than 30 days delinquent on any
Superior Lien on the Mortgaged Property, (viii) a copy of the HUD-1 or HUD 1-A
Closing Statement indicating the sale price, or an existing Uniform Residential
Appraisal Report, or a Drive-by Appraisal documented on FHLMC Form 704, or a tax
assessment, or a full Uniform Residential Appraisal Report prepared by a
national appraisal firm in accordance with the Transferor's underwriting
guidelines, (ix) an original or a copy of a title search as of the time of
origination with respect to the Mortgaged Property in accordance with the
Transferor's underwriting guidelines and (x) a title document with respect to
such Home Loan reflecting that the title to the related Mortgaged Property is
vested at least 50% in the Obligor under such Home Loan.
(c) The Grantor Trustee shall cause the Custodian to take and maintain
continuous physical possession of the Grantor Trustee's Home Loan Files held by
it in the State of Minnesota, and in connection therewith, the Custodian shall
act solely as agent for the Grantor Trust Holder in accordance with the terms
hereof and, so long as the Indenture Trustee is the Grantor Trust Holder, the
Custodian shall also act as agent for the benefit of the Securities Insurer and
the Indenture Trustee and not as agent for the Transferor or any other party.
(d) Within 30 days after the Closing Date, the Transferor, at its own
expense, shall record each Assignment of Mortgage (which may be a blanket
assignment if permitted by applicable law) in the appropriate real property or
other records; provided, however, that the Transferor need not record any such
Assignment of Mortgage with respect to which the related Mortgaged Property is
located in a Non-Recordation State. With respect to any Assignment of Mortgage
as to which the related recording information is unavailable within 30 days
following the Closing Date, such Assignment of Mortgage shall be submitted for
recording within 30 days after receipt of such information but in no event later
than 180 days after the Closing Date. The Custodian on behalf of the Grantor
Trustee, upon receipt from the Transferor shall be required to retain a copy of
each Assignment of Mortgage submitted for recording. In the event that any such
Assignment of Mortgage is lost or returned unrecorded because of a defect
therein, the Transferor shall promptly prepare a substitute Assignment of
Mortgage or cure such defect, as the case may be, and thereafter the Transferor
shall be required to submit each such Assignment of Mortgage for recording.
If an Assignment Event occurs, the Servicer shall record all Assignments of
Mortgage with respect to which the related Mortgaged Properties are located in
Non-Recordation States. Any such assignment shall be at the expense of the
Transferor.
An "Assignment Event" shall occur upon (1) the occurrence of a Servicer
Termination Event, (2) the nonrenewal of the Servicer term, (3) the resignation
of the Servicer or (4) the delivery by the Securities Insurer of a written
request to the Servicer to record the assignments of such mortgages that were
not previously recorded because the Securities Insurer has determined, in its
reasonable judgment, that such recordation is necessary to protect the
Securities Insurer's interest with respect to such mortgage loans because (a) a
material adverse change has occurred with respect to the Applicant, (b) the
Insurer has been so advised by counsel as a result of a change that occurred
after the closing date in applicable law or interpretation thereof, or (c) with
respect to a particular mortgage loan, the insolvency of the related mortgagor.
(e) All recordings required pursuant to this Section 2.05 shall be
accomplished by and at the expense of the Transferor.
Section 2.06. Acceptance by the Grantor Trustee of the Home Loans; Certain
Substitutions; Certification by the Custodian.
(a) The Grantor Trustee agrees to cause the Custodian to execute and
deliver on the Closing Date an acknowledgment of receipt of the Grantor
Trustee's Home Loan File for each Home Loan held by it. The Grantor Trustee
declares that it will cause the Custodian to hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the Grantor Trust Estate and delivered to the Custodian, in trust,
upon and subject to the conditions set forth herein. The Grantor Trustee agrees
to cause the Custodian to review each Grantor Trustee's Home Loan File held by
it within 45 days after the Closing Date (or, with respect to any Qualified
Substitute Home Loan, within 45 days after the conveyance of the related Home
Loan to the Grantor Trust) and to cause the Custodian to deliver to the
Transferor, the Depositor, the Grantor Trustee, the Servicer, the Master
Servicer and the Securities Insurer a certification (the "Custodian's Initial
Certification") to the effect that, as to each Home Loan listed in the Home Loan
Schedule (other than any Home Loan paid in full or any Home Loan specifically
identified as an exception to such certification), (i) all documents required to
be delivered to the Grantor Trustee pursuant to this Agreement are in its
possession or in the possession of the Custodian on its behalf (other than as
expressly permitted by Section 2.05 hereof), (ii) all documents delivered by the
Depositor and the Transferor to the Custodian pursuant to Section 2.05 hereof
have been reviewed by the Custodian and have not been mutilated or damaged and
appear regular on their face (handwritten additions, changes or corrections
shall not constitute irregularities if initialed by the Obligor) and relate to
such Home Loan, (iii) based on the examination of the Custodian on behalf of the
Grantor Trustee, and only as to the foregoing documents, the information set
forth on the Home Loan Schedule accurately reflects the information set forth in
the Grantor Trustee's Home Loan File and (iv) each Debt Instrument has been
endorsed as provided in Section 2.04 hereof. Neither the Grantor Trustee nor the
Custodian shall be under any duty or obligation (i) to inspect, review or
examine any such documents, instruments, certificates or other papers to
determine that they are genuine, enforceable or appropriate for the represented
purpose or that they are other than what they purport to be on their face or
(ii) to determine whether any Grantor Trustee's Home Loan File should include
any of the documents specified in Section 2.05(a)(v) hereof.
(b) The Servicer's Home Loan File shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Grantor Trust Holder and the
Grantor Trustee as the owner thereof for so long as this Agreement continues in
full force and effect. It is intended that, by the Servicer's agreement pursuant
to this Section 2.06(b), the Grantor Trustee shall be deemed to have possession
of the Servicer's Home Loan Files for purposes of Section 9-305 of the Uniform
Commercial Code of the state in which such documents or instruments are located.
The Servicer (and the Master Servicer if it has actual knowledge) shall promptly
report to the Grantor Trustee any failure by it to hold the Servicer's Home Loan
File as herein provided and shall promptly take appropriate action to remedy any
such failure. In acting as custodian of such documents and instruments, the
Servicer agrees not to assert any legal or beneficial ownership interest in the
Home Loans or such documents or instruments. The Servicer agrees to indemnify
the Grantor Trust Holder, the Grantor Trustee or the Indenture Trustee and the
Securities Insurer for any and all liabilities, obligations, losses, damages,
payments, costs or expenses of any kind whatsoever which may be imposed on,
incurred by or asserted against the Grantor Trust Holder, the Grantor Trustee or
the Indenture Trustee and the Securities Insurer as the result of any act or
omission by the Servicer relating to the maintenance and custody of such
documents or instruments which have been delivered to the Servicer; provided,
however, that the Servicer will not be liable for any portion of any such amount
resulting from the negligence or misconduct of the Grantor Trust Holder, the
Grantor Trustee or the Indenture Trustee and the Securities Insurer; and
provided, further, that the Servicer will not be liable for any portion of any
such amount resulting from the Servicer's compliance with any instructions or
directions consistent with this Agreement issued to the Servicer by the Grantor
Trustee. The Grantor Trustee shall have no duty to monitor or otherwise oversee
the Servicer's performance as custodian hereunder.
(c) The Custodian shall, for the benefit of the Grantor Trust Holder, the
Indenture Trustee and the Securities Insurer review each Grantor Trustee's Home
Loan File within 60 days after the date it delivered a Custodian's Initial
Certification and deliver to the Transferor, the Depositor, the Grantor Trustee,
the Servicer, the Master Servicer and the Securities Insurer an updated
certification (a "Custodian's Updated Certification"), setting forth those
exceptions listed on the Custodian's Initial Certification which continue to
exist on the date of the Custodian's Updated Certification. With respect to any
Home Loans which are set forth as exceptions in the Custodian's Updated
Certification because recorded assignments (except as permitted by Section
2.05(d) hereof) or original or certified copies of Mortgages have not yet been
delivered to the Custodian, the Transferor shall cure such exceptions by
delivering such missing documents to the Custodian no later than 180 days after
the Closing Date.
