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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 1999
Registration No. 333-___________________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------
ADVANTA CONDUIT RECEIVABLES, INC.
(As sponsor of the trusts described herein)
Nevada 10790 Rancho Bernardo Road 88-0360305
(Jurisdiction) San Diego, California 92127 (I.R.S. Employee
identification No.)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-------------------------
ELIZABETH MAI, ESQ.
WELSH & MCKEAN ROADS
SPRING HOUSE, PENNSYLVANIA 19477
(215) 657-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
CHRIS DIANGELO, ESQ.
DEWEY BALLANTINE LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|
If this Form is filed as a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Securities Amount Maximum Maximum Amount of
Being Registered To be Aggregate Price Aggregate Registration
Registered Per Unit(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Mortgage Loan Asset-Backed Certificates $1,000,000(2) 100% $1,000,000 $278.00(3)
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) In accordance with Rule 429 of the Securities and Exchange Commission's
Rules and Regulations under the Securities Act of 1933, as amended, the
Prospectus included herein is a combined prospectus which also
relates to the Registrant's Registration Statement on Form S-3 (Registration
Statement No. 333-52351) (the "Prior Registration Statement"). The amount
of Securities eligible to be sold under the Prior Registration Statement
($637,500,000 as of March 9, 1999) shall be carried forward to this
Registration Statement.
(3) $278.00 is paid pursuant to this Registration Statement. $177,225.00 is
attributable to the amount carried forward from the Prior Registration
Statement for which a filing fee was paid at the time of registration of the
Prior Registration Statement.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS FILED
AS PART OF THIS REGISTRATION STATEMENT MAY BE USED IN CONNECTION WITH THE
SECURITIES COVERED BY REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION
NO. 333-52351).
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CROSS REFERENCE SHEET
TO FORM S-3
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-3 CAPTION OR LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Forepart of Registration Statement; Outside Front
Cover Page of Prospectus.............................. Cover Page**
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover Page**
3. Summary Information, Risk Factors and Ratio of Earnings Summary of Prospectus**; Risk Factors**;
to Fixed Charges......................................
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... *
6. Dilution.............................................. *
7. Selling Security Holders.............................. *
8. Plan of Distribution.................................. Methods of Distribution**
9. Description of Securities to be Registered............ Outside Front Cover Page**;
Summary of Prospectus**;
Description of the Securities**;
Certain Federal Income Tax Consequences**
10. Interests of Named Experts and Counsel................ *
11. Material Changes...................................... *
12. Incorporation of Certain Information by Reference..... See Page II-3
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................ See Page II-4
</TABLE>
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* Not applicable or answer is negative.
** To be completed from time to time by Prospectus Supplement.
<PAGE> 3
PROSPECTUS
- --------------------------------------------------------------------------------
ADVANTA CONDUIT RECEIVABLES, INC. Mortgage Loan Asset-Backed Securities,
Sponsor Issuable in Series
ADVANTA MORTGAGE CORP. USA
Master Servicer
- --------------------------------------------------------------------------------
Advanta Conduit Receivables, Inc. may sell, from time to time, a series of its
mortgage loan asset-backed securities backed solely by the assets of the related
trust. The assets of each trust consist primarily of a pool of mortgage loans.
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" ON PAGE 12 OF THIS
PROSPECTUS AND CONSIDER THESE FACTORS BEFORE MAKING A DECISION TO INVEST IN
THESE SECURITIES.
These securities are mortgage loan asset-backed securities which represent
interests in or obligations of the trust issuing that series of securities and
are not interests in or obligations of any other person or entity.
Neither these securities nor the underlying mortgage loans will be insured or
guaranteed by any governmental agency or instrumentality.
Retain this prospectus for future reference. This prospectus may not be used to
consummate sales of securities unless accompanied by the prospectus supplement
relating to the offering of such securities.
THE SECURITIES --
- - will be issued from time to time in series
- - will be issued by trusts established by Advanta Conduit Receivables, Inc.
- - will be backed by one or more pools of mortgage loans held by the related
issuing trust
- - will, if offered by this prospectus, be rated in one of the four highest
rating categories by at least one nationally recognized statistical rating
organization
- - may have the benefit of one or more forms of credit enhancement, such as
insurance policies, overcollateralization, subordination or reserve funds.
THE ASSETS --
The assets of each trust will primarily consist of a pool of mortgage loans,
funds on deposit in one or more accounts and such forms of credit support as
described in this prospectus and in the related prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL __, 1999
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IMPORTANT INFORMATION ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail: (1) this prospectus, which
provides general information, some of which may not apply to a particular series
of securities, and (2) the prospectus supplement, which describes the specific
terms of your series of securities.
This prospectus does not contain complete information about the offering of
your securities. Additional information is contained in the prospectus
supplement. We urge investors to read both this prospectus and the prospectus
supplement in full. We cannot sell the securities to you unless you have
received both this prospectus and the prospectus supplement.
IF THE TERMS OF YOUR SERIES OF SECURITIES VARY BETWEEN THIS PROSPECTUS AND
THE ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
The prospectus supplement relating to a series of securities to be offered
hereunder will state:
- - the aggregate principal amount, interest rate, and authorized denominations
of each class of such securities;
- - certain information concerning the mortgage loans, the originator and the
master servicer;
- - the terms of any credit enhancement with respect to such series;
- - information concerning any other assets in the related trust fund,
including any reserve fund;
- - the final scheduled distribution date of each class of such securities;
- - the method used to calculate the rate at which interest on each class of
securities will accrue, the time period during which interest on each class
of securities will accrue, the order of priority of the application of such
interest to the respective classes and the manner of distribution of
interest among each class of securities;
- - the method to be used to calculate the amount of principal required to be
applied to each class of securities of each series on each payment date,
the timing of the application of principal and the order of priority of the
application of such principal to the respective classes of securities;
- - additional information with respect to the plan of distribution of such
securities; and
- - the federal income tax characterization of the securities.
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REPORTS
The Sponsor intends to cause each trust to file certain reports
with the Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934, as amended. The Sponsor intends to cause each
trust to suspend filing such reports if and when such reports are no longer
required under the Securities Exchange Act.
In connection with each distribution of principal and/or interest, the
trustee will furnish securityholders with statements containing information with
respect to the related trust, as described herein and in the applicable
prospectus supplement for such series. The master servicer for each series
relating to mortgage loans will furnish periodic compliance statements setting
forth certain specified information to the related trustee and, in addition,
annually will furnish such trustee with a statement from a firm of independent
public accounts with respect to the examination of certain documents and records
relating to the servicing of the mortgage loans in the related trust. Copies of
the monthly and annual statements provided by the master servicer to the trustee
will be furnished to securityholders of each series upon request addressed to
Advanta Conduit Receivables, Inc., 10790 Rancho Bernardo Road, San Diego,
California 92127, (619) 674-1800.
AVAILABLE INFORMATION
The Sponsor has filed a registration statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission with respect to
the securities offered pursuant to this prospectus. This prospectus contains,
and the prospectus supplement for each series of securities will contain, a
summary of the material terms of the documents referred to herein and therein,
but neither contains nor will contain all of the information set forth in the
registration statement of which this prospectus is a part. For further
information, you should read the registration statement and any amendments
thereof and exhibits thereto. You may obtain a copy of the registration
statement from the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the
prescribed charges, or you may examine the registration statement free of charge
at the Securities and Exchange Commission's offices, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the regional offices of the Securities and Exchange
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Northwestern Atrium Center, 500 West Madison Street, Suite 400, Chicago,
Illinois 60661-2511. In addition, the Securities and Exchange Commission
maintains a site on the World Wide Web containing reports, proxy and information
statements and other items. The address is http://www.sec.gov.
You should rely only on the information contained in this document and the
prospectus supplement. We have not authorized anyone to provide any information
that is different. This prospectus and any prospectus supplement with respect
hereto do not constitute an offer to sell or a solicitation of an offer to buy
any securities other than the securities offered hereby and thereby nor an offer
of the securities to any person in any state or other jurisdiction in which such
offer would be unlawful. The information set forth herein speaks as of the date
hereof. You should not assume that it will remain correct after such date.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Sponsor with respect to a trust pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
after the date of this prospectus and prior to the termination of any offering
of securities evidencing interests therein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes of this prospectus to the
extent that a statement contained herein (or in the accompanying prospectus
supplement) or in any other subsequently filed document which also is or is
deemed to be incorporated by reference modifies or replaces such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
The Sponsor will provide or cause to be provided without charge to each
person to whom this prospectus is delivered in connection with the offering of
one or more classes of securities, a list identifying all filings with respect
to a trust pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act since such trust's latest fiscal year covered by its annual report
on Form 10-K and a copy of any or all documents or reports incorporated herein
by reference, in each case to the extent such documents or reports relate to one
or more of such classes of such securities, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents).
You can obtain from the Sponsor, free of charge, a copy of the financial
information incorporated by reference by making an oral or written request to
Advanta Conduit Receivables, Inc., Attention: General Counsel, Welsh & McKean
Roads, Spring House, Pennsylvania 19477, (215) 657-4000.
The Sponsor's principal offices are located at 10790 Rancho Bernardo Road,
San Diego, California 92127, and its telephone number is (619) 674-1800.
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The following table of
contents provides the pages on which these captions are located.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IMPORTANT INFORMATION ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT ........................................................ 2
REPORTS........................................................................................................... 3
AVAILABLE INFORMATION............................................................................................. 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................................. 4
SUMMARY OF PROSPECTUS............................................................................................. 6
RISK FACTORS...................................................................................................... 12
THE TRUSTS........................................................................................................ 22
THE MORTGAGE LOANS................................................................................................ 23
MORTGAGE LOAN PROGRAM............................................................................................. 30
DESCRIPTION OF THE SECURITIES..................................................................................... 35
DESCRIPTION OF CREDIT ENHANCEMENT................................................................................. 50
THE SPONSOR....................................................................................................... 55
THE MASTER SERVICER............................................................................................... 55
THE POOLING AND SERVICING AGREEMENT............................................................................... 56
YIELD CONSIDERATIONS.............................................................................................. 60
MATURITY AND PREPAYMENT CONSIDERATIONS............................................................................ 61
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS....................................................... 63
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................................................... 73
STATE TAX CONSIDERATIONS.......................................................................................... 96
ERISA CONSIDERATIONS.............................................................................................. 96
LEGAL INVESTMENT MATTERS.......................................................................................... 100
USE OF PROCEEDS................................................................................................... 100
METHODS OF DISTRIBUTION........................................................................................... 100
LEGAL MATTERS..................................................................................................... 100
FINANCIAL INFORMATION............................................................................................. 101
ADDITIONAL INFORMATION............................................................................................ 101
INDEX OF PRINCIPAL DEFINED TERMS.................................................................................. 102
Annex I........................................................................................................... A-1
</TABLE>
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SUMMARY OF PROSPECTUS
- - This summary highlights selected information from this prospectus and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
offered securities, read carefully this entire prospectus and the accompanying
prospectus supplement.
- - This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus and the accompanying prospectus supplement.
- - You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Principal Defined Terms"
beginning on page 102 in this prospectus and under the caption "Index of
Principal Defined Terms" in the accompanying prospectus supplement.
SECURITIES
Mortgage loan asset-backed certificates and mortgage loan asset-backed
notes issuable from time to time in series, in fully registered form or book
entry only form, in authorized denominations, as described in the related
prospectus supplement. Each certificate will represent a beneficial ownership
interest in a trust created from time to time pursuant to a pooling and
servicing agreement or trust agreement. Notes evidencing a debt obligation of a
trust will be issued pursuant to a trust indenture.
THE SPONSOR
Advanta Conduit Receivables, Inc. is a Nevada corporation whose principal
offices are located at 10790 Rancho Bernardo Road, San Diego, California 92127
and its telephone number is (619) 674-1800. The Sponsor or its affiliates may
retain or hold for sale from time to time one or more classes of a series of
securities.
THE MASTER SERVICER
Advanta Mortgage Corp. USA or its successors and assigns.
THE SUB-SERVICERS
The Master Servicer may appoint sub-servicers, who may be affiliates, to
perform servicing duties with respect to the mortgage loans.
THE TRUSTEE
The trustee for each series of securities will be specified in the related
prospectus supplement. The owner trustee and the indenture trustee for each
series of notes will be specified in the related prospectus supplement.
ISSUER OF SECURITIES
The issuer of each series of securities will be a trust established by the
Sponsor or one of its affiliates. Securities styled as notes will represent
indebtedness of the related issuing trust and will be issued pursuant to an
indenture between such trust and the indenture trustee in which such trust will
pledge the assets of the related trust to secure payment on the related notes.
Securities styled as certificates will represent beneficial ownership interests
in the related issuing trust and will generally be issued
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pursuant to a pooling and servicing agreement.
The securities will represent nonrecourse obligations solely of the related
trust, and the proceeds of the related trust will be the sole source of payments
on the securities, except for any third-party credit enhancement.
THE MORTGAGE LOANS
Each trust will consist of one or more pools of mortgage loans, which may
include:
- - conventional (i.e., not insured or guaranteed by any governmental agency)
mortgage loans secured by one-to-four family residential properties;
- - mortgage loans secured by security interests in shares issued by private,
non-profit, cooperative housing corporations and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in such cooperatives' buildings; and,
- - mortgage loans secured by junior liens on the related mortgaged properties,
mortgage loans with loan-to-value ratios in excess of the appraised value
of the related mortgaged property, home improvement retail installment
contracts and revolving home equity lines of credit.
The mortgage loans may be located in any one of the 50 states, the District
of Columbia or the Commonwealth of Puerto Rico.
The Sponsor will direct or request the related trust to acquire the
mortgage loans from affiliated originators, unaffiliated originators or
warehouse trusts created by the Sponsor or an affiliate, to finance the
origination of mortgage loans. Generally, mortgage loans originated by
affiliated originators will have been originated in accordance with the
sponsor's underwriting guidelines and mortgage loans originated by unaffiliated
originators will have been originated either in accordance with the sponsor's
guidelines or in accordance with guidelines approved by the sponsor. Some
mortgage loans may have been purchased by the sponsor in bulk acquisitions and
such loans will have been originated in accordance with the original
originator's guidelines.
THE SECURITIES
The securities of any series may be issued in one or more classes, as
specified in the prospectus supplement. One or more classes of securities of
each series:
- - may be entitled to receive distributions allocable only to principal, only
to interest or to any combination thereof;
- - may be entitled to receive distributions only of prepayments of principal
throughout the lives of the securities or during specified periods;
- - may be subordinated in the right to receive distributions of scheduled
payments of principal, prepayments of principal, interest or any
combination thereof to one or more other classes of securities of such
series throughout the lives of the securities or during specified periods;
- - may be entitled to receive such distributions only after the occurrence of
events specified in the related prospectus supplement;
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- - may be entitled to receive distributions in accordance with a schedule or
formula or on the basis of collections from designated portions of the
assets in the related trust;
- - may be entitled to receive interest at a fixed rate or a rate that is
subject to change from time to time;
- - may accrue interest and no payments will be made thereon until certain
other classes of the series have been paid in full, with such accrued
interest added to the principal or notional amount of the securities; and
- - may be entitled to distributions allocable to interest only after the
occurrence of events specified in the related prospectus supplement with
such accrued interest added to the principal or notional amount of the
securities until such events occur.
The timing and amounts of such distributions may vary among classes, over
time, or otherwise as specified in the related prospectus supplement.
DISTRIBUTIONS ON THE SECURITIES
Owners of securities will be entitled to receive payments in the manner set
forth in the related prospectus supplement. The related prospectus supplement
will specify:
- - whether distributions on the securities entitled thereto will be made
monthly, quarterly, semi-annually or at other intervals and dates from the
payments received in respect of the mortgage loans and other assets
included in the related trust pledged for the benefit of the related owners
of securities;
- - the amount allocable to payments of principal and the amount allocable to
payments of interest on any distribution date; and
- - whether all distributions will be made pro rata to owners of securities.
The aggregate original principal balance of the securities will equal the
aggregate distributions allocable to principal that such securities will be
entitled to receive. The securities will have an aggregate original principal
balance equal to or less than the aggregate unpaid principal balance of the
related mortgage loans (plus amounts held in a pre-funding account, if any) and
the securities will generally bear interest in the aggregate at a rate equal to
the coupon rate borne by the related mortgage loans net of servicing fees and
any other specified amounts.
PRE-FUNDING FEATURE
A trust may enter into agreements with the Sponsor, or its affiliates,
whereby the Sponsor, or its affiliates, will request or direct the related trust
to acquire subsequent mortgage loans after the related securities are issued.
The transfer of mortgage loans after the date on which the securities are issued
is known as the pre-funding feature. Any subsequent mortgage loans so
transferred will be required to conform to certain specified requirements. If
the pre-funding feature is to be used, the related trustee or indenture trustee
will be required to deposit in a segregated account all or a portion of the
proceeds in connection with the sale of the securities of the related series.
The subsequent mortgage loans will be transferred to the related trust in
exchange for money released from such account. Such transfers may only occur
during the period specified in the related pre-funding agreement which will
generally be no longer
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than three months from the startup day of the related trust. If all of the
monies originally deposited to such segregated account are not used by the end
of the specified period, all remaining monies will be applied as a mandatory
prepayment of a class or classes of securities.
OPTIONAL TERMINATION
The Master Servicer or any of its affiliated sub-servicers or, if
applicable, the credit enhancer, may at their respective options, effect early
retirement of a series of securities through the purchase of the mortgage loans
in the related trust on such terms as are set forth in the related prospectus
supplement. Such retirement may only occur on a date following the date on
which the aggregate outstanding principal balance of either the securities or
the mortgage loans is reduced below a specified percentage of their respective
original balances.
MANDATORY TERMINATION
The trustee or the indenture trustee, as applicable, the Master Servicer or
any of its affiliated sub-servicers or certain other entities specified in the
related prospectus supplement may be required to effect early retirement of a
series of securities by soliciting competitive bids for the purchase of the
assets of the related trust or otherwise. If a pre-funding feature is used for
any series of securities, at the end of the related pre-funding period amounts
set aside to purchase subsequent mortgage loans and not so used will be applied
as a mandatory prepayment of a class or classes of securities.
ADVANCES
The Master Servicer or any sub-servicer of the mortgage loans may be
obligated to advance delinquent installments of principal and/or accrued
interest, less applicable servicing fees, on the mortgage loans in a trust.
The obligation to make advances may be limited to amounts due to the owners of
securities of the related series, to amounts deemed to be recoverable from late
payments or liquidation proceeds, to specified periods or to any combination
thereof, in each case as specified in the related prospectus supplement. Such
advance will be recoverable as specified in the related prospectus supplement.
In addition, the Master Servicer of any sub-servicer will be obligated, but
only to the extent set forth in the related prospectus supplement, to pay
interest shortfalls which may arise due to prepayments on the underlying
mortgage loans in the month in which such prepayment occurs. Such payment must
come from such servicer's own funds without any right of reimbursement.
CREDIT ENHANCEMENT
Credit enhancement refers to a mechanism that is intended to protect the
owners of securities against losses due to defaults on the underlying mortgage
loans. A series of securities, or certain classes within such series, may have
the benefit of one or more types of credit enhancement including but not limited
to, the following:
- - the use of excess interest to cover losses and to distribute principal to
create overcollateralization;
- - the subordination of distributions on the lower classes of securities to
the required distributions in more senior classes of securities;
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- - the allocation of losses on the underlying mortgage loans to the lower
classes of securities; and
- - the use of cross support, reserve funds, financial guarantee insurance
policies, guarantees, letters of credit and similar instruments and
arrangements.
The protection against losses afforded by any such credit enhancement will
be limited in the manner described in the related prospectus supplement.
BOOK ENTRY REGISTRATION
One or more classes of a series of securities may be issued in book entry
form in the name of a clearing agency registered with the Securities and
Exchange Commission, or its nominee. Transfers and pledges of book entry
securities may be made only through entries on the books of the clearing agency.
All references to the owners of securities shall mean beneficial owners to the
extent beneficial owners may exercise their rights through a clearing agency.
Except as otherwise specified in this prospectus or a related prospectus
supplement, the term "owners" shall be deemed to include beneficial owners.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES
Securities of each series offered hereby will, for federal income tax
purposes, constitute any of the following:
- - interests in a trust treated as a grantor trust under applicable provisions
of the Internal Revenue Code of 1986, as amended,
- - "regular interests" or "residual interests" in a trust treated as a real
estate mortgage investment conduit or REMIC (or, in certain instances,
containing one or more REMICs) under Sections 860A through 860G of the
Internal Revenue Code of 1986, as amended,
- - debt issued by a trust,
- - interests in a trust which trust is treated as a partnership, or
- - "regular interests" or "high-yield interests" in a trust treated as a
financial asset securitization investment conduit or FASIT (or, in certain
circumstances containing one or more FASITs) under Sections 860H through
860L of the Internal Revenue Code of 1986, as amended.
We urge you to consult with your tax advisors and to review "Certain
Federal Income Tax Consequences" herein and in the related prospectus
supplement.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit sharing or other employee benefit plan
should carefully review with its legal advisors whether the purchase, holding or
disposition of securities could give rise to a prohibited transaction under the
Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of
the Internal Revenue Code of 1986, as amended, and whether an exemption from the
prohibited transaction rules is available. See "ERISA Considerations" herein and
in the related prospectus supplement.
LEGAL INVESTMENT MATTERS
The related prospectus supplement will state whether or not the securities
will constitute "mortgage related securities" under the Secondary Mortgage
Market
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Enhancement Act of 1984. We urge each investor whose investment authority
is subject to legal restrictions to consult with its own legal advisors to
determine whether and to what extent the securities are suitable legal
investments for them.
USE OF PROCEEDS
Substantially all the net proceeds from the sale of a series of securities
will be applied to the simultaneous purchase of the mortgage loans included in
the related trust (or to reimburse the amounts previously used to effect such
purchase or to reimburse trusts created to finance such purchase), the costs of
carrying the mortgage loans until sale of the securities and to pay other
expenses.
RATING
Each class of securities offered by a prospectus supplement will be rated
in one of the four highest rating categories of a nationally recognized
statistical rating agency.
RISK FACTORS
Investment in the securities will be subject to one or more risk factors,
including declines in the value of mortgaged properties, prepayment of mortgage
loans, higher risks of defaults on particular types of mortgage loans,
limitations on security for the mortgage loans, limitations on credit
enhancement and various other factors. We urge you to read "Risk Factors" herein
and in the related prospectus supplement for a discussion of these and other
risk factors that should be considered before investing in the securities.
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RISK FACTORS
You should consider the following risk factors prior to any purchase of any
class of securities. You should also consider the information under the caption
"Risk Factors" in the accompanying prospectus supplement.
AN INVESTMENT IN ANY SECURITY MAY NOT BE A LIQUID INVESTMENT AND THE HOLDER MAY
BE FORCED TO HOLD SUCH INVESTMENT TO MATURITY
There can be no assurance that a secondary market for the securities of any
series or class will develop or, if it does develop, that it will provide
securityholders with liquidity of investment or that it will continue for
the life of the securities of any series. The prospectus supplement for any
series of securities may indicate that the related underwriter specified
therein intends to establish a secondary market in such securities;
however, no underwriter will be obligated to do so. The securities will not
be listed on any securities exchange.
UNDERWRITING STANDARDS ARE LESS STRINGENT THAN THOSE USED BY FEDERAL AGENCIES
WHICH MAY INCREASE RISK OF DEFAULT
The Sponsor's (and its affiliates') underwriting standards consider, among
other things, a mortgagor's credit history, repayment ability and
debt-to-income ratio, as well as the value of the property. However, the
Sponsor's (and its affiliates') mortgage loan program generally provides
for the origination of mortgage loans relating to mortgage loans which,
based upon standard underwriting guidelines, are ineligible for purchase by
the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation due to credit characteristics that do not meet these federal
agency guidelines.
Certain of the types of loans that may be included in the mortgage pools
may involve additional uncertainties not present in conventional types of
mortgage loans. For example, certain of the mortgage loans may provide for
escalating or variable payments by the related mortgagor, as to which the
mortgagor is generally qualified on the basis of the initial payment
amount. In some instances the mortgagors' income may not be sufficient to
enable them to continue to make their loan payments as such payments
increase and thus the likelihood of default will increase.
THE ASSETS OF THE TRUST ESTATE, AS WELL AS ANY APPLICABLE CREDIT ENHANCEMENT,
WILL BE LIMITED AND MAY BE INSUFFICIENT TO PREVENT LOSSES
The securities will not represent an interest in or obligation, either
recourse or non-recourse (except for certain non-recourse debt described
under "Certain Federal Income Tax Consequences"), of the Sponsor, the
Master Servicer, any of their affiliates or any person other than the
related trust. The only obligations of the foregoing entities with respect
to the securities or the mortgage loans will be the obligations (if any) of
the Sponsor and the Master Servicer pursuant to certain limited
representations and warranties made with respect to the mortgage loans, the
servicing obligations under the related servicing agreement and, if and to
the extent expressly described in the related
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prospectus supplement, certain limited obligations of the Sponsor, the
Master Servicer, any of their affiliates or another party in connection
with a purchase obligation or an agreement to purchase or act as
remarketing agent with respect to a convertible adjustable-rate mortgage
loan upon conversion to a fixed rate.
Notwithstanding the foregoing, certain types of credit enhancement, such as
a financial guaranty insurance policy or a letter of credit, may constitute
a full recourse obligation of the issuer of such credit enhancement.
Neither the securities nor the underlying mortgage loans will be guaranteed
or insured by any governmental agency or instrumentality, or by the
Sponsor, the Master Servicer or any of their affiliates.
Proceeds of the assets included in the related trust for each series of
securities (including the mortgage loans and any form of credit
enhancement) will be the sole source of payments on the securities.
PREPAYMENTS MAY ADVERSELY AFFECT THE YIELD TO MATURITY OF THE SECURITIES
The yield to maturity of each series of securities may be adversely
affected by a higher or lower than anticipated rate of prepayment on the
related mortgage loans. The yield to maturity of each series of securities
will depend on the rate of payment of principal (including prepayments,
liquidations due to defaults, and repurchases due to conversion of
adjustable-rate mortgage loans to fixed-rate loans or breaches of
representations and warranties) on the mortgage loans, the combined
loan-to-value ratios of the mortgage loans and the price paid by
securityholders. The yield to maturity on securities purchased at premiums
or discounted to par will be extremely sensitive to the rate of prepayments
on the related mortgage loans. In addition, the yield to maturity on
certain types of classes of securities, including certain classes in a
series including more than one class of securities, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than
other classes of securities.
The mortgage loans may be prepaid in full or in part at any time although
the related mortgagor may be required to pay a prepayment penalty or
premium. Such prepayment penalties will generally not be property of the
related trust. We cannot predict the rate of prepayments of the mortgage
loans which is influenced by a wide variety of economic, social, and other
factors, including prevailing mortgage market coupon rates, the
availability of alternative financing, local and regional economic
conditions and homeowner mobility. Therefore, we can give no assurance as
to the level of prepayments that a trust will experience.
Prepayments may result from mandatory prepayments relating to unused monies
held in pre-funding accounts, if any, voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loans), sales of mortgaged properties subject to "due-on-sale"
provisions and liquidations due to default, as well as the receipt of
proceeds from physical damage, credit life and disability insurance
policies. In addition, repurchases or purchases from a trust of mortgage
loans or substitution adjustments required to be made under the pooling and
servicing agreement will have the same effect on the securityholders as a
prepayment of such mortgage loans. The related
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prospectus supplement will specify whether any or all of the mortgage loans
contain "due-on-sale" provisions.
Collections on the mortgage loans may vary due to the level of incidence of
delinquent payments and of prepayments. Collections on the mortgage loans
may also vary due to seasonal purchasing and payment habits of borrowers.
Certain of the mortgage loans in a trust may be in the form of revolving
home equity lines of credit. The prepayment experience with respect to the
home equity lines of credit will affect the weighted average life of
securities issued by a trust which contains such mortgage loans. Generally
such loans are not viewed by borrowers as permanent financing. As a result,
such loans may experience a higher rate of prepayment than traditional
"purchase-money" first-lien mortgage loans.
CREDIT ENHANCEMENT WILL BE LIMITED IN SCOPE AND MAY NOT BE SUFFICIENT TO COVER
LOSSES
With respect to each series of securities, credit enhancement will be
provided in limited amounts to cover certain types of losses on the
underlying mortgage loans. Credit enhancement will generally be provided in
one or more of the forms referred to herein, including, but not limited to
third-party credit enhancement in the form of a letter of credit; a
repurchase obligation; a special hazard insurance policy; a reserve fund;
or a financial guaranty insurance policy. Credit enhancement also may be
created due to the structure of the related series of securities in the
form of subordination of one or more classes of securities in a series; the
allocation of losses; cross-support among mortgage loans; and/or
overcollateralization. See "Description of Credit Enhancement."
Regardless of the form of credit enhancement provided, the coverage will be
limited in amount and in most cases will be subject to periodic reduction
in accordance with a schedule or formula. In addition, credit enhancement
may provide only very limited coverage as to certain types of losses, and
may provide no coverage as to certain other types of losses. Generally,
credit enhancement does not directly or indirectly guarantee to the
investors any specified rate of prepayments. The Sponsor will generally be
permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any series of securities if the applicable rating agency
indicates that the then current rating thereof will not be adversely
affected. The amount and types of coverage, the identification of any
entity providing the coverage, the terms of any subordination and related
information will be set forth in the prospectus supplement relating to a
series of securities. See "Description of Credit Enhancement".
PRE-FUNDING MAY ADVERSELY AFFECT INVESTMENT
If a trust includes a pre-funding feature and the principal balance of
subsequent mortgage loans delivered to the trust during the pre-funding
period is less than the amount deposited in the related pre-funding account
upon the issuance of the securities, the holders of the securities of the
related series will receive a prepayment of principal. Any such principal
prepayment may adversely affect the yield to maturity of the applicable
securities. Because prevailing interest rates are subject to fluctuation,
we can make no
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assurance that investors will be able to reinvest such a prepayment at
yields equaling or exceeding the yields on the related securities. It is
possible that the yield on any such reinvestment will be lower, and may be
significantly lower, than the yield on the related securities.
Each subsequent mortgage loan must satisfy the eligibility criteria
specified in the related agreements. Such eligibility criteria will be
determined in consultation with each rating agency (and/or credit enhancer)
prior to the issuance of the related series and are designed to ensure that
the credit quality of such assets would be consistent with the initial
rating of each class of securities of such series. Following the transfer
of subsequent mortgage loans to the trust, the aggregate characteristics of
the mortgage loans then held in the trust may vary from those of the
mortgage loans delivered to the trust on the date the securities were
issued. As a result, the subsequent mortgage loans may adversely affect the
performance of the related securities.
The ability of a trust to invest in subsequent mortgage loans during the
related pre-funding period will be dependent on the ability of the
originators to originate or acquire mortgage loans that satisfy the
eligibility requirements for transfer to the trust. The ability of the
originators to originate or acquire such mortgage loans will be affected by
a variety of social and economic factors, including the prevailing level of
market interest rates, unemployment levels and consumer perceptions of
general economic conditions.
JUNIOR LIENS MAY EXPERIENCE HIGHER RATES OF DELINQUENCIES AND LOSSES
Certain of the mortgage loans will be secured by junior liens subordinate
to the rights of the mortgagee or beneficiary under each related senior
mortgage or deed of trust. As a result, the proceeds from any liquidation,
insurance or condemnation proceedings will be available to satisfy the
principal balance of a mortgage loan only to the extent that the claims, if
any, of each senior mortgagee or beneficiary are satisfied in full,
including any related foreclosure costs. In addition, a mortgage secured by
a junior lien may not foreclose on the related mortgaged property unless it
forecloses subject to the related senior mortgage or mortgages, in which
case it must either pay the entire amount of each senior mortgage to the
applicable mortgagee at or prior to a foreclosure sale or undertake the
obligation to make payments on each senior mortgage in the event of default
thereunder. In servicing junior lien loans in its portfolio, it has
generally been the practice of the Master Servicer to satisfy each such
senior mortgage at or prior to the foreclosure sale but only to the extent
that it determines any amounts so paid will be recoverable from future
payments and collections on such junior lien loans or otherwise. The trusts
will not have any source of funds to satisfy any such senior mortgage or
make payments due to any senior mortgagee. See "Certain Legal Aspects of
Mortgage Loans and Related Matters--Foreclosure."
PROPERTY VALUES MAY DECLINE LEADING TO HIGHER LOSSES
An investment in securities may be affected by a decline in real estate
values and changes in the mortgagors' financial condition. We can give no
assurance that values of the mortgaged properties have remained or will
remain at their levels on the dates of
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origination. If the residential real estate market should experience an
overall decline in property values such that the outstanding balances of
any senior liens, the mortgage loans which provide subordinate financing on
the mortgaged properties in a particular mortgage pool become equal to or
greater than the value of the mortgaged properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the nonconforming credit mortgage lending
industry. Such a decline could extinguish the interest of the related trust
with respect to such junior liens in the mortgaged properties before having
any effect on the interest of the holder of the related senior lien. In
addition, in the case of mortgage loans that are subject to negative
amortization, due to the addition of deferred interest to the principal
balance of such mortgage loan, the principal balances of such mortgage
loans could be increased to an amount equal to or in excess of the value of
the underlying mortgaged properties, thereby increasing the likelihood of
default. To the extent that such losses are not covered by the applicable
credit enhancement, holders of securities of the series evidencing
interests in the related mortgage pool will bear all risk of loss resulting
from default by mortgagors and will have to look primarily to the value of
the mortgaged properties for recovery of the outstanding principal and
unpaid interest on the defaulted mortgage loans.
MORTGAGE LOANS WITH BALLOON PAYMENT METHODS MAY INCREASE THE RISK OF DEFAULT
A portion of the mortgage loans may be balloon loans originated with a
stated maturity of less than the period of time of the corresponding
amortization schedule. At maturity, the related mortgagor will be required
to make a "balloon" payment that will be significantly larger than previous
monthly payments. Because the related mortgagor is required to make a
substantial single payment at maturity, the risk of default may be greater
than that associated with fully amortizing mortgage loans.
ADJUSTABLE RATE MORTGAGE LOANS MAY HAVE A RISK OF DEFAULT IF LOAN PAYMENTS
INCREASE
Adjustable rate mortgage loans may be underwritten on the basis of an
assessment that mortgagors will have the ability to make payments in higher
amounts after relatively short periods of time. In some instances,
mortgagors' income may not be sufficient to enable them to continue to make
their loan payments as the amount of such payments increase. Therefore the
likelihood of default will increase.
PAY-FOR-PERFORMANCE MORTGAGE LOANS MAY REDUCE AMOUNT OF COLLECTIONS ON THE
MORTGAGE LOANS WHICH MAY ADVERSELY AFFECT INVESTMENT
Certain of the mortgage loans may constitute "Pay-for-Performance Mortgage
Loans" which are originated with a stated coupon rate which may decrease if
the mortgagor maintains a steady history of timely payments over a
specified period of time. Any such decrease in coupon rate, although
generally indicative of good performance, may result in decreased cash
proceeds received by the related trust and as a result, less cash will be
available for distribution to securityholders.
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BANKRUPTCY OF MORTGAGORS COULD INCREASE LOSSES TO THE TRUST
General economic conditions have an impact on the ability of borrowers to
repay mortgage loans. Loss of earnings, illness and other similar factors
also may lead to an increase in delinquencies and bankruptcy filings by
borrowers. In the event of the personal bankruptcy of a mortgagor, it is
possible that a trust could experience a loss with respect to such
mortgagor's mortgage loan. In conjunction with a mortgagor's bankruptcy, a
bankruptcy court may suspend or reduce the payments of principal and
interest to be paid with respect to such mortgage loan or permanently
reduce the principal balance of such mortgage loan thereby either delaying
or permanently limiting the amount received by the trust with respect to
such mortgage loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related mortgaged property to a trust, any remaining
balance on such mortgage loan may not be recoverable.
INTEREST-ONLY FEATURE OF REVOLVING HOME EQUITY LINES OF CREDIT MAY ADVERSELY
AFFECT INVESTMENT
In general, revolving home equity lines of credit may be drawn upon for a
period of three to five years, which period may be extended at the Master
Servicer's or the related originator's discretion in accordance with the
terms of the related agreement and, with respect to the Master Servicer, in
accordance with accepted servicing practices and procedures. The decision
to extend the draw period may include a review of specific credit criteria.
The ability to postpone the amortization of principal may have the effect
of increasing the combined loan-to-value ratio of the related mortgage loan
which in turn may increase the likelihood of default.
Generally, the home equity lines of credit have an interest-only feature
during the draw period. The minimum payment due during the draw period will
be the greater of $50.00 or the finance charge that accrued on the
outstanding balance of related home equity line of credit during the
related billing period. The minimum payment due during the period following
the conclusion of the draw period will be the amount necessary to amortize
the outstanding balance, plus interest and fees. As a result, amounts
collected by the trust attributable to principal payments may be minimal
during the draw period and little or no principal will be paid to holders
of securities issued by the related trust during the draw period.
HIGH LOAN-TO-VALUE RATIO MORTGAGE LOANS MAY CREATE A RISK OF LOSS
Certain of the Mortgage Loans may have combined loan-to-value ratios at the
time of origination in excess of 100%, generally up to a maximum of 125%.
As a result, the related mortgaged properties may not provide adequate
security for these mortgage loans. Underwriting analysis with respect to
such mortgage loans relies more heavily on the mortgagor's creditworthiness
than on the protection afforded by the security interest alone. Such loans
are generally targeted as debt consolidation loans for borrowers with
generally strong credit ratings.
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Additionally, there is also the risk that if the related mortgagors
relocate, such mortgagors will be unable to repay the mortgage loans in
full from the sale proceeds of the related mortgaged properties and any
other funds available to these borrowers. As a result, the costs incurred
in the collection and liquidation of high combined loan-to-value ratio
mortgage loans may be higher than with respect to mortgage loans with
combined loan-to-value ratios of 100% or less because the servicer may be
required to pursue collection solely against the mortgagor. The Master
Servicer may, in accordance with accepted servicing procedures, pursue
alternative methods to maximize proceeds, including, without limitation,
the modification of defaulted mortgage loans, which may include the
abatement of accrued interest or the reduction of a portion of the
outstanding principal balance of such defaulted mortgage loan.
Consequently, the losses on such defaulted mortgage loans may be more
severe because there is no assurance that any proceeds will be recovered.
FORECLOSURE OF MORTGAGE PROPERTIES INVOLVE DELAYS AND EXPENSES AND COULD CAUSE
LOSSES TO THE TRUST
Even assuming that the mortgaged properties provide adequate security for
the mortgage loans, substantial delays could be encountered in connection
with the liquidation of defaulted mortgage loans and corresponding delays
in the receipt of related proceeds by the securityholders could occur. An
action to foreclose on a mortgaged property securing a mortgage loan is
regulated by state statutes, rules and judicial decisions and is subject to
many of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed, sometimes requiring several years to
complete. Furthermore, in some states an action to obtain a deficiency
judgment is not permitted following a nonjudicial sale of a mortgaged
property. In the event of a default by a mortgagor, these restrictions may
impede the ability of a servicer to foreclose on or sell the mortgaged
property or to obtain liquidation proceeds (net of expenses) sufficient to
repay all amounts due on the related mortgage loan. The Master Servicer
will be entitled to deduct from liquidation proceeds all expenses
reasonably incurred in attempting to recover amounts due on the related
liquidated mortgage loan and not yet repaid, including payments to prior
lienholders, accrued servicing fees, delinquency advances, servicing
advances, legal fees and costs of legal action, real estate taxes, and
maintenance and preservation expenses. In the event that any mortgaged
properties fail to provide adequate security for the related mortgage loans
and insufficient funds are available from any applicable credit
enhancement, securityholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer takes the same steps in
realizing upon a defaulted mortgage loan having a small remaining principal
balance as it would in the case of a defaulted mortgage loan having a
larger principal balance, the amount realized after expenses of liquidation
would be less as a percentage of the outstanding principal balance of the
smaller principal balance mortgage loan than would be the case with a
larger principal balance loan.
Under environmental legislation and judicial decisions applicable in
various states, a secured party that takes a deed in lieu of foreclosure,
or acquires at a foreclosure sale a
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mortgaged property that, prior to foreclosure, has been involved in
decisions or actions which may lead to contamination of a property, may be
liable for the costs of cleaning up the purportedly contaminated site.
Although such costs could be substantial, it is unclear whether they would
be imposed on a holder of a mortgage note (such as a trust) which, under
the terms of the pooling and servicing agreement, may not be required to
take an active role in operating the mortgaged properties. See "Certain
Legal Aspects of Mortgage Loans and Related Matters--Environmental
Legislation."
Certain of the mortgaged properties relating to mortgage loans may not be
owner occupied. It is possible that the rate of delinquencies, foreclosures
and losses on mortgage loans secured by non-owner occupied properties could
be higher than for mortgage loans secured by owner occupied residences.
LITIGATION
Any material litigation relating to the Sponsor, the Master Servicer or any
of their affiliates will be specified in the related prospectus supplement.
GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES MAY RESULT IN HIGHER LOSSES IF
A REGION EXPERIENCES A DOWNTURN
Certain geographic regions from time to time will experience weaker
regional economic conditions and housing markets than will other regions,
and, consequently, will experience higher rates of loss and delinquency on
mortgage loans generally. The mortgage loans underlying certain series of
securities may be concentrated in such regions, and such concentrations may
present risk considerations in addition to those generally present for
similar mortgage loan asset-backed securities without such concentrations.
Information with respect to geographic concentration of mortgaged
properties will be specified in the related prospectus supplement.
STATE AND FEDERAL CREDIT PROTECTION LAWS MAY LIMIT COLLECTIONS ON THE MORTGAGE
LOANS
Applicable state laws generally regulate coupon rates and other charges and
require certain disclosures. In addition, most states have other laws,
public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and practices that may apply
to the origination, servicing and collection of the mortgage loans.
The mortgage loans may also be subject to federal laws, including: (i) the
Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and
the Real Estate Settlement Procedures Act and Regulation X promulgated
thereunder, which require certain disclosures to the borrowers regarding
the terms of the mortgage loans; (ii) the Equal Credit Opportunity Act and
Regulation B promulgated thereunder, which prohibit discrimination on the
basis of age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; and (iii) the
Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience.
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Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these laws, policies and general
principles of equity may limit the ability of a servicer to collect all or
part of the principal of or interest on the mortgage loans, may entitle the
borrower to rescind the loan or to a refund of amounts previously paid and,
in addition, could subject the owner of the mortgage loan to damages and
administrative sanctions.
BOOK-ENTRY REGISTRATION MAY REDUCE THE LIQUIDITY OF SECURITIES
Issuance of the securities in book-entry form may reduce the liquidity of
such securities in the secondary trading market because investors may be
unwilling to purchase securities for which they cannot, except in certain
limited circumstances, obtain definitive physical certificates representing
such securityholders' interests.
Securities transactions will, in most cases, be effected only through the
Depository Trust Company, direct or indirect participants in DTC's
book-entry system and certain banks. Therefore, the ability of a
securityholder to pledge a security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of
such securities, may be limited due to lack of a physical certificate
representing the securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the securities because distributions may be
required to be forwarded by the trustee to DTC and, in such a case, DTC
will be required to credit such distributions to the accounts of its
participants which thereafter will be required to credit them to the
accounts of the applicable class of securityholders either directly or
indirectly through indirect participants. See "Description of the
Securities--Form of Securities."
THE SOLDIERS' AND SAILORS RELIEF ACT OF 1940 MAY LIMIT THE ABILITY TO COLLECT ON
THE MORTGAGE LOANS
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended, or similar state legislation, members of all branches
of the military on active duty, including draftees and reservists on active
duty, (i) are entitled to have interest rates reduced and capped at 6% per
annum, on obligations (including mortgage loans) incurred prior to the
commencement of active duty for the duration of active duty, (ii) may be
entitled to a stay of proceedings on any kind of foreclosure or
repossession action in the case of defaults on such obligations entered
into prior to active duty for the duration of active duty and (iii) may
have the maturity of such obligations incurred prior to active duty
extended, the payments lowered and the payment schedule readjusted for a
period of time after the completion of active duty. However, the benefits
of (i), (ii) or (iii) above are subject to challenge by creditors and if,
in the opinion of the court, the ability of a person to comply with such
obligations is not materially impaired by active duty, the court may apply
equitable principles accordingly. If a borrower's obligation to repay
amounts otherwise due on a mortgage loan is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended, none of the
related trust, the Master Servicer, the Sponsor nor the related trustee
will be required to advance such amounts, and any loss in respect thereof
may reduce the amounts available to be paid to the
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securityholders. Unless otherwise specified in the related prospectus
supplement, any shortfalls in collections of principal and interest on the
mortgage loans resulting from application of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended, will be allocated to each class of
securities that is entitled to receive such principal and interest in
respect of such mortgage loans in proportion to the principal and interest
that each such class of securities would have otherwise been entitled to
receive in respect of such mortgage loans had such shortfall not occurred.
Thus, in the event that such a mortgage loan goes into default, there may
be delays and losses occasioned by the inability to realize upon the
mortgaged property in a timely fashion.
RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE SECURITIES. A REDUCTION IN THE
RATING OF ANY CREDIT ENHANCER WOULD LIKELY ADVERSELY IMPACT THE RATING OF THE
SECURITIES
A rating is not a recommendation to purchase, hold or sell securities,
inasmuch as it does not address market price or suitability for a
particular investment. There is no assurance that any rating will remain in
effect for any given period of time or may not be lowered or withdrawn if
in the judgment of the applicable rating agency circumstances in the future
so warrant. The rating of securities credit enhanced through external
credit enhancement will depend primarily on the creditworthiness of the
issuer of such external credit enhancement device. Any reduction in the
rating assigned to the claims-paying ability of the related credit enhancer
below the rating initially given to the securities would likely result in a
reduction in the rating of the securities.
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THE TRUSTS
From time to time, Advanta Conduit Receivables, Inc. (the "SPONSOR") will
cause a separate trust (each, a "TRUST") to issue one or more series of mortgage
loan asset-backed certificates ("CERTIFICATES") or mortgage loan asset-backed
notes ("NOTES" and together with the Certificates, the "SECURITIES"). The
primary assets of each Trust will consist of a segregated pool (each, a
"MORTGAGE POOL") of one- to four-family residential mortgage loans or
multi-family residential mortgage loans or certificates of interest or
participation therein (the "MORTGAGE LOANS"), acquired by such Trust from one or
more originators (each, an "Originator"), the Sponsor, its affiliates or from
trusts created by the Sponsor or its affiliates to finance the origination of
mortgage loans. The Certificates issued by any Trust represent beneficial
ownership interests in the related Mortgage Loans held by the related Trust, and
the Notes represent debt secured by such Mortgage Loans.
Each Trust will be established pursuant to an agreement (each, a "TRUST
AGREEMENT") by and between the Sponsor and the trustee named therein. Each Trust
Agreement will describe the related pool of mortgage assets ("MORTGAGE ASSETS")
to be held in trust (each such asset pool, the "TRUST ESTATE"), which will
include the related Mortgage Assets, together with payments in respect of such
Mortgage Loans and may include any combination of a mortgage pool insurance
policy, letter of credit, financial guaranty insurance policy, special hazard
policy, reserve fund or other form of credit support ("CREDIT ENHANCEMENT").
The Mortgage Loans held by each Trust will be master serviced by Advanta
Mortgage Corp. USA (the "MASTER SERVICER") pursuant to a servicing agreement
(each, a "SERVICING AGREEMENT") by and between the Master Servicer an the
related trustee.
With respect to Securities that represent debt issued by the related Trust,
the related Trust will enter into an indenture (each, an "INDENTURE") by and
between such Trust and the trustee named in such Indenture (the "INDENTURE
TRUSTEE"). Securities that represent beneficial ownership interests in the
related Trust will be issued pursuant to the related Trust Agreement.
The Securities will be entitled to payment only from the assets of the
related Trust (i.e., the related Trust Estate) and, unless specified in the
related prospectus supplement, will not be entitled to payments in respect of
the assets of any other Trust established by the Sponsor or any of its
affiliates.
In the case of any individual Trust, the contractual arrangements relating
to the establishment of the Trust, the servicing of the related Mortgage Loans
and the issuance of the related Securities may be contained in a single
agreement, or in several agreements which combine certain aspects of the Trust
Agreement, the Servicing Agreement and the Indenture described above (for
example, a pooling and servicing agreement, or a servicing and collateral
management agreement). For purposes of this prospectus, the term "POOLING AND
SERVICING AGREEMENT" as used with respect to a Trust means, collectively, and
except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Mortgage Loans
and the issuance of the related Securities.
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THE MORTGAGE LOANS
GENERAL
Each Mortgage Pool will consist primarily of (i) Mortgage Loans, minus any
stripped portion of the accrued interest payments due under the related Mortgage
Note that may have been retained by any Originator or broker ("ORIGINATOR'S
RETAINED YIELD"), or any other interest retained by the Sponsor or any affiliate
of the Sponsor, including interest accrued and principal collected prior to the
related cut-off date, evidenced by promissory notes (the "MORTGAGE NOTES")
secured by mortgages or deeds of trust or other similar security instruments
("MORTGAGES") creating a lien on single-family (i.e., one- to-four family)
residential properties, multi-family properties or mixed use properties (the
"MORTGAGED PROPERTIES"), or (ii) certificates of interest or participations in
such Mortgage Notes. The Mortgaged Properties will consist primarily of attached
or detached single-family dwelling units, one- to-four family dwelling units,
condominiums, townhouses, row houses, individual units in planned-unit
developments and certain other dwelling units, mixed use properties and the fee,
leasehold or other interests in the underlying real property. The Mortgaged
Properties may be owner occupied properties (which includes second and vacation
homes) and non-owner occupied properties. A Mortgage Pool may contain
cooperative apartment loans ("COOPERATIVE LOANS") evidenced by promissory notes
("COOPERATIVE NOTES") secured by security interests in shares issued by
cooperatives and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the related
buildings. In certain cases a Mortgage Loan may also be secured by the pledge of
a limited amount of collateral which is not real estate, such as fixtures or
personal property that includes, but is not limited to, furniture and
appliances. As used herein, unless the context indicates otherwise, "Mortgage
Loans" include Cooperative Loans, "Mortgaged Properties" include shares in the
related cooperative and the related proprietary leases or occupancy agreements
securing Cooperative Notes, "Mortgage Notes" include Cooperative Notes and
"Mortgages" include security agreements with respect to Cooperative Notes.
The Mortgaged Properties may be located in any one of the fifty states, the
District of Columbia, Puerto Rico or any other Territories of the United States.
The Mortgage Loans will be "Conventional Loans" (i.e., loans that are not
insured or guaranteed by any governmental agency). Mortgage Loans with certain
loan-to-value ratios and/or certain principal balances may be covered wholly or
partially by primary mortgage insurance policies. Generally, all of the Mortgage
Loans will be covered by standard hazard insurance policies (which may be in the
form of a blanket or forced placed hazard insurance policy). The existence,
extent and duration of any such coverage will be described in the applicable
prospectus supplement.
Each Mortgage Loan will be selected by the Sponsor for inclusion in a
Mortgage Pool from among mortgage loans originated by one or more institutions
affiliated with the Sponsor (such affiliated institutions, the "AFFILIATED
ORIGINATORS"), or from banks, savings and loan associations, mortgage bankers,
mortgage brokers, investment banking firms, the FDIC and other mortgage loan
originators or purchasers not affiliated with the Sponsor (such unaffiliated
institutions, the "UNAFFILIATED ORIGINATORS"). The characteristics of the
Mortgage Loans in a Trust will be described in the related prospectus
supplement. Other mortgage loans available for
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acquisition by a Trust may have characteristics that would make them eligible
for inclusion in a Mortgage Pool but may not be selected by the Sponsor for
inclusion in such Mortgage Pool.
Each Security will evidence an interest in only the related Mortgage Pool
and corresponding Trust Estate, and not in any other Mortgage Pool or any other
Trust Estate, except in those limited situations whereby certain collections on
any Mortgage Loans in a related Trust Estate in excess of amounts needed to pay
the related securities may be used to make payments on more than one series of
Securities or may be reallocated as directed by the Sponsor.
THE MORTGAGE LOANS
A Mortgage Loan that accrues interest at a fixed rate will be referred to
herein as a "FIXED RATE LOAN" and a Mortgage Loan that accrued interest at an
adjustable rate will be referred to as an "ADJUSTABLE RATE LOAN" or an "ARM
LOAN". The specified rate of interest on a Mortgage Loan is its "Coupon Rate".
All of the Mortgage Loans in a Mortgage Pool will (i) have payments that are due
monthly or bi-weekly, (ii) be secured by Mortgaged Properties located in any of
the fifty states, the District of Columbia, Puerto Rico or any other Territories
of the United States and (iii) consist of one or more of the following types of
mortgage loans:
(1) Fixed-rate, fully-amortizing mortgage loans (which may include
mortgage loans converted from adjustable-rate mortgage loans or otherwise
modified) providing for level monthly payments of principal and interest
and terms at origination or modification of generally not more than 30
years;
(2) Adjustable rate mortgage loans having original or modified terms
to maturity of generally not more than 30 years with a related Coupon Rate
that adjusts periodically, at the intervals described in the related
Mortgage Note (which may have adjustments in the amount of monthly payments
at periodic intervals) over the term of the mortgage loan. Such adjustable
Coupon Rate is equal to the sum of a fixed percentage set forth in the
related Mortgage Note (the "NOTE MARGIN") and an index (the "INDEX")
specified in the related Mortgage Note such as, by way of example: (i) U.S.
Treasury securities of a specified constant maturity, (ii) weekly auction
average investment yield of U.S. Treasury bills of specified maturities,
(iii) the daily Bank Prime Loan rate made available by the Federal Reserve
Board or as quoted by one or more specified lending institutions, (iv) the
cost of funds of member institutions for the Federal Home Loan Bank of San
Francisco, or (v) the interbank offered rates for U.S. dollar deposits in
the London Markets, each calculated as of a date prior to each scheduled
interest rate adjustment date. The related prospectus supplement will set
forth the relevant Index, and aggregate information regarding the highest,
lowest and weighted-average Note Margin with respect to the ARM Loans in
the related Mortgage Pool. An ARM Loan may include a provision that allows
the Mortgagor to convert the adjustable Coupon Rate to a fixed rate at some
point during the term of such ARM Loan which is subsequent to the initial
payment date;
(3) Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of generally not more than 30 years with monthly
payments during the first year calculated on the basis of an assumed
interest rate that will be lower than the
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Coupon Rate applicable to such mortgage loan in subsequent years. Deferred
interest, if any, will be added to the principal balance of such mortgage
loans;
(4) Fixed-rate, graduated payment mortgage loans having original or
modified terms to maturity of generally not more than 30 years with monthly
payments in subsequent years that are calculated on the basis of an assumed
interest rate that will be lower than the Coupon Rate applicable to such
loan in the first year or first two years, provided that the Mortgagor
qualifies under certain positive criteria, including, but not limited to, a
good payment history;
(5) Balloon mortgage loans ("BALLOON LOANS"), which are mortgage loans
having original or modified terms to maturity of generally 5 to 15 years,
which may have level monthly payments of principal and interest based
generally on a 10- to 30-year amortization schedule. The amount of the
monthly payment may remain constant until the maturity date, upon which
date the full outstanding principal balance on such Balloon Loan will be
due and payable (such amount, the "BALLOON AMOUNT");
(6) Modified mortgage loans ("MODIFIED LOANS"), which are fixed or
adjustable-rate mortgage loans providing for terms at the time of
modification of generally not more than 30 years. Modified Loans may be
mortgage loans which have been consolidated and/or have had various terms
changed, mortgage loans which have been converted from adjustable rate
mortgage loans to fixed rate mortgage loans, or construction loans which
have been converted to permanent mortgage loans;
(7) Hybrid mortgage loans ("HYBRID ARMS") which are originated having
original or modified terms to maturity of not more than 30 years with
monthly payments during the first two, three or five years, as applicable,
calculated at a fixed rate of interest, which fixed rate then converts to
an adjustable rate for the remainder of the term of the loan.
(8) A Mortgage Pool may consist, in whole or in part, of revolving
home equity loans or certain balances thereof ("REVOLVING CREDIT LINE
LOANS"). Interest on each Revolving Credit Line Loan may be computed and
payable monthly on the average daily outstanding principal balance of such
loan. From time to time prior to the expiration of the related draw period
specified in a Revolving Credit Line Loan, principal amounts on such
Revolving Credit Line Loan may be drawn down (up to a maximum amount as set
forth in the related loan) or repaid. New draws by borrowers under the
Revolving Credit Line Loans will automatically become part of the related
Trust Estate. As a result, the aggregate balance of the Revolving Credit
Line Loans will fluctuate from day to day as new draws by borrowers are
added to the Trust Estate and principal payments are applied to such
balances and such amounts will usually differ each day. Under a Revolving
Credit Line Loan, a borrower may, under certain circumstances during the
related draw period, choose an interest only payment option, during which
the borrower is obligated to pay only the amount of interest which accrues
on the loan during the billing cycle, and may also elect to pay all or a
portion of the principal. Following the conclusion of the draw period, the
borrower's option to pay only a portion of principal ceases and regular
scheduled payments of principal and interest commence.
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(9) Pay-for-Performance mortgage loans ("PAY-FOR-PERFORMANCE LOANS"),
which are mortgage loans having original or modified terms to maturity of
generally not more than 30 years for which the Coupon Rate may be adjusted
one or more times, but not below a specified floor, depending on the
Mortgagor's history of payments over a specified period or periods of time;
or
(10) A Mortgage Pool may contain either or both of the following types
of mortgage loans (i) ARM Loans which allow the Mortgagors to convert the
adjustable rates on such Mortgage Loans to a fixed rate at some point
during the life of such Mortgage Loans and (ii) fixed rate mortgage loans
which allow the Mortgagors to convert the fixed rates on such Mortgage
Loans to an adjustable rate at some point during the life of such Mortgage
Loans (each such Mortgage Loan described in (i) and (ii) above, a
"CONVERTIBLE MORTGAGE LOAN").
(11) Another type of mortgage loan described in the related prospectus
supplement.
PAYMENTS ON THE MORTGAGE LOANS
In general, all of the Mortgage Loans in a Mortgage Pool will provide for
payments to be made monthly ("MONTHLY PAY") or bi-weekly. The payment terms of
the Mortgage Loans to be included in a Trust will be described in the related
prospectus supplement.
Interest may be payable at a fixed rate, or an adjustable rate (i.e., a
rate that is adjustable from time to time in relation to an index, a rate that
is fixed for a period of time and is followed by an adjustable rate, a rate that
is adjustable for a period of time and is followed by a fixed rate, a rate that
otherwise varies from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate). Changes to an adjustable Coupon Rate may be
subject to periodic limitations, maximum rates, minimum rates or a combination
of such limitations. Accrued interest may be deferred and added to the principal
of a Mortgage Loan for such periods and under such circumstances as may be
specified in the related prospectus supplement.
Prepayments of principal may be subject to a prepayment fee, which may be
fixed for the life of the Mortgage Loan, may decline over time or may be
prohibited for certain periods ("LOCKOUT PERIODS"). The Mortgage Loans may
include due-on-sale clauses which permit the mortgagee to demand payment of the
entire Mortgage Loan in connection with the sale or certain transfers of the
related Mortgaged Property. Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting standards of the related Originator.
Except as otherwise described in the related prospectus supplement,
interest will be calculated on each Mortgage Loan pursuant to one of three
methods:
Date of Payment Loans. "DATE OF PAYMENT LOANS" provide that interest
is charged to the borrower under the related Mortgage or Mortgage Note (the
"MORTGAGOR") at the applicable Coupon Rate on the outstanding principal
balance of such Mortgage Note and calculated based on the number of days
elapsed between receipt of the Mortgagor's last payment through receipt of
the Mortgagor's most current payment. Such
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interest is deducted from the Mortgagor's payment amount and the remainder,
if any, of the payment is applied as a reduction to the outstanding
principal balance of such Mortgage Note.
Actuarial Loans. "ACTUARIAL LOANS" provide that interest is charged to
the Mortgagor thereunder, and payments are due from such Mortgagor, as of a
scheduled day of each month which is fixed at the time of origination.
Rule of 78's Loans. "A RULE OF 78'S LOAN" provides for the payment by
the related Mortgagor of a specified total amount of payments, payable in
equal monthly installments on each due date, which total represents the
principal amount financed and add-on interest in an amount calculated on
the basis of the stated Coupon Rate for the term of the Loan. The rate at
which such amount of add-on interest is earned and, correspondingly, the
amount of each fixed monthly payment allocated to reduction of the
outstanding principal are calculated in accordance with the "Rule of 78's."
THE MORTGAGE POOLS
The Sponsor will cause or request the Mortgage Loans constituting each
Trust Estate to be assigned to the trustee named in the related prospectus
supplement (the "TRUSTEE"), for the benefit of the holders of all of the
Securities of the related series. The Master Servicer will service the Mortgage
Loans, either directly or through other mortgage servicing institutions who may
be affiliates of the Master Servicer ("SUB-SERVICERS"), pursuant to a Pooling
and Servicing Agreement and will receive a fee for such services. See "Mortgage
Loan Program" and "Description of the Securities." With respect to those
Mortgage Loans serviced by the Master Servicer through a Sub-Servicer, the
Master Servicer will remain liable for its servicing obligations under the
related Pooling and Servicing Agreement as if the Master Servicer alone were
servicing such Mortgage Loans. As used herein, "Master Servicer" shall refer to
either the Master Servicer or any Sub-Servicer, as applicable.
The Sponsor and/or certain Originators may make certain representations and
warranties regarding the Mortgage Loans, but its assignment of the Mortgage
Loans to the Trustee will be without recourse. See "Description of the
Securities--Assignment of Mortgage Loans." The Master Servicer's obligations
with respect to the Mortgage Loans will consist principally of its contractual
servicing obligations under the related Pooling and Servicing Agreement
(including its obligation to enforce certain purchase and other obligations of
Sub-Servicers and of Originators, as more fully described herein under "Mortgage
Loan Program--Representations," "--Sub-Servicing by Originators" and
"Description of the Securities--Assignment of Mortgage Loans," and its
obligation, if any, to make certain cash advances in the event of delinquencies
in payments on or with respect to the Mortgage Loans and interest shortfalls due
to prepayment of Mortgage Loans, in amounts described herein under "Description
of the Securities--Advances"). The obligation of the Master Servicer to make
delinquency advances will be limited to the extent, in its good faith business
judgment such delinquency advances would be ultimately recoverable from the
related Mortgage Loans for which such delinquency advances were made. See
"Description of the Securities--Advances."
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The prospectus supplement for each series of Securities will contain
certain information with respect to the Mortgage Loans (or a sample thereof)
contained in the related Trust Estate; such information, insofar as it may
relate to statistical information relating to such Mortgage Loans will be
presented as of a date certain (the "STATISTICAL CALCULATION DATE") which may
also be the related cut-off date (the "CUT-OFF DATE"). Such statistical
information may include, among other things, to the extent applicable to the
particular Mortgage Pool the aggregate outstanding principal balance and the
average outstanding principal balance, the range of origination dates, the range
of CLTVs, the range of the Coupon Rates and the geographical distribution of the
Mortgage Loans on a state-by-state basis. In addition, preliminary or more
general information may be provided in the prospectus supplement, and specific
or final information may be set forth in the related Pooling and Servicing
Agreement, which will be filed with the Securities and Exchange Commission and
will be made available to holders of the related series of Securities within
fifteen days after the initial issuance of such Securities.
The loan-to-value ratio (the "LTV") of a Mortgage Loan is equal to the
ratio (expressed as a percentage) of the original principal balance of such
Mortgage Loan to the appraised value of the related Mortgaged Property at the
time of origination of the Mortgage Loan. The combined loan-to-value ratio (the
"CLTV") of a Mortgage Loan at any given time is the ratio, expressed as a
percentage, determined by dividing (x) the sum of the original principal balance
of such Mortgage Loan plus, if applicable, the then current principal balance of
all mortgage loans (each, a "SENIOR LIEN") secured by liens on the related
Mortgaged Property having priorities senior to that of the lien which secures
such Mortgage Loan, by (y) the value of the related Mortgaged Property, based
upon the appraisal or valuation made at the time of origination of the Mortgage
Loan. In general, for purchase money mortgage loans, the LTVs and CLTVs are
calculated using the lower of the purchased price or appraised values of the
related Mortgaged Properties at the time of origination.
There can be no assurance that the values of Mortgaged Properties will
reflect actual real estate values during the term of the Mortgage Loans. No
assurance can be given that values of the Mortgaged Properties have remained or
will remain at their levels on the dates of origination of the related Mortgage
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans (plus any additional financing by other lenders on the same
Mortgaged Properties) in a particular Mortgage Pool become equal to or greater
than the value of such Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the non-conforming credit mortgage lending industry. In addition, adverse
economic conditions (which may or may not affect real estate values) may affect
the timely and ultimate payment by Mortgagors of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the Mortgage Loans.
Certain Mortgage Loans may be secured by junior liens ("JUNIOR LIENS")
subordinate to the rights of the mortgagee under any related senior mortgage(s).
The proceeds from any liquidation, insurance or condemnation of Mortgaged
Properties relating to Junior Liens in a Mortgage Pool will be available to
satisfy the principal balance of such Junior Liens only to the extent that the
claims, if any, of all related senior mortgagees, including any related
foreclosure costs, are satisfied in full. In addition, the Master Servicer may
not foreclose on a Mortgaged
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Property relating to a Junior Lien unless it forecloses subject to the related
senior mortgage(s), in which case it must either pay the entire amount of each
senior mortgage to the applicable mortgagee at or prior to the foreclosure sale
or undertake the obligation to make payments on each senior mortgage in the
event of default thereunder. Generally, in servicing Junior Liens in its loan
portfolios, it has been the Master Servicer's practice to satisfy each senior
mortgage at or prior to a foreclosure sale but only to the extent that it
determines any amounts so paid will be recoverable from the related payments and
collections on the Mortgage Loans or otherwise. The Trusts will not have any
source of funds to satisfy any such senior mortgage or make payments due to any
senior mortgagee. See "Certain Legal Aspects of Mortgage Loans and Related
Matters--Foreclosure."
Single Family and Cooperative Loans. Single family loans will consist of
mortgage loans, deeds of trust or participation or other beneficial interests
therein, secured by first or junior liens on one- to four-family residential
properties ("SINGLE FAMILY LOANS"). The Mortgaged Properties relating to Single
Family Loans will consist of detached or semi-detached single-family dwelling
units, two- to four-family dwelling units, townhouses, rowhouses, individual
condominium units in condominium developments, individual units in planned unit
developments, individual units in a cooperative housing corporation and certain
mixed use and other dwelling units. Such Mortgaged Properties may include owner
occupied properties (which includes vacation and second homes) and non-owner
occupied properties.
Single Family Loans may include loans or participations therein secured by
mortgages or deeds of trust on condominium units in low- or high-rise
condominium developments together with such condominium units' appurtenant
interests in the common elements of such condominium developments. Unless
otherwise specified, the Cooperative Loans will be secured by security interests
in or similar liens on stock, shares or membership certificates issued by
cooperatives and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in such
cooperatives' buildings.
Contracts. Contracts will consist of manufactured housing conditional sales
contracts and installment sales or loan agreements each secured by a
Manufactured Home ("CONTRACTS"). Contracts may be conventional, insured
partially by the FHA or partially guaranteed by the Veterans Administration, as
specified in the related prospectus supplement. Each Contract will be fully
amortizing and will bear interest at its annual percentage rate ("APR").
The "MANUFACTURED HOMES" securing the Contracts will consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "manufactured home" as "a structure, transportable in one or
more sections, which in the traveling mode, is eight body feet or more in width
or forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of [this] paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under [this] chapter."
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The related prospectus supplement may specify for the Contracts
contained in the related Trust, among other things, the range of dates of
origination of the Contracts; the range of Coupon Rates or the APRs on the
Contracts; the range of Loan-to-Value Ratios; the range of minimum and maximum
outstanding principal balances, the range of average outstanding principal
balance; the range of outstanding principal balances of the Contracts included
in the related Trust; and the range of maturities of the Contracts.
MORTGAGE LOAN PROGRAM
As a general matter, the Sponsor's Mortgage Loan program will consist
of the origination and purchase of Mortgage Loans relating to non-conforming
credits (the "SPONSOR'S MORTGAGE LOAN PROGRAM"). For purposes hereof,
"non-conforming credit" means a mortgage loan which, based upon standard
underwriting guidelines, is ineligible for purchase by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") due to credit characteristics that do not meet FNMA or FHLMC
guidelines, respectively. However, certain of the Mortgage Loans will relate to
FNMA or FHLMC conforming credits.
The Mortgagors generally will have taken out the related Mortgage Loans
for one or more of four reasons: (i) to purchase the related Mortgaged Property,
(ii) to refinance an existing mortgage loan on more favorable terms, (iii) to
consolidate debt, or (iv) to obtain cash proceeds by borrowing against the
Mortgagor's equity in the related Mortgaged Property; the Mortgage Loans
described in (i) are commonly referred to as purchase money loans and the
Mortgage Loans described in (ii), (iii) and (iv) on the whole are commonly
referred to as home equity loans.
It is the Sponsor's practice to solicit existing Mortgagors with
respect to the possible refinancing of their existing Mortgages.
UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines
customarily employed by the Sponsor and its affiliates in originating or
acquiring Mortgage Loans. The Sponsor's and its affiliates' underwriting
guidelines are less stringent than the standards generally acceptable to FNMA
and FHLMC with regard to the Mortgagor's credit standing and repayment ability.
Mortgagors who qualify generally would not satisfy FNMA and FHLMC underwriting
guidelines for any number of reasons, including, without limitation, original
principal balance, unsatisfactory payment histories or debt-to-income ratios, or
a record of derogatory credit items such as outstanding judgments or prior
bankruptcies.
Unless otherwise specified in the related prospectus supplement, the
underwriting guidelines to be used in originating or acquiring the Mortgage
Loans are primarily intended to assess the creditworthiness of the Mortgagor,
the value of the Mortgaged Property and the adequacy of such property as
collateral for the Mortgage Loans.
Originators' underwriting procedures customarily utilize one of two
types of underwriting guidelines, as modified from time to time (1) "Sponsor's
Guidelines", which are the guidelines of the Sponsor and its Affiliated
Originators and (2) "Approved Guidelines" which are guidelines of approved
Unaffiliated Originators.
Mortgage Loans that are originated by the Sponsor and its Affiliated
Originators are underwritten utilizing the Sponsor's Guidelines. Mortgage Loans
that are purchased by the Sponsor and its Affiliated Originators are
underwritten utlizing either the Sponsor's Guidelines or the Approved
Guidelines.
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Sponsor's Guidelines - The Sponsor's Guidelines consider the value and
adequacy of the Mortgaged Property as collateral for the proposed Mortgage Loan
but also takes into consideration the mortgagor's credit standing and repayment
ability. There are three major steps in the Sponsor's underwriting process: (1)
identify the eligibility and appropriate credit grade of the mortgagor, (2)
evaluate the eligibility and lendable equity of the Mortgaged Property, and (3)
ensure the loan terms meet those acceptable for that credit grade. On a case by
case basis the Sponsor may determine that based on compensating factors, a
prospective mortgagor may not strictly qualify under a particular underwriting
credit grade risk category but warrants an underwriting exception. Compensating
factors may include, without limitation, relatively low loan-to-value ratio,
relatively low debt-to-income ratio, stable employment and amount of time
borrower has lived in the same residence. It is anticipated that a number of the
Mortgage Loans underwritten in accordance with the Sponsor's Guidelines will
have been originated based on such underwriting exceptions. The Sponsor's
Guidelines are revised continuously based on opportunities and prevailing
conditions in the nonconforming credit residential mortgage market, as well as
the expected market for the Securities.
In addition to Mortgage Loans originated by the Sponsor and its
Affiliated Originators, the Sponsor and its Affiliated Originators may purchase
Mortgage Loans from Unaffiliated Originators which were underwritten in
accordance with the Sponsor's Guidelines. The Sponsor generally will review or
cause to be reviewed only a limited portion of the Mortgage Loans purchased from
Unaffiliated Originators for conformity with the Sponsor's Guidelines.
The Sponsor's Guidelines permit the origination and purchase of
mortgage loans with multi-tiered credit characteristics tailored to individual
credit profiles. In general, the Sponsor's Guidelines require an analysis of the
equity in the Mortgaged Property, the payment history of the borrower, the
borrower's ability to repay debt, the property type, and the characteristics of
the underlying first mortgage, if any. A lower maximum CLTV is required for
lower gradations of credit quality and higher property values.
The Mortgage Loans generally are secured by either owner occupied
properties (which includes second and vacation homes) or non-owner occupied
properties which, in either case are single-family residences (which may be
detached, part of a one- to-four family dwelling, a condominium unit, coop or a
unit in a planned unit development). The Sponsor's Guidelines generally require
that the CLTV of a Mortgage Loan not exceed 100%, after taking into account the
amount of any primary mortgage insurance applicable to such Mortgage Loan.
In most cases, the value of each property proposed as security for a
mortgage loan is required to be determined by a full appraisal. A limited
appraisal of a property, conducted on a drive-by basis or a "multiple
comparable" basis, may be utilized. Two full appraisals are generally required
for properties valued over $500,000. Appraisals are required to be completed by
qualified professional appraisers.
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The Sponsor's Guidelines provide for the origination of loans under
three general loan programs: (i) a full verification program for salaried or
self-employed borrowers, (ii) a "lite" documentation program for borrowers who
may have income which cannot be verified by traditional methods and (iii) a
non-income verification program for salaried and self-employed borrowers.
However, the Sponsor's Guidelines allow for certain borrowers with existing
loans to refinance such loans with either limited, or no, verification of
income. The Sponsor may also purchase pools of mortgage loans which may include
some mortgage loans originated under a non-income verification program.
A credit report by an independent, nationally recognized credit
reporting agency is required reflecting the applicant's complete credit history.
The credit report should reflect all delinquencies of 30 days or more,
repossessions, judgments, foreclosures, garnishments, bankruptcies and similar
instances of adverse credit that can be discovered by a search of public
records. Verification is required to be obtained of the senior mortgage balance,
if any, and the status and whether local taxes, interest, insurance and
assessments are included in the applicant's monthly payment. All taxes and
assessments not included in the payment are required to be verified as current.
In connection with purchase-money loans, the Sponsor's Guidelines
generally require (x) (i) an acceptable source of downpayment funds, (ii)
verification of the source of the downpayment funds and (iii) adequate cash
reserves for owner occupied second homes and non-owner occupied properties
or (y) adequate equity in the Mortgaged Property.
Certain laws protect loan applicants by offering them a time frame
after loan documents are signed, termed the rescission period, during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except as
permitted by law.
The Sponsor's Guidelines generally require title insurance coverage
issued by an approved ALTA or CLTA title insurance company on each Mortgage Loan
it purchases. The Sponsor, the related Originator and/or their assignees
generally are named as the insured. Where title insurance is not available with
respect to a Mortgage Loan, the Sponsor's Guidelines require a property report
and title search to evidence that the title or lien position is as indicated on
the mortgage loan application.
The applicant is required to secure property insurance in an amount
sufficient to cover the related Mortgage Loan and any senior mortgage. If the
sum of the outstanding first mortgage, if any, and the related Mortgage Loan
exceeds replacement value (the cost of rebuilding the subject property, which
generally does not include land value), insurance equal to replacement value may
be accepted. The respective Originator or its designee is required to ensure
that its name and address is properly added to the "Mortgagee Clause" of the
insurance policy. In the event the Sponsor or the related Originator's name is
added to a "Loss Payee Clause" and the policy does not provide for written
notice of policy changes or cancellation, an endorsement adding such provision
is required.
One of the Sponsor's programs (the "HIGH LTV PROGRAM") specifically
relates to Mortgage Loans with CLTV's in excess of 100%, generally up to a
maximum of 125% ("HIGH
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LTV LOANS"). Under the High LTV Program, relatively more emphasis in the
underwriting analysis is placed on the borrower's payment history and ability to
repay debt, rather than on the property value of the related Mortgaged Property.
High LTV Loans are generally targeted as debt consolidation loans for repeat or
frequent borrowers with generally strong credit ratings. Lending decisions for
these loans are based on an analysis of the prospective Mortgagor's documented
cash flow and credit history supplemented by a property value evaluation deemed
appropriate by the Sponsor.
With respect to High LTV Loans which are senior liens, the Sponsor
requires hazard insurance. For High LTV Loans which are in a junior lien
position, the Sponsor requires verification of the existence of hazard insurance
at the time of origination, but does not generally require the tracking of such
hazard insurance.
Approved Guidelines - The Originators may purchase Mortgage Loans or
pools of Mortgage Loans, in whole or in part, from Unaffiliated Originators. The
underwriting guidelines employed by Unaffiliated Originators may deviate from
the Sponsor's Guidelines but are approved by the Sponsor prior to their
purchasing the Mortgage Loans or pools of Mortgage Loans ("APPROVED GUIDELINES")
and are documented as part of the loan sale purchase agreement. The Sponsor or
its Affiliated Originators will re-underwrite a representative sample of the
Mortgage Loans or pool of Mortgage Loans to ensure that the Mortgage Loans, on a
sample basis, are in conformity with the Approved Guidelines. Moreover, there
can be no assurance that every Mortgage Loan was originated in conformity with
the Approved Guidelines, or that the quality or performance of Mortgage Loans
underwritten pursuant to the Approved Guidelines as described above will be
equivalent under all circumstances.
Bulk Purchases - Bulk Mortgage Loans purchases may be originated by a
variety of Originators under several different underwriting guidelines. The
Purchases of Bulk Mortgage Loans may not conform to either the requirements of
the Sponsor's Guidelines or the Approved Guidelines. The Sponsor generally will
cause the Mortgage Loans acquired in a Bulk Purchase to be reunderwritten on a
sample basis. Such reunderwriting may be performed by the Sponsor or a third
party acting at the direction of the Sponsor.
REPRESENTATIONS
Representations and warranties will be made in respect of the Mortgage Loans
sold to a Trust. Such representations and warranties generally include, among
other things, that at the time of the sale to the Trust of each Mortgage Loan:
(i) the information with respect to each Mortgage Loan set forth in the
Schedules of Mortgage Loans is true and correct as of the related Cut-Off Date;
(ii) each Mortgage Loan being transferred to the Trust which is a real estate
mortgage investment conduit ("REMIC") is a qualified mortgage under the REMIC
provisions of the Internal Revenue Code of 1986, as amended (the "CODE") and is
a Mortgage; (iii) each Mortgaged Property is improved by a single (one- to
four-) family residential dwelling or a multi-family structure, which may
include condominiums and townhouses, units in a "planned unit development"
("PUD") complex or a manufactured home; (iv) each Mortgage Loan had, at the time
of origination, either an attorney's certification of title, a title search or
title policy; (v) as of the related Cut-Off Date each Mortgage Loan is secured
by a valid and subsisting lien of record on the Mortgaged Property having the
priority indicated on the related schedule of Mortgage Loans subject in all
cases to exceptions to title set forth in the title insurance policy, if any,
with respect to the related Mortgage Loan; (vi) each Originator held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed
by such Originator; and (vii) each Mortgage Loan was originated in accordance
with such Originator; and (vii) each Mortgage Loan was originated in accordance
with law and is the valid, legal and binding obligation of the related
Mortgagor.
If a breach of any representation or warranty occurs in respect of a
Mortgage Loan that materially and adversely affects the interests of the
Securityholders in such Mortgage Loan within a time period specified in the
related Pooling and Servicing Agreement, the Sponsor will be obligated to
purchase or cause to be purchase from the related Trust such Mortgage Loan at a
price (the "LOAN PURCHASE PRICE") generally equal to the principal balance
thereof as of the date
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of purchase plus one month's accrued interest at the Coupon Rate less the
amount, expressed as a percentage per annum, payable in respect of master
servicing compensation or subservicing compensation, as applicable, and the
Originator's Retained Yield, if any, together with the aggregate amount of all
delinquent interest, if any, net of Servicing Advances (as defined herein).
As to any such Mortgage Loan required to be purchased, rather than
repurchase the Mortgage Loan, the Master Servicer may, at its sole option,
remove such Mortgage Loan (a "DELETED MORTGAGE LOAN") from the related Trust and
cause the Sponsor to substitute in its place another Mortgage Loan of like kind
(a "QUALIFIED REPLACEMENT MORTGAGE") which satisfies the eligibility criteria
set forth in the related Pooling and Servicing Agreement. With respect to a
Trust for which a REMIC election is to be made, except as otherwise provided in
the prospectus supplement relating to a series of Securities, such substitution
of a defective Mortgage Loan must be effected within two years of the date of
the initial issuance of the Securities, and may not be made if such substitution
would cause the Trust to not qualify as a REMIC or result in a prohibited
transaction tax under the Code.
The Master Servicer will be required under the applicable Pooling and
Servicing Agreement to enforce such purchase or substitution obligations for the
benefit of the Trustee and the Securityholders, following the practices it would
employ in its good faith business judgment if it were the owner of such Mortgage
Loan; provided, however, that this purchase or substitution obligation will in
no event become an obligation of the Master Servicer in the event the Originator
fails to honor such obligation. The foregoing will constitute the sole remedy
available to Securityholders or the Trustee for a breach of representation.
SUB-SERVICERS
Each Originator of a Mortgage Loan may act as Sub-Servicer for such
Mortgage Loan unless the servicing obligations are released to the Master
Servicer or transferred to a servicer approved by the Master Servicer. An
Affiliated Originator of a Mortgage Loan may act as the Sub-Servicer for such
Mortgage Loan unless the other related servicing obligations are released or
transferred. An Unaffiliated Originator acting as a Sub-Servicer for the
Mortgage Loans will be required to meet certain additional standards with
respect to its mortgage loan servicing portfolio, GAAP tangible net worth and
other qualifications. In addition, the Master Servicer may engage Sub-Servicers
that are not Originators to perform certain servicing functions pursuant to an
agreement between the Master Servicer and the Sub-Servicer (a "SUB-SERVICING
AGREEMENT").
A Sub-Servicer may be obligated to make advances to the Master Servicer in
respect of delinquent installments of principal and/or interest (net of any
sub-servicing or other compensation) on Mortgage Loans, as described more fully
under "Description of the Securities -- Advances," and in respect of certain
taxes and insurance premiums not paid on a timely basis by Mortgagors. A
Sub-Servicer may also be obligated to deposit amounts in respect of Compensating
Interest (as defined herein) to the related Principal and Interest Account in
connection with prepayments of principal received and applied to reduce the
outstanding principal balance of a Mortgage Loan to zero. No assurance can be
given that the Sub-Servicers will carry out their advancing or payment
obligations, if any, with respect to the Mortgage
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Loans. A Sub-Servicer may transfer its servicing obligations to another entity
that has been approved for participation in the Sponsor's loan purchase
programs, but only with the prior written approval of the Master Servicer.
As compensation for its servicing duties, the Sub-Servicer may be entitled
to receive a fee. The Sub-Servicer may also be entitled to collect and retain,
as part of its servicing compensation, any late charges or prepayment penalties
provided in the Mortgage Note or related instruments. The Sub-Servicer will be
entitled to reimbursement for certain expenditures that it makes, generally to
the same extent that the Master Servicer would be reimbursed under the
applicable Pooling and Servicing Agreement. See "The Pooling and Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses."
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant to
a Pooling and Servicing Agreement. The following summaries (together with
additional summaries under "The Pooling and Servicing Agreement" below) describe
certain provisions relating to the Securities common to each Pooling and
Servicing Agreement. The summaries are not complete and are subject to all of
the provisions of the Pooling and Servicing Agreement for the related Trust and
the related prospectus supplement.
The Securities will consist of two basic types: (i) Certificates
representing beneficial ownership interests in the Mortgage Loans held by the
related Trust and (ii) Notes representing debt secured by the Mortgage Loans
held by the related Trust. Each series may also include a class or classes of
subordinated equity participation securities. Each series or class of Securities
may have a different rate of interest (the "PASS-THROUGH RATE"), which may be
fixed or adjustable. The related prospectus supplement will specify the Interest
Rate for each series or class of Securities, or the initial Pass-Through Rate
and the method for determining subsequent changes to the Pass-Through Rate.
A series may include one or more classes of Securities ("STRIP SECURITIES")
entitled to (i) principal distributions, with disproportionate, nominal or no
interest distributions, or (ii) interest distributions, with disproportionate,
nominal or no principal distributions. In addition, a series may include two or
more classes that differ as to timing, sequential order, priority of payment,
Pass-Through Rate or amount of distributions of principal or interest or both.
Distributions of principal or interest or both on any class may be made upon the
occurrence of specified events, in accordance with a schedule or formula, or on
the basis of collections from designated portions of the related Mortgage Pool.
A series may include one or more classes of Securities ("ACCRUAL SECURITIES"),
as to which certain accrued interest will not be distributed but rather will be
added to the principal balance of the related Security (or nominal principal
balance in the case of Accrual Securities which are also Strip Securities)
thereof on each payment date.
A series of Securities may include one or more classes of Securities
(collectively, the "SENIOR SECURITIES") that are senior to one or more classes
of Securities (collectively, the
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"SUBORDINATE SECURITIES") in respect of certain distributions of principal and
interest and allocations of losses on the Mortgage Loans. In addition, certain
classes of Senior (or Subordinate) Securities may be senior to other classes of
Senior (or Subordinate) Securities in respect of such distributions or losses.
Each Trust may also issue classes of subordinated equity participation
securities which will represent the right to receive the proceeds of the related
Trust Estate after all required payments have been made to the holders of the
related Notes or Certificates, as applicable (both Senior Securities and
Subordinate Securities), and following any required deposits to any reserve
account that may be established for the benefit of the related Notes or
Certificates. Such classes of securities may constitute what are commonly
referred to as the "residual interest," "seller's interest" or the "general
partnership interest," depending upon the treatment of the related Trust for
federal income tax purposes and generally will not be styled as having principal
and interest components. Any losses suffered by the related Trust first will
generally be absorbed by the related class of residual securities.
GENERAL PAYMENT TERMS OF SECURITIES.
Securityholders will be entitled to receive payments on their Securities on
specified dates ("Payment Dates"). Payment Dates will occur monthly, quarterly
or semi-annually, as described in the related prospectus supplement. The Payment
Date will be the twenty-fifth day of each month (or, in the case of
quarterly-pay Securities, the twenty-fifth day of every third month; and, in the
case of semi-annually-pay Securities, the twenty-fifth day of every sixth month)
or if such day is not a business day, the next succeeding business day.
The related prospectus supplement will describe a date (the "RECORD DATE")
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. The Record Date will be either the close of
business as of the last day of the calendar month which precedes the related
Payment Date or the day immediately prior to such Payment Date.
The related prospectus supplement and the Pooling and Servicing Agreement
will describe a period (a "REMITTANCE PERIOD") prior to each Payment Date (for
example, in the case of monthly-pay Securities, the calendar month preceding the
month in which a Payment Date occurs or such other specified period). Interest
accrued and principal collected on or with respect to the related Mortgage Loans
during a Remittance Period will be required to be remitted by the Master
Servicer to the related Trustee prior to the related Payment Date and will be
used to distribute payments to Securityholders on such Payment Date. The related
Pooling and Servicing Agreement may provide that all or a portion of the
principal collected on or with respect to the related Mortgage Loans may be
applied by the related Trustee to the acquisition of subsequent Mortgage Loans
during a specified period (rather than used to distribute payments of principal
to Securityholders during such period) with the result that the related
securities possess an interest-only period, also commonly referred to as a
revolving period, which will be followed by an amortization period. Any such
interest-only or revolving period may, upon the occurrence of certain events,
terminate prior to the end of the specified period and result in the earlier
than expected amortization of the related Securities.
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Neither the Securities nor the underlying Mortgage Loans will be guaranteed
or insured by any governmental agency or instrumentality or the Sponsor, the
Master Servicer, any Sub-Servicer, the Trustee, any Originator or any of their
respective affiliates.
DISTRIBUTIONS
Beginning on the Payment Date in the month following the month (or, in the
case of quarterly-pay Securities, the third month following such month and each
third month thereafter or, in the case of semi-annually-pay Securities, the
sixth month following such month and each sixth month thereafter) in which the
Cut-Off Date occurs for a series of Securities, distributions of principal and
accrued interest (or, where applicable, of principal only or interest only) on
each class of Securities entitled thereto will be made either by the Trustee or
a paying agent appointed by the Trustee (the "PAYING AGENT"), to the persons who
are registered as Securityholders at the close of business on the Record Date.
Interest that accrues and is not payable on a class of Securities will generally
be added to the principal balance of each Security of such class. Distributions
will be made in immediately available funds (by wire transfer or otherwise) to
the account of a Securityholder at a bank or other entity having appropriate
facilities therefor, if such Securityholder has so notified the Trustee or the
Paying Agent, as the case may be, and the applicable Pooling and Servicing
Agreement provides for such form of payment, or by check mailed to the address
of the person entitled thereto as it appears on the Security Register; provided,
however, that the final distribution in retirement of the Securities (other than
any Book-Entry Securities) will be made only upon presentation and surrender of
the Securities at the office or agency of the Trustee specified in the notice to
Securityholders of such final distribution.
PRINCIPAL AND INTEREST ON THE SECURITIES
The method of determining, and the amount of, distributions of principal
and interest (or, where applicable, of principal only or interest only) on a
particular series of Securities will be described in the related prospectus
supplement. Each class of Securities (other than certain classes of Strip
Securities) may bear interest at a different Pass-Through Rate. The related
prospectus supplement will specify the Pass-Through Rate for each class, or in
the case of an adjustable Pass-Through Rate, the initial Pass-Through Rate and
the method for determining the Pass-Through Rate. Interest on the Securities
will be calculated either on the basis of a 360-day year consisting of twelve
30-day months, on the basis of the actual number of days in the related accrual
period over 360 or on the basis of the actual number of days in the related
accrual period over 365.
On each Payment Date for a series of Securities, the Trustee will
distribute or cause the Paying Agent to distribute, as the case may be, to each
holder of record on the Record Date of a class of Securities, an amount equal to
the percentage interest represented by the Security held by such holder
multiplied by such class' Distribution Amount. The "Distribution Amount" for a
class of Securities for any Payment Date will be the portion, if any, of the
principal distribution amount (as defined in the related prospectus supplement)
allocable to such class for such Payment Date, plus, if such class is entitled
to payments of interest on such Payment Date, the interest accrued at the
applicable Pass-Through Rate on the principal balance or notional amount of such
class, less the amount of any deferred interest added to the principal balance
of the
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Mortgage Loans and/or the outstanding balance of one or more classes of
Securities on the related Due Date and any other interest shortfalls allocable
to Securityholders which are not covered by advances or the applicable Credit
Enhancement.
In the case of a series of Securities that includes two or more classes of
Securities, the timing, sequential order, priority of payment or amount of
distributions in respect of principal, and any schedule or formula or other
provisions applicable to the determination thereof (including distributions
among multiple classes of Senior Securities or Subordinate Securities) of each
such class shall be as provided in the related prospectus supplement. Generally,
distributions in respect of principal of any class of Securities will be made on
a pro rata basis among all of the Securities of such class.
On or prior to the second business day next preceding the Payment Date (or
such earlier day as shall be agreed by the related provider of credit
enhancement (the "CREDIT ENHANCER"), if any, and the related Trustee) of the
month of distribution (the "DETERMINATION DATE"), the related Trustee will
determine the amounts of principal and interest which will be passed through to
Securityholders on the immediately succeeding Payment Date. If the amount in the
Distribution Account is insufficient to cover the amount to be passed through to
Securityholders, the related Trustee will be required to notify the related
Credit Enhancer, if any, pursuant to the related Pooling and Servicing Agreement
for the purpose of funding such deficiency.
FORM OF SECURITIES
The Securities of each series will be issued as physical certificates
("PHYSICAL CERTIFICATES") in fully registered form only in the denominations
specified in the related prospectus supplement, and will be transferable and
exchangeable at the corporate trust office of the registrar of the Securities
(the "SECURITY REGISTRAR") named in the related prospectus supplement. No
service charge will be made for any registration of exchange or transfer of
Securities, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge.
If so specified in the related prospectus supplement, specified classes of
a series of Securities will be issued in uncertificated book-entry form
("BOOK-ENTRY SECURITIES"), and will be registered in the name of Cede, the
nominee of the Depository Trust Company ("DTC"). DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code ("UCC") and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participating organizations
("PARTICIPANTS") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in their
accounts, thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as brokers, dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("INDIRECT
PARTICIPANT").
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Under a book-entry format, Securityholders that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of Securities registered in the name of Cede, as nominee of DTC, may
do so only through Participants and Indirect Participants. In addition, such
Securityholders will receive all distributions of principal of and interest on
the Securities from the Trustee through DTC and its Participants. Under a
book-entry format, Securityholders will receive payments after the related
Payment Date because, while payments are required to be forwarded to Cede, as
nominee for DTC, on each such date, DTC will forward such payments to its
Participants, which thereafter will be required to forward such payments to
Indirect Participants or Securityholders. Unless and until Physical Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Pooling and Servicing
Agreement. The beneficial holders of such Securities will only be permitted to
exercise the rights of Securityholders under the Pooling and Servicing Agreement
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Securities and is required to
receive and transmit payments of principal of and interest on the Securities.
Participants and Indirect Participants with which Securityholders have accounts
with respect to their Securities similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Securityholders. Accordingly, although Securityholders will not possess
Securities, the rules provide a mechanism by which Securityholders will receive
distributions and will be able to transfer their interests.
Unless and until Physical Certificates are issued, Securityholders who are
not Participants may transfer ownership of Securities only through Participants
by instructing such Participants to transfer Securities, by book-entry transfer,
through DTC for the account of the purchasers of such Securities, which account
is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of Securities
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the respective Participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Securityholders. Because DTC can only act on behalf of
Participants, who in turn act on behalf of Indirect Participants and certain
banks, the ability of a Securityholder to pledge Securities to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Securities may be limited due to the lack of a Physical
Certificate for such Securities.
DTC in general advises that it will take any action permitted to be taken
by a Securityholder under a Pooling and Servicing Agreement only at the
direction of one or more Participants to whose account with DTC the related
Securities are credited. Additionally, DTC in general advises that it will take
such actions with respect to specified percentages of the Securityholders only
at the direction of and on behalf of Participants whose holdings include current
principal amounts of outstanding Securities that satisfy such specified
percentages. DTC may take conflicting actions with respect to other current
principal amounts of outstanding
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Securities to the extent that such actions are taken on behalf of Participants
whose holdings include such current principal amounts of outstanding Securities.
Any Securities initially registered in the name of Cede, as nominee of DTC,
will be issued in fully registered, certificated form to Securityholders or
their nominees, rather than to DTC or its nominee only under the events
specified in the related Pooling and Servicing Agreement and described in the
related prospectus supplement. Upon the occurrence of any of the events
specified in the related Pooling and Servicing Agreement and the prospectus
supplement, DTC will be required to notify all Participants of the availability
through DTC of Physical Certificates. Upon surrender by DTC of the securities
representing the Securities and instruction for reregistration, the Trustee will
issue the Securities in the form of Physical Certificates, and thereafter the
Trustee will recognize the holders of such Physical Certificates as
Securityholders. Thereafter, payments of principal of and interest on the
Securities will be made by the Trustee directly to Securityholders in accordance
with the procedures set forth herein and in the Pooling and Servicing Agreement.
The final distribution of any Security (whether Physical Certificates or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Payment Date at such
office or agency as is specified in the notice of final payment to
Securityholders.
None of the Company, the Originators, the Master Servicer or the Trustee
will have any liability for any actions taken by DTC or its nominee or Cedelbank
or Euroclear, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of a series of Securities, the Sponsor will direct
or request the Mortgage Loans being included in the related Trust Estate to be
assigned to the Trustee together with all interest accrued and principal
collected in respect of the Mortgage Loans on or after the related Cut-Off Date.
Each Mortgage Loan will be identified in a schedule appearing as an exhibit to
the related Pooling and Servicing Agreement.
In connection with the establishment of certain Trusts, the Sponsor may
first transfer the related Mortgage Loan to an affiliate and such affiliate will
then transfer such Mortgage Loan to the related Trust. The related prospectus
supplement will describe any applicable requirements relating to the delivery of
documents, such as the related Notes, and the preparation and/or filing of
transfer documentation, such as assignments of Mortgage, in connection with the
establishment of the related Trust.
The Trustee will be authorized at any time to appoint a custodian pursuant
to a custodial agreement to maintain possession of and, if applicable, to review
the documents relating to the Mortgage Loans as the agent of the Trustee. The
identity of any such custodian to be appointed on the date of initial issuance
of the Securities will be set forth in the related prospectus supplement or in
the related Pooling and Servicing Agreement.
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Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Sub-Servicers, will service and administer the
Mortgage Loans assigned to the Trustee.