The Custodian agrees, for the benefit of the Grantor Trust Holder, the
Indenture Trustee and the Securities Insurer to review each Grantor Trustee's
Home Loan File within 180 days after the Closing Date, and to deliver to the
Transferor, the Depositor, the Grantor Trustee, the Servicer, the Master
Servicer and the Securities Insurer a final certification (a "Custodian's Final
Certification"), setting forth those exceptions listed on the Custodian's
Updated Certification which continue to exist on the date of such Custodian's
Final Certification.
In performing any such review, the Custodian may conclusively rely on the
Transferor as to the purported genuineness of any such document and any
signature thereon. Neither the Grantor Trustee nor the Custodian shall have any
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form, whether any document has been recorded in accordance with the requirements
of any applicable jurisdiction or whether a blanket assignment is permitted in
any applicable jurisdiction. If a material defect in a document constituting
part of a Grantor Trustee's Home Loan File is discovered, then the Depositor and
Transferor shall comply with the cure, substitution and repurchase provisions of
Section 3.05 of the Sale and Servicing Agreement.
Section 2.07. Reserved.
Section 2.08. Release and Reconveyance of Home Loans.
(a) A Home Loan shall be released by the Grantor Trustee and reconveyed to
the Transferor at any time (i) after a repurchase or substitution pursuant to
Section 3.05 of the Sale and Servicing Agreement, (ii) after liquidation of the
Home Loan in accordance with Section 4.10 or 4.11 of the Sale and Servicing
Agreement and the deposit in the Collection Account of all proceeds recovered
therefrom (net of any costs and expenses relating thereto), or (iii) upon the
termination of a Home Loan (due to, among other causes, a prepayment in full of
the Home Loan and sale or other disposition of the related Mortgaged Property),
if the Transferor delivers to the Grantor Trustee a written request (A)
identifying the Home Loan and the related Mortgaged Property to be released and
reconveyed, (B) requesting the release and reconveyance thereof, (C) setting
forth the amount deposited in the Collection Account with respect thereto, and
(D) certifying that the amount deposited in the Collection Account (x) equals
the Substitution Adjustment related to the Qualified Substitute Home Loan and
the Deleted Home Loan released from this Grantor Trust Agreement pursuant to
item (i) above, or (y) equals the entire amount of net proceeds recovered and
received with respect to such Home Loan and the related Mortgaged Property in
the event of a release from this Grantor Trust Agreement pursuant to items (ii)
or (iii) above, or (z) equals the Purchase Price related to a Defective Home
Loan pursuant to item (i) above.
(b) The Grantor Trustee shall, if requested by the Servicer, temporarily
release or cause either Custodian to temporarily release to the Servicer the
Grantor Trustee's Home Loan File held by such Custodian pursuant to the
provisions of Section 7.02 or Section 4.10(g) of the Sale and Servicing
Agreement upon compliance by the Servicer with the provisions thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Grantor Trustee, the Indenture
Trustee, the Securities Insurer and the Grantor Trust Holder that as of the
Closing Date:
(a) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has, and had at all relevant times, full power to own its property,
to carry on its business as currently conducted, to enter into and
perform its obligations under this Agreement and to create the Grantor
Trust pursuant to this Agreement;
(b) The execution and delivery of this Agreement by the
Depositor and its performance of and compliance with the terms of this
Agreement will not violate the Depositor's certificate of incorporation
or by-laws or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in
the breach or acceleration of, any material contract, agreement or
other instrument to which the Depositor is a party or which may be
applicable to the Depositor or any of its assets;
(c) The Depositor has the full power and authority to enter
into and consummate the transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This
Agreement, assuming due authorization, execution and delivery by the
Grantor Trustee and the Transferor, constitutes a valid, legal and
binding obligation of the Depositor, enforceable against it in
accordance with the terms hereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at
law);
(d) The Depositor is not in violation of, and the execution
and delivery of this Agreement by the Depositor and its performance and
compliance with the terms of this Agreement will not constitute a
violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations
of the Depositor or its properties or materially and adversely affect
the performance of its duties hereunder;
(e) There are no actions or proceedings against, or
investigations of, the Depositor currently pending with regard to which
the Depositor has received service of process and no action or
proceeding against, or investigation of, the Depositor is, to the
knowledge of the Depositor, threatened or otherwise pending before any
court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render
the Grantor Trust Certificate invalid, (B) seek to prevent the issuance
of the Grantor Trust Certificate or the consummation of any of the
transactions contemplated by this Agreement or (C) if determined
adversely, would prohibit or materially and adversely affect the
performance by the Depositor of its obligations under, or the validity
or enforceability of, this Agreement or the Grantor Trust Certificate;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Depositor of, or compliance by the Depositor
with, this Agreement or the Grantor Trust Certificate, or for the
consummation of the transactions contemplated by this Agreement, except
for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to the Closing Date;
(g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the
execution and delivery of this Agreement or its obligations hereunder;
no petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Depositor prior to the date hereof;
(h) The Depositor did not convey the Home Loans to the Grantor
Trustee with any intent to hinder, delay or defraud any of its
creditors; the Depositor will not be rendered insolvent as a result of
the conveyance of the Home Loans to the Grantor Trustee;
(i) As of the Closing Date, the Depositor had good title to,
and was the sole owner of, each Home Loan free and clear of any lien
other than any such lien released simultaneously with the sale
contemplated herein, and, immediately upon each transfer and assignment
herein contemplated, the Depositor will have delivered to the Grantor
Trustee good title to, and the Grantor Trustee will be the sole owner
of, each Home Loan free and clear of any lien;
(j) The Depositor acquired title to each of the Home Loans in
good faith, without notice of any adverse claim;
(k) No Officers' Certificate, statement, report or other
document prepared by the Depositor and furnished or to be furnished by
it pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements
contained herein or therein not misleading;
(l) The Depositor is not required to be registered as an
"investment company" under the Investment Company Act of 1940, as
amended; and
(m) The transfer, assignment and conveyance of the Debt
Instruments and the Mortgages by the Depositor pursuant to this
Agreement are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction.
ARTICLE IV
THE GRANTOR TRUST CERTIFICATE
Section 4.01. The Grantor Trust Certificate.
(a) The Grantor Trust Certificate shall be issued only in the minimum 100%
Percentage Interest of a Single Certificate and shall be substantially in the
form attached hereto as Exhibit A. On original issue the Grantor Trust
Certificate shall be executed and delivered by the Grantor Trustee to the
Indenture Trustee, as initial Grantor Trust Holder, upon the order of the
Depositor. The Grantor Trust Certificate shall be executed by manual or
facsimile signature on behalf of the Grantor Trustee by a Responsible Officer
thereof. The Grantor Trust Certificate bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Grantor Trustee shall bind the Grantor Trustee notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Grantor Trust Certificate. The Grantor Trust
Certificate shall not be entitled to any benefit under this Agreement, or be
valid for any purpose, unless manually countersigned by a Responsible Officer of
the Grantor Trustee, or unless there appears on the Grantor Trust Certificate a
certificate of authentication executed by the Authenticating Agent by manual
signature, and such countersignature or certificate upon the Grantor Trust
Certificate shall be conclusive evidence, and the only evidence, that the
Grantor Trust Certificate has been duly countersigned or authenticated and
delivered hereunder. The Grantor Trust Certificate shall be dated the date of
its countersignature or authentication.
(b) Notwithstanding anything to the contrary set forth herein, the Grantor
Trust Certificate shall be registered in the name of the Indenture Trustee,
unless the Securities Insurer shall have otherwise consented in writing.
Section 4.02. Registration, Transfer and Exchange of Grantor Trust
Certificate.