PRE-FUNDING; MANDATORY PREPAYMENT
A Trust may enter into an agreement, which may be the related Pooling and
Servicing Agreement, (a "PRE-FUNDING AGREEMENT") with the Sponsor or any
affiliate whereby the Sponsor or such affiliate will agree to transfer
subsequent Mortgage Loans ("SUBSEQUENT MORTGAGE LOANS") to such Trust following
the date on which such Trust is established and the date the related Securities
are issued and delivered to the Securityholders (the "CLOSING DATE"). The
Pre-Funding Agreement will require that any Mortgage Loans so transferred to
a Trust conform to the requirements specified in such Pre-Funding Agreement or
in the related Pooling and Servicing Agreement. In addition, the Pre-Funding
Agreement states that the Sponsor shall only transfer the Subsequent Mortgage
Loans upon the satisfaction of certain conditions.
If the pre-funding feature is to be used, then the related Trustee will be
required to deposit in a segregated account (each, a "PRE-FUNDING ACCOUNT") a
portion of the net proceeds received in connection with the sale of one or more
classes of Securities of the related series. The subsequent Mortgage Loans will
be transferred to the related Trust in exchange for money released by the
Trustee from the related Pre-Funding Account. Each Pre-Funding Agreement will
set a specified period (the "PRE-FUNDING PERIOD") during which any such
transfers must occur; provided, for a Trust which elects federal income
treatment as a REMIC or as a grantor trust, the related Pre-Funding Period will
be limited to three months from the startup day of such Trust.
During the Pre-Funding Period, the monies deposited to the Pre-Funding
Account will be invested in eligible investments. As set forth in the related
prospectus supplement, on Payment Dates that occur during the Pre-Funding Period
or on the Payment Date immediately following the end of the Pre-Funding Period,
the Trustee shall distribute the investment earnings on the monies on deposit in
the Pre-Funding Account to the holders of the securities as a distribution of
interest or may distribute such earnings to the holders of the subordinate
equity participation securities.
The Pre-Funding Agreement or the related Pooling and Servicing Agreement
will require that, if all monies originally deposited to such Pre-Funding
Account are not so used by the end of the related Pre-Funding Period, then any
remaining monies will be applied as a mandatory prepayment of principal of the
related classes of Securities.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO DISTRIBUTION ACCOUNT
The Master Servicer will deposit or will cause to be deposited into an
account (the "PRINCIPAL AND INTEREST ACCOUNT") on a daily basis, but generally
no later than two (2) business days following receipt, certain payments of
accrued interest on or after the Cut-Off Date or principal received on or after
the Cut-Off Date. As specifically set forth in the related Pooling and Servicing
Agreement, such deposit shall include:
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(i) all payments on account of principal, including principal payments
received in advance of the date on which the related monthly payment is due
(the "DUE DATE") ("PRINCIPAL PREPAYMENTS"), on the Mortgage Loans
comprising a Trust Estate;
(ii) all payments on account of accrued interest on the Mortgage Loans
comprising such Trust Estate, net of the portion of each payment thereof
retained by the Master Servicer, if any, as its servicing fee or other
compensation and any interest accrued prior to the related Cut-off Date;
(iii) all amounts received and retained, if any, in connection with
the liquidation of any defaulted Mortgage Loan, by foreclosure, deed in
lieu of foreclosure or otherwise ("LIQUIDATION PROCEEDS"), including all
proceeds of any special hazard insurance policy, bankruptcy bond, mortgage
pool insurance policy, financial guaranty insurance policy and any title,
hazard or other insurance policy covering any Mortgage Loan in such
Mortgage Pool, other than the premiums paid with respect to or the proceeds
of credit life insurance policies, except as may be described in the
related prospectus supplement, (together with any payments under any letter
of credit, "INSURANCE PROCEEDS") or proceeds from any alternative
arrangements established in lieu of any such insurance, other than proceeds
to be applied to the restoration of the related property or released to the
Mortgagor in accordance with the Master Servicer's normal servicing
procedures (such amounts, net of related unreimbursed liquidation expenses
and insured expenses incurred and unreimbursed advances of the Master
Servicer or by the related Sub-Servicer, "NET LIQUIDATION PROCEEDS");
(iv) all proceeds of any Mortgage Loan in such Trust Estate purchased
(or, in the case of a substitution, certain amounts representing a
principal adjustment) by the Master Servicer, the Sponsor, any Sub-Servicer
or Originator or any other person pursuant to the terms of the Pooling and
Servicing Agreement. See "Mortgage Loan Program--Representations,"
"--Assignment of Mortgage Loans" above;
(v) any amounts required to be deposited by the Master Servicer in
connection with losses realized on investments of funds held in the
Principal and Interest Account;
(vi) any amounts required to be deposited in connection with the
liquidation of the related Trust Estate; and
(vii) any amounts required to be transferred from the Distribution
Account (as defined below) to the Principal and Interest Account.
In addition to the Principal and Interest Account, the Sponsor shall cause
to be established and the Trustee will maintain, at the corporate trust office
of the Trustee, in the name of the Trust for the benefit of the holders of each
series of Securities, an account for the disbursement of payments on each series
of Securities (the "DISTRIBUTION ACCOUNT"). The Principal and Interest Account
and the Distribution Account each must be maintained with a Designated
Depository Institution. A "DESIGNATED DEPOSITORY INSTITUTION" is an institution
whose deposits are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, the long-term deposits of which have a rating
satisfactory to the Rating
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Agencies and which is any of the following: (i) a federal savings and loan
association duly organized, validly existing and in good standing under the
federal banking laws, (ii) an institution duly organized, validly existing and
in good standing under the applicable banking laws of any state, (iii) a
national banking association duly organized, validly existing and in good
standing under the federal banking laws, (iv) a principal subsidiary of a bank
holding company, (v) approved in writing by each Rating Agency and (v) an entity
satisfying any other requirements which may be set forth in the related Pooling
and Servicing Agreement; provided, however, that any such institution or
association will generally be required to have combined capital, surplus and
undivided profits of at least $50,000,000.
Notwithstanding the foregoing, the Principal and Interest Account may be
held by an institution otherwise meeting the preceding requirements except that
the only applicable rating requirement shall be that the unsecured and
uncollateralized debt obligations thereof shall be rated at a level satisfactory
to one or more Rating Agencies if such institution has trust powers and the
Principal and Interest Account is held by such institution in its trust capacity
and not in its commercial capacity. The Distribution Account, the Principal and
Interest Account and other accounts described in the related prospectus
supplement are collectively referred to as "Accounts".
All funds in the Distribution Account shall be invested and reinvested by
the Trustee for the benefit of the Securityholders and the related Credit
Enhancer, if any, as directed by the Master Servicer, in certain defined
obligations set forth in the related Pooling and Servicing Agreement ("ELIGIBLE
INVESTMENTS"). The Principal and Interest Account may contain funds relating to
more than one series of Securities as well as payments received on other
mortgage loans serviced or master serviced by it that have been deposited into
the Principal and Interest Account. All funds in the Principal and Interest
Account will be required to be held (i) uninvested, up to limits insured by the
FDIC or (ii) invested by the Master Servicer in Eligible Investments. The Master
Servicer will be entitled to net investment proceeds realized with respect to
the funds on deposit in the Principal and Interest Account.
On a specified day preceding each Payment Date (the "REMITTANCE DATE"), the
Master Servicer will withdraw from the Principal and Interest Account and remit
to the Trustee for deposit in the applicable Distribution Account, in
immediately available funds, (i) the amount to be distributed therefrom to
Securityholders on such Payment Date, (ii) any amounts required to be
transferred to the Distribution Account from a Reserve Fund (as described under
"Credit Enhancement" below), (iii) any amounts required to be paid by the Master
Servicer out of its own funds due to the operation of a deductible clause in any
blanket policy maintained by the Master Servicer to cover hazard losses on the
Mortgage Loans and (iv) any other amounts as specifically set forth in the
related Pooling and Servicing Agreement. The Master Servicer will also remit to
the Trustee for deposit into the Distribution Account the amount of any advances
made by the Master Servicer as described herein under "--Advances." The Trustee
will cause all payments received by it from any Credit Enhancer to be deposited
in the Distribution Account not later than the related Payment Date.
The portion of any payment received by the Master Servicer in respect of a
Mortgage Loan that is allocable to the Originator's Retained Yield generally
will not be deposited into the
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Principal and Interest Account, but will be paid over to the parties entitled
thereto as provided in the related Pooling and Servicing Agreement.
WITHDRAWALS FROM THE PRINCIPAL AND INTEREST ACCOUNT
The Master Servicer may, from time to time, make withdrawals from the
Principal and Interest Account for certain purposes, as specifically set forth
in the related Pooling and Servicing Agreement, which generally will include the
following except as otherwise provided therein:
(i) to effect the timely remittance to the Trustee for deposit to the
Distribution Account in the amounts and in the manner provided in the
Pooling and Servicing Agreement and described in "--Payments on Mortgage
Loans; Deposits to Distribution Account" above;
(ii) to reimburse itself or any Sub-Servicer for any accrued and
unpaid Servicing Fees and for Delinquency Advances and Servicing Advances
(each as defined herein) related to any Mortgaged Property, out of late
payments or collections on the related Mortgage Loan, including Liquidation
Proceeds, Insurance Proceeds and such other amounts as may be collected by
the Master Servicer from the related Mortgagor or otherwise relating to the
Mortgage Loan with respect to which such Delinquency Advances or Servicing
Advances were made;
(iii) to reimburse itself for any Delinquency Advances or Servicing
Advances determined in good faith not to be recoverable from the related
Mortgage Loan, such reimbursement to be made from any funds in the
Principal and Interest Account;
(iv) to withdraw investment earnings on amounts on deposit in the
Principal and Interest Account;
(v) to pay the Sponsor or its assignee all amounts allocable to the
Originator's Retained Yield out of collections or payments which represent
interest on each Mortgage Loan (including any Mortgage Loan as to which
title to the underlying Mortgaged Property was acquired) if previously
deposited;
(vi) to pay to the Sponsor interest accrued and principal collected
prior to the related Cut-Off Date;
(vii) to withdraw amounts that have been deposited in the Principal
and Interest Account in error;
(viii) to clear and terminate the Principal and Interest Account in
connection with the termination of the Trust Estate pursuant to the Pooling
and Servicing Agreement, as described in "The Pooling and Servicing
Agreement--Termination, Retirement of Securities"; and
(ix) to invest in Eligible Investments.
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ADVANCES
The Master Servicer or any Sub-Servicer will be required, not later than
each Remittance Date, to deposit into the Principal and Interest Account an
amount equal to the sum of the interest portions (net of the Servicing Fees and
the Originators' Retained Yield) accrued, but not collected, with respect to
delinquent Mortgage Loans directly serviced by the Master Servicer during the
prior Remittance Period, but only if, in its good faith business judgment, the
Master Servicer believes that such amount will ultimately be recovered from the
related Mortgage Loan. As may be described in the related prospectus supplement,
the Master Servicer may also be required to advance delinquent payments of
principal. Any such amounts so advanced are "DELINQUENCY ADVANCES". The Master
Servicer will be permitted to fund its payment of Delinquency Advances on any
Remittance Date from collections on any Mortgage Loan deposited to the Principal
and Interest Account subsequent to the related Remittance Period, and will be
required to deposit into the Principal and Interest Account with respect thereto
(i) collections from the Mortgagor whose delinquency gave rise to the shortfall
which resulted in such Delinquency Advance and (ii) Net Liquidation Proceeds
recovered on account of the related Mortgage Loan to the extent of the amount of
aggregate Delinquency Advances related thereto. No Delinquency Advance will be
required to be made by the Master Servicer if, in the good faith judgment of the
Master Servicer, such Delinquency Advance would not ultimately be recoverable
from the related Mortgage Loan (any such advance, a "NONRECOVERABLE DELINQUENCY
ADVANCE"); and if previously made by the Master Servicer, a Nonrecoverable
Delinquency Advance will be reimbursable from any amounts in the Principal and
Interest Account prior to any distributions being made to the related
Securityholders. A Sub-Servicer will be permitted to fund its payment of
Delinquency Advances as set forth in the related Sub-Servicing Agreement.
A Mortgage Loan is "delinquent" if any payment due thereon is not made by
the close of business on the day such payment is scheduled to be due plus any
applicable grace period.
On or prior to each Remittance Date, the Master Servicer (or Sub-Servicer)
will be required to deposit in the Principal and Interest Account with respect
to any full prepayment received on a Mortgage Loan directly serviced by such
Servicer during the related Remittance Period, out of its own funds without any
right of reimbursement therefor, an amount equal to the difference between (x)
30 days' interest at the Mortgage Loan's Coupon Rate (less the related Servicing
Fees and the Originators' Retained Yield, if any) on the principal balance of
such Mortgage Loan as of the first day of the related Remittance Period and (y)
to the extent not previously advanced, the interest (less the Servicing Fee and
the Originators' Retained Yield, if any) paid by the Mortgagor with respect to
the Mortgage Loan during such Remittance Period (any such amount paid by such
Servicer, "COMPENSATING INTEREST"). No Servicer shall be required to pay
Compensating Interest with respect to any Remittance Period in an amount in
excess of the aggregate related Servicing Fees received by such Servicer with
respect to all Mortgage Loans directly serviced by such Servicer for such
Remittance Period.
Each Servicer will also be obligated to make Servicing Advances on a timely
basis. "SERVICING ADVANCES" means any "out-of-pocket" costs and expenses,
incurred in the performance of its servicing obligations, including, but not
limited to, (i) expenditures in connection with a foreclosed Mortgage Loan prior
to the liquidation thereof, including
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expenditures for real estate property taxes, hazard insurance premiums and
property restoration or preservation ("PRESERVATION EXPENSES"), (ii) the cost of
any enforcement or judicial proceedings, including (a) foreclosures, and (b)
other legal actions and costs associated therewith that potentially affect the
existence, validity, priority, enforceability or collectibility of the Mortgage
Loans, including collection agency fees and costs of pursuing or obtaining
personal judgments, garnishments, levies, attachment and similar actions, (iii)
the cost of the conservation, management, liquidation, sale or other disposition
of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan,
including reasonable fees paid to any independent contractor in connection
therewith, and (iv) advances to keep liens current, unless with respect to any
of the foregoing the Servicer has determined that such advance would not be
recoverable. No Servicing Advance will be required to be made by the Servicer,
if in the good faith judgment of the Servicer, such Servicing Advance would not
be recoverable from the related Mortgage Loan (any such advance, a
"NONRECOVERABLE SERVICING ADVANCE"); and if previously made by the Servicer, a
Nonrecoverable Servicing Advance will be reimbursable from any amounts in the
Principal and Interest Account prior to any distribution being made to
Securityholders.
Notwithstanding the foregoing, if the Master Servicer or one of its
affiliated Sub-Servicers exercises its option, if any, to purchase the assets of
a Trust Estate as described under "The Pooling and Servicing
Agreement--Termination; Retirement of Securities" below, the Master Servicer
will net from the purchase price all related advances previously made by it and
not theretofore reimbursed to it. The Master Servicer's obligation to make
advances may be supported by the Credit Enhancer as described in the related
Pooling and Servicing Agreement. In the event that the provider of such support
is downgraded by a Rating Agency rating the related Securities or if the
collateral supporting such obligation is not performing or is removed pursuant
to the terms of any agreement described in the related prospectus supplement,
the Securities may also be downgraded.
REPORTS TO SECURITYHOLDERS
With each distribution to Securityholders of a particular class the Trustee
will forward or cause to be forwarded to each holder of record of such class of
Securities a statement or statements with respect to the related Trust setting
forth the information specifically described in the related prospectus
supplement and the related Pooling and Servicing Agreement.
In addition, on each Payment Date the Trustee will forward or cause to be
forwarded additional information, as of the close of business on the last day of
the Remittance Period, as more specifically described in the related prospectus
supplement and the related Pooling and Servicing Agreement, which generally will
include information with respect to the number and percentage of delinquent
Mortgage Loans, the number of Mortgage Loans in foreclosure or Mortgagors in
bankruptcy proceedings and REO Properties (as defined herein).
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer acting directly or through one or more Sub-Servicers as
provided in the related Pooling and Servicing Agreement is required to service
and administer the Mortgage Loans in accordance with the Pooling and Servicing
Agreement and with reasonable care, and
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using that degree of skill and attention that the Master Servicer exercises with
respect to comparable mortgage loans that it services for itself or others.
The duties of the Master Servicer include collecting and posting of all
payments, responding to inquiries of Mortgagors or by federal, state or local
government authorities with respect to the Mortgage Loans, investigating
delinquencies, reporting tax information to Mortgagors in accordance with its
customary practices, accounting for collections, furnishing monthly and annual
statements to the Trustee with respect to distributions and making Delinquency
Advances and Servicing Advances to the extent described in the related Pooling
and Servicing Agreement. The Master Servicer is required to follow its customary
standards, policies and procedures in performing its duties as Master Servicer.
The Master Servicer (i) is authorized and empowered to execute and deliver,
on behalf of itself, the Securityholders and the Trustee or any of them, any and
all instruments of satisfaction or cancellation, or of partial or full release
or discharge and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the related Mortgaged Properties; (ii) may consent to
any modification of the terms of any Mortgage Note not expressly prohibited by
the Pooling and Servicing Agreement if the effect of any such modification (x)
will not materially and adversely affect the security afforded by the related
Mortgaged Property or the timing of receipt of any payments required thereunder
(in each case other than a modification or forbearance as permitted by the
related Pooling and Servicing Agreement); and (y) will not cause a Trust which
is a REMIC to fail to qualify as a REMIC.
The related Pooling and Servicing Agreement will require the Master
Servicer to follow such collection procedures as it follows from time to time
with respect to mortgage loans in its servicing portfolio that are comparable to
the Mortgage Loans; provided that the Master Servicer is required always at
least to follow collection procedures that are consistent with or better than
standard industry practices. The Master Servicer may in its discretion (i) waive
any assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or the fees which may be collected
in the ordinary course of servicing the Mortgage Loans, (ii) if a Mortgagor is
in default or about to be in default because of a Mortgagor's financial
condition, arrange with the Mortgagor a schedule for the payment of delinquent
payments due on the related Mortgage Loan; provided, however, the Master
Servicer shall generally not be permitted to reschedule the payment of
delinquent payments more than one time in any twelve consecutive months with
respect to any Mortgagor or (iii) modify payments of monthly principal and
interest on any Mortgage Loan becoming subject to the terms of the Soldiers' and
Sailors' Relief Act of 1940, as amended (the "RELIEF ACT") in accordance with
the Master Servicer's general policies of the comparable mortgage loans subject
to such Relief Act.
When a Mortgaged Property (other than Mortgaged Property subject to an ARM
Loan) has been or is about to be conveyed by the Mortgagor, the Master Servicer
will be required, to the extent it has knowledge of such conveyance or
prospective conveyance, to exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Master Servicer will not be
required to exercise any such right if (i) the "due-on-sale" clause, in the
reasonable belief of the Master Servicer, is not enforceable under applicable
law or (ii) the Master Servicer reasonably believes that to permit an assumption
of the Mortgage Loan would materially and adversely affect the
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interests of Securityholders or the related Credit Enhancer (whose consent may
be required) or jeopardize coverage under any primary insurance policy or
applicable Credit Enhancement arrangements. In such event, the Master Servicer
will be required to enter into an assumption and modification agreement with the
person to whom such Mortgaged Property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Mortgage Note and, unless
prohibited by applicable law or the related documents, the Mortgagor remains
liable thereon. If the foregoing is not permitted under applicable law, the
Master Servicer will be authorized to enter into a substitution of liability
agreement with such person, pursuant to which the original Mortgagor is released
from liability and such person is substituted as Mortgagor and becomes liable
under the Mortgage Note. The assumed loan must conform in all respects to the
requirements, representations and warranties of the Pooling and Servicing
Agreement and may require the consent of the related Credit Enhancer, if any.
An ARM Loan may be assumed if such ARM Loan is by its terms assumable and
if, in the reasonable judgment of the Master Servicer or the Sub-Servicer, the
proposed transferee of the related Mortgaged Property establishes its ability to
repay the loan and the security for such ARM Loan would not be impaired by the
assumption. If a Mortgagor transfers the Mortgaged Property subject to an ARM
Loan without consent, such ARM Loan may be declared due and payable. Any fee
collected by the Master Servicer or Sub-Servicer for entering into an assumption
or substitution of liability agreement will be retained by the Master Servicer
or Sub-Servicer as additional servicing compensation. See "Certain Legal Aspects
of Mortgage Loans and Related Matters--Enforceability of Certain Provisions"
herein.
The Master Servicer will generally have the right under the Pooling and
Servicing Agreement to approve applications of Mortgagors seeking consent for
(i) partial releases of Mortgages, (ii) alterations and (iii) removal,
demolition or division of Mortgaged Properties. No application for consent may
be approved by the Master Servicer unless: (i) the provisions of the related
Mortgage Note and Mortgage have been complied with; (ii) the credit profile of
the related Mortgage Loan after any release is generally consistent with the
Sponsor's Originator Guide then applicable to such Mortgage Loan; and (iii) the
lien priority of the related Mortgage is not reduced.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer shall foreclose upon or otherwise comparably effect the
ownership of Mortgaged Properties relating to defaulted Mortgage Loans as to
which no satisfactory arrangements can be made for collection of delinquent
payments and which the Master Servicer has not purchased pursuant to the related
Pooling and Servicing Agreement (such Mortgage Loans, "REO PROPERTY"). In
connection with such foreclosure or other conversion, the Master Servicer shall
exercise such of the rights and powers vested in it, and use the same degree of
care and skill in their exercise or use, as prudent mortgage lenders would
exercise or use under the circumstances in the conduct of their own affairs,
including, but not limited to, making Servicing Advances for the payment of
taxes, amounts due with respect to Senior Liens, and insurance premiums. The
Master Servicer shall sell any REO Property within three years of its
acquisition by the Trust. The Pooling and Servicing Agreements generally will
permit the Master Servicer to cease further collection and foreclosure activity
if the Master Servicer reasonably determines that such further activity would
not increase collections or recoveries to be received by the
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related Trust with respect to the related Mortgage Loan. In addition, any
required advancing may be permitted to cease at this point.
Notwithstanding the generality of the foregoing provisions, the Master
Servicer will be required to manage, conserve, protect and operate each REO
Property for the Securityholders solely for the purpose of its prompt
disposition and sale as "foreclosure property" within the meaning of Section
860G(a)(8) of the Code or to prevent the receipt by the Trust of any "income
from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the
Code or any "net income from foreclosure property" which is subject to taxation
under the REMIC Provisions. Pursuant to its efforts to sell such REO Property,
the Master Servicer shall, either itself or through an agent selected by the
Master Servicer, protect and conserve such REO Property in the same manner and
to such extent as is customary in the locality where such REO Property is
located and may, incident to its conservation and protection of the interests of
the Securityholders, rent the same, or any part thereof, as the Master Servicer
deems to be in the best interest of the Securityholders for the period prior to
the sale of such REO Property. The Master Servicer shall take into account the
existence of any hazardous substances, hazardous wastes or solid wastes, as such
terms are defined in the Comprehensive Environmental Response Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, or other
federal, state or local environmental legislation, on a Mortgaged Property in
determining whether to foreclose upon or otherwise comparably convert the
ownership of such Mortgaged Property.
The Master Servicer shall determine, with respect to each defaulted
Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall
become a "Liquidated Mortgage Loan." A Mortgage Loan which is "charged-off",
i.e., as to which the Master Servicer ceases further collection and/or
foreclosure activity as a result of a determination that such further actions
will not increase collections or recoveries to be received by the related Trust
is also a Liquidated Mortgage Loan.
If a loss is realized on a defaulted Mortgage Loan or REO Property upon the
final liquidation thereof that is not covered by any applicable form of Credit
Enhancement or other insurance, the Securityholders will bear such loss.
However, if a gain results from the final liquidation of an REO Property that is
not required by law to be remitted to the related Mortgagor, the Master Servicer
will be entitled to retain such gain as additional servicing compensation unless
the related prospectus supplement or Pooling and Servicing Agreement provides
otherwise. For a description of the Master Servicer's obligations to maintain
and make claims under applicable forms of Credit Enhancement and insurance
relating to the Mortgage Loans, see "Description of Credit Enhancement."
HAZARD INSURANCE POLICIES
Generally, the terms of the Mortgage Loans require each Mortgagor to
maintain a hazard insurance policy for such Mortgage Loan. With respect to High
LTV Loans which are in a junior lien position, the Sponsor requires that a
hazard insurance policy exist at the time such High LTV Loan is originated;
however, the Master Servicer may, but generally does not, track such hazard
insurance after origination. Additionally, the Pooling and Servicing Agreement
will generally require the Master Servicer to cause to be maintained with
respect to each Mortgage
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Loan, except for certain High LTV Loans which are in a junior lien position,
a hazard insurance policy with a generally acceptable carrier that provides
for fire and extended coverage relating to such Mortgage Loan in an
amount not less than the least of (i) the outstanding principal balance of the
Mortgage Loan, (ii) the minimum amount required to compensate for damage or
loss on a replacement cost basis or (iii) the full insurable value of the
premises.
If a Mortgage Loan at the time of origination relates to a Mortgaged
Property in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Master Servicer will
generally be required to maintain with respect thereto a flood insurance policy
in a form meeting the requirements of the then current guidelines of the Federal
Insurance Administration with a generally acceptable carrier in an amount
representing coverage, and which provides for recovery by the Master Servicer on
behalf of the Trust of insurance proceeds relating to such Mortgage Loan of not
less than the least of (i) the outstanding principal balance of the Mortgage
Loan, (ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis, (iii) the maximum amount of insurance that is available
under the Flood Disaster Protection Act of 1973. Pursuant to the related Pooling
and Servicing Agreement, the Master Servicer will be required to indemnify the
Trust out of the Master Servicer's own funds for any loss to the Trust resulting
from the Master Servicer's failure to maintain such flood insurance.
In the event that the Master Servicer obtains and maintains a blanket
policy insuring against fire with extended coverage and against flood hazards on
all of the Mortgage Loans, then, to the extent such policy names the Master
Servicer as loss payee and provides coverage in an amount equal to the aggregate
unpaid principal balance on the Mortgage Loans without co-insurance, and
otherwise complies with the requirements of the Pooling and Servicing Agreement,
the Master Servicer shall be deemed conclusively to have satisfied its
obligations with respect to fire and flood hazard insurance coverage under the
Pooling and Servicing Agreement. Such blanket policy may contain a deductible
clause, in which case the Master Servicer will be required, in the event that
there shall not have been maintained on the related Mortgaged Property a policy
complying with the Pooling and Servicing Agreement, and there shall have been a
loss that would have been covered by such policy, to deposit in the Principal
and Interest Account from the Master Servicer's own funds the difference, if
any, between the amount that would have been payable under a policy complying
with the Pooling and Servicing Agreement and the amount paid under such blanket
policy.
DESCRIPTION OF CREDIT ENHANCEMENT
GENERAL
Each series of Securities shall have the benefit of Credit Enhancement
comprised of one or more of the following components. To the extent that the
Credit Enhancement for any series of Securities is exhausted, the
Securityholders will bear all further risks of loss not otherwise insured
against.
Various forms of Credit Enhancement may be provided with respect to one or
more classes of a series of Securities or with respect to the Mortgage Loans in
the related Trust Estate. Credit Enhancement may be in the form of (i) the
subordination of one or more classes of
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Subordinate Securities to provide credit support to one or more classes of
Senior Securities, (ii) the use of a financial guaranty insurance policy,
mortgage pool insurance policy, special hazard insurance policy, bankruptcy
bond, reserve fund, letter of credit or other third party guarantees, or (iii)
the use of a cross-support feature or overcollateralization, or (iv) any
combination of the foregoing. Any Credit Enhancement will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance of the Securities and interest thereon. If losses occur that
exceed the amount covered by Credit Enhancement or are not covered by the Credit
Enhancement, holders of one or more classes of Securities will bear their
allocable share of deficiencies.
The descriptions of any insurance policies or bonds described in this
Prospectus or any prospectus supplement and the coverage thereunder are not
complete and are qualified in their entirety by reference to the actual forms of
such policies, copies of which are available upon request.
FINANCIAL GUARANTY INSURANCE POLICIES
A financial guaranty insurance policy or surety bond ("FINANCIAL GUARANTY
INSURANCE POLICY") may be obtained and maintained for each class or series of
Securities. The issuer of any Financial Guaranty Insurance Policy (a "FINANCIAL
GUARANTY INSURER") will be described in the related prospectus supplement. Such
description will include financial information with respect to the related
Financial Guaranty Insurer.
A Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to Securityholders that an amount equal to each full and complete
insured payment will be received by an agent of the Trustee (an "INSURANCE
PAYING AGENT") on behalf of Securityholders, for distribution by the Trustee to
each Securityholder. The "insured payment" will be defined in the related
prospectus supplement, and will generally equal the full amount of the
distributions of principal and interest to which Securityholders are entitled
under the related Pooling and Servicing Agreement plus any other amounts
specified therein or in the related prospectus supplement (the "INSURED
PAYMENT").
Financial Guaranty Insurance Policies may apply only to certain specified
classes, or may apply at the Mortgage Loan level and only to specified Mortgage
Loans.
The specific terms of any Financial Guaranty Insurance Policy will be set
forth in the related prospectus supplement. Financial Guaranty Insurance
Policies may have limitations including limitations on the Financial Guaranty
Insurer's obligation to guarantee the obligations of the Originators to
repurchase or substitute for any Mortgage Loans. Financial Guaranty Insurance
Policies will not guarantee any specified rate of prepayments. In addition,
Insured Payments will generally not be available to cover interest shortfalls
arising from the application of the Relief Act.
Subject to the terms of the related Pooling and Servicing Agreement, the
Financial Guaranty Insurer may be subrogated to the rights of each
Securityholder to receive payments under the Securities to the extent of any
payment by such Financial Guaranty Insurer under the related Financial Guaranty
Insurance Policy.
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CROSS SUPPORT
The beneficial ownership of separate groups of assets included in a Trust
or the obligations to make payments secured by a pledge of a separate group of
assets included in a Trust may be evidenced by separate classes of the related
series of Securities. In such case, credit support may be provided by a
cross-support feature which requires that distributions be made with respect to
one class of Securities may be made from excess amounts available from other
asset groups within the same Trust which support other classes of Securities.
The prospectus supplement for a series that includes a cross-support feature
will describe the manner and conditions for applying such cross-support feature.
The coverage provided by one or more forms of credit support may apply
concurrently to two or more separate Trusts. If applicable, the prospectus
supplement will identify the Trusts to which such credit support relates and the
manner of determining the amount of the coverage provided thereby and of the
application of such coverage to the identified Trusts.
OVERCOLLATERALIZATION
Subordination provisions of a Trust may be used to accelerate the
amortization of one or more classes of Securities relative to the amortization
of the related Mortgage Loans. The accelerated amortization is achieved by the
application of excess interest to the payment of principal of one or more
classes of Securities. This acceleration feature creates, with respect to the
Mortgage Loans or groups thereof, overcollateralization which results from the
excess of the aggregate principal balance of the related Mortgage Loans, or a
group thereof, over the principal balance of the related class of Securities.
Such acceleration may continue for the life of the related Security, or may be
limited. In the case of limited acceleration, once the required level of
overcollateralization is reached, such limited acceleration feature may cease,
unless necessary to maintain the required level of overcollateralization.
SUBORDINATION
The subordination of one or more classes of subordinate securities provides
credit support to the related Senior Securities. With respect to any
Senior/Subordinate Series of Securities, the total amount available for
distribution on each Payment Date, as well as the method for allocating such
amount among the various classes of Securities included in such series, will be
as set forth in the related prospectus supplement. Generally, the amount
available for contribution will be allocated first to interest on the Senior
Securities of such series, and then to principal of the Senior Securities up to
the amounts determined as specified in the related prospectus supplement and the
related Pooling and Servicing Agreement, prior to allocation to the Subordinate
Securities of such series. In the event of any realized losses on Mortgage
Loans, the rights of the Subordinate Securityholders to receive distributions
with respect to the Mortgage Loans will be subordinate to the rights of the
Senior Securityholders.
LETTER OF CREDIT
If any component of Credit Enhancement as to any series of Securities is to
be provided by a letter of credit (the "LETTER OF CREDIT"), a bank (the "LETTER
OF CREDIT BANK") will deliver to the Trustee an irrevocable Letter of Credit.
The Letter of Credit may provide direct coverage
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with respect to the related Securities or support the Sponsor's or any other
person's obligation pursuant to a purchase obligation to make certain payments
to the Trustee with respect to one or more components of Credit Enhancement. The
Letter of Credit Bank, as well as the amount available under the Letter of
Credit with respect to each component of Credit Enhancement, will be specified
in the applicable prospectus supplement and the related Pooling and Servicing
Agreement. The Letter of Credit will expire on the expiration date set forth in
the related prospectus supplement and the related Pooling and Servicing
Agreement, unless earlier terminated or extended in accordance with its terms.
On or before each Payment Date, either the Letter of Credit Bank or the Trustee
(or other obligor under a purchase obligation) will be required to make the
payments specified in the related prospectus supplement and the related Pooling
and Servicing Agreement after notification from the Trustee, to be deposited in
the related Distribution Account, if and to the extent covered, under the
applicable Letter of Credit.
MORTGAGE POOL INSURANCE POLICIES
Any mortgage pool insurance policy ("MORTGAGE POOL INSURANCE POLICY") which
may be obtained by the Sponsor for each related Trust Estate will be issued by
an insurer (the "POOL INSURER") named in the related prospectus supplement. Each
Mortgage Pool Insurance Policy will cover any loss by reason of default but will
not cover the portion of the principal balance of any Mortgage Loan required to
be covered by any primary mortgage insurance policy. The amount and terms of
such coverage will be as set forth in the related prospectus supplement and the
related Pooling and Servicing Agreement.
SPECIAL HAZARD INSURANCE POLICIES
Any insurance policy covering Special Hazard Losses (a "SPECIAL HAZARD
INSURANCE POLICY") which may be obtained by the Sponsor for a Trust Estate will
be issued by the insurer named in the related prospectus supplement. Each
Special Hazard Insurance Policy will protect holders of the related series of
Securities from (i) losses due to direct physical damage to a Mortgaged Property
other than any loss of a type covered by a hazard insurance policy or a flood
insurance policy, if applicable, and (ii) losses from partial damage caused by
reason of the application of the co-insurance clauses contained in hazard
insurance policies. Aggregate claims under a Special Hazard Insurance Policy
will be limited to a maximum amount of coverage, as set forth in the related
prospectus supplement and the related Pooling and Servicing Agreement.
Subject to the foregoing limitations, in general a Special Hazard Insurance
Policy will provide that, where there has been damage to property securing a
foreclosed Mortgage Loan (title to which has been acquired by the insured) and
to the extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the Mortgagor or the Master Servicer or
the Sub-Servicer, the insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest at the Coupon Rate to the date of claim settlement and certain
expenses incurred by the Master Servicer or the Sub-Servicer with respect to
such property. If the property is transferred to a third party in a sale
approved by the issuer of the Special Hazard Insurance Policy (the "SPECIAL
HAZARD INSURER"), the amount that
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the Special Hazard Insurer will pay will be the amount under (ii) above, reduced
by the net proceeds of the sale of the property.
BANKRUPTCY BONDS
In the event of a personal bankruptcy of a Mortgagor, it is possible that
the bankruptcy court may establish the value of the Mortgaged Property of such
Mortgagor at an amount less than the then-outstanding, principal balance of the
Mortgage Loan secured by such Mortgaged Property (a "DEFICIENT VALUATION"). The
amount of the secured debt could then be reduced to such value, and, thus, the
holder of such Mortgage Loan would become an unsecured creditor to the extent
the outstanding principal balance of such Mortgage Loan exceeds the value
assigned to the Mortgaged Property by the bankruptcy court. In addition, certain
other modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including a reduction in the amount of the monthly payment on the
related Mortgage Loan or a reduction in the mortgage Coupon Rate (a "Debt
Service Reduction"; Debt Service Reductions and Deficient Valuations,
collectively referred to herein as "BANKRUPTCY LOSSES"). Any bankruptcy bond
("BANKRUPTCY BOND") to provide coverage for Bankruptcy Losses for proceedings
under the federal Bankruptcy Code obtained by the Sponsor for a Trust Estate
will be issued by an insurer named in the related prospectus supplement. The
level of coverage under each Bankruptcy Bond will be set forth in the applicable
prospectus supplement and the related Pooling and Servicing Agreement.
RESERVE FUNDS
If so provided in the related prospectus supplement, the Sponsor will
deposit or cause to be deposited in an account (a "RESERVE FUND") any
combination of cash, one or more irrevocable letters of credit or one or more
Eligible Investments in specified amounts, amounts otherwise distributable to
Subordinate Securityholders or the owners of any Originator's Retained Yield, or
any other instrument satisfactory to the Rating Agency or Agencies, which will
be applied and maintained in the manner and under the conditions specified in
such prospectus supplement. In the alternate or in addition to such deposit, a
Reserve Fund may be funded through application of all or a portion of amounts
otherwise payable on any related Subordinate Securities, on any subordinated
equity participation security or from the Originator's Retained Yield or
otherwise. Amounts in a Reserve Fund may be distributed to Securityholders, or
applied to reimburse the Master Servicer for outstanding advances or may be used
for other purposes.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
A Trust may include in lieu of some or all of the foregoing or in addition
thereto third party guarantees, and other arrangements for maintaining timely
payments or providing additional protection against losses on all or any
specified portion of the assets included in such Trust, paying administrative
expenses, or accomplishing such other purpose as may be described in the
prospectus supplement. The Trust may include a guaranteed investment contract or
reinvestment agreement pursuant to which funds held in one or more accounts will
be invested at a specified rate. If any class of Securities has a floating
interest rate, or if any of the Mortgage Assets has a floating Coupon Rate, the
Trust may include an interest rate swap contract, an
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interest rate cap agreement or similar contract providing limited protection
against interest rate risks.
REDUCTION OR SUBSTITUTION OF CREDIT ENHANCEMENT
The amount of credit support provided pursuant to any of the Credit
Enhancements (including, without limitation, a Mortgage Pool Insurance Policy,
Financial Guaranty Insurance Policy, Special Hazard Insurance Policy, Bankruptcy
Bond, Letter of Credit, or any alternative form of Credit Enhancement) may be
reduced under certain specified circumstances. In most cases, the amount
available pursuant to any Credit Enhancement will be subject to periodic
reduction in accordance with a schedule or formula on a nondiscretionary basis
pursuant to the terms of the related Pooling and Servicing Agreement as the
aggregate outstanding principal balance of the Mortgage Loans declines.
Additionally, in certain cases, such credit support (and any replacements
therefor) may be replaced, reduced or terminated upon the written assurance from
each applicable Rating Agency that the then current rating of the related series
of Securities will not be adversely affected. Furthermore, in the event that the
credit rating of any obligor under any applicable Credit Enhancement is
downgraded, the credit rating of the related Securities may be downgraded to a
corresponding level, and, the Sponsor thereafter will not be obligated to obtain
replacement credit support in order to restore the rating of the Securities, and
also will be permitted to replace such credit support with other Credit
Enhancement instruments issued by obligors whose credit ratings are equivalent
to such downgraded level and in lower amounts which would satisfy such
downgraded level, provided that the then current, albeit downgraded, rating of
the related series of Securities is maintained. Where the credit support is in
the form of a Reserve Fund, a permitted reduction in the amount of Credit
Enhancement will result in a release of all or a portion of the assets in the
Reserve Fund to any of the holders of the subordinated equity participation
certificates, the Sponsor, the Master Servicer, one or more Originators or such
other person that is entitled thereto. Any assets so released will not be
available to fund distribution obligations in future periods.
THE SPONSOR
The Sponsor, Advanta Conduit Receivables, Inc., was incorporated in the
State of Nevada in March, 1994. It is a direct subsidiary of Advanta Mortgage
Conduit Services, Inc., and an affiliate of Advanta Mortgage Corp. USA. The
Sponsor was formed as a special purpose finance subsidiary to facilitate certain
issuances of Securities.
The Sponsor maintains its principal office at 10790 Rancho Bernardo Road,
San Diego, California 92127. Its telephone number is (619) 674-1800.
THE MASTER SERVICER
Advanta Mortgage Corp. USA or its affiliates will act as the Master
Servicer for a series of Securities. Advanta Mortgage Corp. USA is a Delaware
corporation incorporated in 1983. It is a nationwide servicer of first and
junior lien loans. Advanta Mortgage Corp. USA has centralized servicing
functions located in San Diego, California.
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Advanta Mortgage Corp. USA was acquired by Advanta Corp., a Delaware
corporation ("ADVANTA PARENT") in September, 1986 and is an indirect subsidiary
of Advanta Parent. The Master Servicer is an affiliate of Advanta National Bank,
a national banking association domiciled in Delaware and Advanta Bank Corp., a
Utah industrial loan corporation, and the parent of Advanta Mortgage Corp.
Midatlantic, Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp.
Midwest, Advanta Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast,
Advanta Finance Corp. and Advanta Mortgage Conduit Services, Inc.
THE POOLING AND SERVICING AGREEMENT
As described above under "Description of the Securities--General," each
series of Securities will be issued pursuant to a Pooling and Servicing
Agreement. The following summaries describe certain additional provisions common
to each Pooling and Servicing Agreement. The summaries are not complete and are
subject to all of the provisions of the Pooling and Servicing Agreement for the
related Trust and the related prospectus supplement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Each servicer, whether the Master Servicer or any Sub-Servicer, will retain
a fee in connection with its servicing activities for each series of Securities
equal to the percentage per annum specified in the related prospectus supplement
(the "SERVICING FEE"), generally payable monthly with respect to each Mortgage
Loan directly serviced by such Servicer at one-twelfth the annual rate, of the
then-outstanding principal amount of each such Mortgage Loan as of the first day
of each calendar month.
In addition to the Servicing Fee, each Servicer will generally be entitled
under the Pooling and Servicing Agreement to retain additional servicing
compensation in the form of prepayment charges, release fees, bad check charges,
assumption fees, modification fees, late payment charges, any other
servicing-related fees, Net Liquidation Proceeds not required to be deposited in
the Principal and Interest Account pursuant to the Pooling and Servicing
Agreement and similar items.
The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Trust Estate and incurred by it in connection with its
responsibilities under the Pooling and Servicing Agreement, including, without
limitation, payment of any fee or other amount payable in respect of any
alternative Credit Enhancement arrangements, payment of the fees and
disbursements of the Trustee or of any firm of independent, nationally
recognized certified public accountants, the custodian appointed by the Trustee,
if any, the Security Registrar and any Paying Agent, and payment of expenses
incurred in enforcing the obligations of Sub-Servicers and Originators. The
Master Servicer may be entitled to reimbursement of expenses incurred in
enforcing the obligations of Sub-Servicers and Originators under certain limited
circumstances. In addition, as indicated in the preceding section, the Master
Servicer will be entitled to reimbursements for certain expenses incurred by it
in connection with Liquidated Mortgage Loans and in connection with the
restoration of Mortgaged Properties, such right of reimbursement being prior to
the rights of Securityholders to receive any related Liquidation Proceeds
(including Insurance Proceeds).
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EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will require the Master Servicer to
deliver annually to the Trustee and any Credit Enhancer, an annual officers'
certificate to the effect that the Master Servicer has fulfilled its obligations
under such Pooling and Servicing Agreement throughout the preceding calendar
year.
Each Pooling and Servicing Agreement will require the Master Servicer to
cause to be delivered to the Trustee and any Credit Enhancer a letter or letters
of a firm of independent, nationally recognized certified public accountants
reasonably acceptable to the Credit Enhancer, if applicable, stating that such
firm has examined certain documents and records relating to the servicing of
Mortgage Loans by the Master Servicer and that, based on such examination, such
firm is of the opinion that the servicing has been conducted in compliance with
Pooling and Servicing Agreements similar to the applicable Pooling and Servicing
Agreement except for (i) such exceptions as such firm believes to be immaterial
and (ii) such other exceptions as are set forth in such letter.
Copies of the annual accountants' statement and the annual statement of
officers of the Master Servicer may be obtained by Securityholders without
charge upon written request to the Master Servicer.
REMOVAL AND RESIGNATION OF THE MASTER SERVICER
Each Pooling and Servicing Agreement will provide that the Master Servicer
may not resign from its obligations and duties thereunder, except in connection
with a permitted transfer of servicing, unless such duties and obligations are
no longer permissible under applicable law or are in material conflict by reason
of applicable law with any other activities of a type and nature presently
carried on by it. No such resignation will become effective until the Trustee or
a successor Master Servicer has assumed the Master Servicer's obligations and
duties under the related Pooling and Servicing Agreement. The Trustee, the
Securityholders or a Credit Enhancer, if applicable, will have the right,
pursuant to the related Pooling and Servicing Agreement, to remove the Master
Servicer upon the occurrence of any of (a) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Master Servicer and certain actions by the Master
Servicer indicating its insolvency or inability to pay its obligations; (b) the
failure of the Master Servicer to perform any one or more of its material
obligations under the Pooling and Servicing Agreement as to which the Master
Servicer shall continue in default with respect thereto for a specified period,
generally of sixty (60) days, after notice by the Trustee or any Credit Enhancer
(if required by the Pooling and Servicing Agreement) of said failure; or (c) the
failure of the Master Servicer to cure any breach of any of its representations
and warranties set forth in the Pooling and Servicing Agreement which materially
and adversely affects the interests of the Securityholders or any Credit
Enhancer, for a specified period, generally of thirty (30) days after the Master
Servicer's discovery or receipt of notice thereof.
The Pooling and Servicing Agreement may also provide that the related
Credit Enhancer may remove the Master Servicer upon the occurrence of any of
certain events, subject to the applicable cure periods set forth in the related
Pooling and Servicing Agreement, including:
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(i) with respect to any Payment Date, if the total available funds
with respect to the Mortgage Pool will be less than the related
distribution amount on the classes of credit enhanced securities in respect
of such Payment Date; provided, however, that the Credit Enhancer generally
will have no right to remove the Master Servicer pursuant to the provision
described in this clause (i) if the Master Servicer can demonstrate to the
reasonable satisfaction of the Credit Enhancer that such event was due to
circumstances beyond the control of the Master Servicer;
(ii) the failure by the Master Servicer to make any required Servicing
Advance;
(iii) the failure of the Master Servicer to perform one or more of its
material obligations under the Pooling and Servicing Agreement; or
(iv) the failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest;
provided, however, that prior to any removal of the Master Servicer by the
related Credit Enhancer pursuant to clauses (i), (ii) or (iii) above the Master
Servicer shall first have been given, by the related Credit Enhancer, notice of
the occurrence of one or more of the events set forth in clauses (i) or (ii)
above and the Master Servicer shall not have remedied, or shall not have taken
action satisfactory to such Credit Enhancer to remedy, such event or events
within a specified period, generally 30 days (60 days with respect to clause
(iii)) after the Master Servicer's receipt of such notice; and provided, further
that in the event of the refusal or inability of the Master Servicer to make any
required Delinquency Advance or to pay any Compensating Interest as described in
clause (iv) above, such removal shall be effective (without the requirement of
any action on the part of such Credit Enhancer or of the Trustee) not later than
a shorter specified period, generally not in excess of five business days,
following the day on which the Trustee notifies an authorized officer of the
Master Servicer that a required Delinquency Advance or to pay any Compensating
Interest has not been received by the Trustee.
AMENDMENTS
The Trustee, the Sponsor and the Master Servicer may at any time and from
time to time, with the prior approval of the related Credit Enhancer, if
required, but without the giving of notice to or the receipt of the consent of
the Securityholders, amend a Pooling and Servicing Agreement, and the Trustee
will be required to consent to such amendment, for the purposes of (x) (i)
curing any ambiguity, or correcting or supplementing any provision of such
Pooling and Servicing Agreement which may be inconsistent with any other
provision of the Pooling and Servicing Agreement, (ii) in connection with a
Trust making REMIC elections, if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a REMIC residual security to a Disqualified Organization (as such
term is defined in the Code) or (iii) complying with the requirements of the
Code and the regulations proposed or promulgated thereunder; provided, however,
that such action shall not, as evidenced by an opinion of counsel delivered to
the Trustee, materially and adversely affect the interests of any Securityholder
(without its written consent) or (y) such other purposes set forth in the
related Pooling and Servicing Agreement.
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Each Pooling and Servicing Agreement may also be amended by the Trustee,
the Sponsor and the Master Servicer at any time and from time to time, with the
prior written approval of the related Credit Enhancer, if required, and not less
than a majority of the Securityholders represented by each related class of
Securities then outstanding, for the purpose of adding any provisions or
changing in any manner or eliminating any of the provisions of such Pooling and
Servicing Agreement or of modifying in any manner the rights of the
Securityholders thereunder; provided, however, that no such amendment shall (a)
change in any manner the amount of, or delay the timing of, payments which are
required to be distributed to any Securityholders without the consent of the
holder of such Security or (b) change the aforesaid percentages of
Securityholders which are required to consent to any such amendments, without
the consent of the holders of all Securities of the class or classes affected
then outstanding.