(a) The Grantor Trustee shall cause to be kept at one of the offices or
agencies to be maintained in accordance with the provisions of Section 4.05 a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Grantor Trustee shall provide for the registration of the Grantor
Trust Certificate and of transfers and exchanges of the Grantor Trust
Certificate as herein provided. The Grantor Trustee shall act as, or shall
appoint, a Certificate Registrar for the purpose of registering the Grantor
Trust Certificate and transfers and exchanges of the Grantor Trust Certificate
as herein provided.
Upon surrender for registration or transfer of the Grantor Trust
Certificate at any office or agency maintained for such purpose pursuant to
Section 4.05 (and subject to the provisions of this Section 4.02) the Grantor
Trustee shall execute, and shall date, countersign or authenticate (or cause the
Authenticating Agent to authenticate) and deliver, in the name of the designated
transferee or transferees, a new Grantor Trust Certificate of a like 100%
Percentage Interest.
No service charge shall be made for any transfer or exchange of the Grantor
Trust Certificate, but the Grantor Trustee or the Certificate Registrar may
require payment from the Grantor Trust Holder of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer
or exchange of the Grantor Trust Certificate.
The Grantor Trust Certificate surrendered for transfer and exchange shall
be canceled by the Certificate Registrar, the Grantor Trustee or the
Authenticating Agent in accordance with their standard procedures.
(b) Notwithstanding anything to the contrary set forth herein, the Grantor
Trust Certificate shall not (other than (i) the initial transfers of the Grantor
Trust Certificate by the Grantor Trustee to the Depositor, and by the Depositor
to the Issuer, (ii) the pledge of the Grantor Trust Certificate by the Issuer to
the Indenture Trustee pursuant to the terms of the Indenture) be offered, sold,
pledged, encumbered or otherwise transferred without the prior written consent
of the Securities Insurer. The Grantor Trust Certificate shall bear a legend to
such effect.
(c) No offer, sale or other transfer of the Grantor Trust Certificate shall
be made unless such transfer is made pursuant to an effective registration
statement or otherwise in accordance with the requirements under the Act, and
effective registration or qualification under applicable state securities laws,
or is made in a transaction which does not require such registration or
qualification. If a transfer (other than (i) the initial transfers of the
Grantor Trust Certificate by the Grantor Trustee to the Depositor, and by the
Depositor to the Issuer, (ii) the pledge of the Grantor Trust Certificate by the
Issuer to the Indenture Trustee pursuant to the terms of the Indenture) is to be
made in reliance upon an exemption from the Act, and under the applicable state
securities laws, then the prior written consent of the Securities Insurer must
be obtained and either: (i) the Certificate Registrar shall require that the
transferee deliver to the Certificate Registrar an investment representation
letter (the "Investment Representation Letter") substantially in the form of
Exhibit B attached hereto, which Investment Representation Letter shall certify,
among other things, that the transferee is an institutional "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Act or a
"qualified institutional buyer" as defined in Rule 144A under the Act, and the
Certificate Registrar may also require that the transferee deliver to the
Certificate Registrar an Opinion of Counsel if such transferee is not a
qualified institutional buyer within the meaning of Rule 144A under the Act; or
(ii) if the certifications described in the preceding clause (i) cannot be
provided (A) the Certificate Registrar shall require an Opinion of Counsel
reasonably satisfactory to the Certificate Registrar and the Depositor that such
transfer may be made pursuant to an exemption, describing the applicable
exemption and the basis therefor, from registration or qualification under the
Act, applicable state securities laws and other relevant laws, which Opinion of
Counsel shall not be an expense of the Certificate Registrar, the Depositor, the
Grantor Trust or the Grantor Trustee, and (B) the Certificate Registrar shall
require the transferor to execute a certification in form and substance
satisfactory to the Certificate Registrar setting forth the facts surrounding
such transfer. In each case, the Certificate Registrar will be entitled without
further investigation to rely upon such certification or Opinion of Counsel. The
Holder desiring to effect such transfer shall, and does hereby agree to,
indemnify the Certificate Registrar, the Grantor Trustee and the Depositor
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws. None of the Depositor, the
Grantor Trustee or the Certificate Registrar is under any obligation to register
or qualify the Grantor Trust Certificate.
Unless the Grantor Trust Certificate has been registered under the Act, the
Grantor Trust Certificate shall bear a legend substantially to the following
effect:
THIS GRANTOR TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS GRANTOR
TRUST CERTIFICATE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION, PROVIDED, HOWEVER, THAT THIS GRANTOR TRUST
CERTIFICATE SHALL BE PLEDGED BY THE HOLDER THEREOF TO THE
INDENTURE TRUSTEE PURSUANT TO THE TERMS OF THE INDENTURE.
THE HOLDER OF THIS GRANTOR TRUST CERTIFICATE BY ITS
ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH GRANTOR TRUST CERTIFICATE EXCEPT IN ACCORDANCE
WITH ALL APPLICABLE STATE SECURITIES LAWS AND (A) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THIS
GRANTOR TRUST CERTIFICATE IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A
PERSON WHO THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO
THE COMPLETION AND DELIVERY BY THE TRANSFEROR TO THE GRANTOR
TRUSTEE OF A CERTIFICATE OF TRANSFER IN THE FORM APPEARING
ON THE LAST PAGE OF THIS GRANTOR TRUST CERTIFICATE, EXCEPT
IN THE CASE OF THE PLEDGE DESCRIBED ABOVE AND THE INITIAL
TRANSFERS OF THIS GRANTOR TRUST CERTIFICATE BY THE GRANTOR
TRUSTEE TO THE DEPOSITOR, AND BY THE DEPOSITOR TO THE
ISSUER.
THE INITIAL INVESTOR IN THIS GRANTOR TRUST CERTIFICATE, AND
EACH SUBSEQUENT PURCHASER OF THIS GRANTOR TRUST CERTIFICATE,
BY PURCHASING THIS GRANTOR TRUST CERTIFICATE OR AN INTEREST
HEREIN, IS DEEMED TO HAVE AGREED TO COMPLY WITH CERTAIN
TRANSFER REQUIREMENTS SET FORTH IN THE GRANTOR TRUST
AGREEMENT. A TRANSFEREE IS ALSO REQUIRED TO DELIVER AN
INVESTMENT REPRESENTATION LETTER SUBSTANTIALLY IN THE FORM
OF EXHIBIT B TO THE GRANTOR TRUST AGREEMENT IF SUCH
TRANSFEREE IS A QUALIFIED INSTITUTIONAL BUYER OR AN
ACCREDITED INSTITUTIONAL INVESTOR, AND MAY ALSO BE REQUIRED
TO DELIVER AN OPINION OF COUNSEL IF SUCH TRANSFEREE IS NOT A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A.
THIS GRANTOR TRUST CERTIFICATE IS SUBJECT TO THE TERMS OF
THE GRANTOR TRUST AGREEMENT AND (OTHER THAN (I) THE INITIAL
TRANSFERS OF THE GRANTOR TRUST CERTIFICATE BY THE GRANTOR
TRUSTEE TO THE DEPOSITOR, AND BY THE DEPOSITOR TO THE
ISSUER, (II) THE PLEDGE OF THE GRANTOR TRUST CERTIFICATE BY
THE ISSUER TO THE INDENTURE TRUSTEE PURSUANT TO THE TERMS OF
THE INDENTURE) CANNOT BE OFFERED, SOLD, PLEDGED, ENCUMBERED
OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE SECURITIES INSURER AND THE HOLDER OF THIS GRANTOR
CERTIFICATE, BY ITS ACCEPTANCE HEREOF, AGREES TO SUCH TERMS.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Grantor Trust
Certificate. If (i) the Grantor Trust Certificate is surrendered to the Grantor
Trustee or the Authenticating Agent as mutilated or the Grantor Trustee or the
Authenticating Agent receives evidence to its satisfaction of the destruction,
loss or theft of the Grantor Trust Certificate, and (ii) there is delivered to
the Grantor Trustee or Authenticating Agent such security or indemnity as may be
required by them to hold each of them harmless, then, in the absence of notice
to the Grantor Trustee or Authenticating Agent that the Grantor Trust
Certificate has been acquired by a bona fide purchaser, the Grantor Trustee
shall execute and countersign or authenticate (or cause the Authenticating Agent
to authenticate), as the case may be, and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Grantor Trust Certificate, a new
Grantor Trust Certificate of like 100% Percentage Interest. Upon the issuance of
a new Grantor Trust Certificate under this Section, the Grantor Trustee or the
Certificate Registrar may require from the Grantor Trust Holder the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expense (including the fees and expenses of
the Grantor Trustee or Authenticating Agent) in connection therewith. Unless a
bona fide purchaser of the original Grantor Trust Certificate presents such
Grantor Trust Certificate, any duplicate Grantor Trust Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the Grantor Trust, as if originally issued, whether or not the
lost, stolen, or destroyed Grantor Trust Certificate shall be found at any time.
Section 4.04. Persons Deemed Owners. Prior to the due presentation of the
Grantor Trust Certificate for registration or transfer, the Depositor, the
Grantor Trustee, the Certificate Registrar and any agent of the Depositor, the
Grantor Trustee or the Certificate Registrar may treat the Person in whose name
the Grantor Trust Certificate is registered as the owner of the Grantor Trust
Certificate for the purpose of receiving distributions pursuant to Section 5.02
and for all other purposes whatsoever, and neither the Depositor, the Grantor
Trustee, the Certificate Registrar nor any agent of the Depositor, the Grantor
Trustee or the Certificate Registrar shall be affected by notice to the
contrary.
Section 4.05. Maintenance of Office or Agency. The Grantor Trustee will
maintain, at its expense, an office or agency where the Grantor Trust
Certificate may be surrendered for registration or transfer or exchange and
where notices and demands to or upon the Certificate Registrar in respect of the
Grantor Trust Certificate and this Agreement may be served. The Grantor Trustee
initially designates the Corporate Trust Office and the principal corporate
trust office of the Authenticating Agent, if any, as its offices and agencies
for said purposes.
ARTICLE V
GRANTOR TRUST ACCOUNTS;
PAYMENTS TO GRANTOR TRUST HOLDER
Section 5.01. Distributions from Collection Account.
(a) On the seventh Business Day prior to each Payment Date, so long as the
Issuer or its assignee is the Grantor Trust Holder, the Indenture Trustee, in
accordance with Section 5.01(b)(2) of the Sale and Servicing Agreement, shall
withdraw from the Collection Account the Available Collection Amount for such
Payment Date and deposit such amount into the Note Payment Account. Such
deposits into the Note Payment Account from the Collection Account shall be
deemed to constitute distributions to and on behalf of the Grantor Trust Holder.
(b) The Indenture Trustee may also make withdrawals from the Collection
Account pursuant to Section 5.01(b)(3) of the Sale and Servicing Agreement.
ARTICLE VI
CONCERNING THE GRANTOR TRUSTEE
Section 6.01. Duties of Grantor Trustee. The Grantor Trustee undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement.
The Grantor Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Grantor Trustee which are specifically required to be furnished pursuant
to any provision of this Agreement, shall examine them to determine whether they
are in the form required by this Agreement but the Grantor Trustee shall not be
required to determine, confirm or recalculate information contained in such
instruments.
No provision of this Agreement shall be construed to relieve the Grantor
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; provided, however, that:
(i) The duties and obligations of the Grantor Trustee shall be determined
solely by the express provisions of this Agreement, the Grantor Trustee shall
not be liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or obligations
shall be read into this Agreement against the Grantor Trustee and, in the
absence of bad faith on the part of the Grantor Trustee, the Grantor Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Grantor Trustee and conforming to the requirements of this Agreement;
(ii) The Grantor Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in accordance
with the direction of the Grantor Trust Holder relating to the time, method and
place of conducting any proceeding for any remedy available to the Grantor
Trustee, or exercising any trust or power conferred upon the Grantor Trustee,
under this Agreement; and
(iii) The Grantor Trustee shall not be personally liable for any error of
judgment made in good faith by any Responsible Officer, unless it shall be
proved that the Grantor Trustee or such Responsible Officer was negligent in
ascertaining the pertinent facts.
None of the provisions contained in this Agreement shall require the
Grantor Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties as Grantor Trustee
hereunder or in the exercise of any of its rights or powers if there is
reasonable ground for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section 6.02. Certain Matters Affecting the Grantor Trustee. Except as
otherwise provided in Section 6.01:
(i) The Grantor Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, certificate
of auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(ii) The Grantor Trustee may consult with counsel, and any written advice
or Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such written advice or Opinion of Counsel;
(iii) The Grantor Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
(iv) The Grantor Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys; and
(v) All rights of action under this Agreement or under the Grantor Trust
Certificate, enforceable by the Grantor Trustee, may be enforced by it without
the possession of the Grantor Trust Certificate, or the production thereof at
the trial or other proceeding relating thereto, and any such suit, action or
proceeding instituted by the Grantor Trustee shall be brought in its name for
the benefit the Grantor Trust Holder, subject to the provisions of this
Agreement.
(vi) Notwithstanding anything to the contrary herein, the Grantor Trustee
shall be the same entity as the Indenture Trustee under the Indenture and the
Sale and Servicing Agreement, unless the Securities Insurer otherwise consents.
Section 6.03. Grantor Trustee not Required to Make Investigation. The
Grantor Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, or other paper or document (provided
the same appears regular on its face) or to take any remedial action, unless
directed in writing to do so by the Securities Insurer so long as no Securities
Insurer default has occurred and is continuing, the Securities Insurer; provided
however, that if the payment to the Grantor Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of any such investigation
or the taking of any such remedial action so directed by the Grantor Trust
Holder or the Securities Insurer is, in the opinion of the Grantor Trustee, not
reasonably assured to the Grantor Trustee by the security afforded to it by the
terms of this Agreement, the Grantor Trustee may require reasonable agreement
for the payment or reimbursement of any such expense or security for any such
liability as a condition to so proceeding. The reasonable expense of every such
investigation so directed by the Grantor Trust Holder shall be a nonrecourse
obligation of the Grantor Trust Holder, payable only to the extent excess funds
are available therefor, or, if paid by the Grantor Trustee, shall be a
nonrecourse obligation of the Grantor Trust Holder to pay the Grantor Trustee
upon demand, but only to the extent that excess funds are available therefor.
The reasonable expense of every such investigation so directed by the Securities
Insurer shall be paid, at the option of the Securities Insurer, by the
Securities Insurer or, if paid by the Grantor Trustee, shall be repaid by the
Issuer.
Section 6.04. Grantor Trustee's Fees. The Grantor Trustee shall be entitled
to be paid the Grantor Trustee Fee pursuant to Section 5.01(c) of the Sale and
Servicing Agreement. Except as otherwise provided herein, the Grantor Trustee
will be responsible for all expenses it incurs in respect of any of its duties
or obligations hereunder and will not be entitled to any additional amounts. The
Grantor Trustee acknowledges and agrees that the Grantor Trustee Fee constitutes
reasonable compensation for its activities as Grantor Trustee hereunder.
Section 6.05. Compliance with Code. The Grantor Trustee shall be authorized
to and shall prepare and file and furnish to the Grantor Trust Holder, or cause
to be prepared and filed and furnished, all federal, and if applicable, state
and local income tax and information returns or reports relating to the Grantor
Trust (including, without limitation, information with respect to interest or
discount income, gain or loss with respect to the Home Loans and reinvestment
income, gain or loss with respect to the Collection Account) at the time and in
the manner required by the Code. In connection with the filing of any such
returns, the Grantor Trustee shall have the right to employ accountants and
other personnel to assist in the preparation of such filings.