TERMINATION; RETIREMENT OF SECURITIES
Each Pooling and Servicing Agreement will provide that a Trust will
terminate upon the earlier of (i) the payment to the Securityholders of the
outstanding principal balances of the Securities issued by the Trust from
amounts other than those available under, if applicable, the related Credit
Enhancement of all amounts required to be paid to such Securityholders upon the
later to occur of (a) the final payment or other liquidation (or any advance
made with respect thereto) of the last Mortgage Loan in the Trust Estate or (b)
the disposition of all property acquired in respect of any Mortgage Loan
remaining in the Trust Estate, (ii) any time when a Qualified Liquidation (as
defined in the Code) of the Trust Estate (if the related Trust is a REMIC) is
effected. In no event, however, will the trust created by the Pooling and
Servicing Agreement continue beyond the expiration of 21 years from the death of
the survivor of certain persons named in such Pooling and Servicing Agreement.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Securityholder, and the final distribution will be made only upon
surrender and cancellation of the Securities at an office or agency appointed by
the Trustee that will be specified in the notice of termination. If the
Securityholders are permitted to terminate the trust under the applicable
Pooling and Servicing Agreement, a penalty may be imposed upon the
Securityholders based upon the fee that would be foregone by the Master Servicer
because of such termination.
Any purchase of Mortgage Loans and property acquired in respect of Mortgage
Loans evidenced by a series of Securities shall be made at the option of the
Master Servicer or any of its affiliated Sub-Servicers or, if applicable, the
related Credit Enhancer at the price specified in the related prospectus
supplement. The exercise of such right will effect earlier than expected
retirement of that series of Securities, but the right of the Master Servicer or
any of its affiliated Sub-Servicers to so purchase, is subject to the aggregate
principal balance of the Mortgage Loans or the related Securities, as
applicable, for that series as of any Remittance Date being less than the
percentage specified in the related prospectus supplement of the aggregate
principal balance of the Mortgage Loans or the related Securities, as
applicable, at the Cut-Off Date for that series. The prospectus supplement for
each series of Securities will set forth the amounts that the holders of such
Securities will be entitled to receive upon such earlier than expected
retirement. If a REMIC election has been made, the termination of the related
Trust Estate will be effected in a manner consistent with applicable federal
income tax regulations and its status as a REMIC.
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THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in the
related prospectus supplement. Each Pooling and Servicing Agreement will provide
that the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by the Pooling and Servicing Agreement at the request or
direction of any of the Securityholders, unless such Securityholders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
The Trustee may execute any of the trusts or powers granted by each Pooling
and Servicing Agreement or perform any duties thereunder either directly or by
or through agents or attorneys, and the Trustee will not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to each Pooling and Servicing Agreement, the Trustee will not be
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement will permit the removal of the Trustee
upon the occurrence and continuance of certain events, including, without
limitation, the failure of the Trustee to satisfy the relevant eligibility
requirements and the insolvency of the Trustee.
If an event described above occurs and is continuing, then, and in every
such case (i) the Sponsor, (ii) the Securityholders (on the terms set forth in
the related Pooling and Servicing Agreement), or (iii) if there is a Credit
Enhancer, such Credit Enhancer may, whether or not the Trustee has resigned,
immediately, concurrently with the giving of notice to the Trustee, and without
delay, appoint a successor Trustee pursuant to the terms of the Pooling and
Servicing Agreement.
The Trustee will be liable under the Pooling and Servicing Agreement only
to the extent of the obligations specifically imposed upon and undertaken by the
Trustee therein. Neither the Trustee nor any of the directors, officers,
employees or agents of the Trustee will be under any liability on any Security
or otherwise to any Account, the Sponsor, the Master Servicer or any
Securityholder for any action taken or for refraining from the taking of any
action in good faith under a Pooling and Servicing Agreement, or for errors in
judgment; provided, however, that such provision shall not protect the Trustee
or any such person against any liability which would otherwise be imposed by
reason of negligent action, negligent failure to act or willful misconduct in
the performance of duties or by reason of reckless disregard of obligations and
duties thereunder.
YIELD CONSIDERATIONS
The yield to maturity of a Security will depend on the price paid by the
holder for such Security, the Pass-Through Rate on any such Security entitled to
payments of interest (which Pass-Through Rate may vary if so specified in the
related prospectus supplement) and the rate of
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payment of principal on such Security (or the rate at which the notional amount
thereof is reduced if such Security is not entitled to payments of principal)
and other factors.
A class of Securities may be entitled to payments of interest at a fixed
Pass-Through Rate, a variable Pass-Through Rate or adjustable Pass-Through Rate,
as specified in the related prospectus supplement, calculated based on the
weighted average of the Coupon Rates (net of Servicing Fees and any Originator's
Retained Yield (each, a "NET COUPON RATE")) of the related Mortgage Loans for
the designated periods preceding the Payment Date if so specified in the related
prospectus supplement, or at such other variable rate as may be specified in the
related prospectus supplement.
The aggregate payments of interest on a class of Securities, and the yield
to maturity thereon, will be effected by the rate of payment of principal on the
Securities (or the rate of reduction in the notional balance of Securities
entitled only to payments of interest) and, in the case of Securities evidencing
interests in ARM Loans, by changes in the Net Coupon Rates on the ARM Loans and
by changes in the Pass-Through Rates of the related Securities. See "Maturity
and Prepayment Considerations" below. The yield on the Securities also will be
effected by liquidations of Mortgage Loans following Mortgagor defaults and by
purchases of Mortgage Loans required by the Pooling and Servicing Agreement in
the event of breaches of representations made in respect of such Mortgage Loans,
or repurchases due to conversions of ARM Loans to a fixed rate. See "Mortgage
Loan Program--Representations" and "Descriptions of the Securities--Assignment
of Mortgage Loans" above. In addition, the yield to maturity on certain other
types of classes of Securities, including Accrual Securities or certain other
classes in a series including more than one class of Securities, may be
relatively more sensitive to the rate of prepayment on the related Mortgage
Loans than other classes of Securities.
The timing of changes in the rate of principal payments on or repurchases
of the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. As a result, the effect on an
investor's yield of principal payments and repurchases occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of a series of Securities would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments.
With respect to certain of the ARM Loans, the Coupon Rate at origination
may be below the rate that would result if the index and margin relating thereto
were applied at origination. Under the Sponsor's underwriting standards, the
Mortgagor under each Mortgage Loan will be qualified on the basis of the Coupon
Rate in effect at origination. The repayment of any such Mortgage Loan may thus
be dependent on the ability of the Mortgagor to make larger monthly payments
following the adjustment of the Coupon Rate.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to
maturity of the Mortgage Loans in a given Mortgage Pool will vary depending upon
the type of Mortgage Loans included in such Mortgage Pool. The prospectus
supplement for a series of Securities will contain information with respect to
the types and maturities of the Mortgage Loans in the related
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Mortgage Pool. Generally, the mortgage loans may be prepaid in full or in part
at any time although the related mortgagor may be required to pay a prepayment
penalty or premium. Such prepayment penalties will generally not be property of
the related trust. The prepayment experience with respect to the Mortgage Loans
in a Mortgage Pool will affect the maturity, average life and yield of the
related series of Securities.
With respect to Balloon Loans, payment of the full outstanding principal
balance on such Balloon Loan (which, based on the amortization schedule of such
Mortgage Loans, may be a substantial amount) will generally depend on the
Mortgagor's ability to obtain refinancing of such Mortgage Loan or to sell the
Mortgaged Property prior to the maturity of the Balloon Loan. The ability to
obtain refinancing will depend on a number of factors prevailing at the time
refinancing or sale is required, including, without limitation, real estate
values, the Mortgagor's financial situation, prevailing mortgage loan Coupon
Rates, the Mortgagor's equity in the related Mortgaged Property, tax laws and
prevailing general economic conditions. Neither the Sponsor, the Master
Servicer, nor any of their affiliates will be obligated to refinance or
repurchase any Mortgage Loan or to sell the Mortgaged Property.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates and the
availability of mortgage funds, affect prepayment experience. The Mortgage Loans
will generally contain due-on-sale provisions permitting the mortgagee to
accelerate the maturity of the Mortgage Loan upon sale or certain transfers by
the Mortgagor of the underlying Mortgaged Property. The Master Servicer will
generally enforce any due-on-sale clause to the extent it has knowledge of the
conveyance or proposed conveyance of the underlying Mortgaged Property and it is
entitled to do so under applicable law; provided, however, that the Master
Servicer will not take any action in relation to the enforcement of any
due-on-sale provision which would adversely affect or jeopardize coverage under
any applicable insurance policy. Certain ARM Loans may be assumable under
certain conditions if the proposed transferee of the related Mortgaged Property
establishes its ability to repay the Mortgage Loan and, in the reasonable
judgment of the Master Servicer or the related Sub-Servicer, the security for
the ARM Loan would not be impaired or might be improved by the assumption. The
extent to which ARM Loans are assumed by purchasers of the Mortgaged Properties
rather than prepaid by the related Mortgagors in connection with the sales of
the Mortgaged Properties will affect the weighted average life of the related
series of Securities. See "Description of the Securities--Collection and Other
Servicing Procedures" and "Certain Legal Aspects of the Mortgage Loans and
Related Matters--Enforceability of Certain Provisions" for a description of
certain provisions of the Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
There can be no assurance as to the rate of prepayment of the Mortgage
Loans. The Sponsor is not aware of any reliable, publicly available statistics
relating to the principal prepayment experience of diverse portfolios of
mortgage loans such as the Mortgage Loans over an extended period of time. All
statistics known to the Sponsor that have been compiled with respect to
prepayment experience on mortgage loans indicates that while some mortgage loans
may remain outstanding until their stated maturities, a substantial number will
be paid prior to their respective stated maturities.
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Although the Coupon Rates on ARM Loans will be subject to periodic
adjustments, such adjustments will, (i) not increase or decrease such Coupon
Rates by more than a fixed percentage amount on each adjustment date, (ii) not
increase such Coupon Rates over a fixed percentage amount during the life of any
ARM Loan and (iii) be based on an index (which may not rise and fall
consistently with mortgage market interest rate rates) plus the related Note
Margin (which may be different from margins being used at the time for newly
originated adjustable rate mortgage loans). As a result, the Coupon Rates on the
ARM Loans in a Mortgage Pool at any time may not equal the prevailing rates for
similar, newly originated adjustable rate mortgage loans. In certain rate
environments, the prevailing rates on fixed-rate mortgage loans may be
sufficiently low in relation to the then current Coupon Rates on ARM Loans that
the rate of prepayment of ARM Loans may increase as a result of refinancings.
There can be no certainty as to the rate of prepayments on the Mortgage Loans
during any period or over the life of any series of Securities.
In addition, and as may be described in the related prospectus supplement,
the related Pooling and Servicing Agreement may provide that all or a portion of
such collected principal may be retained by the Trustee (and held in certain
temporary investments, including Mortgage Loans) for a specified period prior to
being used to fund payments of principal to Securityholders.
The result of such retention and temporary investment by the Trustee of
such principal would be to slow the amortization rate of the related Securities
relative to the amortization rate of the related Mortgage Loans, or to attempt
to match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related prospectus supplement, resulting in the current funding
of principal payments to the related Securityholders and an acceleration of the
amortization of such Securities.
Under certain circumstances, the Master Servicer or any of its affiliated
Sub-Servicers or, if applicable, the Credit Enhancer may have the option to
purchase the Mortgage Loans in a Trust Estate. See "The Pooling and Servicing
Agreement--Termination; Retirement of Securities."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED MATTERS
The following discussion contains summaries of certain legal aspects of
mortgage loans that are general in nature. Because such legal aspects are
governed in part by applicable state law (which laws may differ substantially),
the summaries are not complete, do not reflect the laws of any particular state
and do not encompass the laws of all states in which the Mortgaged Properties
may be situated.
GENERAL
The Mortgage Loans will be represented by a Mortgage Note and an
accompanying Mortgage. Pursuant to the Mortgage Note, the Mortgagor is
personally liable to repay the indebtedness evidenced by the Mortgage Loan;
pursuant to the Mortgage, such indebtedness is secured by a lien on the related
Mortgaged Property.
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ENFORCEMENT OF THE MORTGAGE NOTE
Pursuant to the Mortgage Note, the related Mortgagor is personally liable
to repay the indebtedness evidenced by the Mortgage Loan. In certain states, the
lender on a note secured by a lien on real property has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the related property
security. Consequently, the practical effect of the election requirement, in
those states permitting such election, is that lenders will usually proceed
against the property first rather than bringing a personal action against the
borrower on the Note.
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, including California, statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower following
foreclosure. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale of the real property. In
the case of a Mortgage Loan secured by a property owned by a trust where the
Mortgage Note is executed on behalf of the trust, a deficiency judgment against
the trust following foreclosure or sale under a deed of trust, even if
obtainable under applicable law, may be of little value to the mortgagee or
beneficiary if there are no trust assets against which such deficiency judgment
may be executed. Other statutes require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. Finally, in certain other states, statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure to the
excess of the outstanding debt over the fair value of the property at the time
of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or mortgagee from obtaining a large deficiency judgment against the
former borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction also have indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of
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interest, altering the repayment schedule, forgiving all or a portion of the
debt and reducing the lender's security interest to the value of the residence,
thus leaving the lender a general unsecured creditor for the difference between
the value of the residence and the outstanding balance of the loan.
Certain states have imposed general equitable principles upon judicial
foreclosure. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's default under the related loan
documents. Examples of judicial remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes for the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, lenders
have been required to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disabilities.
In other cases, such courts have limited the right of the lender to foreclose if
the default under the loan is not monetary, such as the borrower failing to
adequately maintain the property or the borrower executing a second deed of
trust affecting the property.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include, by example, the federal Truth-in-Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act and related statutes and state laws, such as the
California Fair Debt Collection Practices Act. These laws and regulations impose
specific statutory liabilities upon lenders who originate mortgage loans and
fail to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
DEEDS OF TRUST OR MORTGAGES
The Mortgage Loans will be secured by either deeds of trust or mortgages,
depending upon the prevailing practice in the state in which the Mortgaged
Property subject to a Mortgage Loan is located. In some states, a mortgage
creates a lien upon the real property encumbered by the mortgage. In other
states, the mortgage conveys legal title to the property to the mortgagee
subject to a condition subsequent (i.e., the payment of the indebtedness secured
thereby). The mortgage is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers. Priority
between mortgages depends on their terms in some cases or on the terms of
separate subordination or intercreditor agreements, and generally on the order
of recordation of the mortgage in the appropriate recording office. There are
two parties to a mortgage, the mortgagor, who is the borrower and homeowner, and
the mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower is the beneficiary;
at origination of a mortgage loan, the borrower executes a separate undertaking
to make payments on the mortgage note. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower-homeowner called the
trustor (similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a
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power of sale, to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust or mortgage,
and, in some cases, the directions of the beneficiary.
COOPERATIVE LOANS
If specified in the prospectus supplement relating to a series of
Securities, the Mortgage Loans also may consist of Cooperative Loans evidenced
by Cooperative Notes secured by security interests in shares issued by
cooperatives, which are private corporations that are entitled to be treated as
housing cooperatives under federal tax law, and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the case,
or an underlying lease of the land, as is the case in some instances, the
cooperative, as property mortgagor, or lessee, as the case may be, also is
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or the
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that cooperative is the
landlord generally is subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity. The
inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
a foreclosure by the holder of a blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of the Mortgage Loans,
the collateral securing the Cooperative Loans.
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The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements that confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "Foreclosure on Shares of
Cooperatives" below.
FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale (private sale) under a specific provision in the deed of trust
and state laws which authorize the trustee to sell the property upon any default
by the borrower under the terms of the note or deed of trust. Beside the
nonjudicial remedy, a deed of trust may be judicially foreclosed. In addition to
any notice requirements contained in a deed of trust, in some states, the
trustee must record a notice of default and within a certain period of time send
a copy to the borrower trustor and to any person who has recorded a request for
a copy of notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest of
record in the real property, including any junior lienholders. If the deed of
trust is not reinstated within a specified period, a notice of sale must be
posted in a public place and, in most states, published for a specific period of
time in one or more local newspapers. In addition, some state laws require that
a copy of the notice of sale be posted on the property and sent to all parties
having an interest of record in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties. Judicial foreclosure proceedings are often not contested by
any of the applicable parties. If the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
in such states, the borrower, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation.
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In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at a foreclosure sale unless
there is a great deal of economic incentive for the new purchaser to purchase
the subject property at the sale. Rather, it is common for the lender to
purchase the property from the trustee or referee for a credit bid less than or
equal to the unpaid principal amount of the mortgage or deed of trust, accrued
and unpaid interest and the expense of foreclosure. Generally, state law
controls the amount of foreclosure costs and expenses, including attorneys'
fees, which may be recovered by a lender. Thereafter, subject to the right of
the borrower in some states to remain in possession during the redemption
period, the lender will assume the burdens of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property and, in some states, the lender may be entitled to a deficiency
judgment. Any loss may be reduced by the receipt of any mortgage insurance
proceeds.
FORECLOSURE ON SHARES OF COOPERATIVES
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the tenant
stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
that are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. Typically, the lender and the cooperative enter into a
recognition agreement that, together with any lender protection provisions
contained in the proprietary lease, establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement usually
will constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the cooperative will
recognize the lender's lien against proceeds from a sale of the cooperative
apartment, subject, however, to
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the cooperative's right to sums due under such proprietary lease or occupancy
agreement or sums that have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the amount realized upon a sale of
the collateral below the outstanding principal balance of the Cooperative Loan
and accrued and unpaid interest thereon.
Recognition agreements generally also provide that in the event of a
foreclosure on a Cooperative Loan, the lender must obtain the approval or
consent of the cooperative as required by the proprietary lease before
transferring the cooperative shares or assigning the proprietary lease.
Generally, the lender is not limited in any rights it may have to dispossess the
tenant-stockholder.
In New York, foreclosure on the cooperative shares is accomplished by
public sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
sale and the sale price. Generally, a sale conducted according to the usual
practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors or other parties are given
a statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The rights of
redemption would defeat the title of any purchaser subsequent to foreclosure or
sale under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has expired. In some states, there is no
right to redeem property after a trustee's sale under a deed of trust.
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ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien generally will have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In some states, however, such a lien will not
have priority over prior recorded liens of a deed of trust. In addition, under
federal environmental legislation and under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale or assumes active control over the operation or
management of a property so as to be deemed an "owner" or "operator" of the
property may be liable for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a lender (such as a Trust Estate) secured by residential real
property. In the event that title to a Mortgaged Property securing a Mortgage
Loan in a Trust Estate was acquired by the Trust and cleanup costs were incurred
in respect of the Mortgaged Property, the holders of the related series of
Securities might realize a loss if such costs were required to be paid by the
Trust.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the prospectus supplement indicates otherwise, generally all of the
Mortgage Loans contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of the loan if the borrower sells, transfers or conveys
the property. The enforceability of these clauses has been the subject of
legislation or litigation in many states including California, and in some cases
the enforceability of these clauses was limited or denied. However, the Garn-St.
Germain Depository Institutions Act of 1982 (the "GARN-ST. GERMAIN ACT")
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The
Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
The Garn-St. Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St. Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing a Coupon Rate below the current market rate being assumed by a new home
buyer rather than being paid off, that may have an impact upon the average life
of the Mortgage Loans and the number of Mortgage Loans that may be outstanding
until maturity.
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles generally are designed to relieve the borrower from the
legal effect of his defaults
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under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes for the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of the lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower
failing to adequately maintain the property or the borrower executing a second
mortgage or deed of trust affecting the property. Finally, some courts have been
faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust or mortgages receive notices in addition to the
statutorily prescribed minimum. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that the sale by a trustee
under a deed of trust, or under a mortgage having a power of sale, does not
involve sufficient state action to afford constitutional protections to the
borrower.
CERTAIN PROVISIONS OF CALIFORNIA DEEDS OF TRUST
Most institutional lenders in California use a form of deed of trust that
confers on the beneficiary the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with any
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the deed of trust, in such order as the beneficiary may
determine, provided, however, that California law prohibits the beneficiary from
applying insurance and condemnation proceeds to the indebtedness secured by the
deed of trust unless the beneficiary's security has been impaired by the
casualty or condemnation, and, if such security has been impaired, permits such
proceeds to be so applied only to the extent of such impairment. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, and, as a
result thereof, the beneficiary's security is impaired, the beneficiary under
the underlying first deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the first deed of trust. Proceeds in excess of the
amount of indebtedness secured by a first deed of trust will, in most cases, be
applied to the indebtedness of a junior deed of trust.
Another provision typically found in the forms of deed of trust used by
most institutional lenders in California obligates the trustor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the deed
of trust, to provide and maintain fire insurance on the property, to maintain
and repair the property and not to commit or permit any waste thereof, and to
appear in and defend any action or proceeding purporting to affect the property
or the rights of the beneficiary under the deed of trust. Upon a failure of the
trustor to perform any of these obligations, the beneficiary is given the right
under the deed of trust to perform the obligation itself, at its election, with
the trustor agreeing to reimburse the beneficiary for any sums expended by the
beneficiary on behalf of the trustor. All sums so expended by the beneficiary
become part of the indebtedness secured by the deed of trust.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. A similar federal statute
was in effect with respect to mortgage loans made during the first three months
of 1980. The Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits or to limit discount
points or other charges.
As indicated above under "Mortgage Loan Program--Representations,"
representations will be made that each Mortgage Loan was originated in
compliance with then applicable state laws, including usury laws, in all
material respects. However, the Coupon Rates on the Mortgage Loans will be
subject to applicable usury laws as in effect from time to time.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including ARM Loans and early ownership
mortgage loans, originated by non-federally chartered lenders have historically
been subjected to a variety of restrictions. Such restrictions differed from
state to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated substantially
as a result of the enactment of Title VIII of the Garn-St. Germain Act ("TITLE
VIII"). Title VIII provides that: notwithstanding any state law to the contrary,
state-chartered banks may originate alternative mortgage instruments in
accordance with regulations promulgated by the Comptroller of the Currency with
respect to origination of alternative mortgage instruments by national banks;
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions; and all other non-federally chartered housing
creditors, including state-chartered savings and loan associations,
state-chartered savings banks and mutual savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, with respect to origination of alternative
mortgage instruments by federal savings and loan associations. Title VIII
provides that any state may reject applicability of the provisions of Title VIII
by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "RELIEF ACT"), members of all branches of the military on active
duty, including draftees and reservists on active duty, (i) are entitled to have
interest rates reduced and capped at 6% per
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annum, on obligations (including mortgage loans) incurred prior to the
commencement of active duty for the duration of active duty, (ii) may be
entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations entered into prior to active
duty for the duration of active duty and (iii) may have the maturity of such
obligations incurred prior to active duty extended, the payments lowered and the
payment schedule readjusted for a period of time after the completion of active
duty. However, the benefits of (i), (ii) or (iii) above are subject to challenge
by creditors and if, in the opinion of the court, the ability of a person to
comply with such obligations is not materially impaired by active duty, the
court may apply equitable principles accordingly. If a Mortgagor's obligation to
repay amounts otherwise due on a Mortgage Loan is relieved pursuant to the
Relief Act, none of the related Trust, the Servicer, the Sponsor, any Credit
Enhancer nor the related trustee will be required to advance such amounts, and
any loss in respect thereof may reduce the amounts available to be paid to the
securityholders. Unless otherwise specified in the related prospectus
supplement, any shortfalls in collections of interest and principal on the
Mortgage Loans resulting from application of the Relief Act will be allocated to
each class of Securities that is entitled to receive interest and principal in
respect of such Mortgage Loans in proportion to the interest and principal that
each such class of Securities would have otherwise been entitled to receive in
respect of such Mortgage Loans had such shortfall not occurred. Thus, in the
event that the Relief Act or similar legislation or regulations apply to any
Mortgage Loan which goes into default, there may be delays in payment and losses
on the related Securities in connection therewith. Any other interest
shortfalls, deferrals or forgiveness of payments on the Mortgage Loans resulting
from similar legislation or regulations may result in delays in payments or
losses to Securityholders of the related series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the material anticipated federal
income tax consequences to investors of the purchase, ownership and disposition
of the Securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below is a summary and does not purport to deal with all
federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors in determining the federal, state, local and any other tax consequences
to them of the purchase, ownership and disposition of the Securities. For
purposes of this discussion, references to a "Securityholder" or a "Holder" are
to the beneficial owner of a Security.
The following discussion addresses securities of five general types: (i)
securities ("GRANTOR TRUST SECURITIES") representing interests in a Trust Estate
(a "GRANTOR TRUST ESTATE") which the Sponsor will covenant not to elect to have
treated as a real estate mortgage investment conduit ("REMIC") or a financial
asset securitization investment trust ("FASIT"); (ii) securities ("REMIC
SECURITIES") representing interests in a Trust Estate, or a portion thereof,
which the Sponsor will covenant to elect to have treated as a REMIC under
sections 860A through 860G of the Internal Revenue Code of 1986, as amended (the
"CODE"); (iii) securities ("DEBT SECURITIES") that are intended to be treated
for federal income tax purposes as indebtedness secured by the underlying
Mortgage Loan and (iv) securities ("PARTNERSHIP
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INTERESTS") representing interests in a Trust Estate (a "PARTNERSHIP") that is
intended to be treated as a partnership under the Code and (v) securities
("FASIT SECURITIES") representing interests in a Trust Estate, or portion
thereof, which the Sponsor will covenant to elect to have treated as a FASIT
under sections 860H through 860L of the Code. The prospectus supplement for each
series of Securities will indicate whether a REMIC or FASIT election (or
elections) will be made for the related Trust Estate and, if a REMIC or FASIT
election is to be made, will identify all "regular interests" and "residual
interests" in the REMIC or all "regular interests," "high-yield interests" or
"ownership interest" in the FASIT.
The Taxpayer Relief Act of 1997 adds provisions to the Code that require
the recognition of gain upon the "constructive sale of an appreciated financial
position." A constructive sale of an appreciated financial position occurs if a
taxpayer enters into certain transactions or series of such transactions with
respect to a financial instrument that have the effect of substantially
eliminating the taxpayer's risk of loss and opportunity for gain with respect to
the financial instrument. These provisions apply only to Classes of Certificates
that do not have a principal balance.
GRANTOR TRUST SECURITIES
With respect to each series of Grantor Trust Securities, Dewey Ballantine
LLP, special tax counsel to the Sponsor, will deliver its opinion to the Sponsor
that the related Grantor Trust Estate will be classified as a grantor trust and
not as a partnership or an association taxable as a corporation. Such opinion
shall be attached on Form 8-K to be filed with the Securities and Exchange
Commission within fifteen days after the initial issuance of such Securities or
filed with the Commission as a post-effective amendment to the prospectus.
Accordingly, each Holder of a Grantor Trust Security will generally be treated
as the owner of an interest in the Mortgage Loans included in the Grant or Trust
Estate.
For purposes of the following discussion, a Grantor Trust Security
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Estate, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Security." A Grantor Trust Security representing ownership
of all or a portion of the difference between interest paid on the Mortgage
Loans constituting the related Grantor Trust Estate and interest paid to the
Holders of Grantor Trust Fractional Interest Securities issued with respect to
such Grantor Trust Estate will be referred to as a "Grantor Trust Strip
Security."
Special Tax Attributes
Dewey Ballantine LLP, special tax counsel to the Sponsor, will deliver its
opinion to the Sponsor that (a) Grantor Trust Fractional Interest Securities
will represent interests in (i) "loans . . . secured by an interest in real
property" within the meaning of section 7701(a)(19)(C)(v) of the Code; and (ii)
"obligations (including any participation or certificate of beneficial ownership
therein) which . . . are principally secured by an interest in real property"
within the meaning of section 860G(a)(3)(A) of the Code; and (b) interest on
Grantor Trust Fractional Interest Securities will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of section 856(c)(3)(B) of the Code. In
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addition, the Grantor Trust Strip Securities will be "obligations (including any
participation or certificate of beneficial ownership therein) . . . principally
secured by an interest in real property" within the meaning of section
860G(a)(3)(A) of the Code. We will file such opinion with the Commission on Form
8-K within fifteen days after the initial issuance of such Securities or as a
post-effective amendment to the prospectus.
Taxation of Holders of Grantor Trust Securities
Holders of Grantor Trust Fractional Interest Securities generally will be
required to report on their federal income tax returns their respective shares
of the income from the Mortgage Loans (including amounts used to pay reasonable
servicing fees and other expenses but excluding amounts payable to Holders of
any corresponding Grantor Trust Strip Securities) and, subject to the
limitations described below, will be entitled to deduct their shares of any such
reasonable servicing fees and other expenses. If a Holder acquires a Grantor
Trust Fractional Interest Security for an amount that differs from its
outstanding principal amount, the amount includible in income on a Grantor Trust
Fractional Interest Security may differ from the amount of interest
distributable thereon. See "Discount and Premium," below. Individuals holding a
Grantor Trust Fractional Interest Security directly or through certain
pass-through entities will be allowed a deduction for such reasonable servicing
fees and expenses only to the extent that the aggregate of such Holder's
miscellaneous itemized deductions exceeds 2% of such Holder's adjusted gross
income. Further, Holders (other than corporations) subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining
alternative minimum taxable income.
Holders of Grantor Trust Strip Securities generally will be required to
treat such Securities as "stripped coupons" under section 1286 of the Code.
Accordingly, such a Holder will be required to treat the excess of the total
amount of payments on such a Security over the amount paid for such Security as
original issue discount and to include such discount in income as it accrues
over the life of such Security. See "--Discount and Premium," below.
Grantor Trust Fractional Interest Securities may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Securities is issued as
part of the same series of Securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of such a Security (and perhaps all stated interest thereon) would be
classified as original issue discount and includible in the Holder's income as
it accrues (regardless of the Holder's method of accounting), as described below
under "--Discount and Premium." The coupon stripping rules will not apply,
however, if (i) the pass-through rate is no more than 100 basis points lower
than the gross rate of interest payable on the underlying Mortgage Loans and
(ii) the difference between the outstanding principal balance on the Security
and the amount paid for such Security is less than 0.25% of such principal
balance times the weighted average remaining maturity of the Security.
Sales of Grantor Trust Securities
Any gain or loss recognized on the sale of a Grantor Trust Security (equal
to the difference between the amount realized on the sale and the adjusted basis
of such Grantor Trust Security) will be capital gain or loss, except to the
extent of accrued and unrecognized market
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discount, which will be treated as ordinary income, and in the case of banks and
other financial institutions except as provided under section 582(c) of the
Code. The adjusted basis of a Grantor Trust Security will generally equal its
cost, increased by any income reported by the seller (including original issue
discount and market discount income) and reduced (but not below zero) by any
previously reported losses, any amortized premium and by any distributions of
principal.
Grantor Trust Reporting
The Trustee will furnish to each Holder of a Grantor Trust Fractional
Interest Security with each distribution a statement setting forth the amount of
such distribution allocable to principal on the underlying Mortgage Loans and to
interest thereon at the related Pass-Through Rate. In addition, within a
reasonable time after the end of each calendar year, based on information
provided by the Master Servicer, the Trustee will furnish to each Holder during
such year such customary factual information as the Master Servicer deems
necessary or desirable to enable Holders of Grantor Trust Securities to prepare
their tax returns and will furnish comparable information to the Internal
Revenue Service (the "IRS") as and when required to do so by law.
REMIC SECURITIES
If provided in a related prospectus supplement, an election will be made to
treat a Trust Estate as a REMIC under the Code. Qualification as a REMIC
requires ongoing compliance with certain conditions. With respect to each series
of Securities for which such an election is made, Dewey Ballantine LLP, special
tax counsel to the Sponsor, will deliver its opinion to the Sponsor that,
assuming compliance with the Pooling and Servicing Agreement, the Trust Estate
will be treated as a REMIC for federal income tax purposes. We will file such
opinion with the Commission on Form 8-K within fifteen days after the initial
issuance of such Securities or as a post-effective amendment to the prospectus.
A Trust Estate for which a REMIC election is made will be referred to herein as
a "REMIC TRUST." The Securities of each class will be designated as "regular
interests" in the REMIC Trust except that a separate class will be designated as
the "residual interest" in the REMIC Trust. The prospectus supplement for each
series of Securities will state whether Securities of each class will constitute
a regular interest (a "REMIC REGULAR SECURITY") or a residual interest (a "REMIC
RESIDUAL SECURITY").
A REMIC Trust will not be subject to federal income tax except with respect
to income from prohibited transactions and in certain other instances described
below. See "--Taxes on a REMIC Trust." Generally, the total income from the
Mortgage Loans in a REMIC Trust will be taxable to the Holders of the Securities
of that series, as described below.
Regulations issued by the Treasury Department on December 23, 1992 (the
"REMIC REGULATIONS") provide some guidance regarding the federal income tax
consequences associated with the purchase, ownership and disposition of REMIC
Securities. While certain material provisions of the REMIC Regulations are
discussed below, investors should consult their own tax advisors regarding the
possible application of the REMIC Regulations in their specific circumstances.
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SPECIAL TAX ATTRIBUTES
REMIC Regular Securities and REMIC Residual Securities will be "regular or
residual interests in a REMIC" within the meaning of section 7701(a)(19)(C)(xi)
of the Code and "real estate assets" within the meaning of section 856(c)(5)(A)
of the Code. If at any time during a calendar year less than 95% of the assets
of a REMIC Trust consist of "qualified mortgages" (within the meaning of section
860G(a)(3) of the Code) then the portion of the REMIC Regular Securities and
REMIC Residual Securities that are qualifying assets under those sections during
such calendar year may be limited to the portion of the assets of such REMIC
Trust that are qualified mortgages. Similarly, income on the REMIC Regular
Securities and REMIC Residual Securities will be treated as "interest on
obligations secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code, subject to the same limitation as set forth in the
preceding sentence. For purposes of applying this limitation, a REMIC Trust
should be treated as owning the assets represented by the qualified mortgages.
The assets of the Trust Estate will include, in addition to the Mortgage Loans,
payments on the Mortgage Loans held pending distribution on the REMIC Regular
Securities and REMIC Residual Securities and any reinvestment income thereon.
REMIC Regular Securities and REMIC Residual Securities held by a financial
institution to which section 585, 586 or 593 of the Code applies will be treated
as evidences of indebtedness for purposes of section 582(c)(1) of the Code.
REMIC Regular Securities will also be qualified mortgages with respect to other
REMICs and FASITs.
Taxation of Holders of REMIC Regular Securities
Except as indicated below in this federal income tax discussion, the REMIC
Regular Securities will be treated for federal income tax purposes as debt
instruments issued by the REMIC Trust on the date such Securities are first sold
to the public (the "SETTLEMENT DATE") and not as ownership interests in the
REMIC Trust or its assets. Holders of REMIC Regular Securities that otherwise
report income under a cash method of accounting will be required to report
income with respect to such Securities under an accrual method. For additional
tax consequences relating to REMIC Regular Securities purchased at a discount or
with premium, see "--Discount and Premium," below.
Taxation of Holders of REMIC Residual Securities
Daily Portions. Except as indicated below, a Holder of a REMIC Residual
Security for a REMIC Trust generally will be required to report its daily
portion of the taxable income or net loss of the REMIC Trust for each day during
a calendar quarter that the Holder owned such REMIC Residual Security. For this
purpose, the daily portion shall be determined by allocating to each day in the
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC Trust for such quarter and by allocating the amount so allocated among the
Residual Holders (on such day) in accordance with their percentage interests on
such day. Any amount included in the gross income or allowed as a loss of any
Residual Holder by virtue of this paragraph will be treated as ordinary income
or loss.
The requirement that each Holder of a REMIC Residual Security report its
daily portion of the taxable income or net loss of the REMIC Trust will continue
until there are no Securities
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of any class outstanding, even though the Holder of the REMIC Residual Security
may have received full payment of the stated interest and principal on its REMIC
Residual Security.
The Trustee will provide to Holders of REMIC Residual Securities of each
series of Securities (i) such information as is necessary to enable them to
prepare their federal income tax returns and (ii) any reports regarding the
Securities of such series that may be required under the Code.
Taxable Income or Net Loss of a REMIC Trust. The taxable income or net loss
of a REMIC Trust will be the income from the qualified mortgages it holds and
any reinvestment earnings less deductions allowed to the REMIC Trust. Such
taxable income or net loss for a given calendar quarter will be determined in
the same manner as for an individual having the calendar year as the taxable
year and using the accrual method of accounting, with certain modifications. The
first modification is that a deduction will be allowed for accruals of interest
(including any original issue discount, but without regard to the investment
interest limitation in section 163(d) of the Code) on the REMIC Regular
Securities (but not the REMIC Residual Securities), even though REMIC Regular
Securities are for non-tax purposes evidences of beneficial ownership rather
than indebtedness of a REMIC Trust. Second, market discount or premium equal to
the difference between the total stated principal balances of the qualified
mortgages and the basis to the REMIC Trust therein generally will be included in
income (in the case of discount) or deductible (in the case of premium) by the
REMIC Trust as it accrues under a constant yield method, taking into account the
related Prepayment Assumption as defined in the related prospectus supplement
(the "PREPAYMENT ASSUMPTION")(see "--Discount and Premium--Original Issue
Discount," below). The basis to a REMIC Trust in the qualified mortgages is the
aggregate of the issue prices of all the REMIC Regular Securities and REMIC
Residual Securities in the REMIC Trust on the Settlement Date. If, however, a
substantial amount of a class of REMIC Regular Securities or REMIC Residual
Securities has not been sold to the public, then the fair market value of all
the REMIC Regular Securities or REMIC Residual Securities in that class as of
the date of the prospectus supplement should be substituted for the issue price.
The third modification is that no item of income, gain, loss or deduction
allocable to a prohibited transaction (see "--Taxes on a REMIC Trust--Prohibited
Transactions" below) will be taken into account. Fourth, a REMIC Trust generally
may not deduct any item that would not be allowed in calculating the taxable
income of a partnership by virtue of section 703(a)(2) of the Code. Finally, the
limitation on miscellaneous itemized deductions imposed on individuals by
section 67 of the Code will not be applied at the REMIC Trust level to any
servicing and guaranty fees. (See, however, "--Pass-Through of Servicing and
Guaranty Fees to Individuals" below.) In addition, under the REMIC Regulations,
any expenses that are incurred in connection with the formation of a REMIC Trust
and the issuance of the REMIC Regular Securities and REMIC Residual Securities
are not treated as expenses of the REMIC Trust for which a deduction is allowed.
If the deductions allowed to a REMIC Trust exceed its gross income for a
calendar quarter, such excess will be a net loss for the REMIC Trust for that
calendar quarter. The REMIC Regulations also provide that any gain or loss to a
REMIC Trust from the disposition of any asset, including a qualified mortgage or
"permitted investment" (as defined in section 860G(a)(5) of the Code) will be
treated as ordinary gain or loss.
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A Holder of a REMIC Residual Security may be required to recognize taxable
income without being entitled to receive a corresponding amount of cash. This
could occur, for example, if the qualified mortgages are considered to be
purchased by the REMIC Trust at a discount, some or all of the REMIC Regular
Securities are issued at a discount, and the discount included as a result of a
prepayment on a Mortgage Loan that is used to pay principal on the REMIC Regular
Securities exceeds the REMIC Trust's deduction for unaccrued original issue
discount relating to such REMIC Regular Securities. Taxable income may also be
greater in earlier years because interest expense deductions, expressed as a
percentage of the outstanding principal amount of the REMIC Regular Securities,
may increase over time as the earlier classes of REMIC Regular Securities are
paid, whereas interest income with respect to any given Mortgage Loan expressed
as a percentage of the outstanding principal amount of that Mortgage Loan, will
remain constant over time.
Basis Rules and Distributions. A Holder of a REMIC Residual Security has an
initial basis in its Security equal to the amount paid for such REMIC Residual
Security. Such basis is increased by amounts included in the income of the
Holder and decreased by distributions and by any net loss taken into account
with respect to such REMIC Residual Security. A distribution on a REMIC Residual
Security to a Holder is not included in gross income to the extent it does not
exceed such Holder's basis in the REMIC Residual Security (adjusted as described
above) and, to the extent it exceeds the adjusted basis of the REMIC Residual
Security, shall be treated as gain from the sale of the REMIC Residual Security.
A Holder of a REMIC Residual Security is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
Holder's adjusted basis in its REMIC Residual Security as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Security.
Excess Inclusions. Any excess inclusions with respect to a REMIC Residual
Security are subject to certain special tax rules. With respect to a Holder of a
REMIC Residual Security, the excess inclusion for any calendar quarter is
defined as the excess (if any) of the daily portions of taxable income over the
sum of the "daily accruals" for each day during such quarter that such REMIC
Residual Security was held by such Holder. The daily accruals are determined by
allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Security at the
beginning of the calendar quarter and 120% of the "federal long-term rate" in
effect on the Settlement Date, based on quarterly compounding, and properly
adjusted for the length of such quarter. For this purpose, the adjusted issue
price of a REMIC Residual Security as of the beginning of any calendar quarter
is equal to the issue price of the REMIC Residual Security, increased by the
amount of daily accruals for all prior quarters and decreased by any
distributions made with respect to such REMIC Residual Security before the
beginning of such quarter. The issue price of a REMIC Residual Security is the
initial offering price to the public (excluding bond houses and brokers) at
which a substantial number of the REMIC Residual Securities was sold. The
federal long-term rate is a blend of current yields on Treasury securities
having a maturity of more than nine years, computed and published monthly by the
IRS.
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In general, Holders of REMIC Residual Securities with excess inclusion
income cannot offset such income by losses from other activities. For Holders
that are subject to tax only on unrelated business taxable income (as defined in
section 511 of the Code), an excess inclusion of such Holder is treated as
unrelated business taxable income. With respect to variable contracts (within
the meaning of section 817 of the Code), a life insurance company cannot adjust
its reserve to the extent of any excess inclusion, except as provided in
regulations. The REMIC Regulations indicate that if a Holder of a REMIC Residual
Security is a member of an affiliated group filing a consolidated income tax
return, the taxable income of the affiliated group cannot be less than the sum
of the excess inclusions attributable to all residual interests in REMICS held
by members of the affiliated group. For a discussion of the effect of excess
inclusions on certain foreign investors that own REMIC Residual Securities, see
"--Foreign Investors" below.
The Treasury Department also has the authority to issue regulations that
would treat all taxable income of a REMIC Trust as excess inclusions if the
REMIC Residual Security does not have "significant value." Although the Treasury
Department did not exercise this authority in the REMIC Regulations, future
regulations may contain such a rule. If such a rule were adopted, it is unclear
how significant value would be determined for these purposes. If no such rule is
applicable, excess inclusions should be calculated as discussed above.
In the case of any REMIC Residual Securities that are held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Securities reduced (but not below zero) by the real estate investment
trust taxable income (within the meaning of section 857(b)(2) of the Code,
excluding any net capital gain) will be allocated among the shareholders of such
trust in proportion to the dividends received by such shareholders from such
trust, and any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Security as if held directly by such shareholder.
Similar rules will apply in the case of regulated investment companies, common
trust funds and certain cooperatives that hold a REMIC Residual Security.
Pass-Through of Servicing and Guaranty Fees to Individuals. A Holder of a
REMIC Residual Security who is an individual will be required to include in
income a share of any servicing and guaranty fees. A deduction for such fees
will be allowed to such Holder only to the extent that such fees, along with
certain of such Holder's other miscellaneous itemized deductions exceed 2% of
such Holder's adjusted gross income. In addition, a Holder of a REMIC Residual
Security may not be able to deduct any portion of such fees in computing such
Holder's alternative minimum tax liability. A Holder's share of such fees will
generally be determined by (i) allocating the amount of such expenses for each
calendar quarter on a pro rata basis to each day in the calendar quarter, and
(ii) allocating the daily amount among the Holders in proportion to their
respective holdings on such day.
Taxes on a REMIC Trust
Prohibited Transactions. The Code imposes a tax on a REMIC equal to 100% of
the net income derived from "prohibited transactions." In general, a prohibited
transaction means the disposition of a qualified mortgage other than pursuant to
certain specified exceptions, the receipt of investment income from a source
other than a Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or the disposition of an asset
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purchased with the payments on the qualified mortgages for temporary investment
pending distribution on the regular and residual interests.
Contributions to a REMIC after the Startup Day. The Code imposes a tax on a
REMIC equal to 100% of the value of any property contributed to the REMIC after
the "startup day" (generally the same as the Settlement Date). Exceptions are
provided for cash contributions to a REMIC (i) during the three month period
beginning on the startup day, (ii) made to a qualified reserve fund by a Holder
of a residual interest, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted by Treasury regulations.
Net Income from Foreclosure Property. The Code imposes a tax on a REMIC
equal to the highest corporate rate on "net income from foreclosure property."
The terms "foreclosure property" (which includes property acquired by deed in
lieu of foreclosure) and "net income from foreclosure property" are defined by
reference to the rules applicable to real estate investment trusts. Generally,
foreclosure property would be treated as such for a period of two years, with
possible extensions. Net income from foreclosure property generally means gain
from the sale of foreclosure property that is inventory property and gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Sales of REMIC Securities
General. Except as provided below, if a Regular or REMIC Residual Security
is sold, the seller will recognize gain or loss equal to the difference between
the amount realized in the sale and its adjusted basis in the Security. The
adjusted basis of a REMIC Regular Security generally will equal the cost of such
Security to the seller, increased by any original issue discount or market
discount included in the seller's gross income with respect to such Security and
reduced by distributions on such Security previously received by the seller of
amounts included in the stated redemption price at maturity and by any premium
that has reduced the seller's interest income with respect to such Security. See
"--Discount and Premium." The adjusted basis of a REMIC Residual Security is
determined as described above under "--Taxation of Holders of REMIC Residual
Securities--Basis Rules and Distributions." Except as provided in the following
paragraph or under section 582(c) of the Code, any such gain or loss will be
capital gain or loss, provided such Security is held as a "capital asset"
(generally, property held for investment) within the meaning of section 1221 of
the Code.
Gain from the sale of a REMIC Regular Security that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the income of the Holder of a REMIC Regular Security had income
accrued at a rate equal to 110% of the "applicable federal rate" (generally, an
average of current yields on Treasury securities) as of the date of purchase
over (ii) the amount actually includible in such Holder's income. In addition,
gain recognized on such a sale by a Holder of a REMIC Regular Security who
purchased such a Security at a market discount would also be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period such Security was held by such Holder, reduced by any
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market discount includible in income under the rules described below under
"--Discount and Premium."
If a Holder of a REMIC Residual Security sells its REMIC Residual Security
at a loss, the loss will not be recognized if, within six months before or after
the sale of the REMIC Residual Security, such Holder purchases another residual
interest in any REMIC or any interest in a taxable mortgage pool (as defined in
section 7701(i) of the Code) comparable to a residual interest in a REMIC. Such
disallowed loss would be allowed upon the sale of the other residual interest
(or comparable interest) if the rule referred to in the preceding sentence does
not apply to that sale. While this rule may be modified by Treasury regulations,
no such regulations have yet been published.
Transfers of REMIC Residual Securities. Section 860E(e) of the Code imposes
a substantial tax, payable by the transferor (or, if a transfer is through a
broker, nominee, or other middleman as the transferee's agent, payable by that
agent) upon any transfer of a REMIC Residual Security to a disqualified
organization and upon a pass-through entity (including regulated investment
companies, real estate investment trusts, common trust funds, partnerships,
trusts, estates, certain cooperatives, and nominees) that owns a REMIC Residual
Security if such pass-through entity has a disqualified organization as a
record-holder. For purposes of the preceding sentence, a transfer includes any
transfer of record or beneficial ownership, whether pursuant to a purchase, a
default under a secured lending agreement or otherwise.
The term "DISQUALIFIED ORGANIZATION" includes the United States, any state
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of the foregoing (other than
certain taxable instrumentalities), any cooperative organization furnishing
electric energy or providing telephone service to persons in rural areas, or any
organization (other than a farmers' cooperative) that is exempt from federal
income tax, unless such organization is subject to the tax on unrelated business
income. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of a REMIC Residual Security and certain other
provisions that are intended to meet this requirement are described in the
Pooling and Servicing Agreement, and will be discussed more fully in the related
prospectus supplement relating to the offering of any REMIC Residual Security.
In addition, a pass-through entity (including a nominee) that holds a REMIC
Residual Security may be subject to additional taxes if a disqualified
organization is a record-holder therein. A transferor of a REMIC Residual
Security (or an agent of a transferee of a REMIC Residual Security, as the case
may be) will be relieved of such tax liability if (i) the transferee furnishes
to the transferor (or the transferee's agent) an affidavit that the transferee
is not a disqualified organization, and (ii) the transferor (or the transferee's
agent) does not have actual knowledge that the affidavit is false at the time of
the transfer. Similarly, no such tax will be imposed on a pass-through entity
for a period with respect to an interest therein owned by a disqualified
organization if (i) the record-holder of such interest furnishes to the
pass-through entity an affidavit that it is not a disqualified organization, and
(ii) during such period, the pass-through entity has no actual knowledge that
the affidavit is false.
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The Taxpayer Relief Act of 1997 adds provisions to the Code that will apply
to an "electing large partnership." If an electing large partnership holds a
Residual Certificate, all interests in the electing large partnership are
treated as held by disqualified organizations for purposes of the tax imposed
upon a pass-through entity by section 860E(e) of the Code. An exception to this
tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" to a U.S. Person (as defined below in "--Foreign Investors--Grantor
Trust Securities and REMIC Regular Securities") will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. A REMIC Residual Security would be treated
as constituting a noneconomic residual interest unless, at the time of the
transfer, (i) the present value of the expected future distributions on the
REMIC Residual Security is no less than the product of the present value of the
"anticipated excess inclusions" with respect to such Security and the highest
corporate rate of tax for the year in which the transfer occurs, and (ii) the
transferor reasonably expects that the transferee will receive distributions
from the applicable REMIC Trust in an amount sufficient to satisfy the liability
for income tax on any "excess inclusions" at or after the time when such
liability accrues. Anticipated excess inclusions are the excess inclusions that
are anticipated to be allocated to each calendar quarter (or portion thereof)
following the transfer of a REMIC Residual Security, determined as of the date
such Security is transferred and based on events that have occurred as of that
date and on the Prepayment Assumption. See "--Discount and Premium" and
"--Taxation of Holders of REMIC Residual Securities--Excess Inclusions."
The REMIC Regulations provide that a significant purpose to impede the
assessment or collection of tax exists if, at the time of the transfer, a
transferor of a REMIC Residual Security has "improper knowledge" (i.e., either
knew, or should have known, that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC Trust). A
transferor is presumed not to have improper knowledge if (i) the transferor
conducts, at the time of a transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
come due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future; and (ii) the
transferee makes certain representations to the transferor in the affidavit
relating to disqualified organizations discussed above. Transferors of a REMIC
Residual Security should consult with their own tax advisors for further
information regarding such transfers.
Reporting and Other Administrative Matters. For purposes of the
administrative provisions of the Code, each REMIC Trust will be treated as a
partnership and the Holders of REMIC Residual Securities will be treated as
partners. The Trustee will prepare, sign and file federal income tax returns for
each REMIC Trust, which returns are subject to audit by the IRS. Moreover,
within a reasonable time after the end of each calendar year, the Trustee will
furnish to each Holder that received a distribution during such year a statement
setting forth the portions of any such distributions that constitute interest
distributions, original issue discount, and such other information as is
required by Treasury regulations and, with respect to Holders of REMIC Residual
Securities in a REMIC Trust, information necessary to compute the daily portions
of
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the taxable income (or net loss) of such REMIC Trust for each day during such
year. The Trustee will also act as the tax matters partner for each REMIC Trust,
either in its capacity as a Holder of a REMIC Residual Security or in a
fiduciary capacity. Each Holder of a REMIC Residual Security, by the acceptance
of its REMIC Residual Security, agrees that the Trustee will act as its
fiduciary in the performance of any duties required of it in the event that it
is the tax matters partner.
Each Holder of a REMIC Residual Security is required to treat items on its
return consistently with the treatment on the return of the REMIC Trust, unless
the Holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC Trust. The IRS may assert a deficiency resulting from a failure to comply
with the consistency requirement without instituting an administrative
proceeding at the REMIC Trust level.
Termination
In general, no special tax consequences will apply to a Holder of a REMIC
Regular Security upon the termination of a REMIC Trust by virtue of the final
payment or liquidation of the last Mortgage Loan remaining in the Trust Estate.
If a Holder of a REMIC Residual Security's adjusted basis in its REMIC Residual
Security at the time such termination occurs exceeds the amount of cash
distributed to such Holder in liquidation of its interest, although the matter
is not entirely free from doubt, it would appear that the Holder of the REMIC
Residual Security is entitled to a loss equal to the amount of such excess.
DEBT SECURITIES
General
With respect to each series of Debt Securities, Dewey Ballantine LLP,
special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that
the Securities will be classified as debt of the Sponsor secured by the related
Mortgage Loans. Consequently, the Debt Securities will not be treated as
ownership interests in the Mortgage Loans or the Trust. Holders will be required
to report income received with respect to the Debt Securities in accordance with
their normal method of accounting. For additional tax consequences relating to
Debt Securities purchased at a discount or with premium, see "--Discount and
Premium," below.
Special Tax Attributes
As described above, Grantor Trust Securities will possess certain special
tax attributes by virtue of their being ownership interests in the underlying
Mortgage Loans. Similarly, REMIC Securities will possess similar attributes by
virtue of the REMIC provisions of the Code. In general, Debt Securities will not
possess such special tax attributes. Investors to whom such attributes are
important should consult their own tax advisors regarding investment in Debt
Securities.
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Sale or Exchange of Debt Securities
If a Holder of a Debt Security sells or exchanges such Security, the Holder
will recognize gain or loss equal to the difference, if any, between the amount
received and the Holder's adjusted basis in the Security. The adjusted basis in
the Security generally will equal its initial cost, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Security and reduced by the payments previously
received on the Security, other than payments of qualified stated interest, and
by any amortized premium.
In general (except as described in "--Discount and Premium--Market
Discount," below), except for certain financial institutions subject to section
582(c) of the Code, any gain or loss on the sale or exchange of a Debt Security
recognized by an investor who holds the Security as a capital asset (within the
meaning of section 1221 of the Code), will be capital gain or loss and will be
long-term or short-term depending on whether the Security has been held for more
than one year.
Debt Securities Reporting
The Trustee will furnish to each beneficial owner of a Debt Security with
each distribution a statement setting forth the amount of such distribution
allocable to principal on the underlying Mortgage Loans and to interest thereon
at the related Coupon Rate. In addition, within a reasonable time after the end
of each calendar year, based on information provided by the Master Servicer, the
Trustee will furnish to each Holder during such year such customary factual
information as the Servicer deems necessary or desirable to enable beneficial
owners of Debt Securities to prepare their tax returns and will furnish
comparable information to the IRS as and when required to do so by law.
PARTNERSHIP INTERESTS
With respect to each series of Partnership Interests, Dewey Ballantine LLP,
special tax counsel to the Sponsor, will deliver its opinion to the Sponsor that
the trust will be treated as a partnership and not an association taxable as a
corporation for federal income tax purposes. We will file such opinion with the
Securities and Exchange Commission on Form 8-K within fifteen (15) days after
the initial issuance of such Securities or as a post-effective amendment to the
prospectus. Accordingly, each Holder a Partnership Interest will generally be
treated as the owner of an interest in the Mortgage Loans.
Special Tax Attributes
As described above, REMIC Securities will possess certain special tax
attributes by virtue of the REMIC provisions of the Code. In general,
Partnership Interests will not possess such special tax attributes. Investors to
whom such attributes are important should consult their own tax advisors
regarding investment in Partnership Interests.
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Taxation of Beneficial Owners of Partnership Interests
If the Trust is treated as a partnership for Federal Income Tax Purposes,
the Trust will not be subject to federal income tax. Instead, each Holder of a
Partnership Interest will be required to separately take into account its
allocable share of income, gains, losses, deductions, credits and other tax
items of the Trust. These partnership allocations are made in accordance with
the Code, Treasury regulations and the partnership agreement (here, the Trust
Agreement and related documents).
The Trust's assets will be the assets of the partnership. The Trust's
income will consist primarily of interest and finance charges earned on the
underlying Loans. The Trust's deductions will consist primarily of interest
accruing with respect to any indebtedness issued by the Trust, servicing and
other fees, and losses or deductions upon collection or disposition of the
Trust's assets.
In certain instances, the Trust could have an obligation to make payments
of withholding tax on behalf of a Holder of a Partnership Interest. (See "Backup
Withholding" and "Foreign Investors" below).
Substantially all of the taxable income allocated to a Holder of a
Partnership Interest that is a pension, profit sharing or employee benefit plan
or other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
Under Section 708 of the Code, the Trust will be deemed to terminate for
federal income tax purposes if 50% or more of the capital and profits interests
in the Trust are sold or exchanged within a 12-month period. Under Treasury
regulations issued on May 9, 1997 if such a termination occurs, the Trust is
deemed to contribute all of its assets and liabilities to a newly formed
partnership in exchange for a partnership interest. Immediately thereafter, the
terminated partnership distributes interests in the new partnership to the
purchasing partner and remaining partners in proportion to their interests in
liquidation of the terminated partnership.
Sale or Exchange of Partnership Interests
Generally, capital gain or loss will be recognized on a sale or exchange of
Partnership Interests in an amount equal to the difference between the amount
realized and the seller's tax basis in the Partnership Interests sold. A
Holder's tax basis in a Partnership Interest will generally equal the Holder's
cost increased by the Holder's share of Trust income and decreased by any
distributions received with respect to such Partnership Interest. In addition,
both the tax basis in the Partnership Interest and the amount realized on a sale
of a Partnership Interest would take into account the beneficial owner's share
of any indebtedness of the Trust. A Holder acquiring Partnership Interests at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Partnership Interest, and upon sale or other disposition of some
of the Partnership Interests, allocate a portion of such aggregate tax basis to
the Partnership Interests sold (rather than maintaining a separate tax basis in
each Partnership Interest for purposes of computing gain or loss on a sale of
that Partnership Interest).
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Any gain on the sale of a Partnership Interest attributable to the Holder's
share of unrecognized accrued market discount on the assets of the Trust would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. If a Holder of a Partnership Interest is
required to recognize an aggregate amount of income over the life of the
Partnership Interest that exceeds the aggregate cash distributions with respect
thereto, such excess will generally give rise to a capital loss upon the
retirement of the Partnership Interest. If a Holder sells its Partnership
Interest at a profit or loss, the transferee will have a higher or lower basis
in the Partnership Interests than the transferor had. The tax basis of the
Trust's assets will not be adjusted to reflect that higher or lower basis unless
the Trust files an election under Section 754 of the Code.
Partnership Reporting
The Trustee is required to (i) keep complete and accurate books of the
Trust, (ii) file a partnership information return (IRS Form 1065) with the IRS
for each taxable year of the Trust and (iii) report each Holder's allocable
share of items of Trust income and expense to Holders and the IRS on Schedule
K-1. The Trust will provide the Schedule K-1 information to nominees that fail
to provide the Trust with the information statement described below and such
nominees will be required to forward such information to the Holders of the
Partnership Interests. Generally, Holders of a Partnership Interest must file
tax returns that are consistent with the information return filed by the Trust
or be subject to penalties unless the Holder of a Partnership Interest notifies
the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership Interests
as a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the Holders and
the Partnership Interests so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
Holder (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Partnership Interests that were held, bought or sold on behalf of such person
throughout the year. In addition, brokers and financial institutions that hold
Partnership Interests through a nominee are required to furnish directly to the
Trust information as to themselves and their ownership of Partnership Interests.
A clearing agency registered under Section 17A of the Securities Exchange Act of
1934, as amended, is not required to furnish any such information statement to
the Trust. Nominees, brokers and financial institutions that fail to provide the
Trust with the information described above may be subject to penalties.
The Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three (3) years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the Holder of
a Partnership Interests, and, under certain circumstances, a Holder of a
Partnership Interest may be precluded from separately litigating a proposed
adjustment to the items of the Trust. An
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adjustment could also result in an audit of the beneficial owner of a
Partnership Interest's returns and adjustments of items note related to the
income and losses of the Trust.
FASIT SECURITIES
If provided in a related prospectus supplement, an election will be made to
treat the Trust as a FASIT within the meaning of Code Section 860L(a).
Qualification as a FASIT requires ongoing compliance with certain conditions.
With respect to each series of Securities for which an election is made, Dewey
Ballantine LLP, special tax counsel to the Sponsor, will deliver its opinion to
the Sponsor that, assuming compliance with the Pooling and Servicing Agreement,
the trust will be treated as a FASIT for federal income tax purposes. A Trust
for which a FASIT election is made will be referred to herein as a "FASIT
Trust." The Securities of each class will be designated as "regular interests"
or "high-yield regular interests" in the FASIT Trust except that one separate
class will be designated as the "ownership interest" in the FASIT Trust. The
prospectus supplement for each series of Securities will state whether
Securities of each class will constitute either a regular interest or a
high-yield regular interest (a FASIT Regular Security) or an ownership interest
(a FASIT Ownership Security). We will file such opinion with the Securities and
Exchange Commission on Form 8-K within fifteen (15) days after the initial
issuance of such Securities or as a post-effective amendment to the prospectus.
Special Tax Attributes
FASIT Securities held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Sections 856(c)(5)(A) and
856(c)(6) and interest on the FASIT Regular Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the FASIT Trust and the income
thereon would be so treated. FASIT Regular Securities held by a domestic
building and loan association will be treated as "regular interest[s] in a
FASIT" under Code Section 7701(a)(19)(C)(xi), but only in the proportion that
the FASIT Trust holds "loans . . . secured by an interest in real property which
is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v). If at all times 95% or more of the assets of the FASIT Trust
or the income thereon qualify for the foregoing treatments, the FASIT Regular
Securities will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(A), payments of principal and interest on a
Loan that are reinvested pending distribution to holders of FASIT Regular
Securities should qualify for such treatment. FASIT Regular Securities held by a
regulated investment company will not constitute "government securities" within
the meaning of Code Section 851(b)(4)(A)(i). FASIT Regular Securities held by
certain financial institutions will constitute an "evidence of indebtedness"
within the meaning of Code Section 582(c)(1).
Taxation of Beneficial Owners of FASIT Regular Securities
A FASIT Trust will not be subject to federal income tax except with respect
to income from prohibited transactions and in certain other instances as
described below. The FASIT Regular Securities generally will be treated for
federal income tax purposes as newly-originated debt instruments. In general,
interest, original issue discount ("OID") and market discount on a
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FASIT Regular Security will be treated as ordinary income to the Holder, and
principal payments (other than principal payments that do not exceed accrued
market discount) on an FASIT Regular Security will be treated as a return of
capital to the extent of the beneficial owner's basis allocable thereto. Holders
must use the accrual method of accounting with respect to FASIT Regular
Securities, regardless of the method of accounting otherwise used by such
beneficial owners. See "Discount and Premium" below.
In order for the FASIT Trust to qualify as a FASIT, there must be ongoing
compliance with the requirements set forth in the Code. The FASIT must fulfill
an asset test, which requires that substantially all the assets of the FASIT, as
of the close of the third calendar month beginning after the "Startup Day"
(which for purposes of this discussion is the date of the initial issuance of
the FASIT Securities) and at all times thereafter, must consist of cash or cash
equivalents, certain debt instruments (other than debt instruments issued by the
owner of the FASIT or a related party) and hedges (and contracts to acquire the
same), foreclosure property and regular interests in another FASIT or in a
REMIC. Based on identical statutory language applicable to REMICs, it appears
that the "substantially all" requirement should be met if at all times the
aggregate adjusted basis of the nonqualified assets is less than one percent of
the aggregate adjusted basis of all the FASIT's assets. The FASIT provisions of
the Code (Sections 860H through 860L) also require the FASIT ownership interest
and certain "high-yield regular interests" (described below) to be held only by
certain fully taxable domestic corporations.
Permitted debt instruments must bear interest, if any, at a fixed or
qualified variable rate. Permitted hedges include interest rate or foreign
currency notional principal contracts, letters of credit, insurance, guarantees
of payment default and similar instruments to be provided in regulations, and
which are reasonably required to guarantee or hedge against the FASIT's risks
associated with being the obligor on interests issued by the FASIT. Foreclosure
property is real property acquired by the FASIT in connection with the default
or imminent default of a qualified mortgage, provided the Sponsor had no
knowledge or reason to know as of the date such asset was acquired by the FASIT
that such a default had occurred or would occur.
In addition to the foregoing requirements, the various interests in a FASIT
also must meet certain requirements. All of the interests in a FASIT must be
either of the following: (a) one or more classes of regular interests or (b) a
single class of ownership interest. A regular interest is an interest in a FASIT
that is issued on or after the Startup Day with fixed terms, is designated as a
regular interest, and (i) unconditionally entitles the holder to receive a
specified principal amount (or other similar amount), (ii) provides that
interest payments (or other similar amounts), if any, at or before maturity
either are payable based on a fixed rate or a qualified variable rate, (iii) has
a stated maturity of not longer than 30 years, (iv) has an issue price not
greater than 125% of its stated principal amount, and (v) has a yield to
maturity not greater than five (5%) percentage points higher than the related
applicable Federal rate (as defined in Code Section 1274(d)). A regular interest
that is described in the preceding sentence except that if fails to meet one or
more of requirements (i), (ii) (iv) or (v) is a "high-yield regular interest." A
high-yield regular interest that fails requirement (ii) must consist of a
specified, nonvarying portion of the interest payments on the permitted assets,
by reference to the REMIC rules. An ownership interest is an interest in a FASIT
other than a regular interest that is issued on the Startup Day, is designated
an ownership interest and is held by a single, fully-taxable, domestic
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corporation. An interest in a FASIT may be treated as a regular interest even if
payments of principal with respect to such interest are subordinated to payments
on other regular interests or the ownership interest in the FASIT, and are
dependent on the absence of defaults or delinquencies on permitted assets lower
than reasonably expected returns on permitted assets, unanticipated expenses
incurred by the FASIT or prepayment interest shortfalls.
If an entity fails to comply with one or more of the ongoing requirements
of the Code for status as a FASIT during any taxable year, the Code provides
that the entity or applicable potion thereof will not be treated as a FASIT
thereafter. In this event, any entity that holds mortgage loans and is the
obligor with respect to debt obligations with two or more maturities, such as
the Trust Fund, may be treated as a separate association taxable as a
corporation, and the FASIT Regular Securities may be treated as equity interests
therein. The legislative history to the FASIT Provisions indicates, however,
that an entity can continue to be a FASIT if loss of its status was inadvertent,
it takes prompt steps to requalify and other requirements that may be provided
in Treasury regulations are met. Loss of FASIT status results in retirement of
all regular interests and their reissuance. If the resulting instruments would
be treated as equity under general tax principles, cancellation of debt income
may result.
DISCOUNT AND PREMIUM
A Security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all Grantor Trust Strip Securities and certain
Grantor Trust Fractional Interest Securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (i) original issue discount is treated as a form of
interest and must be included in a Holder's income as it accrues (regardless of
the Holder's regular method of accounting) using a constant yield method; (ii)
market discount is treated as ordinary income and must be included in a Holder's
income as principal payments are made on the Security (or upon a sale of a
Security); and (iii) if a Holder so elects, premium may be amortized over the
life of the Security and offset against inclusions of interest income. These tax
consequences are discussed in greater detail below.
Original Issue Discount
In general, a Security will be considered to be issued with original issue
discount equal to the excess, if any, of its "stated redemption price at
maturity" over its "issue price" The "issue price" of a Security is the initial
offering price to the public (excluding bond houses and brokers) at which a
substantial number of the Securities was sold. The issue price also includes any
accrued interest attributable to the period between the beginning of the first
Remittance Period and the Settlement Date. The stated redemption price at
maturity of a Security that has a notional principal amount or receives
principal only or that is or may be an Accrual Security is equal to the sum of
all distributions to be made under such Security. The "stated redemption price
at maturity" of any other Security is its stated principal amount, plus an
amount equal to the excess (if any) of the interest payable on the first Payment
Date over the interest that accrues for the period from the Settlement Date to
the first Payment Date. The Trustee will supply, at the time and in the manner
required by the IRS, to Holders, bankers and middlemen information with respect
to the original issue discount accruing on the Securities.
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Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25% of the stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a Security is apparently computed for this purpose as the sum, for all
distributions included in the stated redemption price at maturity of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the Settlement Date until the date on which each such
distribution is expected to be made under the assumption that the Mortgage Loans
prepay at the rate specified in the related prospectus supplement by (ii) a
fraction, the numerator of which is the amount of such distribution and the
denominator of which is the Security's stated redemption price at maturity. If
original issue discount is treated as zero under this rule, the actual amount of
original issue discount must be allocated to the principal distributions on the
Security and, when each such distribution is received, gain equal to the
discount allocated to such distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules directly applicable to REMIC Securities and Debt Securities. The Taxpayer
Relief Act of 1997 extends application of Section 1272(a)(6) to the Grantor
Trust Securities for tax years beginning after August 5, 1997. Under these rules
(described in greater detail below), (i) the amount and rate of accrual of
original issue discount on each series of Securities will be based on (x) the
Prepayment Assumption, and (y) in the case of a Security calling for a variable
rate of interest, an assumption that the value of the index upon which such
variable rate is based remains equal to the value of that rate on the Settlement
Date, and (ii) adjustments will be made in the amount of discount accruing in
each taxable year in which the actual prepayment rate differs from the
Prepayment Assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Sponsor anticipates that the Prepayment Assumption
for each series of Securities will be consistent with this standard. The Sponsor
makes no representation, however, that the Mortgage Loans for a given series
will prepay at the rate reflected in the Prepayment Assumption for that series
or at any other rate. Each investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase any of the Securities.
Each Securityholder must include in gross income the sum of the "daily
portions" of original issue discount on its Security for each day during its
taxable year on which it held such Security. For this purpose, in the case of an
original Holder, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." The Trustee
will supply, at the time and in the manner required by the IRS, to
Securityholders, brokers and middlemen information with respect to the original
issue discount accruing on the Securities. The Trustee will report original
issue discount based on accrual periods of one month, each beginning on a
payment date (or, in the case of the first such period, the Settlement Date) and
ending on the day before the next payment date.
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Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions remaining
to be made on the Security, if any, as of the end of the accrual period and (B)
the distribution made on such Security during the accrual period of amounts
included in the stated redemption price at maturity, over (ii) the adjusted
issue price of such Security at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding sentence will
be calculated based on (i) the yield to maturity of the Security, calculated as
of the Settlement Date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, (iii) the Prepayment Assumption, and (iv) in the case of a
Security calling for a variable rate of interest, an assumption that the value
of the index upon which such variable rate is based remains the same as its
value on the Settlement Date over the entire life of such Security. The adjusted
issue price of a Security at any time will equal the issue price of such
Security, increased by the aggregate amount of previously accrued original issue
discount with respect to such Security, and reduced by the amount of any
distributions made on such Security as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing during
any accrual period will then be allocated ratably to each day during the period
to determine the daily portion of original issue discount.
In the case of Grantor Trust Strip Securities and certain REMIC Securities,
the calculation described in the preceding paragraph may produce a negative
amount of original issue discount for one or more accrual periods. No definitive
guidance has been issued regarding the treatment of such negative amounts. The
legislative history to section 1272(a)(6) indicates that such negative amounts
may be used to offset subsequent positive accruals but may not offset prior
accruals and may not be allowed as a deduction item in a taxable year in which
negative accruals exceed positive accruals. Holders of such Securities should
consult their own tax advisors concerning the treatment of such negative
accruals.
A subsequent purchaser of a Security that purchases such Security at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
Market Discount
A Holder that purchases a Security at a market discount, that is, at a
purchase price less than the remaining stated redemption price at maturity of
such Security (or, in the case of a Security with original issue discount, its
adjusted issue price), will be required to allocate each principal distribution
first to accrued market discount on the Security, and recognize ordinary income
to the extent such distribution does not exceed the aggregate amount of accrued
market discount on such Security not previously included in income. With respect
to Securities that have unaccrued original issue discount, such market discount
must be included in income in addition to any original issue discount. A Holder
that incurs or continues indebtedness to acquire
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a Security at a market discount may also be required to defer the deduction of
all or a portion of the interest on such indebtedness until the corresponding
amount of market discount is included in income. In general terms, market
discount on a Security may be treated as accruing either (i) under a constant
yield method or (ii) in proportion to remaining accruals of original issue
discount, if any, or if none, in proportion to remaining distributions of
interest on the Security, in any case taking into account the Prepayment
Assumption. The Trustee will make available, as required by the IRS, to Holders
of Securities information necessary to compute the accrual of market discount.
Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25% of the remaining
stated redemption price at maturity of such Security multiplied by its weighted
average remaining life. Weighted average remaining life presumably would be
calculated in a manner similar to weighted average life, taking into account
payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
Securities Purchased at a Premium
A purchaser of a Security that purchases such Security at a cost greater
than its remaining stated redemption price at maturity will be considered to
have purchased such Security (a "PREMIUM SECURITY") at a premium. Such a
purchaser need not include in income any remaining original issue discount and
may elect, under section 171(c)(2) of the Code, to treat such premium as
"amortizable bond premium." If a Holder makes such an election, the amount of
any interest payment that must be included in such Holder's income for each
period ending on a Payment Date will be reduced by the portion of the premium
allocable to such period based on the Premium Security's yield to maturity. The
legislative history of the Tax Reform Act of 1986 states that such premium
amortization should be made under principles analogous to those governing the
accrual of market discount (as discussed above under "--Market Discount"). If
such election is made by the Holder, the election will also apply to all bonds
the interest on which is not excludible from gross income ("fully taxable
bonds") held by the Holder at the beginning of the first taxable year to which
the election applies and to all such fully taxable bonds thereafter acquired by
it, and is irrevocable without the consent of the IRS. If such an election is
not made, (i) such a Holder must include the full amount of each interest
payment in income as it accrues, and (ii) the premium must be allocated to the
principal distributions on the Premium Security and, when each such distribution
is received, a loss equal to the premium allocated to such distribution will be
recognized. Any tax benefit from the premium not previously recognized will be
taken into account in computing gain or loss upon the sale or disposition of the
Premium Security.
Some Securities may provide for only nominal distributions of principal in
comparison to the distributions of interest thereon. It is possible that the IRS
or the Treasury Department may issue guidance excluding such Securities from the
rules generally applicable to debt instruments issued at a premium. In
particular, it is possible that such a Security will be treated as having
original issue discount equal to the excess of the total payments to be received
thereon over its
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issue price. In such event, section 1272(a)(6) of the Code would govern the
accrual of such original issue discount, but a Holder would recognize
substantially the same income in any given period as would be recognized if an
election were made under section 171(c)(2) of the Code. Unless and until the
Treasury Department or the IRS publishes specific guidance relating to the tax
treatment of such Securities, the Trustee intends to furnish tax information to
Holders of such Securities in accordance with the rules described in the
preceding paragraph.
Special Election
For any Security acquired on or after April 4, 1994, a Holder may elect to
include in gross income all "interest" that accrues on the Security by using a
constant yield method. For purposes of the election, the term "interest"
includes stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest as adjusted by any amortizable bond premium or acquisition
premium. A Holder should consult its own tax advisor regarding the time and
manner of making and the scope of the election and the implementation of the
constant yield method.
BACKUP WITHHOLDING
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The Internal Revenue Service recently issued final regulations (the
"WITHHOLDING REGULATIONS"), which change certain of the rules relating to
certain presumptions currently available relating to information reporting and
backup withholding. The Withholding Regulations would provide alternative
methods of satisfying the beneficial ownership certification requirement. The
Withholding Regulations are effective January 1, 2000, although valid
withholding certificates that are held on December 31, 1999 remain valid until
the earlier of December 31, 2000 or the due date of expiration of the
certificate under the rules as currently in effect.
FOREIGN INVESTORS
The Withholding Regulations would require, in the case of Securities held
by a foreign partnership, that (x) the certification described above be provided
by the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. See "--Backup Withholding" above. A look-through rule would apply in the
case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors regarding the application to them of the Withholding Regulations.
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Grantor Trust Securities and REMIC Regular Securities
Distributions made on a Grantor Trust Security or a REMIC Regular Security
to, or on behalf of, a Holder that is not a U.S. Person generally will be exempt
from U.S. federal income and withholding taxes. The term "U.S. PERSON" means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate that is subject to U.S. federal income
tax regardless of the source of its income, or a trust if a court within the
United States can exercise primary supervision over its administration and at
least one United States fiduciary has the authority to control all substantial
decisions of the trust. This exemption is applicable provided (a) the Holder is
not subject to U.S. tax as a result of a connection to the United States other
than ownership of the Security, (b) the Holder signs a statement under penalties
of perjury that certifies that such Holder is not a U.S. Person, and provides
the name and address of such Holder, and (c) the last U.S. Person in the chain
of payment to the Holder receives such statement from such Holder or a financial
institution holding on its behalf and does not have actual knowledge that such
statement is false. Holders should be aware that the IRS might take the position
that this exemption does not apply to a Holder that also owns 10% or more of the
REMIC Residual Securities of any REMIC trust, or to a Holder that is a
"controlled foreign corporation" described in section 881(c)(3)(C) of the Code.
REMIC Residual Securities
Amounts distributed to a Holder of a REMIC Residual Security that is a not
a U.S. Person generally will be treated as interest for purposes of applying the
30% (or lower treaty rate) withholding tax on income that is not effectively
connected with a U.S. trade or business. Temporary Treasury Regulations clarify
that amounts not constituting excess inclusions that are distributed on a REMIC
Residual Security to a Holder that is not a U.S. Person generally will be exempt
from U.S. federal income and withholding tax, subject to the same conditions
applicable to distributions on Grantor Trust Securities and REMIC Regular
Securities, as described above, but only to the extent that the obligations
directly underlying the REMIC Trust that issued the REMIC Residual Security
(e.g., Mortgage Loans or regular interests in another REMIC) were issued after
July 18, 1984. In no case will any portion of REMIC income that constitutes an
excess inclusion be entitled to any exemption from the withholding tax or a
reduced treaty rate for withholding. See "--REMIC Securities--Taxation of
Holders of REMIC Residual Securities--Excess Inclusions."
Partnership Interests
Depending upon the particular terms of the Trust Agreement and Sale and
Servicing Agreement, a Trust may be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to non-U.S. persons. If the Trust is considered to be engaged in a trade
or business in the United States for such purposes and the Trust is treated as a
partnership, the income of the Trust distributable to a non-U.S. person would be
subject to federal withholding tax. Also, in such cases, a non-U.S. beneficial
owner of a Partnership Interest that is a corporation may be subject to the
branch profits tax. If the Trust is notified that a beneficial owner of a
Partnership Interest is a foreign person, the Trust may withhold as if it were
engaged in a trade or business in the United States in order to protect the
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Trust from possible adverse consequences of a failure to withhold. A foreign
holder generally would be entitled to file with the IRS a claim for refund with
respect to withheld taxes, taking the position that no taxes were due because
the Trust was not in a U.S. trade or business.
FASIT Regular Securities
Certain "high-yield" FASIT Regular Securities may not be sold to or
beneficially owned by Non-U.S. Persons. Any such purported transfer will be null
and void and, upon the Trustee's discovery of any purported transfer in
violation of this requirement, the last preceding owner of such high-yield FASIT
Regular Securities will be restored to ownership thereof as completely as
possible. Such last preceding owner will, in any event, be taxable on all income
with respect to such high-yield FASIT Regular Securities for federal income tax
purposes. The Pooling and Servicing Agreement will provide that, as a condition
to transfer of a high-yield FASIT Regular Security, the proposed transferee must
furnish an affidavit as to its status as a U.S. Person and otherwise as a
permitted transferee.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local income tax consequences of the acquisition, ownership, and disposition
of the Securities. State and local income tax law may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or locality. Therefore, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the Securities.
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON AN INVESTOR'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF THE SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
GENERAL
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan (a "PLAN") and certain individual
retirement arrangements from engaging in certain transactions involving "plan
assets" with persons that are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the Plan, unless a statutory or
administrative exemption applies to the transaction. ERISA and the Code also
prohibit generally certain actions involving conflicts of interest by persons
who are fiduciaries of such Plans or arrangements. A violation of these
"prohibited transaction" rules may generate excise tax and
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other liabilities under ERISA and the Code for such persons. In addition,
investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as deemed in
Section 3(33) of ERISA) are not subject to ERISA or Section 4975 of the Code.
Accordingly, assets of such plans may be invested in Securities without regard
to the ERISA considerations discussed below, subject to the provisions of other
applicable federal, state and local law. Any such Plan which is qualified and
exempt from taxation under Section 401(a) and 501(a) of the Code, however, is
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan
(including an individual retirement arrangement) that purchased Securities if
the assets of the Trust were deemed to be assets of the Plan. Under a regulation
(the "PLAN ASSETS REGULATION") issued by the United States Department of Labor
(the "DOL"), the assets of the Trust would be treated as assets of a Plan for
the purposes of ERISA and the Code only if the Plan acquired an equity interest
in the Trust and none of the exceptions contained in the Plan Assets Regulation
were applicable. An "equity interest" is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. In addition, in John Hancock Mutual Life Insurance Co. v. Harris Trust
and Savings Bank, 510 U.S. 83 (1993), the United States Supreme Court ruled that
assets held in an insurance company's general account may be deemed to be "plan
assets" for ERISA purposes under certain circumstances. Therefore, in the
absence of an exemption, the purchase, sale or holding of a Security by a Plan
(including certain individual retirement arrangements) subject to Section 406 of
ERISA or Section 4975 of the Code might result in prohibited transactions and
the imposition of excise taxes and civil penalties.
CERTIFICATES
The DOL has issued to various underwriters individual prohibited
transaction exemptions (the "UNDERWRITER EXEMPTIONS"), which generally exempt
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise
taxes imposed pursuant to Sections 4975(a) and (b) of the Code, certain
transactions with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of secured receivables, secured loans and other secured obligations that meet
the conditions and requirements of the Underwriter Exemptions. The Underwriter
Exemptions will only be available for Securities that are Certificates.
Among the conditions that must be satisfied in order for the Underwriter
Exemptions to apply to offered certificates are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an
unrelated party;
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(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust;
(3) the certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's Rating Services, a division of The
McGraw Hill Companies ("STANDARD & POOR'S"), Moody's Investors Service
("MOODY'S"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch IBCA, Inc.
("FITCH" and, collectively, the "RATING AGENCIES");
(4) the trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters
in connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the originators and the sponsor
pursuant to the assignment of the obligations to the trust estate
represents not more than the fair market value of such obligations; the sum
of all payments made to and retained by any servicer represents not more
than reasonable compensation for such person's services under the pooling
and servicing agreement and reimbursement of such person's reasonable
expenses in connection therewith;
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act of 1933; and
(7) in the event that all of the obligations used to fund the trust
have not been transferred to the trust on the closing date, additional
obligations of the types specified in the prospectus supplement and/or
pooling and servicing agreement having an aggregate value equal to no more
than 25% of the total principal amount of the certificates being offered by
the trust may be transferred to the trust, in exchange for amounts credited
to the account funding the additional obligations, within a funding period
of no longer than 90 days or 3 months following the closing date.
The trust estate must also meet the following requirements:
(i) the corpus of the trust estate must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of a Rating Agency for at
least one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to the Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to
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acquire certificates in a trust in which the fiduciary (or its affiliate) is an
obligor on the receivables held in the trust; provided that, among other
requirements, (i) in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class of certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least fifty percent of the aggregate interest in the
trust is acquired by persons independent of the Restricted Group; (ii) such
fiduciary (or its affiliate) is an obligor with respect to five percent or less
of the fair market value of the obligations contained in the trust; (iii) the
Plan's investment in certificates of any class does not exceed twenty-five
percent of all of the certificates of that class outstanding at the time of the
acquisition; and (iv) immediately after the acquisition, no more than
twenty-five percent of the assets of the Plan with respect to which such person
is a fiduciary are invested in certificates representing an interest in one or
more trusts containing assets sold or serviced by the same entity. The
Underwriter Exemptions do not apply to Plans sponsored by the Sponsor, the
Underwriters, the Trustee, the Master Servicer, any other servicer, any
Financial Guaranty Insurer, any obligor with respect to Mortgage Loans included
in the Trust Estate constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Estate, or any
affiliate of such parties (the "RESTRICTED GROUP").
In addition to the Underwriter Exemptions, the DOL has issued Prohibited
Transaction Class Exemption ("PTCE") 83-1 which provides an exemption for
certain transactions involving the sale or exchange of certain residential
mortgage pool pass-through certificates by Plans and for transactions in
connection with the servicing and operation of the mortgage pool.
NOTES
The Underwriter Exemptions will not be available for Securities which are
Notes. However, under the Plan Assets Regulation, if the Notes are treated as
indebtedness without substantial equity features, the Trust's assets would not
be deemed assets of a Plan. If the Notes are treated as having substantial
equity features, the purchase, holding and resale of the Notes could result in a
transaction that is prohibited under ERISA or the Code. Even if the Notes were
treated as debt for purposes of the Plan Assets Regulation, the acquisition or
holding of the Notes by or on behalf of a Plan could nevertheless give rise to a
prohibited transaction if such acquisition or holding were deemed to be a loan
to a party in interest with respect to such Plan. Certain exemptions from such
prohibited transaction rules could be applicable to the purchase and holding of
Notes by a Plan, depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions are:
PTCE 84-14, regarding certain transactions effected by "qualified professional
asset managers"; PTCE 90-1, regarding certain transactions entered into by
insurance company pooled separate accounts; PTCE 91-38, regarding certain
transactions entered into by bank collective investment funds; PTCE 95-60,
regarding certain transactions entered into by insurance company general
accounts; and PTCE 96-23, regarding certain transactions effected by "in-house
asset managers". Each purchaser and each transferee of a Note that is treated as
debt for purposes of the Plan Assets Regulation may be required to represent and
warrant that its purchase and holding of such Note will be covered by one of the
exemptions listed above or by another Department of Labor Class Exemption.
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CONSULTATION WITH COUNSEL
The prospectus supplement for each series of Securities will provide
further information which Plans should consider before purchasing the offered
Securities. A Plan fiduciary considering the purchase of Securities should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other ERISA issues and their potential
consequences. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT MATTERS
Certain classes of Securities offered hereby and by the related prospectus
supplement will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). The related
prospectus supplement will describe whether or not the Securities will
constitute "mortgage related securities" within the meaning of SMMEA.
Accordingly, investors whose investment authority is subject to legal
restrictions should consult with their own legal advisors to determine whether
and to what extent the Securities constitute legal investments for them.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
Securities will be applied by the Sponsor to finance the purchase of, or to
repay short-term loans incurred to finance the purchase of, the Mortgage Loans
underlying the Securities or will be used by the Sponsor for general corporate
purposes. The Sponsor expects that it will make additional sales of securities
similar to the Securities from time to time, but the timing and amount of any
such additional offerings will be dependent upon a number of factors, including
the volume of mortgage loans purchased by the Sponsor, prevailing interest
rates, availability of funds and general market conditions.
METHODS OF DISTRIBUTION
The prospectus supplement relating to each series of Securities will set
forth the specific terms of the offering of such series of Securities, the names
of the underwriters, the proceeds to the Sponsor or its affiliates from such
sale and, if applicable, the initial public offering prices, the discounts and
commissions to the underwriters and any discounts and concessions allowed or
reallowed to certain dealers.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed upon
for the Sponsor by Dewey Ballantine LLP, New York, New York, by the office of
the general counsel of the Sponsor or such other counsel identified in the
related prospectus supplement.
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FINANCIAL INFORMATION
The Sponsor has determined that its financial statements are not material
to the offering made hereby. However, any prospective purchaser who desires to
review financial information concerning the Sponsor will be provided by the
Sponsor upon request with a copy of the most recent financial statements of the
Sponsor.
A new Trust will be formed to own the Trust Estate and to issue each series
of Securities. Each such Trust will have no assets or obligations prior to the
issuance of the securities and will not engage in any activities other than
those described herein and in the related prospectus supplement. Accordingly, no
financial statements with respect to such Trusts will be included in this
prospectus or in any prospectus supplement
A prospectus supplement and the related Current Report on Form 8-K (which
will be incorporated by reference to the Registration Statement) may contain
financial statements of the related Credit Enhancer, if any.
ADDITIONAL INFORMATION
This prospectus, together with the prospectus supplement for each series of
Securities, contains a summary of the material terms of the applicable exhibits
to the Registration Statement and the documents referred to herein and therein.
Copies of such exhibits are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates prescribed
by the Commission upon request to the Commission and may be inspected, without
charge, at the Commission's offices.
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INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accounts......................................................................................................... 43
Accrual Securities............................................................................................... 35
Actuarial Loans.................................................................................................. 27
Adjustable Rate Loan............................................................................................. 24
Advanta Parent................................................................................................... 56
Affiliated Originators........................................................................................... 23
Approved Guidelines.............................................................................................. 30
APR.............................................................................................................. 29
ARM Loan......................................................................................................... 24
Balloon Amount................................................................................................... 25
Balloon Loans.................................................................................................... 25
Bankruptcy Bond.................................................................................................. 54
Bankruptcy Losses................................................................................................ 54
Book-Entry Securities............................................................................................ 38
Certificates..................................................................................................... 22
Closing Date..................................................................................................... 41
CLTV............................................................................................................. 28
Code............................................................................................................. 33
Compensating Interest............................................................................................ 45
Contracts........................................................................................................ 29
Conventional Loans............................................................................................... 23
Convertible Mortgage Loan........................................................................................ 26
Cooperative Loans................................................................................................ 23
Cooperative Notes................................................................................................ 23
Coupon Rate...................................................................................................... 24
Credit Enhancement............................................................................................... 22
Credit Enhancer.................................................................................................. 38
Cut-Off Date..................................................................................................... 28
Date of Payment Loans............................................................................................ 26
DCR.............................................................................................................. 98
Debt Securities.................................................................................................. 73
Debt Service Reduction........................................................................................... 54
Deficient Valuation.............................................................................................. 54
Deleted Mortgage Loan............................................................................................ 34
Delinquency Advances............................................................................................. 45
Delinquent....................................................................................................... 45
Designated Depository Institution................................................................................ 42
Determination Date............................................................................................... 38
Disqualified Organization........................................................................................ 82
Distribution Account............................................................................................. 42
Distribution Amount.............................................................................................. 37
DOL.............................................................................................................. 97
DTC.............................................................................................................. 38
</TABLE>
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<TABLE>
<S> <C>
Due Date......................................................................................................... 42
Eligible Investments............................................................................................. 43
Equity Interest.................................................................................................. 97
ERISA............................................................................................................ 96
FASIT............................................................................................................ 73
FASIT Securities................................................................................................. 74
FASIT Trust...................................................................................................... 88
FHLMC............................................................................................................ 30
Financial Guaranty Insurance Policy.............................................................................. 51
Financial Guaranty Insurer....................................................................................... 51
Fitch............................................................................................................ 98
Fixed Rate Loan.................................................................................................. 24
FNMA............................................................................................................. 30
Forward Purchase Agreement....................................................................................... 41
Fully Taxable Bonds.............................................................................................. 93
Garn-St. Germain Act............................................................................................. 70
General Partnership Interest..................................................................................... 36
Grantor Trust Estate............................................................................................. 73
Grantor Trust Fractional Interest Security....................................................................... 74
Grantor Trust Securities......................................................................................... 73
Grantor Trust Strip Security..................................................................................... 74
High LTV Loans................................................................................................... 31
High LTV Program................................................................................................. 31
Holder........................................................................................................... 73
Hybrid ARMs...................................................................................................... 25
Indenture........................................................................................................ 22
Indenture Trustee................................................................................................ 22
Index............................................................................................................ 24
Indirect Participant............................................................................................. 38
Insurance Paying Agent........................................................................................... 51
Insurance Proceeds............................................................................................... 42
Insured Payment.................................................................................................. 51
IRS.............................................................................................................. 76
issue price...................................................................................................... 90
Junior Lien...................................................................................................... 28
Letter of Credit................................................................................................. 52
Letter of Credit Bank............................................................................................ 52
Liquidated Mortgage Loan......................................................................................... 49
Liquidation Proceeds............................................................................................. 42
Loan Purchase Price.............................................................................................. 33
Lockout Periods.................................................................................................. 26
LTV.............................................................................................................. 28
Manufactured Homes............................................................................................... 29
Master Servicer.................................................................................................. 22
Modified Loans................................................................................................... 25
Monthly Pay...................................................................................................... 26
</TABLE>
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<TABLE>
<S> <C>
Moody's.......................................................................................................... 98
Mortgage......................................................................................................... 23
Mortgage Assets.................................................................................................. 22
Mortgage Loans................................................................................................... 22
Mortgage Notes................................................................................................... 23
Mortgage Pool.................................................................................................... 22
Mortgage Pool Insurance Policy................................................................................... 53
Mortgaged Properties............................................................................................. 23
Mortgagor........................................................................................................ 26
Net Coupon Rate.................................................................................................. 61
Net Liquidation Proceeds......................................................................................... 42
Non-conforming Credit............................................................................................ 30
Nonrecoverable Delinquency Advance............................................................................... 45
Nonrecoverable Servicing Advance................................................................................. 46
Note Margin...................................................................................................... 24
Notes............................................................................................................ 22
OID.............................................................................................................. 88
Originator....................................................................................................... 22
Originator's Guidelines.......................................................................................... 30
Originator's Retained Yield...................................................................................... 23
Participants..................................................................................................... 38
Partnership...................................................................................................... 74
Partnership Interests............................................................................................ 74
Pass-Through Rate................................................................................................ 35
Pay-for-Performance Loans........................................................................................ 26
Paying Agent..................................................................................................... 37
Payment Dates.................................................................................................... 36
Physical Certificates............................................................................................ 38
Plan............................................................................................................. 96
Plan Assets Regulation........................................................................................... 97
Pool Insurer..................................................................................................... 53
Pooling and Servicing Agreement.................................................................................. 22
Pre-Funding Account.............................................................................................. 41
Pre-Funding Agreement............................................................................................ 41
Pre-Funding Period............................................................................................... 41
Premium Security................................................................................................. 93
Prepayment Assumption............................................................................................ 78
Preservation Expenses............................................................................................ 46
Principal and Interest Account................................................................................... 41
Principal Prepayments............................................................................................ 42
PTCE............................................................................................................. 99
PUD.............................................................................................................. 33
Qualified Replacement Mortgage................................................................................... 34
Rating Agencies.................................................................................................. 98
Record Date...................................................................................................... 36
Relief Act....................................................................................................... 47
</TABLE>
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<PAGE> 107
<TABLE>
<S> <C>
REMIC............................................................................................................ 33
REMIC Regular Security........................................................................................... 76
REMIC Regulations................................................................................................ 76
REMIC Residual Security.......................................................................................... 76
REMIC Securities................................................................................................. 73
REMIC Trust...................................................................................................... 76
Remittance Date.................................................................................................. 43
Remittance Period................................................................................................ 36
REO Property..................................................................................................... 48
Reserve Fund..................................................................................................... 54
Residual Interest................................................................................................ 36
Restricted Group................................................................................................. 99
Revolving Credit Line Loans...................................................................................... 25
Rule of 78's Loan................................................................................................ 27
Securities....................................................................................................... 22
Security Registrar............................................................................................... 38
Securityholder................................................................................................... 73
Seller's Interest................................................................................................ 36
Senior Lien...................................................................................................... 28
Senior Securities................................................................................................ 35
Servicer......................................................................................................... 27
Servicing Advances............................................................................................... 45
Servicing Agreement.............................................................................................. 22
Servicing Fee.................................................................................................... 56
Settlement Date.................................................................................................. 77
Single Family Loans.............................................................................................. 29
SMMEA............................................................................................................ 100
Special Hazard Insurance Policy.................................................................................. 53
Special Hazard Insurer........................................................................................... 53
Sponsor.......................................................................................................... 22
Sponsor's Mortgage Loan Program.................................................................................. 30
Standard & Poor's................................................................................................ 98
Startup Day...................................................................................................... 89
Stated Redemption Price at Maturity.............................................................................. 90
Statistical Calculation Date..................................................................................... 28
Strip Securities................................................................................................. 35
Subordinate Securities........................................................................................... 36
Subsequent Mortgage Loans........................................................................................ 41
Sub-Servicers.................................................................................................... 27
Sub-Servicing Agreement.......................................................................................... 34
Title V.......................................................................................................... 72
Title VIII....................................................................................................... 72
Trust............................................................................................................ 22
Trust Agreement.................................................................................................. 22
Trust Estate..................................................................................................... 22
Trustee.......................................................................................................... 27
</TABLE>
105
<PAGE> 108
<TABLE>
<S> <C>
U.S. Person...................................................................................................... 95
UCC.............................................................................................................. 38
Unaffiliated Originators......................................................................................... 23
Underwriter Exemptions........................................................................................... 97
Withholding Regulations.......................................................................................... 94
</TABLE>
106
<PAGE> 109
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "GLOBAL SECURITIES") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Cedelbank or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Cedelbank and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedelbank and Euroclear and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedelbank and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedelbank and Euroclear will hold
positions on behalf of their participants through their Relevant Depository
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practices. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
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SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Seller and Cedelbank or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Participant or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Participant
or Euroclear Participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct the Relevant Depository, as the case may
be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the Relevant Depository to the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedelbank
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedelbank or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedelbank Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the Global Securities are credited to their account one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedelbank Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date.