Section 6.06. Eligibility Requirements for Grantor Trustee. The Grantor
Trustee hereunder shall at all times be a corporation having its principal
office in a state and city acceptable to the Depositor and the Securities
Insurer, organized and doing business under the laws of such state or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, or shall
be a member of a bank holding system, the aggregate combined capital and surplus
of which is at least $50,000,000, provided that the Grantor Trustee's separate
capital and surplus shall at all times be at least the amount specified in
Section 310(a)(2) of the Trust Indenture Act of 1939, shall be subject to
supervision or examination by federal or state authority, and, if no Securities
Insurer Default has occurred and is continuing, shall be acceptable to the
Securities Insurer. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Grantor Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Grantor Trustee shall resign
immediately in the manner and with the effect specified in Section 6.07.
Section 6.07. Resignation and Removal of Grantor Trustee. The Grantor
Trustee may resign and be discharged from the trust hereby created only by (i)
giving written notice of resignation to the Depositor, the Securities Insurer
and the Grantor Trust Holder and (ii) arranging for a successor trustee to be
appointed. The successor trustee shall be acceptable to the Grantor Trust Holder
and, if no Securities Insurer Default has occurred and is continuing, the
Securities Insurer, shall be eligible in accordance with the provisions of
Section 6.06, and shall be compensated solely (A) pursuant to the provisions of
this Agreement, and (B) if such arrangement is not acceptable to such successor,
pursuant to an arrangement between the successor trustee and the resigning
Grantor Trustee. Any such resignation of the Grantor Trustee shall only be
effective upon the appointment of a successor trustee. Upon receiving such
notice of resignation, the Grantor Trust Holder shall promptly appoint a
successor trustee, acceptable to the Securities Insurer, by written instrument,
in quadruplicate, one copy of which instrument shall be delivered to the
resigning Grantor Trustee, one copy to the successor trustee, one copy to the
Securities Insurer and one copy to the Depositor. If no successor trustee shall
have been appointed and have accepted appointment within 60 days after the
giving of such notice of resignation, the resigning Grantor Trustee or the
Securities Insurer may petition any court of competent jurisdiction for the
appointment of a successor trustee.
If at any time the Grantor Trustee shall cease to be eligible in accordance
with the provisions of Section 6.06 and shall fail to resign after written
request for the Grantor Trustee's resignation by the Grantor Trust Holder or the
Securities Insurer, or if at any time the Grantor Trustee shall become incapable
of acting, or an order for relief shall have been entered in any bankruptcy or
insolvency proceeding with respect to the Grantor Trustee, or a receiver of the
Grantor Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Grantor Trustee or of its property or
affairs for the purpose of rehabilitation, conversion or liquidation, or in
order to change the status of the Grantor Trust for state tax reasons, then the
Grantor Trust Holder, with the consent of the Securities Insurer, shall remove
the Grantor Trustee and appoint a successor trustee by written instrument, in
quadruplicate, one copy of which instrument shall be delivered to the Grantor
Trustee so removed, one copy to the successor trustee, one copy to the
Securities Insurer and one copy to the Depositor.
The Grantor Trust Holder may at any time remove the Grantor Trustee, with
the consent of the Securities Insurer, and appoint a successor trustee by
written instrument or instruments, in quadruplicate, signed by such holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Depositor, one complete set of which shall be
delivered to the Grantor Trustee so removed, one complete set of which shall be
delivered to the Securities Insurer and one complete set of which shall be
delivered to the successor so appointed.
Any resignation or removal of the Grantor Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 6.08.
Section 6.08. Successor Grantor Trustee. Any successor trustee appointed as
provided in Section 6.07 shall execute, acknowledge and deliver to the Grantor
Trust Holder, the Depositor, the Securities Insurer and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective, and
such successor trustee, without any further act, deed or reconveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee documents
and statements relating to the Grantor Trust Estate held by it hereunder, and
the Depositor and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of Section 6.06.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Grantor Trustee shall mail notice of the succession of such trustee
hereunder to the Grantor Trust Holder at its address as shown in the Certificate
Register. If the Grantor Trustee fails to mail such notice within ten days after
acceptance of the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Grantor Trustee.
Section 6.09. Merger or Consolidation of Grantor Trustee. Any Person into
which the Grantor Trustee may be merged or converted or with which it may be
consolidated, to which it may sell or transfer its corporate trust business and
assets as a whole or substantially as a whole or any Person resulting from any
merger, sale, transfer, conversion or consolidation to which the Grantor Trustee
shall be a party, or any Person succeeding to the business of the Grantor
Trustee, shall be the successor of the Grantor Trustee hereunder, provided that
(i) such Person shall be eligible under the provisions of Section 6.06, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding, and (ii)
the Grantor Trustee shall deliver an opinion of counsel to the Depositor and, if
no Securities Insurer Default has occurred and is continuing, to the Securities
Insurer to the effect that such merger, consolidation, sale or transfer will not
subject the Grantor Trust to federal, state or local tax.
Section 6.10. Authenticating Agent. The Grantor Trustee may appoint an
Authenticating Agent, which shall be authorized to act on behalf of the Grantor
Trustee in authenticating or countersigning the Grantor Trust Certificate.
Wherever reference is made in this Agreement to the authentication of the
Grantor Trust Certificate by the Grantor Trustee or the Grantor Trustee's
countersignature, such reference shall be deemed to include authentication on
behalf of the Grantor Trustee by the Authenticating Agent and a certification of
authentication executed on behalf of the Grantor Trustee by the Authenticating
Agent. The Authenticating Agent must be acceptable to the Depositor and the
Securities Insurer and must be a corporation organized and doing business under
the laws of the United States of America or of any state, having a principal
office and place of business in a state and city acceptable to the Depositor and
the Securities Insurer, having a combined capital and surplus of at least
$15,000,000, authorized under such laws to do a trust business and subject to
supervision or examination by Federal or state authorities.
Any corporation into which the Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of the Authenticating Agent, shall be the Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Grantor
Trustee or the Authenticating Agent.
The Authenticating Agent may at any time resign by giving at least 30 day's
advance written notice of resignation to the Grantor Trustee, the Securities
Insurer and the Depositor. The Grantor Trustee may at any time terminate the
agency of the Authenticating Agent by giving written notice to the Depositor.
Upon receiving a notice of resignation or upon such a termination, or in case at
any time the Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section 6.10, the Grantor Trustee promptly shall appoint
a successor Authenticating Agent, which shall be acceptable to the Depositor
and, if no Securities Insurer Default has occurred and is continuing, the
Securities Insurer, and shall give written notice of such appointment to the
Depositor and the Securities Insurer, and shall mail notice of such appointment
to the Grantor Trust Holder. Any successor Authenticating Agent upon acceptance
of its appointment hereunder shall become vested with all the rights, powers,
duties and responsibilities of its predecessor hereunder, with like effect as if
originally named as Authenticating Agent herein. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section
6.10.
The Authenticating Agent shall have no responsibility or liability for any
action taken by it as such at the direction of the Grantor Trustee. Any
compensation paid to the Authenticating Agent shall be at the expense of the
Grantor Trustee pursuant to Section 6.04.
ARTICLE VII
TERMINATION
Section 7.01. Termination . The respective obligations and responsibilities
of the Depositor and the Grantor Trustee created hereby and the Grantor Trust
created hereby shall terminate only upon the liquidation of all the Home Loans
or the Securities Insurer's, the Master Servicer's or the Majority Residual
Interest Holders' purchase of the all the Home Loans pursuant to Section 11.02
of the Sale and Servicing Agreement and the termination of the Indenture and the
Insurance Agreement; provided, however, that in no event shall the trust created
hereby continue beyond the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late Ambassador of the
United States of America to the Court of St. James's, living on the date hereof.
Section 7.02. Procedure Upon Termination of Grantor Trust .