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Therefore, in many cases the investment income on the Global Securities earned
during that one-day period may substantially reduce or offset the amount of such
overdraft charges, although the result will depend on each Cedelbank
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for crediting Global Securities
to the respective European Depository for the benefit of Cedelbank Participants
or Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedelbank or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, Cedelbank Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Cedelbank or Euroclear will instruct the respective Depository, as
appropriate, to credit the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of
Cedelbank Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedelbank Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). In the event that the Cedelbank
Participant or Euroclear Participant has a line of credit with its respective
clearing system and elects to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedelbank Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank Participants
or Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedelbank or Euroclear for one day (until the
purchase side of the trade is reflected in their Cedelbank or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedelbank or Euroclear
account in order to settle the sale side of the trade; or
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(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedelbank
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a
complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S.
corporation or bank with a U.S. branch, for which the interest income is
effectively connected with its conduct of a trade or business in the United
States, can obtain an exemption from the withholding tax by filing Form
4224 (Exemption from Withholding of Tax on Income Effectively Connected
with the Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a
tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by Certificate Owners
or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
On April 22, 1996, the IRS proposed regulations relating to withholding,
backup withholding and information reporting that, if adopted in their current
form would, among other
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things, unify current certification procedures and forms and clarify certain
reliance standards. The regulations are proposed to be effective for payments
made after December 31, 1997 but provide that certificates issued on or before
the date that is 60 days after the proposed regulations are made final will
continue to be valid until they expire. Proposed regulations, however, are
subject to change prior to their adoption in final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and at least one United States
fiduciary has the authority to control all substantial decisions of the trust.
The term "NON-U.S. PERSON" means any person who is not a U.S. Person. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance and distribution of the Securities.
<TABLE>
<S> <C>
SEC Filing Fee.................................................... $278
Trustee's Fees and Expenses*...................................... 75,000
Legal Fees and Expenses*.......................................... 300,000
Accounting Fees and Expenses*..................................... 105,000
Printing and Engraving Expenses*.................................. 120,000
Blue Sky Qualification and Legal
Investment Fees and Expenses*..................................... 30,000
Rating Agency Fees*............................................... 300,000
Certificate Insurer's Fee*........................................ 450,000
Miscellaneous*.................................................... 100,000
----------
TOTAL $1,480,278
</TABLE>
- ----------
* Estimated in accordance with Item 511 of Regulation S-K.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification. Under the laws which govern the organization
of the registrant, the registrant has the power and in some instances may be
required to provide an agent, including an officer or director, who was or is a
party or is threatened to be made a party to certain proceedings, with
indemnification against certain expenses, judgments, fines, settlements and
other amounts under certain circumstances.
Article XI of the By-Laws of Advanta Conduit Receivables Inc.
provides that the corporation shall indemnify any person (or the estate of any
person) against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, to the fullest extent permitted under applicable law
in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, brought or
threatened to be brought against him by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise.
The form of the Underwriting Agreement, incorporated by
reference as Exhibit 1.1 to this Registration Statement, provides that Advanta
Conduit Receivables, Inc. will indemnify and reimburse the underwriter(s) and
each director, officer and controlling person of the underwriter(s) with respect
to certain expenses and liabilities, including liabilities under the 1933 Act or
other federal or state regulations or under the common law, which arise out of
or are based on certain material misstatements or omissions in the Registration
Statement. In addition, the Underwriting Agreement provides that the
underwriter(s) will similarly indemnify and reimburse Advanta Conduit
Receivables, Inc. and each director, officer and controlling person of Advanta
Conduit Receivables, Inc. with respect to certain material misstatements or
omission in the Registration
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Statement which are based on certain written information furnished by the
underwriter(s) for use in connection with the preparation of the Registration
Statement.
Insurance. As permitted under the laws which govern the
organization of the Sponsor, the Sponsor has adopted by-laws which permit the
board of directors to purchase and maintain insurance on behalf of the Sponsor's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the Sponsor would have the power to indemnify them against such
liability under applicable law. Advanta Conduit Receivables, Inc. has a
general liability policy which insures its agents, including directors and
officers, for general liability exposures.
As permitted by the Employee Retirement Security Act of 1974,
Advanta Conduit Receivables, Inc. has obtained insurance covering all
employees entrusted with fiduciary responsibilities under certain of its
employee welfare or benefit plans. The maximum coverage provided by this policy
is an aggregate of $5,000,000 per year, subject to a maximum $100,000 deductible
amount with respect to each claim.
As permitted under the laws which govern the organization of
the Sponsor, the Sponsor has adopted by-laws which permit the board of
directors to purchase and maintain insurance on behalf of any person indemnified
under Article XI of the Sponsor's by-laws against any liability which may be
asserted against such person.
Limitation of Liability. Article Fifth of the Certificate of
Incorporation of Advanta Conduit Receivables, Inc. limits the personal liability
of directors to Advanta Conduit Receivables, Inc., and its stockholders for
monetary damages resulting from breaches of fiduciary duty. The provision does
not eliminate or limit a director's liability for (i) breaches of fiduciary duty
of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any unlawful payment
of dividends, stock repurchase or redemption or (iv) any transaction from which
the director derived an improper personal benefit.
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ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1* - Form of Underwriting Agreement.
3.1 - Certificate of Incorporation of the Sponsor (incorporated by reference to Exhibit
3.3 to the Sponsor's and Advanta Mortgage Conduit Services, Inc.'s Registration
Statement on Form S-3 (Reg. No. 33-78642)).
3.2 - By-Laws of the Sponsor (incorporated by reference to Exhibit 3.4 to the Sponsor's
and Advanta Mortgage Conduit Services, Inc.'s Registration Statement on Form S-3
(Reg. No. 33-78642)).
4.1* - Form of Pooling and Servicing Agreement (Single or Multi-Class) (Credit Support)
among the Sponsor, the Master Servicer and the Trustee.
4.2* - Form of Sale and Servicing Agreement (Single or
Multi-Class) (Credit Support) among the Issuer, the
Sponsor, the Master Servicer and the Indenture Trustee.
4.3* - Form of Trust Agreement among the Sponsor and the Owner Trustee.
4.4* Form of Indenture among the Issuer and the Indenture Trustee.
4.5* - Form of Advanta Mortgage Holding Company Guaranty is included in the Form of
Underwriting Agreement, Exhibit 1.1 hereto.
4.6* - Form of Master Loan Transfer Agreement among the Affiliated Originators, the
Affiliate, the Trustee and the Sponsor.
5.1* - Opinion of Dewey Ballantine LLP with respect to validity.
8.1* - Opinion of Dewey Ballantine LLP with respect to REMIC Certificates tax matters.
8.2* - Opinion of Dewey Ballantine LLP with respect to Debt Securities tax matters.
10.1** - Form of Financial Guaranty Insurance Policy
23.1* - Consents of Dewey Ballantine LLP are included in its opinions filed as Exhibit 5.1
and 8.1 hereof.
99.1* - Form of Prospectus Supplement (Debt Securities) (Credit Support).
99.2* - Form of Prospectus Supplement (REMIC Certificates) (Credit Support).
</TABLE>
- -------------------------
* Filed herewith.
** To be filed by amendment.
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ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions in Item 15, or otherwise, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by the registrant is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in the post-effective amendment is contained in periodic
reports filed by the Issuer pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Undertaking regarding Incorporated Annual and Quarterly Reports.
The Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to securityholders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
D. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the forms of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
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contained in a form of prospectus filed by the Registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Spring House, State of Pennsylvania on March
29, 1999.
ADVANTA CONDUIT RECEIVABLES, INC.
By: /s/ Michael Coco
-------------------------------------
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Philip M. Browne, Jeffrey D. Beck,
Michael Coco, and Susan A. McVeigh, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and in his name, place and stead, in any and all capacities
to sign any or all amendments (including post-effective amendments) to this
Registration Statement and any or all other documents in connection therewith,
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission, granting unto said authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all said attorneys-in-fact and agents
or any of them, or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on
March 29, 1999 in the capacities indicated.
Signature Capacity
- --------- --------
/s/ Walter N. Carter Executive Vice President
- ----------------------
Walter N. Carter
/s/ Susan A. McVeigh Vice President and Treasurer
- ----------------------
Susan A. McVeigh
/s/ James L. Shreero Vice President and Assistant Treasurer
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James L. Shreero
/s/ Mark Casale Director
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Mark Casale
/s/ John J. Calamari Director
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John J. Calamari
/s/ James L. Shreero Director
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James L. Shreero
/s/ Janice G. George Director
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Janice G. George
II-6
<PAGE> 1
EXHIBIT 1.1
ADVANTA CONDUIT RECEIVABLES, INC.
Mortgage Loan Asset-Backed Certificates,
Series [Series]
UNDERWRITING AGREEMENT
----------, ----
[Underwriter/Representative Underwriter]
As [Underwriter/Representative of the Underwriters
(the "Representative") named in Schedule I]
[Underwriter's/Representative's Address]
Ladies and Gentlemen:
Advanta Conduit Receivables, Inc. (the "Company") has
authorized the issuance and sale of Mortgage Loan Asset-Backed Certificates,
Series [Series], consisting of (i) the Class [First Class of Securities] (the
"Class [First Class of Securities]") , (ii) the Class [Second Class of
Securities] (the "Class [Second Class of Securities]", together with the Class
[First Class of Securities], the "Offered [Securities]"), and (iii) the residual
class with respect to the REMIC held by the Trust (the "[Residual Securities]").
Only the Offered [Securities] are offered by the Underwriter[s].
The Offered [Securities] will be issued by the Advanta
Mortgage Loan Trust [Series] (the "Trust"), and will evidence in the aggregate
the beneficial interest in a trust estate (the "Trust Estate") consisting
primarily of a pool of closed-end mortgage loans having fixed rates of interest
(the "Fixed Rate Group"), a pool of closed-end mortgage loans having adjustable
rates of interest (the "ARM Group", and together with the Fixed Rate Group, the
"Mortgage Loans"), amounts on deposit with [Trustee], as trustee of the Trust
(the "Trustee") in an account to be used to acquire additional mortgage loans
following the Closing Date (as hereinafter defined) for the Trust (the
"Pre-Funding Account") and certain related property. The Mortgage Loans shall
have, on or about [Closing Date] (the "Closing Date"), an aggregate principal
balance of approximately $[___________] and the Pre-Funding Account shall have
approximately $[____________], of which an amount equal to approximately
$[____________] may be applied to the purchase of additional loans for the Fixed
Rate Group and an amount equal to approximately $[_________] may be applied to
the purchase of additional loans for the ARM Group during the period from the
Closing Date to on or before [End of Pre-Funding Period]. The Offered
[Securities] are to be issued under a pooling and servicing agreement, to be
dated as
<PAGE> 2
of _________, ____ (the "Pooling and Servicing Agreement"), among the Company,
as Sponsor, Advanta Mortgage Corp. USA, as Master Servicer, and the Trustee.
On or prior to the date of issuance of the Certificates, the
Company will obtain a guaranty insurance policy (the "Policy") issued by
[Insurer] (the "Insurer") which will unconditionally and irrevocably guarantee
to the Trustee for the benefit of the holders of the Offered [Securities] the
amount by which (i) the Fixed Rate Group Insured Distribution Amount (as defined
in the Pooling and Servicing Agreement), as applicable, for the Fixed Rate Group
[Securities] exceeds the Fixed Rate Group Total Available Funds (as defined in
the Pooling and Servicing Agreement) and (ii) the ARM Group Insured Distribution
Amount (as defined in the Pooling and Servicing Agreement), as applicable, for
the ARM Group [Securities] exceeds the ARM Group Total Available Funds (as
defined in the Pooling and Servicing Agreement).
The Offered [Securities] are more fully described in a
Registration Statement which the Company has furnished to the Underwriter[s].
Capitalized terms used but not defined herein shall have the meanings given to
them in the Pooling and Servicing Agreement.
Simultaneously with the execution of the Pooling and Servicing
Agreement, the Company will enter into a conveyance agreement pursuant to the
Master Loan Transfer Agreement dated on or about __________, ____ among the
Trustee, the Company and the Affiliated Originators named therein (together, the
"Purchase Agreement"), pursuant to which the Affiliated Originators will
transfer to the Company all of their right, title and interest in and to the
Mortgage Loans as of the Closing Date.
The Company will also enter into an Indemnification Agreement
(the "Indemnification Agreement") dated as of __________, ____ among the
Underwriter[s], the Company and the Insurer.
Section 1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with the Underwriter[s] that:
a. Registration Statements on Form S-3, as amended by
Post-Effective Amendments thereto, have (i) been prepared by the Company in
conformity with the requirements of the Securities Act of 1933 (the "Securities
Act") and the rules and regulations (the "Rules and Regulations") of the United
States Securities and Exchange Commission (the "Commission") thereunder, (ii)
been filed with the Commission under the Securities Act and (iii) become
effective under the Securities Act. Copies of such Registration Statements have
been delivered by the Company to the Underwriter[s]. As used in this Agreement,
"Effective Time" means the date and the time as of which such Registration
Statements, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus included in such
Registration Statements, or amendments thereof, including a preliminary
prospectus supplement which, as completed, is proposed to be used in connection
with the sale of the Offered [Securities] and any prospectus filed with the
Commission by the Company with the consent of the Underwriter[s] pursuant to
Rule 424(a) of the Rules and Regulations; "Registration Statement" means such
registration statements, as amended by all Post-Effective
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<PAGE> 3
Amendments thereto heretofore filed with the Commission, at the Effective Time,
including any documents incorporated by reference therein at such time; and
"Prospectus" means such final prospectus, as supplemented by a final prospectus
supplement (the "Prospectus Supplement") relating to the Offered [Securities],
as first filed with the Commission pursuant to paragraph (1) or (4) of Rule
424(b) of the Rules and Regulations. Reference made herein to any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to and include any
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, as of the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and any reference to any amendment or supplement
to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any document filed under the Securities Exchange Act of 1934 (the
"Exchange Act") after the date of such Preliminary Prospectus or the Prospectus,
as the case may be, and incorporated by reference in such Preliminary Prospectus
or the Prospectus, as the case may be; and any reference to any amendment to the
Registration Statement shall be deemed to include any report of the Company
filed with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the Registration
Statement. The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. There are no contracts or documents of the
Company which are required to be filed as exhibits to the Registration Statement
pursuant to the Securities Act or the Rules and Regulations which have not been
so filed or incorporated by reference therein on or prior to the Effective Date
of the Registration Statements. The conditions for use of Form S-3, as set forth
in the General Instructions thereto, have been satisfied.
To the extent that [the/any] Underwriter (i) has
provided to the Company Collateral term sheets (as hereinafter defined)
that [the/such] Underwriter has provided to a prospective investor, the
Company has filed such Collateral term sheets as an exhibit to a report
on Form 8-K within two business days of its receipt thereof, or (ii)
has provided to the Company Structural term sheets or Computational
Materials (each as defined below) that [the/such] Underwriter has
provided to a prospective investor, the Company will file or cause to
be filed with the Commission a report on Form 8-K containing such
Structural term sheet and Computational Materials, as soon as
reasonably practicable after the date of this Agreement, but in any
event, not later than the date on which the Prospectus is filed with
the Commission pursuant to Rule 424 of the Rules and Regulations.
b. The Registration Statement conforms, and the Preliminary
Prospectus and the Prospectus and any further amendments or supplements to the
Registration Statement or the Preliminary Prospectus and the Prospectus will,
when they become effective or are filed with the Commission, as the case may be,
conform in all respects to the requirements of the Securities Act and the Rules
and Regulations. The Registration Statement, as of the Effective Date thereof
and of any amendment thereto, did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus as of its date,
and as amended or supplemented as of the Closing Date does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that no
representation or warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus
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<PAGE> 4
in reliance upon and in conformity with written information furnished to the
Company in writing by the Underwriter[s] expressly for use therein.
c. The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the Prospectus, when
such documents become effective or are filed with the Commission, as the case
may be, will conform in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
d. Since the respective dates as of which information is given
in the Prospectus, there has not been any material adverse change in the general
affairs, management, financial condition, or results of operations of the
Company, otherwise than as set forth or contemplated in the Prospectus as
supplemented or amended as of the Closing Date.
e. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and has all
power and authority necessary to own or hold its properties, to conduct the
business in which it is engaged and to enter into and perform its obligations
under this Agreement, the Pooling and Servicing Agreement, the Indemnification
Agreement, the Insurance Agreement, dated as of ________, ____, between the
Insurer, Master Servicer, Sponsor, Advanta Mortgage Holding Company, as Joint
Obligor and the Trustee (the "Insurance Agreement"), and the Purchase Agreement,
and to cause the [Securities] to be issued.
f. There are no actions, proceedings or investigations pending
before or threatened by any court, administrative agency or other tribunal to
which the Company is a party or of which any of its properties is the subject
(a) which if determined adversely to the Company would have a material adverse
effect on the business or financial condition of the Company, (b) which asserts
the invalidity of this Agreement, the Pooling and Servicing Agreement, the
Insurance Agreement, the Indemnification Agreement, the Purchase Agreement, or
the Certificates, (c) which seeks to prevent the issuance of the Certificates or
the consummation by the Company of any of the transactions contemplated by the
Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification
Agreement, the Purchase Agreement or this Agreement, as the case may be, or (d)
which might materially and adversely affect the performance by the Company of
its obligations under, or the validity or enforceability of, the Pooling and
Servicing Agreement, the Insurance Agreement, the Indemnification Agreement, the
Purchase Agreement, this Agreement or the [Securities].
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<PAGE> 5
g. This Agreement has been, and the Pooling and Servicing
Agreement, the Insurance Agreement, the Indemnification Agreement and the
Purchase Agreement when executed and delivered as contemplated hereby and
thereby will have been, duly authorized, executed and delivered by the Company,
and this Agreement constitutes, and the Pooling and Servicing Agreement, the
Insurance Agreement, the Indemnification Agreement and the Purchase Agreement
when executed and delivered as contemplated herein, will constitute, legal,
valid and binding instruments enforceable against the Company in accordance with
their respective terms, subject as to enforceability to (x) applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting creditors' rights generally, (y) general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law), and (z) with respect to rights of indemnity under this Agreement, the
Indemnification Agreement and limitations of public policy under applicable
securities laws.
h. The execution, delivery and performance of this Agreement,
the Pooling and Servicing Agreement, the Insurance Agreement, the
Indemnification Agreement and the Purchase Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby, and the
issuance and delivery of the [Securities] do not and will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party, by
which the Company is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result in
any violation of the provisions of the articles of incorporation or by-laws of
the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties or assets.
i. [Accountants] are independent public accountants with
respect to the Company as required by the Securities Act and the Rules and
Regulations.
j. The direction by the Company to the Trustee to execute,
authenticate, issue and deliver the Certificates has been duly authorized by the
Company, and assuming the Trustee has been duly authorized to do so, when
executed, authenticated, issued and delivered by the Trustee in accordance with
the Pooling and Servicing Agreement, the [Securities] will be validly issued and
outstanding and will be entitled to the benefits provided by the Pooling and
Servicing Agreement.
k. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance of the [Securities] and the sale of the
Offered [Securities] to the Underwriter[s], or the consummation by the Company
of the other transactions contemplated by this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement, the Indemnification Agreement and
the Purchase Agreement, except such consents, approvals, authorizations,
registrations or qualifications as may be required under State securities or
Blue Sky laws in connection with the purchase and distribution of the Offered
[Securities] by the Underwriter[s] or as have been obtained.
l. The Company possesses all material licenses, certificates,
authorities or permits issued by the appropriate State, Federal or foreign
regulatory agencies or bodies
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<PAGE> 6
necessary to conduct the business now conducted by it and as described in the
Prospectus, and the Company has not received notice of any proceedings relating
to the revocation or modification of any such license, certificate, authority or
permit which if decided adversely to the Company would, singly or in the
aggregate, materially and adversely affect the conduct of its business,
operations or financial condition.
m. At the time of execution and delivery of the Pooling and
Servicing Agreement, the Company will: (i) have good title to the interest in
the Mortgage Loans, free and clear of any lien, mortgage, pledge, charge,
encumbrance, adverse claim or other security interest (collectively, "Liens");
(ii) not have assigned to any person any of its right, title or interest in the
Mortgage Loans, in the Purchase Agreement, in the Pooling and Servicing
Agreement or in the Certificates being issued pursuant thereto; and (iii) have
the power and authority to sell its interest in the Mortgage Loans to the
Trustee, on behalf of the Trust, and to sell the Offered [Securities] to the
Underwriter[s]. Upon execution and delivery of the Pooling and Servicing
Agreement by the Trustee, the Trustee will have acquired beneficial ownership of
all of the Company's right, title and interest in and to the Mortgage Loans.
Upon delivery to the Underwriter[s] of the Offered [Securities], the
Underwriter[s] will have good title to the Offered [Securities], free of any
Liens.
n. As of the opening of business on ________, ____ ( the
"Cut-Off Date"), and on each Subsequent Cut-Off Date (as defined in the Pooling
and Servicing Agreement) each of the Mortgage Loans will meet the eligibility
criteria described in the Prospectus and will conform to the descriptions
thereof contained in the Prospectus.
o. Neither the Company nor the Trust created by the Pooling
and Servicing Agreement is an "investment company" within the meaning of such
term under the Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations of the Commission thereunder.
p. At the Closing Date, the Offered [Securities] and the
Pooling and Servicing Agreement will conform in all material respects to the
descriptions thereof contained in the Prospectus.
q. At the Closing Date, the Offered [Securities] shall have
been rated in the highest rating category by at least two nationally recognized
rating agencies.
r. Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement, the Indemnification
Agreement, the Purchase Agreement and the [Securities] have been paid or will be
paid at or prior to the Closing Date.
s. At the Closing Date, each of the representations and
warranties of the Company set forth in the Pooling and Servicing Agreement will
be true and correct in all material respects.
Any certificate signed by an officer of the Company and
delivered to the [Representative/Underwriter] or counsel for the Underwriter[s]
in connection with an offering of the Offered [Securities] shall be deemed, and
shall state that it is, a representation and warranty
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<PAGE> 7
as to the matters covered thereby to each person to whom the representations and
warranties in this Section 1 are made.
Section 2. Purchase and Sale.
The commitment of the Underwriter[s] to purchase the Offered [Securities]
pursuant to this Agreement shall be deemed to have been made on the basis of the
representations and warranties herein contained and shall be subject to the
terms and conditions herein set forth. The Company agrees to instruct the
Trustee to issue and agrees to sell to the Underwriter[s], and the
Underwriter[s] agree[s] (except as provided in Sections 10 and 11 hereof) to
purchase from the Company the aggregate initial principal amounts of Offered
[Securities] set forth on Schedule A, at the purchase price or prices set forth
in Schedule A.
The obligations of the Underwriter[s] hereunder to purchase
the Offered [Securities] of each Class shall be several and not joint. Each
Underwriter[s]'s obligation shall be to purchase the aggregate principal amount
of Offered [Securities] as is indicated with respect to [the/each] Underwriter
under the caption "Underwriting" in the Prospectus. The rights of the Company
and a non-defaulting Underwriter shall be as set forth in Section 13 hereof.
Section 3. Delivery and Payment.
Delivery of and payment for the Offered [Securities] to be purchased by the
Underwriter[s] shall be made at the offices of Dewey Ballantine LLP, 1301 Sixth
Avenue, New York, New York 10019, or at such other place as shall be agreed upon
by the [Representative/Underwriter] and the Company at 10:00 A.M. New York City
time on _________, 1999 or at such other time or date as shall be agreed upon by
the [Representative/Underwriter] and the Company. Payment shall be made to the
Company by wire transfer of same day funds payable to the account of the
Company. Delivery of the Offered [Securities] shall be made to the
[Representative/Underwriter] for the accounts of the Underwriter[s] against
payment of the purchase price thereof. The Offered [Securities] shall be in such
denominations and registered in such names as the Company and the
[Representative/Underwriter] have agreed upon at least two business days prior
to the Closing Date. The Offered [Securities] will be made available for
examination by the [Representative/Underwriter] no later than 2:00 p.m. New York
City time on the first business day prior to the Closing Date.
Section 4. Offering by the Underwriter[s].
It is understood that, subject to the terms and conditions hereof, the
Underwriter[s] propose to offer the Offered [Securities] for sale to the public
as set forth in the Prospectus.
Section 5. Covenants of the Company.
The Company agrees as follows:
a. (i) To prepare the Preliminary Prospectus Supplement and
the Prospectus Supplement in a form approved by the [Representative/Underwriter]
and to file such Preliminary Prospectus Supplement and the Prospectus Supplement
pursuant to Rule 424(b) under the Securities Act not later than the Commission's
close of business on the second business day
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<PAGE> 8
following the execution and delivery of this Agreement; (ii) to make no further
amendment or any supplement to the Registration Statement or to the Preliminary
Prospectus and the Prospectus prior to the Closing Date except as permitted
herein; (iii) to advise the [Representative/Underwriter], promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Preliminary Prospectus and the Prospectus or any amended Preliminary Prospectus
or the Prospectus has been filed and to furnish the [Representative/Underwriter]
with copies thereof; (iv) to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Preliminary Prospectus and the Prospectus and, for
so long as the delivery of a prospectus is required in connection with the
offering or sale of the Offered [Securities]; and (v) to promptly advise the
[Representative/Underwriter] of its receipt of notice of the issuance by the
Commission of any stop order or of: (w) any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus; (x) the suspension of the
qualification of the Offered [Securities] for offering or sale in any
jurisdiction; (y) the initiation of or threat of any proceeding for any such
purpose; (z) any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information. In
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or suspending
any such qualification, the Company promptly shall use its best efforts to
obtain the withdrawal of such order or suspension.
b. To furnish promptly to the [Representative/Underwriter] and
to counsel for the Underwriter[s] a signed copy of the Registration Statement as
originally filed with the Commission, and of each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith.
c. To deliver promptly to the [Representative/Underwriter]
such number of the following documents as the [Representative/Underwriter] shall
reasonably request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in each case
including exhibits); (ii) each Preliminary Prospectus, the Prospectus and any
amended or supplemented Prospectus; and (iii) any document incorporated by
reference in the Prospectus (including exhibits thereto). If the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the Effective Time in connection with the offering or sale of the Offered
[Securities], and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such same period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, the Company shall notify the
[Representative/Underwriter] and, upon the [Representative/Underwriter]'s
request, shall file such document and prepare and furnish without charge to the
Underwriter[s] and to any dealer in securities as many copies as the
[Representative/Underwriter] may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which corrects such
statement or omission or effects such compliance, and in case any of the
Underwriter[s] are required to deliver a
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<PAGE> 9
Prospectus in connection with sales of any of the Offered [Securities] at any
time nine months or more after the Effective Time, upon the request of the
[Representative/Underwriter] but at the expense of such Underwriter, the Company
shall prepare and deliver to such Underwriter as many copies as such Underwriter
may reasonably request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Securities Act.
d. To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the [Representative/Underwriter], be
required by the Securities Act or requested by the Commission.
e. Prior to filing with the Commission any (i) Preliminary
Prospectus, (ii) amendment to the Registration Statement or supplement to the
Prospectus, or document incorporated by reference in the Prospectus, or (iii)
Prospectus pursuant to Rule 424 of the Rules and Regulations, to give at least
three business days prior notification to the [Representative/Underwriter] and
to furnish a copy thereof to the [Representative/Underwriter] and counsel for
the Underwriter[s], provided, however, that if any of the foregoing filings
referred to in (i), (ii), or (iii) relate to the Offered [Securities], the
Company shall obtain the consent of the [Representative/Underwriter] to such
filing, which consent shall not be unreasonably withheld.
f. To make generally available to holders of the Offered
[Securities] as soon as practicable, but in any event not later than 90 days
after the close of the period covered thereby, a statement of earnings of the
Trust (which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company, Rule
158) and covering a period of at least twelve consecutive months beginning not
later than the first day of the first fiscal quarter following the Closing Date.
g. To use its best efforts, in cooperation with the
[Representative/Underwriter], to qualify the Offered [Securities] for offering
and sale under the applicable securities laws of such states and other
jurisdictions of the United States as the [Representative/Underwriter] may
designate, and maintain or cause to be maintained such qualifications in effect
for as long as may be required for the distribution of the Offered [Securities].
The Company will file or cause the filing of such statements and reports as may
be required by the laws of each jurisdiction in which the Offered [Securities]
have been so qualified.
h. Not, without the [Representative's/Underwriter's] prior
written consent, which consent shall not be unreasonably withheld, to publicly
offer or sell or contract to sell any mortgage pass-through securities,
collateralized mortgage obligations or other similar securities representing
interests in or secured by other mortgage-related assets originated or owned by
the Company for a period of 5 business days following the commencement of the
offering of the Offered [Securities] to the public.
i. So long as the Offered [Securities] shall be outstanding,
to deliver to the [Representative/Underwriter] as soon as such statements are
furnished to the Trustee: (i) the annual statement as to compliance delivered to
the Trustee pursuant to Article VII of the Pooling and Servicing Agreement; (ii)
the annual statement of a firm of independent public accountants
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<PAGE> 10
furnished to the Trustee pursuant to Article VIII of the Pooling and Servicing
Agreement; and (iii) the Monthly Statement furnished to the Certificateholders
pursuant to Article VII of the Pooling and Servicing Agreement.
j. To apply the net proceeds from the sale of the Offered
[Securities] in the manner set forth in the Prospectus.
Section 6. Conditions to the [Underwriters'/Underwriter's]
Obligations.
The obligations of the Underwriter[s] to purchase the Offered [Securities]
pursuant to this Agreement are subject to: (i) the accuracy on and as of the
Closing Date of the representations and warranties on the part of the Company
herein contained; (ii) the performance in all material respects by the Company
of all of their respective obligations hereunder; and (iii) the following
conditions as of the Closing Date:
a. The [Representative/Underwriter] shall have received
confirmation of the effectiveness of the Registration Statement. No stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission. Any request of the Commission for
inclusion of additional information in the Registration Statement or the
Prospectus shall have been complied with.
b. None of the Underwriter[s] shall have discovered and
disclosed to the Company on or prior to the Closing Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto contains an
untrue statement of a fact or omits to state a fact which, in the opinion of
[Counsel], counsel for the Underwriter[s], is material and is required to be
stated therein or is necessary to make the statements therein not misleading.
c. All corporate proceedings and other legal matters relating
to the authorization, form and validity of this Agreement, the Pooling and
Servicing Agreement, the Purchase Agreement, the Insurance Agreement, the
Indemnification Agreement, the Certificates, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be satisfactory in all respects to
counsel for the Underwriter[s], and the Company shall have furnished to such
counsel all documents and information that they may reasonably request to enable
them to pass upon such matters.
d. The [Representative/Underwriter] shall have received the
favorable opinion of Dewey Ballantine LLP, special counsel to the Company with
respect to the following items, dated the Closing Date, to the effect that:
1. The Company has been duly organized and
is validly existing as a corporation in good standing under
the laws of the State of Nevada, and is qualified to do
business in each state necessary to enable it to perform its
obligations as Sponsor under the Pooling and Servicing
Agreement. The Company has the requisite power and authority
to execute and deliver, engage in the transactions
contemplated by, and perform and observe the conditions of,
this Agreement, the Insurance Agreement, the Pooling and
Servicing Agreement, the
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<PAGE> 11
Insurance Agreement, the Indemnification Agreement and the
Purchase Agreement.
2. This Agreement, the Certificates, the
Pooling and Servicing Agreement, the Insurance Agreement, the
Indemnification Agreement and the Purchase Agreement have been
duly and validly authorized, executed and delivered by the
Company, all requisite corporate action having been taken with
respect thereto, and each (other than the Certificates)
constitutes the valid, legal and binding agreement of the
Company.
3. Neither the transfer of the Mortgage
Loans to the Trust Estate, the issuance or sale of the
Certificates nor the execution, delivery or performance by the
Company of the Pooling and Servicing Agreement, this
Agreement, the Insurance Agreement, the Indemnification
Agreement or the Purchase Agreement (A) conflicts or will
conflict with or results or will result in a breach of, or
constitutes or will constitute a default under, (i) any term
or provision of the certificate of incorporation or bylaws of
the Company; (ii) any term or provision of any material
agreement, contract, instrument or indenture, to which the
Company is a party or is bound and known to such counsel; or
(iii) any order, judgment, writ, injunction or decree of any
court or governmental agency or body or other tribunal having
jurisdiction over the Company and known to such counsel; or
(B) results in, or will result in the creation or imposition
of any lien, charge or encumbrance upon the Trust Estate or
upon the Certificates, except as otherwise contemplated by the
Pooling and Servicing Agreement.
4. With respect to the Mortgage Loans, the
endorsement and delivery of each Note, and the preparation,
delivery and recording of an Assignment in each case with
respect to each Mortgage is sufficient to fully transfer to
the Trustee for the benefit of the Owners of the Certificates
all right, title and interest of the Company in the Note and
Mortgage, as noteholder and mortgagee or assignee thereof,
subject to any exceptions set forth in such opinion, and will
be sufficient to permit the Trustee to avail itself of all
protection available under applicable law against the claims
of any present or future creditors of the Company and to
prevent any other sale, transfer, assignment, pledge or other
encumbrance of the Mortgage Loans by the Company from being
enforceable.
5. No consent, approval, authorization or
order of, registration or filing with, or notice to, courts,
governmental agency or body or other tribunal is required
under the laws of the State of New York, for the execution,
delivery and performance of the Pooling and Servicing
Agreement, this Agreement, the Insurance Agreement, the
Indemnification Agreement, the Purchase Agreement or the
offer, issuance, sale or delivery of the Offered [Securities]
or the consummation of any other transaction contemplated
thereby by the Company, except such which have been obtained.
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<PAGE> 12
6. There are no actions, proceedings or
investigations, to such counsel's knowledge, pending or
threatened against the Company before any court, governmental
agency or body or other tribunal (i) asserting the invalidity
of the Pooling and Servicing Agreement, the Insurance
Agreement, the Indemnification Agreement, this Agreement, the
Purchase Agreement or the Certificates, (ii) seeking to
prevent the issuance of the Certificates or the consummation
of any of the transactions contemplated by the Pooling and
Servicing Agreement, the Indemnification Agreement, or this
Agreement, (iii) which would materially and adversely affect
the performance by the Company of obligations under, or the
validity or enforceability of, the Pooling and Servicing
Agreement, the Insurance Agreement, the Indemnification
Agreement, the Certificates, the Purchase Agreement or this
Agreement or (iv) that would adversely affect the status of
the Trust Estate as a "real estate mortgage investment
conduit" ("REMIC") as such term is defined in the Internal
Revenue Code of 1986, as amended.
7. To the best of the knowledge of such
counsel, the Commission has not issued any stop order
suspending the effectiveness of the Registration Statement or
any order directed to any prospectus relating to the Offered
[Securities] (including the Prospectus), and has not initiated
or threatened any proceeding for that purpose.
8. The Registration Statement and the
Prospectus (other than the financial and statistical data
included therein, as to which such counsel need express no
opinion), including the Incorporated Documents, as of the date
on which the Registration Statement was declared effective and
as of the date hereof, comply as to form in all material
respects with the requirements of the 1933 Act and the rules
and regulations thereunder and the Exchange Act and the rules
and regulations thereunder, and such counsel does not know of
any amendment to the Registration Statement required to be
filed, or of any contracts, indentures or other documents of a
character required to be filed as an exhibit to the
Registration Statement or required to be described in the
Registration Statement which has not been filed or described
as required.
9. Neither the qualification of the Pooling
and Servicing Agreement under the Trust Indenture Act of 1939
nor the registration of the Trust created by such Pooling and
Servicing Agreement under the Investment Company Act of 1940
is presently required.
10. The statements in the Prospectus set
forth under the captions "DESCRIPTION OF THE SECURITIES," "THE
POOLING AND SERVICING AGREEMENT" and the statements in the
Prospectus Supplement set forth under the caption "DESCRIPTION
OF THE CERTIFICATES," to the extent such statements purport to
summarize certain provisions of the Offered [Securities] or of
the Pooling and Servicing Agreement, are fair and accurate in
all material respects.
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<PAGE> 13
11. The statements in the Prospectus and
Prospectus Supplement set forth under the captions "ERISA
CONSIDERATIONS," "CERTAIN FEDERAL INCOME TAX CONSEQUENCES,"
and the statements in the Prospectus set forth under the
caption "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS AND RELATED
MATTERS," to the extent that they constitute matters of
federal, New York or California law, or federal, New York or
California legal conclusions provide a fair and accurate
summary of such law or conclusions.
12. Assuming that (a) the Trustee causes the
Trust created under the Pooling and Servicing Agreement to
elect, as the Trustee has covenanted to do in the Pooling and
Servicing Agreement, to be treated as a REMIC and (b) the
parties to the Pooling and Servicing Agreement comply with the
terms thereof, the Trust will be treated as a REMIC, the
Offered [Securities] issued pursuant to the Pooling and
Servicing Agreement will be treated as the "regular interests"
in a REMIC and the [Residual] Certificates issued pursuant to
the Pooling and Servicing Agreement will be treated as
"residual interests" in a REMIC. Assuming that the Trust
issues debt securities, the securities will be treated as debt
and the Trust will not be treated as an association or a
publicly traded partnership taxable as a corporation or a
taxable mortgage pool. The Trust will not be subject to tax
upon its income or assets by any taxing authority of the State
of New York or New York City or of the State of California
(except that no opinion need be expressed with respect to any
minimum tax).
13. Such opinion shall also relate to
comparable matters with respect to the Affiliated Originators
and Advanta Mortgage Holding Company.
14. No information has come to such
counsel's attention which causes them to believe that the
Prospectus (other than the financial statement and other
financial and statistical data contained therein, as to which
such counsel need express no opinion), as of the date thereof,
contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
15. Such other matters as the
[Representative/Underwriter] may reasonably request.
In rendering its opinions, the counsel described above may
rely, as to matters of fact, on certificates of responsible officers of the
Company, the Trustee and public officials. Such opinions may also assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Company.
e. The [Representative/Underwriter] shall have received
letters, including bring-down letters, from [Accountants], dated on or before
the Closing Date, in form and substance satisfactory to the
[Representative/Underwriter] and counsel for the Underwriter[s], to the effect
that they have performed certain specified procedures requested by the
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<PAGE> 14
[Representative/Underwriter] with respect to the information set forth in the
Prospectus and certain matters relating to the Company.
f. The Offered [Securities] shall have received the ratings
listed on Schedule A hereto, and such ratings shall not have been rescinded or
downgraded as of the Closing Date. The [Representative/Underwriter] and counsel
for the Underwriter[s] shall have received copies of any opinions of counsel
supplied to the rating organizations relating to any matters with respect to the
Offered [Securities]. Any such opinions shall be dated the Closing Date and
addressed to the Underwriter[s] or accompanied by reliance letters to the
Underwriter[s] or shall state that the Underwriter[s] may rely upon them.
g. The [Representative/Underwriter] shall have received from
the Company a certificate, signed by the president, a senior vice president or a
vice president of the Company, dated the Closing Date, to the effect that the
signer of such certificate has carefully examined the Registration Statement,
the Pooling and Servicing Agreement and this Agreement and that, to the best of
his or her knowledge based upon reasonable investigation:
1. the representations and warranties of the
Company in this Agreement, as of the Closing Date, and in the
Pooling and Servicing Agreement, the Insurance Agreement, the
Indemnification Agreement, the Purchase Agreement and in all
related agreements, as of the date specified in such
agreements, are true and correct, and the Company has complied
with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to the
Closing Date;
2. except as set forth in the Prospectus,
there are no actions, suits or proceedings pending, or to the
best of such officer's knowledge, threatened against or
affecting the Company which if adversely determined,
individually or in the aggregate, would be reasonably likely
to adversely affect the Company's obligations under the
Pooling and Servicing Agreement, the Insurance Agreement, the
Indemnification Agreement, this Agreement or the Purchase
Agreement in any material way; and no merger, liquidation,
dissolution or bankruptcy of the Company is pending or
contemplated;
3. the information contained in the
Registration Statement and the Prospectus relating to the
Company, the Mortgage Loans or the servicing procedures of it
or its affiliates or subservicer is true and accurate in all
material respects and nothing has come to his or her attention
that would lead such officer to believe that the Registration
Statement or Prospectus includes any untrue statement of a
material fact or omits to state a material fact necessary to
make the statements therein not misleading;
4. the information set forth in the Schedule
of Mortgage Loans required to be furnished pursuant to the
Pooling and Servicing Agreement is true and correct in all
material respects;
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<PAGE> 15
5. there has been no amendment or other
document filed affecting the articles of incorporation or
bylaws of the Company since ________, ____, and no such
amendment has been authorized. No event has occurred since
________, ____, which has affected the good standing of the
Company under the laws of the State of Nevada;
6. there has not occurred any material
adverse change or, except as set forth in the Prospectus, any
development involving a prospective material adverse change,
in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries,
taken as a whole, from _________, ___.
7. on or prior to the Closing Date, there
has been no downgrading, nor has any notice been given of (A)
any intended or potential downgrading or (B) any review or
possible changes in rating the direction of which has not been
indicated, if any, accorded the Company or in any rating
accorded any securities of the Company, if any, by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of the 1933 Act; and
8. each person who, as an officer or
[Representative/Underwriter] of the Company, signed or signs
the Registration Statement, the Pooling and Servicing
Agreement, the Insurance Agreement, the Indemnification
Agreement, this Agreement, or any other document delivered
pursuant hereto, on the date of such execution, or on the
Closing Date, as the case may be, in connection with the
transactions described in the Pooling and Servicing Agreement,
the Insurance Agreement, the Indemnification Agreement, the
Purchase Agreement and this Agreement was, at the respective
times of such signing and delivery, and is now, duly elected
or appointed, qualified and acting as such officer or
[Representative/Underwriter], and the signatures of such
persons appearing on such documents are their genuine
signatures.
The Company shall attach to such certificate a true and
correct copy of its certificate or articles of incorporation, as appropriate,
and bylaws which are in full force and effect on the date of such certificate
and a certified true copy of the resolutions of its Board of Directors with
respect to the transactions contemplated herein.
h. The [Representative/Underwriter] shall have received a
favorable opinion of counsel to the Trustee, dated the Closing Date and in form
and substance satisfactory to the [Representative/Underwriter], to the effect
that:
1. the Trustee is a national banking
association duly organized, validly existing and in good
standing under the laws of the United States and has the power
and authority to enter into and to take all actions required
of it under the Pooling and Servicing Agreement;
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<PAGE> 16
2. the Pooling and Servicing Agreement has
been duly authorized, executed and delivered by the Trustee
and the Pooling and Servicing Agreement constitutes the legal,
valid and binding obligation of the Trustee, enforceable
against the Trustee in accordance with its terms, except as
enforceability thereof may be limited by (A) bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, as such laws would
apply in the event of a bankruptcy, insolvency or
reorganization or similar occurrence affecting the Trustee,
and (B) general principles of equity regardless of whether
such enforcement is sought in a proceeding at law or in
equity;
3. no consent, approval, authorization or
other action by any governmental agency or body or other
tribunal is required on the part of the Trustee in connection
with its execution and delivery of the Pooling and Servicing
Agreement or the performance of its obligations thereunder;
4. the Offered [Securities] have been duly
executed, authenticated and delivered by the Trustee; and
5. the execution and delivery of, and
performance by the Trustee of its obligations under, the
Pooling and Servicing Agreement do not conflict with or result
in a violation of any statute or regulation applicable to the
Trustee, or the charter or bylaws of the Trustee, or to the
best knowledge of such counsel, any governmental authority
having jurisdiction over the Trustee or the terms of any
indenture or other agreement or instrument to which the
Trustee is a party or by which it is bound.
In rendering such opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Company, the
Trustee and public officials. Such opinion may also assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Trustee.
i. The [Representative/Underwriter] shall have received from
the Trustee a certificate, signed by the President, a senior vice president or a
vice president of the Trustee, dated the Closing Date, to the effect that each
person who, as an officer or [Representative/Underwriter] of the Trustee, signed
or signs the Offered [Securities], the Pooling and Servicing Agreement or any
other document delivered pursuant hereto, on the date hereof or on the Closing
Date, in connection with the transactions described in the Pooling and Servicing
Agreement was, at the respective times of such signing and delivery, and is now,
duly elected or appointed, qualified and acting as such officer or
[Representative/Underwriter], and the signatures of such persons appearing on
such documents are their genuine signatures.
j. The Policy relating to the Offered [Securities] shall have
been duly executed and issued at or prior to the Closing Date and shall conform
in all material respects to the description thereof in the Prospectus.
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<PAGE> 17
k. The [Representative/Underwriter] shall have received a
favorable opinion of in-house counsel to the Insurer, dated the Closing Date and
in form and substance satisfactory to counsel for the Underwriter[s], to the
effect that:
1. The Insurer is a stock insurance
corporation, duly incorporated and validly existing under the
laws of the State of [State]. The Insurer is validly licensed
and authorized to issue the Policy and perform its obligations
under the Policy in accordance with the terms thereof.
2. The execution and delivery by the Insurer
of the Policy, the Insurance Agreement and the Indemnification
Agreement are within the corporate power of the Insurer and
have been authorized by all necessary corporate action on the
part of the Insurer; the Policy has been duly executed and is
the valid and binding obligation of the Insurer enforceable in
accordance with its terms except that the enforcement of the
Policy may be limited by laws relating to bankruptcy,
insolvency, reorganization, moratorium, receivership and other
similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether the
enforcement of such remedies is considered in a proceeding in
equity or at law).
3. The Insurer is authorized to deliver the
Indemnification Agreement and the Insurance Agreement and such
agreements have been duly executed and delivered and
constitute the legal, valid and binding obligations of the
Insurer enforceable in accordance with its terms except that
the enforcement of the Insurance Agreement and the
Indemnification Agreement may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium,
receivership and other similar laws affecting creditors'
rights generally and by general principles of equity and, in
the case of the Indemnification Agreement, subject to
principles of public policy limiting the right to enforce the
indemnification provisions contained therein insofar as such
provisions relate to indemnification for liabilities arising
under securities laws.
4. No consent, approval, authorization or
order of any state or federal court or governmental agency or
body is required on the part of the Insurer the lack of which
would adversely affect the validity or enforceability of the
Policy; to the extent required by applicable legal
requirements that would adversely affect validity or
enforceability of the Policy, the Policy form has been filed
with, and approved by, all governmental authorities having
jurisdiction over the Insurer in connection with the Policy.
5. The execution and delivery of the
Insurance Agreement, the Indemnification Agreement and the
Policy, and the compliance with the terms and provisions
thereof, will not conflict with, result in breach of or
constitute a default under any of the terms, provisions or
conditions of the Charter or By-Laws of the Insurer. The
execution, delivery and performance by the Insurer of its
obligations under the policy do not, to the extent that either
of the following would affect the validity or enforceability
of the Policy, (a) contravene any law or government
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<PAGE> 18
regulation or order presently binding on the Insurer or (b)
contravene any provision of or constitute a default under any
indenture, contract or other instrument to which the Insurer
is a party or by which the Insurer is bound.
6. The Policy is not required to be
registered under the Securities Act.
7. The information set forth under the
caption "THE CERTIFICATE INSURANCE POLICY" and "THE
CERTIFICATE INSURER" in the Prospectus forming a part of the
Registration Statement, insofar as such statements constitute
a description of the Policy, accurately summarizes the Policy.
In rendering this opinion, such counsel may rely, as to
matters of fact, on certificates of responsible officers of the Company, the
Trustee, the Insurer and public officials. Such opinion may assume the due
authorization, execution and delivery of the instruments and documents referred
to therein by the parties thereto other than the Insurer.
l. On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or potential
downgrading or (B) any review or possible changes in rating the direction of
which has not been indicated, in the rating, if any, accorded the Insurer's
claims paying ability by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the 1933 Act.
m. On or prior to the Closing Date, there has been no
downgrading, nor has any notice been given of (A) any intended or potential
downgrading or (B) any review or possible changes in rating the direction of
which has not been indicated, in the rating, if any, accorded the Company or in
any rating accorded any securities of the Company, if any, by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of the 1933 Act.
n. There has not occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, since [________, ____], of (A) the Company
and its subsidiaries or (B) the Insurer, that is in the
[Representative/Underwriter]'s judgment material and adverse and that makes it
in the [Representative/Underwriter]'s judgment impracticable to market the
Offered [Securities] on the terms and in the manner contemplated in the
Prospectus.
o. The [Representative/Underwriter] shall have received from
the Insurer a certificate, signed by the president, a senior vice president or a
vice president of the Insurer, dated the Closing Date, to the effect that the
signer of such certificate has carefully examined the Policy, the Insurance
Agreement, the Indemnification Agreement and the related documents and that, to
the best of his or her knowledge based on reasonable investigation:
1. There are no actions, suits, proceedings
or investigations pending or, to the best of Insurer's
knowledge, threatened against it at law or at equity or before
or by any court, governmental agency, board or commission or
any arbitrator which, if adversely determined, would
materially and adversely affect the Insurer's condition
(financial or otherwise) or operations or which
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<PAGE> 19
would materially and adversely effect its ability to perform
its obligations under the Policy, the Insurance Agreement, or
the Indemnification Agreement;
2. The information contained in the
Prospectus under the captions "THE CERTIFICATE INSURANCE
POLICY" and "THE CERTIFICATE INSURER" (the "Certificate
Insurer Information") is limited and does not purport to
provide the scope of disclosure required to be included in a
prospectus for a registrant under the Securities Act of 1933,
as amended, in connection with the public offer and sale of
securities of such registrant. Within such limited scope of
disclosure, the Certificate Insurer Information does not
contain any untrue statement of a material fact or omits to
state a material fact necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading;
3. The tables regarding the Insurer's
capitalization set forth under the heading "THE CERTIFICATE
INSURER" in the Prospectus present fairly the capitalization
of the Insurer as of [________, ____];
4. The consolidated financial statements of
the Insurer as of [________, ____] and [_________, ____] and
for each of the three years ended [________, ____]
incorporated by reference in the Prospectus Supplement (the
"Certificate Insurer Audited Financial Statements"), fairly
present in all material respects the financial condition of
the Insurer as of such date and for the period covered by such
statements in accordance with generally accepted accounting
principles consistently applied. The consolidated financial
statements of the Insurer and its subsidiaries for the nine
months ended [________, ____] and for the periods ending
[________, ____] and [_________, ____] include in the
Quarterly Report on Form 10-Q of the Insurer for the period
ending [________, ____] incorporated by reference into the
Prospectus Supplement (the "(Certificate Insurer Unaudited
Financial Statements") present fairly in all material respects
the financial condition of the Insurer as of such date and for
the period covered by such statements in accordance with
generally accepted accounting principles applied in a manner
consistent with the accounting principles used in preparing
the Insurer Audited Statements and since [________, ____]
there has been no material change in such financial condition
of the Insurer which would materially and adversely affect its
ability to perform its obligations under the Policy.
5. The execution and delivery of the
Insurance Agreement, the Indemnification Agreement and the
Policy and the compliance with the terms and provisions
thereof will not conflict with, result in a breach of, or
constitute a default under any of the terms, provisions or
conditions of, the Restated Charter of By-Laws of the Insurer,
or any agreement indenture or other instrument to which the
Insurer is a party.
6. The issuance of the Policy and the
execution, delivery and performance of the Indemnification
Agreement and the Insurance Agreement have been duly
authorized by all necessary corporate proceedings. No further
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<PAGE> 20
approvals or filings of any kind, including, without
limitation, any further approvals of or further filing with
any governmental agency or other governmental authority, or
any approval of the Insurer's board of directors or
stockholders, are necessary for the Policy, the
Indemnification Agreement and the Insurance Agreement to
constitute the legal, valid and binding obligations of the
Insurer.
The Insurer shall attach to such certificate a true and
correct copy of its certificate or articles of incorporation, as appropriate,
and its bylaws, all of which are in full force and effect on the date of such
certificate.
p. The [Representative/Underwriter] shall have received from
Dewey Ballantine LLP, special counsel to the Company, a survey in form and
substance satisfactory to the [Representative/Underwriter], indicating the
requirements of applicable local law which must be complied with in order to
transfer and service the Mortgage Loans pursuant to the Pooling and Servicing
Agreement and the Company shall have complied with all such requirements.
q. The [Representative/Underwriter] shall have received from
[Counsel], special counsel to the Underwriter[s], such opinion or opinions,
dated the Closing Date, with respect to the issuance and sale of the Offered
[Securities], the Prospectus and such other related matters as the
[Representative/Underwriter] shall reasonably require.
r. The [Representative/Underwriter] and counsel for the
Underwriter[s] shall have received copies of any opinions of counsel to the
Company supplied to the Trustee relating to matters with respect to the
Certificates. Any such opinions shall be dated the Closing Date and addressed to
the Underwriter[s] or accompanied by reliance letters to the Underwriter[s] or
shall state the Underwriter[s] may rely thereon.
s. The [Representative/Underwriter] shall have received such
further information, certificates and documents as the
[Representative/Underwriter] may reasonably have requested not fewer than three
(3) full business days prior to the Closing Date.
t. There shall have been executed and delivered by Advanta
Mortgage Holding Company, the corporate parent of the Company ("AMHC"), a letter
agreement with the Trustee and the Insurer, pursuant to which AMHC agrees to
become jointly and severally liable with the Company and Advanta Mortgage Corp.
USA for the payment of the Joint and Several Obligations (as defined in such
letter agreement).
u. There shall have been executed and delivered by AMHC, the
corporate parent of the Company, a letter agreement with the Underwriter[s] and
the Insurer substantially in the form of Exhibit A hereto, pursuant to which
AMHC agrees to become jointly and severally liable with the Company and Advanta
Mortgage Corp. USA for the payment of the Joint and Several Obligations (as
defined in such letter agreement).
v. Prior to the Closing Date, counsel for the Underwriter[s]
shall have been furnished with such documents and opinions as they may
reasonably require for the purpose of enabling them to pass upon the issuance
and sale of the Offered [Securities] as herein contemplated and related
proceedings or in order to evidence the accuracy and completeness of
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<PAGE> 21
any of the representations and warranties, or the fulfillment of any of the
conditions, herein contained, and all proceedings taken by the Company in
connection with the issuance and sale of the Offered [Securities] as herein
contemplated shall be satisfactory in form and substance to the
[Representative/Underwriter] and counsel for the Underwriter[s].
w. Subsequent to the execution and delivery of this Agreement
none of the following shall have occurred: (i) trading in securities generally
on the New York Stock Exchange, the American Stock Exchange or the
over-the-counter market shall have been suspended or minimum prices shall have
been established on either of such exchanges or such market by the Commission,
by such exchange or by any other regulatory body or governmental authority
having jurisdiction; (ii) a banking moratorium shall have been declared by
Federal or state authorities; (iii) the United States shall have become engaged
in hostilities, there shall have been an escalation of hostilities involving the
United States or there shall have been a declaration of a national emergency or
war by the United States; or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets of the United States
shall be such) as to make it, in the judgment of the
[Representative/Underwriter], impractical or inadvisable to proceed with the
public offering or delivery of the Offered [Securities] on the terms and in the
manner contemplated in the Prospectus.
x. The Offered [Securities] shall have received the ratings
set forth on Schedule A hereto.
If any condition specified in this Section 6 shall not have
been fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the [Representative/Underwriter] by notice to the Company at any
time at or prior to the Closing Date, and such termination shall be without
liability of any party to any other party except as provided in Section 7.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriter[s].
Section 7. Payment of Expenses.
The Company agrees to pay: (a) the costs incident to the authorization,
issuance, sale and delivery of the Offered [Securities] and any taxes payable in
connection therewith; (b) the costs incident to the preparation, printing and
filing under the Securities Act of the Registration Statement and any amendments
and exhibits thereto; (c) the costs of distributing the Registration Statement
as originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), the Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement; (d) the
fees and expenses of qualifying the Offered [Securities] under the securities
laws of the several jurisdictions as provided in Section 5(g) hereof and of
preparing, printing and distributing a Blue Sky Memorandum and a Legal
Investment Survey (including related fees and expenses of counsel to the
Underwriter[s]); (e) any fees charged by securities rating services for rating
the Offered [Securities]; (f) the costs and
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<PAGE> 22
expenses of Dewey Ballantine LLP, counsel to the Company; and (g) all other
costs and expenses incident to the performance of the obligations of the
Company; provided that, except as provided in this Section 7, the Underwriter[s]
shall pay their own costs and expenses, including the costs and expenses of
[Counsel], any transfer taxes on the Offered [Securities] which they may sell
and the expenses of advertising any offering of the Offered [Securities] made by
the Underwriter[s].
If this Agreement is terminated by the
[Representative/Underwriter], in accordance with the provisions of Section 6 or
Section 10, the Company shall reimburse the Underwriter[s] for their respective
reasonable out-of-pocket expenses, including fees and disbursements of
[Counsel], counsel for the Underwriter[s].
Section 8. Indemnification and Contribution.
a. The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act from and against any and all loss,
claim, damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of the Offered [Securities]), to which such
Underwriter or any such controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(iii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus or (iv) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and shall reimburse such Underwriter and each such
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Prospectus or the
Registration Statement in reliance upon and in conformity with written
information (including any Derived Information) furnished to the Company through
the [Representative/Underwriter] specifically for inclusion therein; and
provided, further, that as to any Preliminary Prospectus this indemnity shall
not inure to the benefit of any Underwriter or any controlling person on account
of any loss, claim, damage, liability or action arising from the sale of the
Offered [Securities] to any person by such Underwriter if such Underwriter
failed to send or give a copy of the Prospectus, as amended or supplemented, to
that person within the time required by the Securities Act, and the untrue
statement or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact in the Preliminary Prospectus was
corrected in the Prospectus, unless such failure resulted from non-compliance by
the Company with Section 5(c). For purposes of the last proviso to the
immediately preceding sentence, the term "Prospectus" shall not be deemed to
include the documents incorporated therein by reference, and none of the
Underwriter[s] shall be obligated to send or give any
-22-
<PAGE> 23
supplement or amendment to any document incorporated therein by reference to any
person other than a person to whom such Underwriter had delivered such
incorporated document or documents in response to a written request therefor.
The foregoing indemnity agreement is in addition to any liability which the
Company may otherwise have to any Underwriter[s] or any controlling person of
such Underwriter.
b. [The/Each] Underwriter agrees [severally, and not jointly]
to indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
against any and all loss, claim, damage or liability, or any action in respect
thereof, to which the Company or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iii) any untrue statement or
alleged untrue statement of a material fact contained in the Prospectus or (iv)
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of [the/such] Underwriter
specifically for inclusion therein, and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which [the/any] Underwriter may otherwise have to the Company or any such
director, officer or controlling person.
c. Promptly after receipt by any indemnified party under this
Section 8 of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure, and provided, further, that the
failure to notify any indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by
-23-
<PAGE> 24
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
Any indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel; or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to local counsel) at any time for all such indemnified parties, which
firm shall be designated in writing by the Underwriter[s], if the indemnified
parties under this Section 8 consist of the Underwriter[s] or any of their
controlling persons, or by the Company, if the indemnified parties under this
Section 8 consist of the Company or any of the Company's directors, officers or
controlling persons.
Each indemnified party, as a condition of the indemnity
agreements contained in Section 8(a) and (b), shall use its best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement.
d. [The/Each] Underwriter agrees to deliver to the Company no
later than the date on which the Preliminary Prospectus Supplement and the
Prospectus Supplement is required to be filed pursuant to Rule 424 with a copy
of its Derived Information (defined below) for filing with the Commission on
Form 8-K.
e. [The/Each] Underwriter agrees, assuming all
Company-Provided Information (defined below) is accurate and complete in all
material respects, to severally and not jointly
-24-
<PAGE> 25
indemnify and hold harmless the Company, each of the Company's officers and
directors and each person who controls the Company within the meaning of Section
15 of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, to which they may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of a material fact contained in the Derived Information
provided by such Underwriter, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by him,
her or it in connection with investigating or defending or preparing to defend
any such loss, claim, damage, liability or action as such expenses are incurred.
The obligations of [each of] the Underwriter[s] under this Section 8(e) shall be
in addition to any liability which such Underwriter may otherwise have.
The procedures set forth in Section 8(c) shall be equally
applicable to this Section 8(e).
f. For purposes of this Section 8, the term "Derived
Information" means such portion, if any, of the information delivered to the
Company pursuant to Section 8(d) for filing with the Commission on Form 8-K as:
(i) is not contained in the Prospectus without taking into
account information incorporated therein by reference;
(ii) does not constitute Company-Provided Information; and
(iii) is of the type of information defined as Collateral
term sheets, Structural term sheets or Computational Materials (as such terms
are interpreted in the No-Action Letters).
"Company-Provided Information" means any computer tape
furnished to the Underwriter[s] by the Company concerning the Mortgage Loans
comprising all or a portion of the Trust Estate.
The terms "Collateral term sheet" and "Structural term sheet"
shall have the respective meanings assigned to them in the February 13, 1995
letter (the "PSA Letter") of Cleary, Gottlieb, Steen & Hamilton on behalf of the
Public Securities Association (which letter, and the SEC staff's response
thereto, were publicly available February 17, 1995). The term "Collateral term
sheet" as used herein includes any subsequent Collateral term sheet that
reflects a substantive change in the information presented. The term
"Computational Materials" has the meaning assigned to it in the May 17, 1994
letter (the "Kidder letter" and together with the PSA Letter, the "No-Action
Letters") of Brown & Wood on behalf of Kidder, Peabody & Co., Inc. (which
letter, and the SEC staff's response thereto, were publicly available May 20,
1994).
g. If the indemnification provided for in this Section 8 shall
for any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or (b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
-25-
<PAGE> 26
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriter[s] on the other from
the offering of the Offered [Securities] or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law or if the indemnified party
failed to give the notice required under Section 8(c), in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriter[s] on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations.
The relative benefits of the Underwriter[s] and the Company
shall be deemed to be in such proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions.
The relative fault of the Underwriter[s] and the Company shall
be determined by reference to whether the untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by one of the Underwriter[s], the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission and other equitable
considerations.
The Company and the Underwriter[s] agree that it would not be
just and equitable if contributions pursuant to this Section 8(g) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section 8(g) shall be deemed to include, for purposes of this Section 8(g), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
h. For purposes of this Section 8, in no case shall [the/any]
Underwriter be responsible for any amount in excess of (x) the amount received
by [the/such] Underwriter in connection with its resale of the Offered
[Securities] over (y) the amount paid by [the/such] Underwriter to the Company
for the Offered [Securities] purchased by [the/such] Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
i. The Underwriter[s] [confirms/severally confirm] that the
information set forth (i) in the Prospectus Supplement relating to market making
and (ii) in the third paragraph under the caption "Underwriting" in the
Prospectus Supplement, together with the Derived Information, is correct and
constitutes the only information furnished in writing to the Company by or on
behalf of the Underwriter[s] specifically for inclusion in the Registration
Statement and the Prospectus.
Section 9. Representations, Warranties and Agreements to
Survive Delivery.
-26-
<PAGE> 27
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter[s] or controlling persons
thereof, or by or on behalf of the Company and shall survive delivery of any
Offered [Securities] to the Underwriter[s].
Section 10. Termination of Agreement.
The [Representative/Underwriter] may terminate this Agreement immediately upon
notice to the Company, at any time at or prior to the Closing Date if any of the
events or conditions described in Section 6(w) of this Agreement shall occur and
be continuing. In the event of any such termination, the covenant set forth in
Section 5(g), the provisions of Section 7, the indemnity agreement set forth in
Section 8, and the provisions of Sections 8 and 9 shall remain in effect.
Section 11. Notices.
All statements, requests, notices and agreements hereunder shall be in
writing, and:
a. if to the Underwriter[s], shall be delivered or sent by
mail, telex or facsimile transmission to [Underwriter/Representative], as
[Underwriter/Representative of the Underwriters], [Address], Attention:
[_________] (fax: (___) ________);
b. if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to Advanta Conduit Receivables, Inc. 10790
Rancho Bernardo Road, San Diego, California 92127 Attention: General Counsel
(Fax: 619-674-3592).
Section 12. Persons Entitled to the Benefit of this Agreement.
This Agreement shall inure to the benefit of and be binding upon the
Underwriter[s] and the Company, and their respective successors. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except that the representations, warranties, indemnities and agreements
contained in this Agreement shall also be deemed to be for the benefit of the
person or persons, if any, who control the Underwriter[s] within the meaning of
Section 15 of the Securities Act, and for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement and
any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 12, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
Section 13. [Default by One of the Underwriters.
If one of the Underwriters shall fail on the Closing Date to purchase the
Offered [Securities] which it is obligated to purchase hereunder (the "Defaulted
Certificates"), the remaining Underwriter[s] (the "Non-Defaulting Underwriter"),
shall have the right, but not the obligation within one (1) Business Day
thereafter, to make arrangements to purchase all, but not less than all, of the
Defaulted Certificates upon the terms herein set forth; if, however, the
Non-Defaulting
-27-
<PAGE> 28
Underwriter shall not have completed such arrangements within such one (1)
Business Day period, then this Agreement shall terminate without liability on
the part of the Non-Defaulting Underwriter.
No action taken pursuant to this Section 13 shall relieve the
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Non-Defaulting Underwriter or the
Company shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements.]
Section 14. Survival.
The respective indemnities, representations, warranties and agreements of the
Company and the Underwriter[s] contained in this Agreement, or made by or on
behalf of them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Certificates and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
Section 15. Definition of the Term "Business Day".
For purposes of this Agreement, "Business Day" means any day on which the New
York Stock Exchange, Inc. is open for trading.
Section 16. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED IN ACCORDANCE WITH SUCH LAWS
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, SPECIFIED TIMES OF DAY REFER
TO NEW YORK CITY TIME.
Section 17. Counterparts.
This Agreement may be executed in counterparts and, if executed in more than
one counterpart, the executed counterparts shall each be deemed to be an
original but all such counterparts shall together constitute one and the same
instrument.
Section 18. Headings.
The headings herein are inserted for convenience of reference only and are not
intended to be part of, or to affect the meaning or interpretation of, this
Agreement.
Section 19. [Representations of Underwriters.
The Representative will act for the several Underwriters in connection with
the transactions contemplated by this Agreement, and any action under this
Agreement taken by the Representative will be binding upon all of the
Underwriters.]
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<PAGE> 29
If the foregoing correctly sets forth the agreement between
the Company and the Underwriter[s], please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
ADVANTA CONDUIT RECEIVABLES, INC.
By: ____________________________
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
[UNDERWRITER/REPRESENTATIVE],
as [Representative/Underwriter of the Underwriter[s]]
By: ______________________________
Name:
Title:
-29-
<PAGE> 30
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SCHEDULE A
- -------------------------------------------------------------------------------------------------------------
INITIAL PRINCIPAL
AMOUNT OF OFFERED PURCHASE PRICE TO
[SECURITIES] UNDERWRITER[S]
REQUIRED RATINGS PURCHASED BY DISREGARDING
CLASS [RATING AGENCIES] UNDERWRITER[S] COUPON ACCRUED INTEREST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[First Class] $____________ [Fixed/ __________%(1)
Variable]
- -------------------------------------------------------------------------------------------------------------
[Second Class] $____________ [Fixed/ __________%(1)
Variable]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Such amount does not include the accrued interest from ____________, _____.
- 1 -
<PAGE> 31
SCHEDULE I
[List of Underwriters]
- 2 -
<PAGE> 32
[_____________, _____]
ADVANTA MORTGAGE HOLDING COMPANY GUARANTY
[Underwriter/[Representative]
As Representative of the Underwriters
named in Schedule I]
[Underwriter's/Representative's Address]
[Insurer]
[Insurer's Address]
Re: Underwriting Agreement dated [___________, _____]
(the "Underwriting Agreement") between Advanta
Conduit Receivables, Inc. ("Advanta") and
[[Underwriter] (the "Underwriter"/[Representative], as
representative of the Underwriters (the
"Representative")] and the Indemnification Agreement
dated as of [___________, _____] (the "Indemnification
Agreement") among [Insurer] (the "Insurer"), Advanta
and [Underwriter/Representative]
----------------------------------------------------
Ladies and Gentlemen:
Pursuant to the Underwriting Agreement and the Indemnification
Agreement (together, the "Designated Agreements"), Advanta has undertaken
certain financial obligations with respect to the indemnification of the
Underwriter[s] and the Insurer with respect to the Registration Statement, the
Prospectus and the Prospectus Supplement described in the Designated Agreements.
Any financial obligations of Advanta under the Designated Agreements, whether or
not specifically enumerated in this paragraph, are hereinafter referred to as
the "Joint and Several Obligations"; provided, however, the "Joint and Several
Obligations" shall mean only the financial obligations of Advanta under the
Designated Agreements (including the payment of money damages for a breach of
any of Advanta's obligations under the Designated Agreement, whether financial
or otherwise) but shall not include any obligations not relating to the payment
of money.
As a condition of their respective executions of the
Underwriting Agreement and of the Indemnification Agreement, the Underwriter[s]
and the Insurer have required the undersigned, Advanta Mortgage Holding Company
("AMHC"), the parent corporation of Advanta, to acknowledge its
joint-and-several liability with Advanta for the payment of the Joint and
Several Obligations under the Designated Agreements.
Now, therefore, the Underwriter[s], the Insurer and AMHC do hereby agree that:
<PAGE> 33
(i) AMHC hereby agrees to be absolutely and
unconditionally jointly and severally liable with
Advanta to the Underwriter[s] for the payment of the
Joint and Several Obligations under the Underwriting
Agreement.
(ii) AMHC hereby agrees to be absolutely and
unconditionally jointly and severally liable with
Advanta to the Insurer for the payment of the Joint
and Several Obligations under the Indemnification
Agreement.
(iii) AMHC may honor its obligations hereunder either by
direct payment of any Joint and Several Obligations
or by causing any Joint and Several Obligations to be
paid to the Underwriters and to the Insurer by
Advanta or another affiliate of AMHC.
Capitalized terms used herein and not defined herein shall
have their respective meanings set forth in the Agreement.
2
<PAGE> 34
Very truly yours,
ADVANTA MORTGAGE HOLDING COMPANY
By: ______________________________
Name: [Officer]
Title: [Officer's Title]
[UNDERWRITER/REPRESENTATIVE,
as Representative of the Underwriters]
By: _____________________________
Name:
Title:
[INSURER]
By: _____________________________
Name:
Title:
AMHC Guaranty to the Underwriter[s]
3
<PAGE> 1
Exhibit 4.1
POOLING AND SERVICING AGREEMENT
Relating to
[TRUST]
Among
ADVANTA CONDUIT RECEIVABLES, INC.,
as Sponsor,
ADVANTA MORTGAGE CORP. USA,
as Master Servicer,
and
[TRUSTEE]
as Trustee
Dated as of [________, ____]
<PAGE> 2
TABLE OF CONTENTS
(Not a Part of this Agreement)
<TABLE>
<CAPTION>
Page
<S> <C>
Parties..................................................................................................1
Recitals.................................................................................................1
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.............................................................6
Section 1.1. Definitions.........................................................................6
Section 1.2. Use of Words and Phrases...........................................................36
Section 1.3. Captions; Table of Contents........................................................36
Section 1.4. Opinions...........................................................................36
ARTICLE II ESTABLISHMENT AND ORGANIZATION OF THE TRUST..................................................37
Section 2.1. Establishment of the Trust.........................................................37
Section 2.2. Office.............................................................................37
Section 2.3. Purposes and Powers................................................................37
Section 2.4. Appointment of the Trustee; Declaration of Trust...................................37
Section 2.5. Expenses of the Trust..............................................................37
Section 2.6. Ownership of the Trust.............................................................37
Section 2.7. Situs of the Trust.................................................................38
Section 2.8. [Miscellaneous REMIC Provisions.]..................................................38
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SPONSOR AND THE MASTER SERVICER;
COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS.......................................41
Section 3.1. Representations and Warranties of the Sponsor......................................41
Section 3.2. Representations and Warranties of the Master Servicer..............................43
Section 3.3. Representations and Warranties of the Sponsor with Respect to the Mortgage
Loans...........................................................................45
Section 3.4. Covenants of Sponsor to Take Certain Actions with Respect to the Mortgage
Loans In Certain Situations.....................................................47
Section 3.5. Conveyance of the Mortgage Loans...................................................48
Section 3.6. Acceptance by Trustee; Certain Substitutions of Mortgage Loans;
Certification by Trustee........................................................50
Section 3.7. Cooperation Procedures.............................................................51
Section 3.8. Conveyance of the Subsequent Mortgage Loans........................................52
ARTICLE IV ISSUANCE AND SALE OF CERTIFICATES............................................................54
Section 4.1. Issuance of Certificates...........................................................54
Section 4.2. Sale of Certificates...............................................................54
ARTICLE V CERTIFICATES AND TRANSFER OF INTERESTS........................................................55
Section 5.1. Terms..............................................................................55
Section 5.2. Forms..............................................................................55
Section 5.3. Execution, Authentication and Delivery.............................................56
Section 5.4. Registration and Transfer of Certificates..........................................56
Section 5.5. Mutilated, Destroyed, Lost or Stolen Certificates..................................58
Section 5.6. Persons Deemed Owners..............................................................58
Section 5.7. Cancellation.......................................................................59
Section 5.8. Limitation on Transfer of Ownership Rights.........................................59
Section 5.9. Assignment of Rights...............................................................60
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI COVENANTS ...................................................................................60
Section 6.1. Distributions......................................................................60
Section 6.2. Money for Distributions to be Held in Trust; Withholding...........................60
Section 6.3. Protection of Trust Estate.........................................................61
Section 6.4. Performance of Obligations.........................................................61
Section 6.5. Negative Covenants.................................................................62
Section 6.6. No Other Powers....................................................................62
Section 6.7. Limitation of Suits................................................................62
Section 6.8. Unconditional Rights of Owners to Receive Distributions............................63
Section 6.9. Rights and Remedies Cumulative.....................................................63
Section 6.10. Delay or Omission Not Waiver.......................................................63
Section 6.11. Control by Owners..................................................................63
ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES........................................................64
Section 7.1. Collection of Money................................................................64
Section 7.2. Establishment of Accounts..........................................................64
Section 7.3. The Certificate Insurance Policy...................................................64
Section 7.4. Pre-Funding Account and Capitalized Interest Account...............................66
Section 7.5. Flow of Funds......................................................................67
Section 7.6. Investment of Accounts.............................................................70
Section 7.7. Eligible Investments...............................................................71
Section 7.8. Reports by Trustee.................................................................72
Section 7.9. Additional Reports by Trustee......................................................75
Section 7.10. Supplemental Interest Payment Account and Supplemental Interest Payments...........75
ARTICLE VIII SERVICING AND ADMINISTRATION OF MORTGAGE LOANS.............................................76
Section 8.1. Master Servicer and Sub-Servicers..................................................76
Section 8.2. Collection of Certain Mortgage Loan Payments.......................................79
Section 8.3. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers.................79
Section 8.4. Successor Sub-Servicers............................................................79
Section 8.5. Liability of Master Servicer.......................................................79
Section 8.6. No Contractual Relationship Between Sub-Servicer and Trustee or the Owners.........79
Section 8.7. Assumption or Termination of Sub-Servicing Agreement by Trustee....................80
Section 8.8. Principal and Interest Account.....................................................80
Section 8.9. Delinquency Advances, Compensating Interest and Servicing Advances.................82
Section 8.10. Purchase of Mortgage Loans.........................................................83
Section 8.11. Maintenance of Insurance...........................................................83
Section 8.12. Due-on-Sale Clauses; Assumption and Substitution Agreements........................84
Section 8.13. Realization Upon Defaulted Mortgage Loans..........................................85
Section 8.14. Trustee to Cooperate; Release of Files.............................................86
Section 8.15. Servicing Compensation.............................................................87
Section 8.16. Annual Statement as to Compliance..................................................88
Section 8.17. Annual Independent Certified Public Accountants' Reports...........................88
Section 8.18. Access to Certain Documentation and Information Regarding the Mortgage
Loans...........................................................................88
Section 8.19. Assignment of Agreement............................................................88
Section 8.20. Removal of Master Servicer; Resignation of Master Servicer.........................89
Section 8.21. Inspections by the Certificate Insurer and the Trustee; Errors and
Omissions Insurance.............................................................93
</TABLE>
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<TABLE>
<S> <C>
Section 8.22. Merger, Conversion, Consolidation or Succession to Business of Master
Servicer........................................................................93
Section 8.23. Notices of Material Events.........................................................93
ARTICLE IX TERMINATION OF TRUST.........................................................................94
Section 9.1. Termination of Trust...............................................................94
Section 9.2. Clean-Up Call Termination..........................................................94
Section 9.3. Termination Upon Loss of REMIC Status..............................................95
Section 9.4. Disposition of Proceeds............................................................96
Section 9.5. Netting of Amounts.................................................................97
ARTICLE X THE TRUSTEE...................................................................................97
Section 10.1. Certain Duties and Responsibilities................................................97
Section 10.2. Removal of Trustee for Cause.......................................................98
Section 10.3. Certain Rights of the Trustee......................................................99
Section 10.4. Not Responsible for Recitals or Issuance of Certificates..........................100
Section 10.5. May Hold Certificates.............................................................100
Section 10.6. Money Held in Trust...............................................................100
Section 10.7. No Lien for Fees..................................................................100
Section 10.8. Corporate Trustee Required; Eligibility...........................................100
Section 10.9. Resignation and Removal; Appointment of Successor.................................101
Section 10.10. Acceptance of Appointment by Successor Trustee....................................102
Section 10.11. Merger, Conversion, Consolidation or Succession to Business of the Trustee........103
Section 10.12. Reporting; Withholding............................................................103
Section 10.13. Liability of the Trustee..........................................................103
Section 10.14. Appointment of Co-Trustee or Separate Trustee.....................................104
ARTICLE XI MISCELLANEOUS...............................................................................105
Section 11.1. Compliance Certificates and Opinions..............................................105
Section 11.2. Form of Documents Delivered to the Trustee........................................105
Section 11.3. Acts of Owners....................................................................106
Section 11.4. Notices, etc., to Trustee.........................................................106
Section 11.5. Notices and Reports to Owners; Waiver of Notices..................................107
Section 11.6. Rules by Trustee and Sponsor......................................................107
Section 11.7. Successors and Assigns............................................................107
Section 11.8. Severability......................................................................107
Section 11.9. Benefits of Agreement.............................................................107
Section 11.10. Legal Holidays....................................................................107
Section 11.11. Governing Law.....................................................................108
Section 11.12. Counterparts......................................................................108
Section 11.13. Usury.............................................................................108
Section 11.14. Amendment.........................................................................108
Section 11.15. REMIC Status; Taxes...............................................................109
Section 11.16. Additional Limitation on Action and Imposition of Tax.............................111
Section 11.17. Appointment of Tax Matters Person.................................................112
Section 11.18. The Certificate Insurer...........................................................112
Section 11.19. Maintenance of Records............................................................112
Section 11.20. Notices...........................................................................112
SCHEDULE I -- Schedules of Mortgage Loans
EXHIBIT A -- Form of Certificates
EXHIBIT B -- Contents of Mortgage Loan File
EXHIBIT C -- Form of Certificate Re: Mortgage Loans Prepaid in Full After the Cut-Off Date
</TABLE>
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<TABLE>
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EXHIBIT D -- Form of Trustee's Acknowledgement of Receipt
EXHIBIT E -- Form of Certification
EXHIBIT F -- Form of Delivery Order
EXHIBIT G -- Form of [Residual Class] Tax Matters Transfer Certificate
EXHIBIT H -- Power of Attorney
EXHIBIT I -- Form of Monthly Report
EXHIBIT J -- Form of Master Servicer's Trust Receipt
EXHIBIT K -- Form of Subsequent Transfer Agreement
EXHIBIT L -- Form of Lost Note Affidavit
</TABLE>
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POOLING AND SERVICING AGREEMENT, relating to [TRUST], dated as
of [________, ____], by and among ADVANTA CONDUIT RECEIVABLES, INC., a Nevada
corporation, in its capacity as Sponsor of the Trust (the "Sponsor"), ADVANTA
MORTGAGE CORP. USA, a Delaware corporation, in its capacity as master servicer
(the "Master Servicer"), and [TRUSTEE], a [type of organization], in its
capacity as trustee (the "Trustee").
WHEREAS, the Sponsor wishes to establish a trust, and to
provide for the allocation and sale of the beneficial interests therein and the
maintenance and distribution of the trust estate;
WHEREAS, the Master Servicer has agreed to service the
Mortgage Loans, which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when
executed and authenticated by the Trustee valid instruments, and to make this
Agreement a valid agreement, in accordance with their and its terms, have been
done;
WHEREAS,[Trustee] is willing to serve in the capacity of
Trustee hereunder; and
WHEREAS, [Certificate Insurer] (the "Certificate Insurer") is
intended to be a third-party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Sponsor, the Master Servicer and the
Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
SECTION 1.1. DEFINITIONS.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Accepted Servicing Practices": The Master Servicer's normal
servicing practices in servicing and administering mortgage loans for its own
account, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Mortgage Loans in the jurisdictions in
which the related Properties are located and will give due consideration to the
Certificateholders' reliance on the Master Servicer.
"Account": Any account established in accordance with Sections
7.2, 7.4, 7.10 or 8.8 hereof each of which shall be established at a Designated
Depository Institution.
"Accrual Period": On any Payment Date, (x) with respect to the
Group I Certificates, the immediately preceding calendar month and (y) with
respect to the Group II Certificates, the period commencing on the immediately
preceding Payment Date (or the Startup
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Day in the case of the first Payment Date) to and including the day prior to the
current Payment Date. Calculations of interest on the Group I Certificates will
be made on the basis of a 360-day year consisting of twelve thirty-day months
and calculations of interest on the Group II Certificates will be made on the
basis of the actual number of days elapsed in the related Accrual Period in a
year of 360 days.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust pursuant to Section 3.8(b) of this Agreement,
notice, which shall be given not later than two Business Days prior to the
related Subsequent Transfer Date, of the Sponsor's designation of Subsequent
Mortgage Loans to be sold to the Trust, such notice shall include the
approximate aggregate Loan Balance and the approximate weighted average Coupon
Rate of such Subsequent Mortgage Loans.
"Advanta Mortgage Files": For any Mortgage Loan identified on
the related Schedule of Mortgage Loans with an "A" code, the items listed below:
(a) the original Note, or , if such Note is lost, a certified
copy thereof along with a Lost Note Affidavit in the form of Exhibit L hereto,
bearing all intervening endorsements, endorsed either (i) "Pay to the order of
[Trustee], as custodian or trustee under the applicable custody or trust
agreement, without recourse" or (ii) "Pay to the order of [Trustee], as
custodian or trustee under the applicable custody or trust agreement, without
recourse, Advanta Mortgage Corp. USA as Master Servicer," or (iii) "Pay to the
order of [Trustee], as custodian or trustee" by [Seller, signature, name, title]
and signed in the name of the previous owner by an authorized officer (in the
event that the Mortgage Loan was acquired by the previous owner in a merger the
signature must be in the following form: "[the previous owner], successor by
merger to [name of predecessor]", in the event that the Mortgage Loan was
acquired or originated while doing business under another name, the signature
must be in the following form: "[the previous owner], formerly known as
[previous name]" or (iv) "Pay to the order of [Trustee], without recourse". The
original Note should be accompanied by any rider made in connection with the
origination of the related Mortgage Loan;
(b) the original of any guarantee executed in connection with
the Note (if any);
(c) the original Mortgage with evidence of recording thereon
or copies certified by the related recording office or, if the original Mortgage
has not yet been returned from the recording office, a certified copy of the
Mortgage;
(d) the originals of all assumption, modification,
consolidation or extension agreements; and
(e) the originals of all intervening assignments of Mortgage,
showing a complete chain of assignment from origination to the related Seller,
including warehousing assignments, with evidence of recording thereon (or, if an
original intervening assignment has not been returned from the recording office,
a certified copy thereof.
"Affiliated Originators": Advanta Mortgage Corp. USA, a
Delaware corporation, Advanta Bank Corp., a Utah industrial loan corporation,
Advanta Mortgage Corp. Midatlantic, a Pennsylvania corporation, Advanta Mortgage
Corp. Midatlantic II, a Pennsylvania corporation, Advanta Mortgage Corp.
Midwest, a Pennsylvania corporation, Advanta Mortgage Corp. of New Jersey, a New
Jersey corporation, Advanta Mortgage Corp. Northeast, a New York corporation,
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Advanta National Bank, a national banking association, Advanta Finance Corp., a
Nevada corporation.
"Aggregate Certificate Principal Balance": As of any date of
determination thereof, the sum of the then outstanding Certificate Principal
Balance of the Class [A] Certificates.
"Agreement": This Pooling and Servicing Agreement, as it may
be amended from time to time, and including the Exhibits hereto.
"AMHC": Advanta Mortgage Holding Company, a Delaware
corporation and the corporate parent of Advanta Mortgage Corp. USA, and the
indirect corporate parent of Advanta Conduit Receivables, Inc.
"Appraised Value": The appraised value of any Property based
upon the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Property at such time of origination, if
such sales price is less than such appraised value.
"ARM Group Available Funds Cap Rate": As of any Payment Date,
an amount, expressed as a per annum rate, equal to (a) the sum of (i) the
aggregate amount of interest accrued and collected (or advanced) at the Coupon
Rates on all of the Mortgage Loans in the Group II Pool for the related
Remittance Period minus (ii) the aggregate of the Servicing Fee, the Premium
Amount and the Trustee's Fee, in each case relating to the Group II Pool, on
such Payment Date, and minus (iii) commencing on the seventh Payment Date
following the Startup Day, an amount equal to 0.50% per annum times the
aggregate principal balance of the Mortgage Loans in Group II as of the
beginning of such related Remittance Period, divided by (b) the aggregate
principal balance of the Mortgage Loans in Group II as of the beginning of the
related Remittance Period, calculated on the basis of a 360-day year and the
actual number of days elapsed.
"Authorized Officer": With respect to any Person, any person
who is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the Trustee,
the Sponsor and the Master Servicer, initially including those individuals whose
names appear on the lists of Authorized Officers delivered on the Startup Day.
"Available Funds": Group I Available Funds or Group II
Available Funds.
"Available Funds Cap Rate": The Fixed Rate Group Available
Funds Cap Rate or the ARM Group Available Funds Cap Rate, as applicable.
"Available Funds Shortfall": As defined in Section
7.5(b)(D)(1) hereof.
"Balance Ratio": As defined in Section 2.8(b) hereof.
"Balloon Loan": Any Mortgage Loan which has an amortization
schedule which extends beyond its maturity date, resulting in a relatively large
unamortized principal balance due in a single payment at maturity.
"Benefit Plan Entity": As defined in Section 5.8(b) hereof.
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"Business Day": Any day that is not a Saturday, Sunday or
other day on which the Certificate Insurer, the Master Servicer or the Sponsor
is closed or commercial banking institutions in the State of New York, the State
of California or in the city in which the principal corporate trust office of
the Trustee is located, are authorized or obligated by law or executive order to
be closed.
"Capitalized Interest Account": The Capitalized Interest
Account established in accordance with Section 7.2 hereof and maintained by the
Trustee.
"Certificate": Any one of the Class [A] Certificates and the
[Residual Class] Certificates, each representing the interests and the rights
described in this Agreement.
"Certificate Account": The Certificate Account established in
accordance with Section 7.2 hereof and maintained by the Trustee.
"Certificate Insurance Policy": The certificate guaranty
insurance policy dated [________, ____] issued by the Certificate Insurer to the
Trustee for the benefit of the Owners of the Class [A] Certificates.
"Certificate Insurer": [Certificate Insurer].
"Certificate Insurer Default": Any one of the following events
shall have occurred and be continuing:
(a) The Certificate Insurer shall have failed to make a
payment required under the Certificate Insurance Policy;
(b) The Certificate Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the United
States Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made
a general assignment for the benefit of its creditors, or (iii) had an order for
relief entered against it under the United States Bankruptcy Code or any other
similar Federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization which is final and nonappealable; or
(c) A court of competent jurisdiction, the New York Department
of Insurance, or other competent regulatory authority shall have entered a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Certificate Insurer or for all or any material portion
of its property or (ii) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Certificate Insurer (or the taking of
possession of all or any material portion of the property of the Certificate
Insurer).
"Certificate Principal Balance": With respect to any Class [A]
Certificate as of any date of determination, the Original Certificate Principal
Balance less any principal amounts actually distributed on such Class [A]
Certificates with respect to the Principal Distribution Amount pursuant to
Section 7.5(b)(F) hereof on all prior Payment Dates.
As of any Payment Date with respect to the Class [A-1] and the Class [A-2]
Certificates, the Class [A-1] Certificate Principal Balance or the Class [A-2]
Certificate Principal Balance, respectively, as of such Payment Date. The
[Residual Class] Certificates do not have a Certificate Principal Balance.
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"Civil Relief Act": The Soldiers and Sailors' Civil Relief Act
of 1940, as amended from time to time.
"Civil Relief Act Shortfalls": Interest shortfalls resulting
from the application of the Civil Relief Act.
"Class": Any Class of the Class [A] Certificates, the Class
[B] Certificates or the [Residual Class] Certificates.
"Class [A] Certificate": Any one of the Class [A-1]
Certificates or the Class [A-2] Certificates.
"Class [A] Current Interest": With respect to any Payment
Date, the Class [A-1] Current Interest or the Class [A-2] Current Interest.
"Class [A] Distribution Amount": The sum of the Class [A-1]
Distribution Amount and the Class [A-2] Distribution Amount.
"Class [A] Interest Carry Forward Amount": With respect to any
Payment Date, the Class [A-1] Interest Carry Forward Amount or the Class [A-2]
Interest Carry Forward Amount.
"Class [A-1] Certificate": Any one of the Certificates
designated on the face thereof as a Class [A-1] Certificate, substantially in
the form annexed hereto as Exhibit [A-1], authenticated and delivered by the
Trustee, representing the right to distributions as set forth herein.
"Class [A-1] Certificate Principal Balance": As of any date of
determination, the Original Certificate Principal Balance of all Class [A-1]
Certificates less any principal amounts actually distributed with respect to the
Class [A-1] Certificates pursuant to Section 7.5(b)(F) hereof on all prior
Payment Dates.
"Class [A-1] Certificate Termination Date": The Payment Date
on which the Class [A-1] Certificate Principal Balance is reduced to zero.
"Class [A-1] Current Interest": With respect to any Payment
Date, the amount of interest accrued on the Class [A-1] Certificate Principal
Balance immediately prior to such Payment Date during the related Accrual Period
at the Class [A-1] Pass-Through Rate; provided, that such amount will be reduced
by the Class [A-1] Certificates' pro rata share of any Civil Relief Act
Shortfalls relating to Group I during the related Remittance Period.
"Class [A-1] Distribution Amount": With respect to any Payment
Date, the sum of (x) the Class [A-1] Current Interest, (y) the Class [A-1]
Interest Carry Forward Amount, if any, and (z) the Group I Class [A] Principal
Distribution Amount payable to the Owners of Class [A-1] Certificates pursuant
to Section 7.5(b)(F) hereof.
"Class [A-1] Interest Carry Forward Amount": With respect to
any Payment Date, the sum of (x) the amount, if any, by which (i) the sum of (A)
the Class [A-1] Current Interest as of the immediately preceding Payment Date
and (B) in the event of a Certificate Insurer Default, any unpaid Class [A-1]
Interest Carry Forward Amount, as calculated up through the previous Payment
Date and outstanding on such immediately preceding Payment Date,
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exceeds (ii) the amount of the actual distribution with respect to interest made
to the Owners of the Class [A-1] Certificates on such immediately preceding
Payment Date and (y) 30 days' interest on such amount at the Class [A-1]
Pass-Through Rate.
"Class [A-1] Pass-Through Rate": The Class [A-1] Pass-Through
Rate will be equal to, with respect to any Payment Date, [___%] per annum.
"Class [A-2] Certificate": Any one of the Certificates
designated on the face thereof as a Class [A-2] Certificate, substantially in
the form annexed hereto as Exhibit [A-2], authenticated and delivered by the
Trustee, representing the right to distributions as set forth herein.
"Class [A-2] Certificate Principal Balance": As of any date of
determination, the Original Certificate Principal Balance of all Class [A-2]
Certificates less any principal amounts actually distributed with respect to the
Class [A-2] Certificates pursuant to Section 7.5(b)(F) hereof on all prior
Payment Dates.
"Class [A-2] Certificate Termination Date": The Payment Date
on which the Class [A-2] Certificate Principal Balance is reduced to zero.
"Class [A-2] Current Interest": With respect to any Payment
Date, the amount of interest accrued on the Class [A-2] Certificate Principal
Balance immediately prior to such Payment Date during the related Accrual Period
at the Class [A-2] Pass-Through Rate; provided, that such amount will be reduced
by the Class [A-2] Certificates' pro rata share of any Civil Relief Act
Shortfalls relating to Group I during the related Remittance Period.
"Class [A-2] Distribution Amount": With respect to any Payment
Date, the sum of (x) the Class [A-2] Current Interest, (y) the Class [A-2]
Interest Carry Forward Amount, if any, and (z) the Group I Class [A] Principal
Distribution Amount payable to the Owners of Class [A-2] Certificates pursuant
to Section 7.5(b)(F) hereof.
"Class [A-2] Interest Carry Forward Amount": With respect to
any Payment Date, the sum of (x) the amount, if any, by which (i) the sum of (A)
the Class [A-2] Current Interest as of the immediately preceding Payment Date
and (B) in the event of a Certificate Insurer Default, any unpaid Class [A-2]
Interest Carry Forward Amount, as calculated up through the previous Payment
Date and outstanding on such immediately preceding Payment Date, exceeds (ii)
the amount of the actual distribution with respect to interest made to the
Owners of the Class [A-2] Certificates on such immediately preceding Payment
Date and (y) 30 days' interest on such amount at the Class [A-2] Pass-Through
Rate.
"Class [A-2] Pass-Through Rate": The Class [A-2] Pass-Through
Rate will be equal to the lesser of (i)(a) with respect to any Payment Date
which occurs on or prior to the Step-Up Payment Date, LIBOR plus [____%] per
annum or (b) with respect to any Payment Date thereafter, LIBOR plus [____%] per
annum and (ii) the ARM Group Available Funds Cap Rate for such Payment Date.
"Class [A-2] Supplemental Interest Amount": With respect to
any Payment Date, the excess, if any, of (x) the Class [A-2] Current Interest
Amount due on the Class [A-2] Certificates calculated using the Formula
Pass-Through Rate applicable to such Payment Date over (y) the interest due on
such Class calculated at the ARM Group Available Funds Cap Rate applicable to
such Payment Date.
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"Class [A-2] Supplemental Interest Payment Account": The Class
[A-2] Supplemental Interest Payment Account established in accordance with
Section 7.10(a) hereof and maintained by the Trustee.
"Class [A-2] Supplemental Interest Shortfall Amount": As
defined in Section 7.10(b) hereof.
"Class [A-2] Supplemental Interest Shortfall Carry-Forward
Amount": With respect to any Payment Date, the amount, if any, by which (i) the
sum of (A) the Class [A-2] Supplemental Interest Shortfall as of the immediately
preceding Payment Date and (B) any unpaid Class [A-2] Supplemental Interest
Shortfalls, as calculated up through the previous Payment Date and outstanding
on such immediately preceding Payment Date, exceeds (ii) the amount of the
actual distributions made on account of the Supplemental Interest Rights on such
immediately preceding Payment Date.
"Class [B] Certificate": Any one of the Certificates
designated on the face thereof as a Class [B] Certificate, substantially in the
form annexed hereto as Exhibit [A-B], authenticated and delivered by the
Trustee, representing the right to distributions as set forth herein. The Class
[B] Certificates represent a class of "regular interests" in the Upper-Tier
REMIC.
"Class [B] Distribution Amount": With respect to any Payment
Date, the amount payable to Class [B] pursuant to footnotes 4 and 5 of Section
2.8(c).
"Class [B] Pass-Through Rate": With respect to any Payment
Date, the interest payable at the Group I Net Weighted Average Coupon Rate and
the Group II Net Weighted Average Coupon Rate on the Group I and Group II
Mortgage Loans in excess of the interest payable on the Class [A] Certificates,
expressed as a per annum rate on the aggregate Loan Balance of the Mortgage
Loans in Group I and Group II.
"[Residual Class] Certificate": Any one of the Certificates
designated on the face thereof as a [Residual Class] Certificate, substantially
in the form annexed hereto as Exhibit A-R, authenticated and delivered by the
Trustee, representing the right to distributions as set forth herein, and
evidencing an interest designated as the "residual interest" in the Upper-Tier
REMIC for the purposes of the REMIC Provisions.
"Clean-Up Call Date": The Payment Date after the Initial
Clean-Up Call Date on which the Redeeming Party elects to exercise its right to
purchase all of the Mortgage Loans pursuant to Section 9.2 hereof.
"Code": The Internal Revenue Code of 1986, as amended and any
successor statute.
"Combined Loan-to-Value Ratio": With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Property and with
respect to any Junior Mortgage Loan, the percentage equal to (a) the sum of (i)
the remaining principal balance, as of origination of the Junior Mortgage Loan,
as appropriate, of the Senior Lien note(s) relating to such Junior Mortgage
Loan, as appropriate, and (ii) the Original Principal Amount of the Note
relating to such Junior Mortgage Loan, as appropriate, divided by (b) the
Appraised Value.