(a) Notice of any termination pursuant to the provisions of Section 7.01,
specifying the Payment Date upon which the final distribution shall be made,
shall be given promptly by the Grantor Trustee by first class mail to the
Grantor Trust Holder, the Indenture Trustee and the Securities Insurer. Such
notice shall specify (A) the Payment Date upon which final distribution on the
Grantor Trust Certificate will be made upon presentation and surrender of the
Grantor Trust Certificate at the Corporate Trust Office, and (B) that the Record
Date otherwise applicable to such Payment Date is not applicable, distribution
being made only upon presentation and surrender of the Grantor Trust Certificate
at the office or agency of the Grantor Trustee therein specified. The Grantor
Trustee shall give such notice to the Depositor, the Indenture Trustee, the
Securities Insurer and the Certificate Registrar at the time such notice is
given to the Grantor Trust Holder.
(b) In the event that the Grantor Trust Holder does not surrender the
Grantor Trust Certificate for cancellation within three months after the time
specified in the above-mentioned written notice, the Grantor Trustee shall give
a second written notice to the Grantor Trust Holder to surrender the Grantor
Trust Certificate for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice the Grantor Trust
Certificate shall not have been surrendered for cancellation, the Grantor
Trustee may take appropriate steps to contact the Grantor Trust Holder
concerning surrender of the Grantor Trust Certificate, and the cost thereof
shall be paid out of the amounts distributable to such Grantor Trust Holder. If
within two years after the second notice the Grantor Trust Certificate shall not
have been surrendered for cancellation, the Grantor Trustee shall, subject to
applicable state law relating to escheatment, hold all amounts distributable to
the Grantor Trust Holder for the benefit of the Grantor Trust Holder. No
interest shall accrue on any amount held by the Grantor Trustee and not
distributed to a Grantor Trust Holder due to such Grantor Trust Holder's failure
to surrender its Grantor Trust Certificate for payment of the final distribution
therein in accordance with this Section.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01. Binding Nature of Agreement; Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto the Indenture
Trustee, the Securities Insurer, the Issuer and their respective successors and
permitted assigns.
Section 8.02. Entire Agreement. This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written,
of any nature whatsoever with respect to the subject matter hereof. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof.
Section 8.03. Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Transferor and the Grantor Trustee with the consent of the Grantor Trust Holder
and the Securities Insurer; provided, however, any amendments relating to or
affecting Article VII or this Section 8.03, or any other provision of this
Agreement relating to termination of the Grantor Trust or amendment of this
Agreement, shall also require the consent of all of the holders of all of the
Notes.
(b) Promptly after the execution of any such amendment, the Grantor Trustee
shall furnish written notification of the substance of such amendment to the
Grantor Trust Holder, the Securities Insurer and the Depositor.
(c) It shall be necessary for the consent of the Grantor Trust Holder under
this Section 8.03 for the Holders to approve the particular form of any proposed
amendment. The manner of obtaining such consent and of evidencing the
authorization of the execution thereof by the Grantor Trust Holder shall be
subject to such reasonable rules and procedures as the Grantor Trustee may
prescribe.
SECTION 8.04. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES APPLIED IN NEW YORK.
Section 8.05. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given when received by
(a) in the case of Depositor, to PaineWebber Mortgage Acceptance Corporation IV,
1285 Avenue of the Americas, New York, New York 10019, Attention: John Fearey,
Esq., (b) in the case of the Grantor Trustee, to U.S. Bank National Association,
180 East Fifth Street, St. Paul, Minnesota 55101; Attention: Structured
Finance/Empire Funding 1998-3, and (c) in the case of the Transferor, to Empire
Funding Corp., 9737 Great Hills Trail, Austin, Texas 78759, Attention: Richard
N. Steed; (d) in the case of the Securities Insurer, MBIA Insurance Corporation,
113 King Street, Armonk, New York 10504, Attention: IPM-SF (Empire Funding Home
Loan Owner Trust 1998-3), telephone: 914-765-3810, confirmation: 914-273-4545;
or as to each party such other address as may hereafter be furnished by such
party to the other parties in writing. Any notice required or permitted to be
mailed to a Grantor Trust Holder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not a Grantor Trust
Holder receives such notice.
Section 8.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or the Grantor Trust
Certificate or the rights of the Grantor Trust Holder thereof.
Section 8.07. Indulgences; No Waivers. Neither the failure nor any delay on
the part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed a waiver of such right, remedy, power or privilege with
respect to any other occurrence. No waiver shall be effective unless it is in
writing and is signed by the party asserted to have granted such waiver.
Section 8.08. Headings Not To Affect Interpretation. The headings contained
in this Agreement are for convenience of reference only, and they shall not be
used in the interpretation hereof.
Section 8.09. Benefits of Agreement. Nothing in this Agreement or in the
Grantor Trust Certificate, express or implied, shall give to any Person, other
than the parties to this Agreement and their successors hereunder and the
Grantor Trust Holder, any benefit or any legal or equitable right, power, remedy
or claim under this Agreement; provided, however, that notwithstanding the
foregoing, the holders of the Notes are and shall be intended third party
beneficiaries of this Agreement with respect to Section 8.03 hereof and the
Securities Insurer and the Indenture Trustee shall each be an intended third
party beneficiary in accordance with Section 8.11 hereof.
Section 8.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
Section 8.11. Third Party Beneficiary. The parties hereto acknowledge that
the Securities Insurer and the Indenture Trustee are each express third party
beneficiaries hereof entitled to enforce any rights reserved hereunder as if it
were actually a party hereto.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Transferor and the Grantor Trustee
have caused their names to be signed hereto by their respective officers
thereunto duly authorized, all as of the day and year first written above.
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor
By:_________________________________________
Name:
Title:
EMPIRE FUNDING CORP., as Transferor and
Servicer
By:_________________________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as
Grantor Trustee
By:_________________________________________
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ___ day of _____________, 1998, before me, a notary public in and
for the State of New York, personally appeared _______________, known to me who,
being by me duly sworn, did depose and say that he/she resides at
___________________; that he/she is a __________________________ of PaineWebber
Mortgage Acceptance Corporation IV, one of the parties that executed the
foregoing instrument and that she is authorized by PaineWebber Mortgage
Acceptance Corporation IV to sign his/her name thereto.
___________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF _______________ )
) ss.:
COUNTY OF ______________ )
On this ___ day of _____________, 1998, before me, a notary public in and
for the State of _____________, personally appeared _____________, known to me
who, being by me duly sworn, did depose and say that he resides at
___________________; that he is a __________________ of Empire Funding Corp.,
one of the parties that executed the foregoing instrument and that he is
authorized by Empire Funding Corp. to sign his name thereto.
___________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF _______________ )
) ss.:
COUNTY OF ______________ )
On this ___ day of ____________, 1998, before me, a notary public in and
for the State of _________, personally appeared _____________, known to me who,
being by me duly sworn, did depose and say that he resides at
___________________; that he is a __________________ of U.S. Bank National
Association, one of the parties that executed the foregoing instrument and that
he is authorized by U.S. Bank National Association to sign his name thereto.
___________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
EXHIBIT A
FORM OF GRANTOR TRUST CERTIFICATE
THIS GRANTOR TRUST CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS GRANTOR TRUST CERTIFICATE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION, PROVIDED, HOWEVER, THAT THIS GRANTOR TRUST CERTIFICATE
SHALL BE PLEDGED BY THE HOLDER THEREOF TO THE INDENTURE TRUSTEE PURSUANT TO THE
TERMS OF THE INDENTURE.
THE HOLDER OF THIS GRANTOR TRUST CERTIFICATE BY ITS ACCEPTANCE HEREOF AGREES NOT
TO OFFER, SELL OR OTHERWISE TRANSFER SUCH GRANTOR TRUST CERTIFICATE EXCEPT IN
ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND (A) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (B) FOR SO LONG AS THIS GRANTOR TRUST CERTIFICATE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHO
THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT IN EACH OF THE FOREGOING CASES TO THE COMPLETION AND DELIVERY BY THE
TRANSFEROR TO THE GRANTOR TRUSTEE OF A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE LAST PAGE OF THIS GRANTOR TRUST CERTIFICATE, EXCEPT IN THE CASE
OF THE PLEDGE DESCRIBED ABOVE AND THE INITIAL TRANSFERS OF THIS GRANTOR TRUST
CERTIFICATE BY THE GRANTOR TRUSTEE TO THE DEPOSITOR, AND BY THE DEPOSITOR TO THE
ISSUER.
THE INITIAL INVESTOR IN THIS GRANTOR TRUST CERTIFICATE, AND EACH SUBSEQUENT
PURCHASER OF THIS GRANTOR TRUST CERTIFICATE, BY PURCHASING THIS GRANTOR TRUST
CERTIFICATE OR AN INTEREST HEREIN, IS DEEMED TO HAVE AGREED TO COMPLY WITH
CERTAIN TRANSFER REQUIREMENTS SET FORTH IN THE GRANTOR TRUST AGREEMENT. A
TRANSFEREE IS ALSO REQUIRED TO DELIVER AN INVESTMENT REPRESENTATION LETTER
SUBSTANTIALLY IN THE FORM OF EXHIBIT B TO THE GRANTOR TRUST AGREEMENT IF SUCH
TRANSFEREE IS A QUALIFIED INSTITUTIONAL BUYER OR AN ACCREDITED INSTITUTIONAL
INVESTOR, AND MAY ALSO BE REQUIRED TO DELIVER AN OPINION OF COUNSEL IF SUCH
TRANSFEREE IS NOT A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A.
THIS GRANTOR TRUST CERTIFICATE IS SUBJECT TO THE TERMS OF THE GRANTOR TRUST
AGREEMENT AND (OTHER THAN (I) THE INITIAL TRANSFERS OF THE GRANTOR TRUST
CERTIFICATE BY THE GRANTOR TRUSTEE TO THE DEPOSITOR, AND BY THE DEPOSITOR TO THE
ISSUER, (II) THE PLEDGE OF THE GRANTOR TRUST CERTIFICATE BY THE ISSUER TO THE
INDENTURE TRUSTEE PURSUANT TO THE TERMS OF THE INDENTURE) CANNOT BE OFFERED,
SOLD, PLEDGED, ENCUMBERED OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN
CONSENT OF THE SECURITIES INSURER AND THE HOLDER OF THIS GRANTOR CERTIFICATE, BY
ITS ACCEPTANCE HEREOF, AGREES TO SUCH TERMS.
THE HOLDER OF THIS GRANTOR TRUST CERTIFICATE WILL BE TREATED AS THE OWNER OF A
PRO RATA UNDIVIDED BENEFICIAL INTEREST IN THE HOME LOANS. EACH TRANSFEREE OF
THIS GRANTOR TRUST CERTIFICATE, BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE ACCEPTED
THIS GRANTOR TRUST CERTIFICATE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFERABILITY, AS SET FORTH IN SECTION 4.02 OF THE GRANTOR TRUST AGREEMENT.
<PAGE>
EMPIRE FUNDING GRANTOR TRUST 1998-3
evidencing an interest in a trust
the assets of which consist primarily
of the Home Loans
Certificate No. __
Percentage Interest evidenced
by this Grantor Trust Certificate: 100%
First Payment Date: December 28, 1998
THIS CERTIFIES THAT U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee is
the registered owner of the Percentage Interest evidenced by this Grantor Trust
Certificate in monthly distributions to the Grantor Trust Holder with respect to
the Grantor Trust consisting of a trust the assets of which consist primarily of
the Home Loans. The Grantor Trust was created pursuant to a Grantor Trust
Agreement dated as of November 1, 1998 ("Agreement") among PaineWebber Mortgage
Acceptance Corporation IV (the "Depositor"), Empire Funding Corp. (the
"Transferor"), and U.S. Bank National Association, as Grantor Trustee (the
"Grantor Trustee"), a summary of certain of the pertinent provisions of which is
set forth hereinafter. To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to such terms in the Agreement. This
Grantor Trust Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the holder of
this Grantor Trust Certificate by virtue of the acceptance hereof assents and by
which such holder is bound.
Pursuant to the terms of the Agreement, distributions will be made on this
Grantor Trust Certificate to the Person in whose name this Grantor Trust
Certificate is registered at the close of business on the last day of the
calendar month preceding the month of such distribution, or if such day is not a
Business Day, the Business Day immediately preceding such day, in an amount
equal to the product of the Percentage Interest evidenced by this Grantor Trust
Certificate and the amount required to be distributed to the Grantor Trust
Holder on such Payment Date pursuant to Section 5.01 of the Agreement.
Distributions on this Grantor Trust Certificate will be made by the Grantor
Trustee by check mailed to the address of the Person entitled thereto, as such
name and address shall appear on the Certificate Register unless such Person
notifies the Grantor Trustee in writing at least five Business Days prior to a
Payment Date that such payments are to be made by wire transfer (at the expense
of the Grantor Trustee) of immediately available funds to the account specified
by such person. Notwithstanding the above, the final distribution on this
Grantor Trust Certificate will be made after due notice of the pendency of such
distribution and only upon presentation and surrender of this Grantor Trust
Certificate at the office or agency specified by the Trustee for that purpose in
the notice of final distribution.
No offer, sale, or other transfer of the Grantor Trust Certificate (other
than the initial transfers of the Grantor Trust Certificate by the Grantor
Trustee to the Depositor, and by the Depositor to the Issuer) shall be made
unless such transfer is made pursuant to an effective registration statement or
otherwise in accordance with the requirements under the Act, and effective
registration or qualification under applicable state securities laws, or is made
in a transaction which does not require such registration or qualification. If a
transfer (other than the initial transfer by the Grantor Trustee to the
Depositor or one by the Depositor or an affiliate thereof) is to be made in
reliance upon an exemption from the Act, and under the applicable state
securities laws, then the prior written consent of the Securities Insurer must
be obtained and either: (i) the Certificate Registrar shall require that the
transferee deliver to the Certificate Registrar an investment representation
letter (the "Investment Representation Letter") substantially in the form of
Exhibit B to the Grantor Trust Agreement, which Investment Representation Letter
shall certify, among other things, that the transferee is an institutional
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Act or a "qualified institutional buyer" as defined in Rule 144A under the Act,
and the Certificate Registrar may also require that the transferee deliver to
the Certificate Registrar an Opinion of Counsel if such transferee is not a
qualified institutional buyer within the meaning of Rule 144A under the Act; or
(ii) if the certifications described in the preceding clause (i) cannot be
provided (A) the Certificate Registrar shall require an Opinion of Counsel
reasonably satisfactory to the Certificate Registrar and the Depositor that such
transfer may be made pursuant to an exemption, describing the applicable
exemption and the basis therefor, from registration or qualification under the
Act, applicable state securities laws and other relevant laws, which Opinion of
Counsel shall not be an expense of the Certificate Registrar, the Depositor, the
Grantor Trust or the Grantor Trustee, and (B) the Certificate Registrar shall
require the transferor to execute a certification in form and substance
satisfactory to the Certificate Registrar setting forth the facts surrounding
such transfer. In each case, the Certificate Registrar will be entitled without
further investigation to rely upon such certification or Opinion of Counsel. A
Grantor Trust Holder desiring to effect such transfer shall, and does hereby
agree to, indemnify the Certificate Registrar, the Grantor Trustee and the
Depositor against any liability that may result if the transfer is not so exempt
or is not made in accordance with such federal and state laws. The Grantor Trust
Holder shall pledge the Grantor Trust Certificate to the Indenture Trustee
pursuant to the terms of the Indenture.
The Agreement does not permit the amendment of the Agreement and the
modification of the rights and obligations of the Depositor, the Grantor Trustee
and the Transferor and the rights of the Grantor Trust Holder under the
Agreement without the consent of Grantor Trust Holder and, if no Securities
Insurer Default has occurred and is continuing, the Securities Insurer;
provided, however, any amendments relating to or affecting Article VII or
Section 8.03, or any other provision of the Agreement relating to termination of
the Grantor Trust or amendment of the Agreement, shall require the consent of
all of the holders of all of the Notes.
The Grantor Trust Certificate is issuable only as a registered Grantor
Trust Certificate without coupons in the Percentage Interest specified in the
Agreement.
The Grantor Trust Holder or the Securities Insurer may at any time remove
the Grantor Trustee with or without cause, and appoint a successor trustee. If
such removal is without cause, the Grantor Trust Holder shall be responsible for
making satisfactory arrangements for compensation of the successor trustee.
No service charge will be made for any such registration of transfer or
exchange, but the Grantor Trustee or the Certificate Registrar may require
payment from the Grantor Trust Holder of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
The Depositor, the Grantor Trustee and the Certificate Registrar, and any
agent of the Depositor, the Grantor Trustee or the Certificate Registrar, may
treat the Person in whose name this Grantor Trust Certificate is registered as
the owner hereof for all purposes, and neither the Depositor, the Grantor
Trustee, the Certificate Registrar nor any such agent shall be affected by
notice to the contrary.
The obligations created by the Agreement in respect of the Grantor Trust
Certificate and the Grantor Trust created thereby shall terminate only upon the
liquidation of all the Home Loans or the Master Servicer's, the Securities
Insurer's or the Majority Residual Interest Holders' purchase of all the Home
Loans pursuant to Section 11.02 of the Sale and Servicing Agreement and the
termination of the Indenture and the Insurance Agreement; provided, however,
that the Trust Fund will in no event continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James, living on the
date of the Agreement.
Unless this Grantor Trust Certificate has been countersigned by an
authorized officer of the Grantor Trustee, by manual signature, this Grantor
Trust Certificate shall not be entitled to any benefit under the Agreement or be
valid for any purpose.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Grantor Trustee has caused this Grantor Trust
Certificate to be duly executed as of the date set forth below.
Dated:
U.S. BANK NATIONAL ASSOCIATION, as
Grantor Trustee
By: _____________________________________
Name:
Title:
Countersigned:
U.S. BANK NATIONAL ASSOCIATION,
as Grantor Trustee
By: ____________________________________________
Name:
Title:
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto __________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the beneficial interest evidenced by the within Grantor Trust Certificate and
hereby authorizes the transfer of registration of such interest to assignee on
the Certificate Register of the Grantor Trust.
I (We) further direct the Certificate Registrar to issue a new Grantor
Trust Certificate of a like Percentage Interest, to the above named assignee and
deliver such Grantor Trust Certificate to the following address:
____________________________________________________________________
Social Security or other Identifying Number of Assignee:
____________________________________________________________________
Dated:
_____________________________________
Signature by or on behalf of assignor
_____________________________________
Signature Guaranteed
<PAGE>
[DISTRIBUTION INSTRUCTIONS]
The assignee should include the following for purposes of
distribution:
Distributions shall be made, if the assignee is eligible to receive
distributions in immediately available funds, by wire transfer or otherwise, in
immediately available funds to _________________________________ for the account
of ______________________________________________ account number ____________,
or, if mailed by check, to _________________________________. Applicable
statements should be mailed to _________________________________________
___________________________________________________________.
This information is provided by ______________________, the
assignee named above, or ___________________________________, as its agent.
<PAGE>
EXHIBIT B
FORM OF INVESTMENT REPRESENTATION LETTER
U.S. Bank National Association
as Grantor Trustee and Certificate Registrar
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance/Empire Funding 1998-3
Re: Transfer of Empire Funding Grantor Trust 1998-3,
Grantor Trust Certificate
------------------------------------------------
Ladies and Gentlemen:
This letter is delivered pursuant to Section 4.02 of the Grantor Trust
Agreement dated as of November 1, 1998 (the "Grantor Trust Agreement"), by and
among PaineWebber Mortgage Acceptance Corporation IV, as Depositor, Empire
Funding Corp., as Transferor, and U.S. Bank National Association, as Grantor
Trustee, on behalf of the holders of Empire Funding Grantor Trust 1998-3 Grantor
Trust Certificate (the "Grantor Trust Certificate"), in connection with the
transfer by _________________ (the "Seller") to the undersigned (the
"Purchaser") of a 100% Percentage Interest in the Grantor Trust Certificate.
Terms used but not defined herein shall have the meanings ascribed thereto in
the Grantor Trust Agreement.
In connection with such transfer, the undersigned hereby represents and
warrants to you as follows:
[[For Institutional Accredited Investors] 1. The Purchaser is an
"institutional accredited investor" (an entity meeting the requirements of Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act")) and has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment in the Grantor Trust Certificate, and the Purchaser and
any accounts for which it is acting are each able to bear the economic risk of
the Purchaser's or such account's investment. The Purchaser is acquiring the
Grantor Trust Certificate purchased by it for its own account or for one or more
accounts (each of which is an "institutional accredited investor") as to each of
which the Purchaser exercises sole investment discretion. The Purchaser hereby
undertakes to reimburse the Grantor Trustee for any costs incurred by it in
connection with this transfer.]
[[For Qualified Institutional Buyers only] 1. The Purchaser is a "qualified
institutional buyer" within the meaning of Rule 144A ("Rule 144A") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser is aware that the transfer is being made in reliance on Rule 144A, and
the Purchaser has had the opportunity to obtain the information required to be
provided pursuant to paragraph (d)(4)(i) of Rule 144A.]
2. The Purchaser's intention is to acquire the Grantor Trust Certificate
(a) for investment for the Purchaser's own account or (b) for resale to (i)
"qualified institutional buyers" in transactions under Rule 144A, and not in any
event with the view to, or for resale in connection with, any distribution
thereof, or (ii) to "institutional accredited investors" meeting the
requirements of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated
under the Securities Act, pursuant to any other exemption from the registration
requirements of the Securities Act, subject in the case of this clause (ii) to
(a) the receipt by the Certificate Registrar of a letter substantially in the
form hereof, (b) the receipt by the Certificate Registrar of an opinion of
counsel acceptable to the Certificate Registrar that such reoffer, resale,
pledge or transfer is in compliance with the Securities Act, (c) the receipt by
the Certificate Registrar of such other evidence acceptable to the Certificate
Registrar that such reoffer, resale, pledge or transfer is in compliance with
the Securities Act and other applicable laws, and (d) a written undertaking to
reimburse the Grantor Trust for any costs incurred by it in connection with the
proposed transfer. The Purchaser understands that the Grantor Trust Certificate
(and any subsequent Grantor Trust Certificate) has not been registered under the
Securities Act, by reason of a specified exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the Purchaser's investment intent (or intent to resell to
only certain investors in certain exempted transactions) as expressed herein.
3. The Purchaser acknowledges that the Grantor Trust Certificate (and any
Grantor Trust Certificate issued on transfer or exchange thereof) has not been
registered or qualified under the Securities Act or the securities laws of any
State or any other jurisdiction, and that the Grantor Trust Certificate cannot
be resold unless it is registered or qualified thereunder or unless an exemption
from such registration or qualification is available.
4. The Purchaser hereby undertakes to be bound by the terms and conditions
of the Grantor Trust Agreement in its capacity as an owner of the Grantor Trust
Certificate (the "Grantor Trust Holder"), in all respects as if it were a
signatory thereto. This undertaking is made for the benefit of the Grantor
Trust, the Grantor Trustee, the Certificate Registrar and all Grantor Trust
Holders present and future.
5. The Purchaser will not sell or otherwise transfer any portion of the
Grantor Trust Certificate, except in compliance with Section 4.02 of the Grantor
Trust Agreement.
[Please make all payments due on the Grantor Trust Certificate:*
_______________
* Please select (a) or (b)
_____ (a) by wire transfer to the following account at a bank or entity
in New York, New York, having appropriate facilities therefore:
Account number _________ Institution __________________
_____ (b) by mailing a check or draft to the following address:
_________________________
_________________________
_________________________
Very truly yours,
_________________________
[The Purchaser]
By: ______________________
Name:
Title
Dated: ____ __, ____
Receipt hereby acknowledged:
_____________________________