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"Commitment": The Commitment to issue a Certificate Guaranty
Insurance Policy dated [__________, _____]and issued by the Certificate Insurer.
"Compensating Interest": As defined in Section 8.9(b) hereof.
"Conduit Acquisition Trust": The trust described in the
Pooling and Servicing Agreement dated as of May 1, 1997 among Advanta Mortgage
Conduit Services, Inc., as sponsor, Bankers Trust Company of California, N.A.,
as trustee, Advanta Mortgage Corp. USA, as the master servicer, and the
"Borrowers" named therein.
"Conduit Mortgage Files": For any Mortgage Loan identified on
the related Schedule of Mortgage Loans with a "B" code, the items listed below:
(a) the original Note, or , if such Note is lost, a certified
copy thereof along with a Lost Note Affidavit in the form of Exhibit L hereto,
bearing all intervening endorsements, endorsed either (i) "Pay to the order of
[Trustee], as custodian or trustee under the applicable custody or trust
agreement, without recourse" or (ii) "Pay to the order of [Trustee], as
custodian or trustee under the applicable custody or trust agreement, without
recourse, Advanta Mortgage Corp. USA as Master Servicer," or (iii) "Pay to the
order of [Trustee], as custodian or trustee" by [Seller, signature, name, title]
and signed in the name of the previous owner by an authorized officer (in the
event that the Mortgage Loan was acquired by the previous owner in a merger the
signature must be in the following form: "[the previous owner], successor by
merger to [name of predecessor]", in the event that the Mortgage Loan was
acquired or originated while doing business under another name, the signature
must be in the following form: "[the previous owner], formerly known as
[previous name]" or (iv) "Pay to the order of [Trustee], without recourse". The
original Note should be accompanied by any rider made in connection with the
origination of the related Mortgage Loan;
(b) the original of any guarantee executed in connection with
the Note (if any);
(c) the original Mortgage with evidence of recording thereon
or copies certified by the related recording office or, if the original Mortgage
has not yet been returned from the recording office, a certified copy of the
Mortgage;
(d) the originals of all assumption, modification,
consolidation or extension agreements;
(e) the original assignment of Mortgage of each Mortgage Loan
to "[Trustee], as custodian or trustee", "[Trustee], as trustee or custodian on
behalf of the Advanta Conduit Receivables, Inc." or "[Trustee], as trustee". In
the event that the Mortgage Loan was acquired by the previous owner in a merger,
the assignment of Mortgage must be by the "(previous owner), successor by merger
to (names of predecessor)"; and in the event that the Mortgage Loan was acquired
or originated by the previous owner while doing business under another name, the
Assignment of Mortgage must be by the "(previous owner), formerly known as
(previous name)"; and
(f) the originals of all intervening assignments of Mortgage,
showing a complete chain of assignment from origination to the related Seller,
including warehousing assignments, with evidence of recording thereon (or, if an
original intervening assignment has not been returned from the recording office,
a certified copy thereof.
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"Control Party": Until the last sentence of Section 11.18
hereof is applicable and so long as no Certificate Insurer Default has occurred
and is continuing, the Certificate Insurer, and thereafter, the Trustee.
"Coupon Rate": The rate of interest borne by each Note.
"Current Interest": With respect to any Payment Date, the sum
of the Class [A-1] Current Interest and the Class [A-2] Current Interest.
"Date-of-Payment Loan": Any Mortgage Loan as to which,
pursuant to the Note relating thereto, interest is computed and charged to the
Mortgagor at the Coupon Rate on the outstanding principal balance of such Note
based on the number of days elapsed between receipt of the Mortgagor's last
payment through receipt of the Mortgagor's most current payment.
"Definitive Certificate": Certificates issued in definitive
form without coupons.
"Delinquency Advance": As defined in Section 8.9(a) hereof.
"Delinquent": A Mortgage Loan is "delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as
Exhibit F hereto and delivered by the Sponsor to the Trustee on the Startup Day
pursuant to Section 4.1 hereof.
"Depository": The Depository Trust Company, 7 Hanover Square,
New York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to each
Account, an institution whose deposits are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the FDIC, the long-term deposits of
which shall be rated A2 or better by Moody's or better by Standard & Poor's and
the short-term deposits of which shall be rated P-1 or better by Moody's and A1
or better by Standard & Poor's, unless otherwise approved in writing by the
Trustee, the Certificate Insurer, Moody's and Standard & Poor's , and which is
any of the following: (i) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Trustee, the Certificate Insurer, Moody's and Standard & Poor's;
provided, however, that any such institution or association shall have combined
capital, surplus and undivided profits of at least $100,000,000. Notwithstanding
the foregoing, an Account may be held by an institution otherwise meeting the
preceding requirements except that the only applicable rating requirement shall
be that the unsecured and uncollateralized debt obligations thereof shall be
rated Baa3 or better by Moody's or BBB or better by Standard & Poor's if such
institution has trust powers and such Account is held by such institution in its
corporate trust department.
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"Designated Residual Owner": Advanta Finance Residual
Corporation.
"Determination Date": As to each Payment Date, the third
Business Day preceding such Payment Date or such earlier day as shall be agreed
to by the Certificate Insurer and the Trustee.
"Direct Participant" or "DTC Participant": Any broker-dealer,
bank or other financial institution for which the Depository holds Class [A]
Certificates from time to time as a securities depository.
"Disqualified Organization": Shall have the meaning set forth
from time to time in the definition thereof at Section 860E(e)(5) of the Code
(or any successor statute thereto) and applicable to the Trust.
"Document Delivery Requirements": The Sponsor's obligations to
deliver certain legal documents, to prepare and record certain Mortgage
assignments or to deliver certain opinions relating to Mortgage assignments, in
each case with respect to the Mortgage Loans and as set forth in Section 3.5
hereof.
"Eligible Investments": Those investments so designated
pursuant to Section 7.7 hereof.
"Event of Default": Any event described in clauses (a) or (b)
of Section 8.20 hereof.
"Fannie Mae": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"File": The documents delivered to the Trustee pursuant to
Section 3.5 hereof pertaining to a particular Mortgage Loan and any additional
documents required to be added to the Advanta Mortgage File or Conduit Mortgage
File, as appropriate, pursuant to this Agreement.
"Final Determination": As defined in Section 9.3(a) hereof.
"First Mortgage Loan": A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Property.
"Fixed Rate Group Available Funds Cap Rate": As of any Payment
Date, an amount, expressed as a per annum rate, equal to (A)(i) the aggregate
amount of interest accrued and collected (or advanced) at the Coupon Rates on
all of the Mortgage Loans in the Group I Pool for the related Remittance Period
minus (ii) the aggregate of the Servicing Fee, the Premium Amount and the
Trustee's Fee, in each case relating to Group I on such Payment Date, divided by
(B) the aggregate outstanding principal balance of the Mortgage Loans in Group I
as of the beginning of the related Remittance Period, calculated on the basis of
a 360-day year consisting of twelve thirty-day months.
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<PAGE> 16
"Formula Pass-Through Rate": With respect to the Class [A-2]
Certificates, interest rate resulting from the calculation set forth in clause
(i) in the definition of the Class [A-2] Pass-Through Rate.
"Freddie Mac": The Federal Home Loan Mortgage Corporation, a
corporate instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970, as amended, or any successor thereof.
"Gross Margin": With respect to each Mortgage Loan with an
adjustable Coupon Rate, the fixed percentage amount set forth in the related
Mortgage Note which amount is added to the Index in accordance with the terms of
the related Mortgage Note to determine, on each Interest Rate Adjustment Date,
the Coupon Rate for such Mortgage Loan, subject to any maximum.
"Group": Group I or Group II.
"Group I" or "Group I Pool": The fixed pool of Mortgage Loans
identified in the related Schedule of Mortgage Loans as having been assigned to
Group I, including any Qualified Replacement Mortgages delivered in replacement
thereof and assigned to Group I.
"Group I Available Funds": As defined in Section 7.3(a)
hereof.
"Group I Capitalized Interest Deposit": [$__________ ].
"Group I Capitalized Interest Requirement": As to any Payment
Date occurring during the Pre-Funding Period, the difference, if any, between
(x) the Group I Interest Distribution Amount for such Payment Date plus the
Premium Amount relating to the Group I Certificates and the Trustee's Fee
relating to the Group I Certificates as of such Payment Date and (y) the sum of
(i) the Group I Interest Remittance Amount as of such Payment Date, and (ii) any
Pre-Funding Earnings relating to Group I to be transferred to the Certificate
Account on such Payment Date pursuant to Section 7.4 hereof.
"Group I Certificate Principal Balance": As of any date of
determination, the aggregate Certificate Principal Balances of all Group I
Certificates.
"Group I Certificates": The Class [A-1] Certificates.
"Group I Class [A] Principal Distribution Amount": With
respect to the Group I Certificates, as of any Payment Date, the lesser of:
(a) the Group I Available Funds, plus any related Insured
Payment and minus the Group I Interest Distribution
Amount, and
(b) (i) the sum, without duplication of:
(A) the principal actually collected by the
Master Servicer with respect to the Mortgage
Loans in the Group I Pool during the related
Remittance Period;
(B) the Loan Balance of each Mortgage Loan in
the Group I Pool that either was repurchased
by the Sponsor or an Originator
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or purchased by the Master Servicer or any
Sub-Servicer on the Group I Pool on the
related Remittance Date, to the extent such
Loan Balance is actually received by the
Trustee;
(C) any Substitution Amounts delivered by the
Sponsor or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in the Group
I Pool, to the extent such Substitution
Amounts are actually received by the
Trustee;
(D) all Net Liquidation Proceeds actually
collected by the Master Servicer with
respect to the Mortgage Loans in the Group I
Pool during the related Remittance Period
(to the extent such Net Liquidation Proceeds
relate to principal);
(E) the amount of any Overcollateralization
Deficit with respect to the Group I Pool for
such Payment Date;
(F) the proceeds received by the Trustee from
any termination of the Group I Pool (to the
extent such proceeds relate to principal);
(G) any amounts remaining in the Pre-Funding
Account relating to Group I at the end of
the Pre-Funding Period;
(H) the amount of any Overcollateralization
Increase Amount with respect to the Group I
Pool for such Payment Date to the extent of
any Net Monthly Excess Cashflow available
for such purpose;
minus
(ii) the amount of any Overcollateralization
Reduction Amount with respect to Group I
Pool for such Payment Date.
In no event will the Group I Principal Distribution Amount for
any class of Class [A] Certificates on any Payment Date (x) be less than zero or
(y) be greater than the then-outstanding principal balance of the related class
of Class [A] Certificates.
"Group I Deficiency Amount": The excess, if any, of the Group
I Required Distributions over the Group I Net Available Distribution Amount.
"Group I Insured Distribution Amount": As to the Group I
Certificates, the sum of (a) as of any Payment Date, the sum of (x) the Group I
Interest Distribution Amount for such Payment Date and (y) the Group I
Overcollateralization Deficit, if any, as of such Payment Date and (b) the Group
I Preference Amount.
"Group I Insured Payment": An amount equal to (a) as of any
Payment Date, the Group I Deficiency Amount and (b) any unpaid Group I
Preference Amount (without duplication).
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"Group I Interest Amount Available": As of any Payment Date,
the Group I Interest Remittance Amount less the sum of the portion of the
Trustee's Fees related to Group I and the Premium Amount related to Group I for
such Payment Date.
"Group I Interest Distribution Amount": As of any Payment
Date, the sum of (i) the Class [A-1] Current Interest and (ii) any Class [A-1]
Interest Carry-Forward Amount.
"Group I Interest Remittance Amount": As of any Remittance
Date with respect to the Mortgage Loans in Group I, the sum, without
duplication, of (i) all interest accrued during the related Remittance Period
(less the Servicing Fee with respect to such Mortgage Loans) and actually
collected prior to such Remittance Date, (ii) all Delinquency Advances and all
Special Advances made by the Master Servicer on such Remittance Date, (iii) all
Compensating Interest paid by the Master Servicer on such Remittance Date, net
of amounts allowed to be retained pursuant to Section 8.8(c), (iv) without
duplication, the portion of the Loan Purchase Price and the Substitution Amount
relating to accrued interest on the Mortgage Loans in Group I, (v) the portion
of any Net Liquidation Proceeds relating to accrued and unpaid interest with
respect to Group I and (vi) the proceeds of any liquidation of the Trust Estate
related to Group I (to the extent such proceeds relate to interest and Group I).
"Group I Monthly Excess Cash Flow Amount": For any Payment
Date, the sum of (x) the Group I Monthly Excess Interest Amount and (y) the
Group I Overcollateralization Reduction amount for such Payment Date.
"Group I Monthly Excess Interest Amount": With respect to any
Payment Date, the excess, if any, of (i) the Group I Interest Amount Available
for the related Remittance Period over (ii) the Group I Interest Distribution
Amount on such Payment Date.
"Group I Monthly Remittance Amount": As of any Remittance
Date, the sum of (i) the Group I Interest Remittance Amount for such Remittance
Date and (ii) the Group I Principal Remittance Amount for such Remittance Date.
"Group I Net Available Distribution Amount": The Group I Total
Available Funds.
"Group I Net Weighted Average Coupon Rate": With respect to
any Payment Date, the weighted average of the Coupon Rates of the Mortgage Loans
in Group I (weighted by the Loan Balances of the Mortgage Loans in Group I),
less the sum of (A) 0.50% per annum, (B) the Trustee Fee Rate related to Group
I, and (c) the Premium Percentage related to Group I.
"Group I Original Balance": The sum of (x) the aggregate
principal balances of the Initial Mortgage Loans in Group I as of the Initial
Cut-Off Date and (y) the Group I Original Pre-Funded Amount, which sum is
[$______________].
"Group I Original Pre-Funded Amount ": The amount deposited in
the Pre-Funding Account on the Startup Day from the proceeds of the sale of the
Group I Certificates, which amount is [$____________].
"Group I Overcollateralization Amount": As of any Payment
Date, the amount, if any, by which (x) the aggregate Loan Balance of the
Mortgage Loans in Group I as of the close of business on the last day of the
immediately preceding Remittance Period exceeds (y) the aggregate Certificate
Principal Balance of the Group I Certificates after taking into account all
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<PAGE> 19
distributions of principal on such Group I Certificates as of such Payment Date
(except for any payment to be made as to principal from the proceeds of the
Certificate Insurance Policy).
"Group I Overcollateralization Deficiency Amount": With
respect to any Payment Date, the excess, if any, of (x) the Group I Specified
Overcollateralization Amount for such Payment Date over (y) the Group I
Overcollateralization Amount for such Payment Date.
"Group I Overcollateralization Deficit": With respect to any
Payment Date, the amount, if any, by which (x) the aggregate Certificate
Principal Balance of the Group I Certificates, after taking into account all
distributions to be made on such Payment Date (except for any payment to be made
as to principal from the proceeds of the Certificate Insurance Policy), exceeds
(y) the sum of (i) aggregate principal balance of the Mortgage Loans in the
Group I Pool as of the close of business on the last day of the preceding
Remittance Period, plus (ii) any amounts remaining in the Pre-Funding Account.
"Group I Overcollateralization Increase Amount": Any Net
Monthly Excess Cashflow actually applied as an accelerated payment of principal
with respect to Group I.
"Group I Overcollateralization Reduction Amount": As of any
Payment Date, the lesser of (x) the Group I Principal Remittance Amount for such
Payment Date and (y) the excess of (i) the Group I Overcollateralization Amount
for such Payment Date, over (ii) the Group I Specified Overcollateralization
Amount for such Payment Date.
"Group I Pre-Funded Amount": With respect to any Determination
Date, the amount on deposit in the Pre-Funding Account relating to Group I and
available for the purchase of the Subsequent Mortgage Loans to be conveyed to
the Group I Pool.
"Group I Preference Amount": Any amount previously distributed
to an Owner of the Group I Certificates that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code (11 U.S.C.), as amended from time to time, in
accordance with a final nonappealable order of a court having competent
jurisdiction.
"Group I Principal Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) the principal actually collected by
the Master Servicer with respect to Mortgage Loans in Group I during the related
Remittance Period, (ii) the Loan Balance of each Mortgage Loan in Group I that
was purchased from the Trust on or prior to such Remittance Date, to the extent
such Loan Balance was actually deposited in the Principal and Interest Account,
(iii) any Substitution Amounts relating to principal delivered by the Sponsor in
connection with a substitution of a Mortgage Loan in Group I, to the extent such
principal portion of the Substitution Amounts were actually deposited in the
Principal and Interest Account on such Remittance Date, (iv) any Net Liquidation
Proceeds relating to principal actually collected by the Master Servicer with
respect to such Mortgage Loans in Group I during the related Remittance Period
net of amounts allowed to be retained pursuant to Section 8.8(c), and (v) the
proceeds of any liquidation of the Trust Estate related to Group I (to the
extent such proceeds related to principal).
"Group I Reimbursement Amount": As of any Payment Date, the
sum of (x)(i) all Group I Insured Payments previously received by the Trustee
and all Group I Preference Amounts previously paid by the Certificate Insurer
and in each case not previously repaid to the Certificate Insurer pursuant to
Section 7.5(b)(D)(3) and (4) hereof plus (ii) interest accrued on
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each such Group I Insured Payment not previously repaid calculated from the date
the Trustee received the related Group I Insured Payment at the Late Payment
Rate applicable to such date and (y)(i) any other amounts then due and owing to
the Certificate Insurer relating to the Group I Certificates under the Insurance
Agreement plus (ii) interest on such amounts at the Late Payment Rate, if
applicable. On each Determination Date, the Certificate Insurer shall notify the
Trustee and the Sponsor of the amount of any Group I Reimbursement Amount if
such amount is greater than zero.
"Group I Required Distributions": An amount equal to the Group
I Insured Distribution Amount.
"Group I Specified Overcollateralization Amount": The
Specified Overcollateralization Amount with respect to Group I.
"Group I Stepdown Date": The later to occur of (x) the 30th
Payment Date from the Startup Day and (y) the Determination Date on which the
outstanding principal balance on the Group I Certificates is equal to 50% of the
Group I Original Balance.
"Group I Total Available Funds": As defined in Section 7.3(a)
hereof.
"Group II" or "Group II Pool": The pool of adjustable rate
Mortgage Loans identified in the related Schedule of Mortgage Loans as having
been assigned to Group II, including any Qualified Replacement Mortgages
delivered in replacement thereof and assigned to Group II.
"Group II Available Funds": As defined in Section 7.3(a)
hereof.
"Group II Capitalized Interest Deposit": $[_________].
"Group II Capitalized Interest Requirement": As to any Payment
Date occurring during the Pre-Funding Period, the difference, if any, between
(x) the Group II Interest Distribution Amount on such Payment Date plus the
Premium Amount relating to the Group II Certificates and the Trustee's Fee
relating to the Group II Certificates as of such Payment Date and (y) the sum of
(i) the Group II Interest Remittance Amount for such Payment Date and (ii) any
Pre-Funding Earnings relating to Group II to be transferred to the Certificate
Account on such Payment Date pursuant to Section 7.4 hereof.
"Group II Certificate Principal Balance": As of any date of
determination, the aggregate Certificate Principal Balances of all Group II
Certificates.
"Group II Certificates": The Class [A-2] Certificates.
"Group II Class [A] Principal Distribution Amount": With
respect to the Group II Certificates, as of any Payment Date, the lesser of:
(a) the Group II Available Funds, plus any related
Insured Payment and minus the Group II Interest
Distribution Amount, and
(b) (i) the sum, without duplication of:
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<PAGE> 21
(A) the principal actually collected by the
Master Servicer with respect to the Mortgage
Loans in the Group II Pool during the
related Remittance Period;
(B) the Loan Balance of each Mortgage Loan in
the Group II Pool that either was
repurchased by the Sponsor or an Originator
or purchased by the Master Servicer or any
Sub-Servicer on the Group II Pool on the
related Remittance Date, to the extent such
Loan Balance is actually received by the
Trustee;
(C) any Substitution Amounts delivered by the
Sponsor or an Originator on the related
Remittance Date in connection with a
substitution of a Mortgage Loan in the Group
II Pool, to the extent such Substitution
Amounts are actually received by the
Trustee;
(D) all Net Liquidation Proceeds actually
collected by the Master Servicer with
respect to the Mortgage Loans in the Group
II Pool during the related Remittance Period
(to the extent such Net Liquidation Proceeds
relate to principal);
(E) the amount of any Overcollateralization
Deficit with respect to the Group II Pool
for such Payment Date;
(F) the proceeds received by the Trustee from
any termination of the Group II Pool (to the
extent such proceeds relate to principal);
(G) any amounts remaining in the Pre-Funding
Account relating to Group II at the end of
the Pre-Funding Period;
(H) the amount of any Overcollateralization
Increase Amount with respect to Group II
Pool for such Payment Date to the extent of
any Net Monthly Excess Cashflow available
for such purpose;
minus
(ii) the amount of any Overcollateralization
Reduction Amount with respect to Group II
Pool for such Payment Date.
In no event will the Group II Principal Distribution Amount
for any Class [A-2] Certificates on any Payment Date (x) be less than zero or
(y) be greater than the then-outstanding principal balance of the Class [A-2]
Certificates.
"Group II Deficiency Amount": The excess, if any, of the Group
II Required Distributions over the Group II Net Available Distribution Amount.
"Group II Insured Distribution Amount": As to the Group II
Certificates, the sum of (a) as of any Payment Date, the sum of (x) the Group II
Interest Distribution Amount for such Payment Date and (y) the Group II
Overcollateralization Deficit, if any, as of such Payment Date and (b) the Group
II Preference Amount.
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"Group II Insured Payment": An amount equal to (a) as of any
Payment Date, the Group II Deficiency Amount and (b) any unpaid Group II
Preference Amount (without duplication).
"Group II Interest Amount Available": As of any Payment Date,
the Group II Interest Remittance Amount less the sum of the portion of the
Trustee's Fees related to Group II and the Premium Amount related to Group II
for such Payment Date.
"Group II Interest Distribution Amount": As of any Payment
Date, the sum of (i) the Class [A-2] Current Interest and (ii) any Class [A-2]
Interest Carry-Forward Amount.
"Group II Interest Remittance Amount": As of any Remittance
Date with respect to the Mortgage Loans in Group II, the sum, without
duplication, of (i) interest accrued during the related Remittance Period (less
the Servicing Fee with respect to such Mortgage Loans) and actually collected
prior to such Remittance Date, (ii) all Delinquency Advances and all Special
Advances made by the Master Servicer on such Remittance Date, (iii) all
Compensating Interest paid by the Master Servicer on such Remittance Date, net
of amounts allowed to be retained pursuant to Section 8.8(c), (iv) without
duplication, the portion of the Loan Purchase Price and the Substitution Amount
relating to interest accrued on the Mortgage Loans in Group II and (v) the
portion of any Net Liquidation Proceeds relating to accrued and unpaid interest
with respect to Group II and (vi) the proceeds of any liquidation of the Trust
Estate related to Group II (to the extent such proceeds relate to interest and
Group II).
"Group II Monthly Excess Cashflow Amount": For any Payment
Date, the sum of (x) the Group II Monthly Excess Interest Amount and (y) the
Group II Overcollateralization Reduction Amount for such Payment Date.
"Group II Monthly Excess Interest Amount": With respect to any
Payment Date, the excess, if any, of (i) the Group II Interest Amount Available
for the related Remittance Period over (ii) the Group II Interest Distribution
Amount on such Payment Date.
"Group II Monthly Remittance Amount": As of any Remittance
Date, the sum of (i) the Group II Interest Remittance Amount for such Remittance
Date and (ii) the Group II Principal Remittance Amount for such Remittance Date.
"Group II Net Available Distribution Amount": The Group II
Total Available Funds.
"Group II Net Weighted Average Coupon Rate": With respect to
any Payment Date, the weighted average of the Coupon Rates of the Mortgage Loans
in Group II (weighted by the Loan Balances of the Mortgage Loans in Group II),
less the sum of (A) 0.50% per annum, (B) the Trustee Fee Rate related to Group
II and (c) the Premium Percentage related to Group II.
"Group II Original Balance": The sum of (x) the aggregate
principal balances of the Initial Mortgage Loans in Group II as of the Initial
Cut-Off-Date and (y) the Group II Original Pre-Funded Amount, which sum is
[$______________].
"Group II Original Pre-Funded Amount": The amount deposited in
the Pre-Funding Account on the Startup Day, from the proceeds of the sale of the
Group II Certificates, which amount is [$_____________].
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"Group II Overcollateralization Amount": As of any Payment
Date, the difference between (x) the aggregate Loan Balance of the Mortgage
Loans in Group II as of the close of business on the last day of the immediately
preceding Remittance Period and (y) the aggregate Certificate Principal Balance
of the Group II Certificates after taking into account all distributions of
principal on such Group II Certificates as of such Payment Date (except for any
payment to be made as to principal from the proceeds of the Certificate
Insurance Policy).
"Group II Overcollateralization Deficiency Amount": With
respect to any Payment Date, the excess, if any, of (x) the Group II Specified
Overcollateralization Amount for such Payment Date over (y) the Group II
Overcollateralization Amount for such Payment Date.
"Group II Overcollateralization Deficit": With respect to any
Payment Date, the amount, if any, by which (x) the aggregate Certificate
Principal Balance of the Group II Certificates, after taking into account all
distributions to be made on such Payment Date (except for any payment to be made
as to principal from the proceeds of the Certificate Insurance Policy), exceeds
(y) the sum of (i) the aggregate principal balance of the Mortgage Loans in the
Group II Pool as of the close of business on the last day of the preceding
Remittance Period plus (ii) any amounts remaining in the Pre-Funding Account.
"Group II Overcollateralization Increase Amount": Any Net
Monthly Excess Cashflow actually applied as an accelerated payment of principal
with respect to Group II.
"Group II Overcollateralization Reduction Amount": As of any
Payment Date, the lesser of (x) the Group II Principal Remittance Amount for
such Payment Date and (y) the excess of (i) the Group II Overcollateralization
Amount for such Payment Date, over (ii) the Group II Specified
Overcollateralization Amount for such Payment Date.
"Group II Preference Amount": Any amount previously
distributed to an Owner on the Group II Certificates that is recoverable and
sought to be recovered as a voidable preference by a trustee in bankruptcy
pursuant to the United States Bankruptcy Code (11 U.S.C.), as amended from time
to time, in accordance with a final nonappealable order of a court having
competent jurisdiction.
"Group II Pre-Funded Amount": With respect to any
Determination Date, the amount on deposit in the Pre-Funding Account and
available for the purchase of the Subsequent Mortgage Loans to be conveyed to
the Group II Pool.
"Group II Principal Remittance Amount": As of any Remittance
Date, the sum, without duplication, of (i) the principal actually collected by
the Master Servicer with respect to Mortgage Loans in Group II during the
related Remittance Period, (ii) the Loan Balance of each Mortgage Loan in Group
II that was purchased from the Trust on or prior to such Remittance Date, to the
extent such Loan Balance was actually deposited in the Principal and Interest
Account, (iii) any Substitution Amounts relating to principal delivered by the
Sponsor in connection with a substitution of a Mortgage Loan in Group II, to the
extent such principal portion of the Substitution Amounts were actually
deposited in the Principal and Interest Account on such Remittance Date, (iv)
any Net Liquidation Proceeds relating to principal actually collected by the
Master Servicer with respect to such Mortgage Loans in Group II during the
related Remittance Period net of amounts allowed to be retained pursuant to
Section 8.8(c), and (v) the proceeds of any liquidation of the Trust Estate
related to Group II (to the extent such proceeds related to principal).
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"Group II Reimbursement Amount": As of any Payment Date, the
sum of (x)(i) all Group II Insured Payments previously received by the Trustee
not previously repaid to the Certificate Insurer pursuant to Section
7.5(b)(D)(3) and (4) hereof plus (ii) interest accrued on each such Group II
Insured Payment not previously repaid calculated from the date the Trustee
received the related Group II Insured Payment at the Late Payment Rate
applicable to such date and (y)(i) any other amounts then due and owing to the
Certificate Insurer relating to the Group II Certificates under the Insurance
Agreement plus (ii) interest on such amounts at the Late Payment Rate, if
applicable. On each Determination Date, the Certificate Insurer shall notify the
Trustee and the Sponsor of the amount of any Group II Reimbursement Amount if
such amount is greater than zero.
"Group II Required Distributions": An amount equal to the
Group II Insured Distribution Amount.
"Group II Specified Overcollateralization Amount": The
Specified Overcollateralization Amount with respect to Group II.
"Group II Stepdown Date": The later to occur of (x) the 36th
Payment Date from the Startup Day and (y) the Determination Date on which the
outstanding principal balance on the Group II Certificates is equal to 50% of
the Group II Original Balance.
"Group II Total Available Funds": An amount defined in Section
7.3(a) hereof.
"Indemnification Agreement": The Indemnification Agreement
dated as of [____________, _____]among the Certificate Insurer, the Sponsor and
the Underwriters as may be amended from time to time.
"Index": With respect to any adjustable rate Note, the
applicable index set forth therein.
"Indirect Participant" shall mean any financial institution
for whom any Direct Participant holds an interest in a Class [A] Certificate.
"Initial Clean-Up Call Date": The first Payment Date following
the date on which the aggregate Loan Balances of all Mortgage Loans has declined
to 10% or less of the aggregate principal balance of all of the Mortgage Loans
acquired by the Trust as of the Startup Day and acquired by the Trust prior to
the end of the Pre-Funding Period.
"Initial Cut-Off Date": The date as of which Initial Mortgage
Loans are transferred and assigned to the Trust, the opening of business on
[____________, _____].
"Initial Mortgage Loans" shall mean Mortgage Loans conveyed,
or caused to be conveyed, to the Trust by the Sponsor on the Startup Day.
"Insurance Agreement": The Insurance Agreement dated as of
[____________, _____] between the Sponsor, the Master Servicer, AMHC, the
Trustee and the Certificate Insurer, as it may be amended from time to time.
"Insurance Policy": Any hazard, title or primary mortgage
insurance policy relating to a Mortgage Loan.
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"Insured Distribution Amount": With respect to Group I, the
Group I Insured Distribution Amount, and with respect to Group II, the Group II
Insured Distribution Amount.
"Insured Payment": The Group I Insured Payment and the Group
II Insured Payment.
"Interest Determination Date": With respect to any Payment
Date for the Class [A-2] Certificates, the second London Business Day preceding
such Payment Date or with respect to the [____________, _____] Payment Date, the
second London Business Day preceding the Startup Day.
"Interest Rate Adjustment Date": The date on which an
adjustment to the Coupon Rate on a Note becomes effective.
"Junior Mortgage Loan": A Mortgage Loan which constitutes a
junior priority mortgage lien with respect to the related Property.
"Late Payment Rate": For any Payment Date, the lesser of (a)
the greater of (x) the per annum rate of interest publicly announced from time
to time by Citibank, N.A. as its prime or base lending rate (any change in such
rate of interest to be effective on the date such change is announced by
Citibank, N.A.), plus 2% per annum and (y) the then applicable highest rate of
interest on the Class [A] Certificates and (b) the maximum rate permissible
under applicable usury or similar laws limiting interest rates. The Late Payment
Rate shall be computed on the basis of the actual number of days elapsed over a
year of 360 days.
"LIBOR": With respect to any Accrual Period for the Class
[A-2] Certificates, the rate determined by the Trustee on the related Interest
Determination Date on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on Telerate Page 3750 (or
any successor service thereto), as of 11:00 a.m. (London time) on such Interest
Determination Date. On each Interest Determination Date, LIBOR for the related
Accrual Period will be established by the Trustee as follows:
(x) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations, LIBOR for the related Accrual
Period shall be the arithmetic mean of such offered quotations (rounded to the
nearest whole multiple of 1/16%).
(y) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, LIBOR for the related Accrual
Period shall be the higher of (x) LIBOR as determined on the previous Interest
Determination Date and (y) the Reserve Interest Rate.
"Liquidated Loan": A Mortgage Loan which is purchased from the
Trust as defined in Section 8.13(b) hereof. A Mortgage Loan which is purchased
from the Trust pursuant to Section 3.3, 3.4, 3.6(b) or 8.10 hereof is not a
"Liquidated Loan".
"Liquidation Expenses": Expenses which are incurred by the
Master Servicer or any Sub-Servicer in connection with the liquidation of any
defaulted Mortgage Loan, such expenses, including, without limitation, legal
fees and expenses, and any unreimbursed Servicing Advances expended by the
Master Servicer or any Sub-Servicer pursuant to Section 8.9 with respect to the
related Mortgage Loan.
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"Liquidation Proceeds": With respect to any Liquidated Loan,
any amounts (including the proceeds of any Insurance Policy) recovered by the
Master Servicer in connection with such Liquidated Loan, whether through
trustee's sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan, the
outstanding principal balance thereof as of the Initial Cut-Off Date or
Subsequent Cut-Off Date, as the case may be, less any principal amount relating
to such Mortgage Loan included in previous related Monthly Remittance Amounts
that were transferred by the Master Servicer or any Sub-Servicer to the Trustee
for deposit in the Certificate Account; provided, however, that the Loan Balance
for any Mortgage Loan which has become a Liquidated Loan shall be zero as of the
first day of the Remittance Period following the Remittance Period in which such
Mortgage Loan becomes a Liquidated Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any Mortgage Loan
purchased from the Trust on a Remittance Date pursuant to Section 3.3, 3.4,
3.6(b) or 8.10 hereof, an amount equal to the Loan Balance of such Mortgage Loan
as of such Remittance Date, plus one month's accrued interest (if not already
deposited in the Principal and Interest Account) on the outstanding Loan Balance
thereof as of the beginning of the related Remittance Period computed at the
Coupon Rate less the Servicing Fee (expressed as an annual percentage rate), if
any, together with, without duplication, the aggregate amount of (i) all
delinquent interest, all Delinquency Advances and Servicing Advances theretofore
made with respect to such Mortgage Loan and not subsequently recovered from the
related Mortgage Loan, (ii) all Delinquency Advances which the Master Servicer
or any Sub-Servicer has theretofore failed to remit with respect to such
Mortgage Loan and (iii) any Group I Reimbursement Amount or Group II
Reimbursement Amount, as the case may be, relating to such Mortgage Loan
relating to such Group.
"London Business Day": A day on which banks are open for
dealing in foreign currency, and exchange in London and New York City.
"Lower-Tier Balance": As to each Class of Lower-Tier Interests
and any Payment Date, the Initial Lower-Tier Balance as set forth in Section
2.8(a) minus all amounts distributed as principal of such Class on previous
Payment Dates.
"Lower-Tier Interest 1": The interest of that name established
pursuant to Section 2.8(a) hereof.
"Lower-Tier Interest 2": The interest of that name established
pursuant to Section 2.8(a) hereof.
"Lower-Tier Interest 3": The interest of that name established
pursuant to Section 2.8(a) hereof.
"Lower-Tier Interest 4": The interest of that name established
pursuant to Section 2.8(a) hereof.
"Lower-Tier Interest 5": The interest of that name established
pursuant to Section 2.8(a) hereof.
"Lower-Tier Pass-Through Rate": As to each of the respective
Lower-Tier Interests, the applicable "Lower-Tier Pass-Through Rate" set forth in
Section 2.8 hereof.
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"Lower-Tier REMIC": The segregated pool of assets consisting
of the Mortgage Loans, the Accounts (except for the Non-REMIC Estate), any REO
Property and any proceeds of the foregoing.
"Lower-Tier REMIC Interests": As defined in Section 2.8(b)
hereof.
"Lower-Tier REMIC Regular Interests": As defined in Section
2.8(b) hereof.
["Lower-Tier REMIC Residual Interest": The Class RL
Certificate.]
"Master Servicer": Advanta Mortgage Corp. USA, a Delaware
corporation, and its permitted successors and assigns.
"Master Servicer's Trust Receipt": The Master Servicer's trust
receipt in the form set forth as Exhibit J hereto.
"Master Transfer Agreement": Any one of the Master Loan
Transfer Agreements among the Sponsor and/or the Conduit Acquisition Trust, the
Trustee and one or more Originators or any similar agreement designated as a
"Master Transfer Agreement" together, in either case, with any related
Conveyance Agreements (as defined therein).
"Monthly Excess Interest Amount": With respect to Group I, the
Group I Monthly Excess Interest Amount, and with respect to Group II, the Group
II Monthly Excess Interest Amount.
"Monthly Remittance Amount": With respect to Group I, the
Group I Monthly Remittance Amount, and with respect to Group II, the Group II
Monthly Remittance Amount.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first or junior lien on an estate in fee simple or leasehold interest
in real property securing a Note.
"Mortgage Loan Group": Either Group I or Group II. References
herein to the related Class of Class [A] Certificates, when used with respect to
a Mortgage Loan Group, shall mean (A) in the case of Group I, the Group I
Certificates and (B) in the case of Group II, the Group II Certificates.
"Mortgage Loans": The mortgage loans transferred and assigned
to the Trust pursuant to Section 3.5(a) hereof, together with any Qualified
Replacement Mortgages substituted therefor in accordance with this Agreement, as
from time to time are held as a part of the Trust Estate, the mortgage loans
originally so held being identified in the Schedule of Mortgage Loans. The term
"Mortgage Loan" includes the terms "First Mortgage Loan" and "Junior Mortgage
Loan". The term "Mortgage Loan" includes any Mortgage Loan which is Delinquent,
which relates to a foreclosure or which relates to a Property which is an REO
Property prior to such Property's disposition by the Trust. Any mortgage loan
which, although intended by the parties hereto to have been, and which
purportedly was, transferred and assigned to the Trust by the Sponsor, in fact
was not transferred and assigned to the Trust for any reason whatsoever shall
nevertheless be considered a "Mortgage Loan" for all purposes of this Agreement.
The term "Mortgage Loan" includes the terms "Initial Mortgage Loan" and
"Subsequent Mortgage Loan".
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"Mortgagor": The obligor on a Note.
"Net Liquidation Proceeds": As to any Liquidated Loan,
Liquidation Proceeds net of, without duplication, Liquidation Expenses,
unreimbursed Servicing Advances, unreimbursed Delinquency Advances and accrued
and unpaid Servicing Fees through the date of liquidation relating to such
Liquidated Loan. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Loan be less than zero.
"Net Monthly Excess Cashflow": An amount as defined in Section
7.5(b)(E).
"Nonrecoverable Advances": With respect to any Mortgage Loan,
(i) any Delinquency Advance or Servicing Advance previously made and not
reimbursed pursuant to Sections 7.5 or 8.9, (ii) a Delinquency Advance or
Servicing Advance proposed to be made in respect of a Mortgage Loan or REO
Property either of which, in the good faith business judgment of the Master
Servicer, as evidenced by an Officer's Certificate delivered no later than 1
Business Day prior to the related Determination Date to the Certificate Insurer
and the Trustee would not be ultimately recoverable pursuant to Sections 7.5 or
8.9 or (iii) any other advance identified as a Nonrecoverable Advance in
subsection 8.9(d).
"Non-REMIC Estate": Collectively, the Supplemental Interest
Trust, the Class [A-2] Supplemental Interest Payment Account, the Capitalized
Interest Account and the Pre-Funding Account.
"Note": The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate": A certificate signed by any
Authorized Officer of any Person delivering such certificate.
"Operative Documents": Collectively, this Agreement, the
Master Transfer Agreements, the Subsequent Transfer Agreements, the Certificate
Insurance Policy, the Insurance Agreement, the Indemnification Agreement and
Certificates.
"Original Certificate Principal Balance": As of the Startup
Day as to each of the following Classes of Certificates, the Certificate
Principal Balances thereof, as follows:
Class [A-1] Certificates = [$_________]
Class [A-2] Certificates = [$_________]
"Original Principal Amount": With respect to each Note, the
principal amount of such Note or with respect to Junior Mortgages, the sum of
(i) the principal amount of the mortgage note relating to the Senior Lien plus
(ii) the principal amount of the Note conveyed to the Trust, as the case may be,
on the date of origination thereof.
"Originator": Any entity from which the Sponsor has purchased
(or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans,
including any Affiliated Originator and any Unaffiliated Originator.
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"Outstanding": With respect to all Certificates of a Class, as
of any date of determination, all such Certificates theretofore executed and
delivered hereunder except:
(i) Certificates theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Certificates or portions thereof for which full and final
payment money in the necessary amount has been theretofore deposited
with the Trustee in trust for the Owners of such Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this
Agreement, unless proof satisfactory to the Trustee is presented that
any such Certificates are held by a bona fide purchaser; and
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided
for in Section 5.5 hereof.
"Overcollateralization Amount": With respect to Group I, the
Group I Overcollateralization Amount and with respect to Group II, the Group II
Overcollateralization Amount.
"Overcollateralization Deficiency Amount": With respect to
Group I, the Group I Overcollateralization Deficiency Amount and with respect to
Group II, the Group II Overcollateralization Deficiency Amount.
"Overcollateralization Deficit": With respect to Group I, the
Group I Overcollateralization Deficit and with respect to Group II, the Group II
Overcollateralization Deficit.
"Overcollateralization Increase Amount": With respect to Group
I, the Group I Overcollateralization Increase Amount and with respect to Group
II, the Group II Overcollateralization Increase Amount.
"Overcollateralization Reduction Amount": With respect to
Group I, the Group I Overcollateralization Reduction Amount and with respect to
Group II, the Group II Overcollateralization Reduction Amount.
"Owner": The Person in whose name a Certificate is registered
in the Register, to the extent described in Section 5.6.
"Pass-Through Rate": As to the each Class of Certificates, the
related Pass-Through Rate.
"Payment Date": Any date on which the Trustee is required to
make distributions to the Owners, which shall be the 25th day of each calendar
month, commencing in the month following the Startup Day, or if the 25th day is
not a Business Day, then the next succeeding Business Day.
"Percentage Interest": As to any Class [A] Certificate, that
percentage, expressed as a fraction, the numerator of which is the Certificate
Principal Balance of such Certificate as of the Startup Day and the denominator
of which is the Certificate Principal Balance of all
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Certificates of the same Class as of the Startup Day; and as to any Class [B] or
[Residual Class] Certificate, that Percentage Interest set forth on such Class
[B] or [Residual Class] Certificate.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Cumulative Realized Losses": With respect to any period,
the sum of all Realized Losses with respect to the Mortgage Loans experienced
during such period.
"Pool Factor": As defined in Section 7.8(a) hereof.
"Pool Principal Balance": The aggregate principal balances of
all Mortgage Loans.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 7.2 hereof and maintained by the Trustee.
"Pre-Funded Amount": The Group I Pre-Funded Amount and/or the
Group II Pre-Funded Amount, as applicable.
"Pre-Funding Earnings": With respect to the [___________,
_____] Payment Date, the actual investment earnings earned during the period
from [___________, _____] through [___________, _____] (inclusive) on the
Pre-Funding Account during such period as calculated by the Trustee pursuant to
Section 3.8(e) hereof; with respect to the [___________, _____] Payment Date,
the actual investment earnings during the period beginning [___________, _____]
through [___________, _____] (inclusive) on the Pre-Funding Account during such
period as calculated by the Trustee pursuant to Section 3.8(e) hereof; with
respect to the [___________, _____] Payment Date, the actual investment earnings
during the period beginning [___________, _____] through [___________, _____]
(inclusive) on the Pre-Funding Account during such period as calculated by the
Trustee pursuant to Section 3.8(e) hereof.
"Pre-Funding Period": The period commencing on the Startup Day
and ending on the earliest to occur of (i) the date on which the Pre-Funded
Amount (exclusive of any investment earnings) is less than $100,000, (ii) the
date on which any Event of Default occurs and (iii) [___________, _____].
"Premium Amount": With respect to a Group of Mortgage Loans,
as to any Payment Date, the product of (x) one-twelfth of the Premium Percentage
and (y) the Certificate Principal Balance of such Group of Certificates on such
Payment Date (after taking into account any distributions of the related
Principal Distribution Amount for such Group on such Payment Date).
"Premium Percentage": The percentage as defined in the
Insurance Agreement.
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and accrued interest thereon received prior to
the scheduled due date for such installment, intended by the Mortgagor as an
early payment thereof and not as a Prepayment with respect to such Mortgage
Loan.
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"Prepayment": Any payment of principal of a Mortgage Loan
which is received by the Master Servicer in advance of the scheduled due date
for the payment of such principal (other than the principal portion of any
Prepaid Installment), and the proceeds of any Insurance Policy which are to be
applied as a payment of principal on the related Mortgage Loan shall be deemed
to be Prepayments for all purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Master
Servicer or any Sub-Servicer in connection with a foreclosed Mortgage Loan prior
to the liquidation thereof, including, without limitation, expenditures for real
estate property taxes, hazard insurance premiums, flood insurance premiums and
property restoration or preservation.
"Principal and Interest Account": Collectively, each principal
and interest account created by the Master Servicer or any Sub-Servicer pursuant
to Section 8.8(a) hereof, or pursuant to any Sub-Servicing Agreement.
"Principal Remittance Amount": As applicable, the Group I
Principal Remittance Amount or the Group II Principal Amount.
"Prohibited Transaction": "Prohibited transaction" shall have
the meaning set forth from time to time in the definition thereof contained in
Section 860F(a)(2) of the Code (or any successor statute thereto) and applicable
to the Trust.
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": Such final prospectus dated March __, 1999, as
supplemented by a prospectus supplement dated [___________, _____] relating to
the Class [A] Certificates.
"Purchase Option Period": As defined in Section 9.3(b) hereof.
"Qualified Liquidation": "Qualified Liquidation" shall have
the meaning set forth from time to time in the definition thereof at Section
860F(a)(4) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Qualified Mortgage": "Qualified Mortgage" shall have the
meaning set forth from time to time in the definition thereof at Section
860G(a)(3) of the Code (or any successor statute thereto) and applicable to the
Trust and the Mortgage Loan Groups.
"Qualified Replacement Mortgage": A Mortgage Loan substituted
for another pursuant to Section 3.3, 3.4 or 3.6(b) hereof, which (i) bears a
fixed rate of interest if the Mortgage Loan being replaced is in Group I and
bears an adjustable rate of interest if the Mortgage Loan to be replaced is in
Group II, (ii) has a Coupon Rate at least equal to the Coupon Rate of the
Mortgage Loan being replaced, (which, in the case of a Mortgage Loan in Group
II, shall mean a Mortgage Loan having the same interest rate index, a margin
over such index and a maximum interest rate equal to or greater than those
applicable to the Mortgage Loan being replaced), (iii) is of the same or better
property type and the same or better occupancy status as the replaced Mortgage
Loan, (iv) shall be of the same or better credit quality classification
(determined in accordance with the Originators' credit underwriting guidelines)
as the Mortgage Loan being replaced, (v) shall mature no later than
[___________, _____], (vi) has a Combined Loan-to-Value Ratio as of the
Replacement Cut-Off Date no higher than the Combined Loan-to-Value Ratio of the
replaced Mortgage Loan at such time, (vii) has a Loan Balance as of the related
Replacement Cut-Off Date equal to or less than the Loan Balance of the replaced
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Mortgage Loans as of such Replacement Cut-Off Date, (viii) satisfies all of the
representations and warranties set forth in Section 3.3 and the criteria set
forth from time to time in the definition thereof at Section 860G(a)(4) of the
Code (or any successor statute thereto) and applicable to the Trust, all as
evidenced by an Officer's Certificate of the Sponsor delivered to the
Certificate Insurer and the Trustee prior to any such substitution and (ix) is a
valid First Mortgage Loan if the Mortgage Loan to be substituted for is a valid
First Mortgage Loan or, Junior Mortgage Loan of equal or better priority if the
Mortgage Loan to be substituted for is a Junior Mortgage Loan. In the event that
one or more mortgage loans are proposed to be substituted for one or more
mortgage loans, the Certificate Insurer may allow the foregoing tests to be met
on a weighted average basis with respect to the Mortgage Loans only or other
aggregate basis acceptable to the Certificate Insurer, as evidenced by a written
consent delivered to the Trustee by the Certificate Insurer, except that the
requirement of clause (viii) hereof must be satisfied as to each Qualified
Replacement Mortgage.
"Rating Agency": [Rating Agency/Agencies].
"Realized Loss": As to any Liquidated Loan, the amount, if
any, by which the Loan Balance thereof as of the date of liquidation exceeds the
Net Liquidation Proceeds realized thereon.
"Record Date": With respect to each Payment Date and (x) with
respect to the Group I Certificates, the last Business Day of the calendar month
immediately preceding the calendar month in which such Payment Date occurs and
(y) with respect to the Group II Certificates, the Business Day immediately
preceding such Payment Date (unless the Certificates become definitive, in which
event the Record Date shall be the last Business Day of the calendar month
immediately preceding the calendar month in which such Payment Date occurs).
"Reference Banks": Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC; provided that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Trustee which are engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (i) with an established place
of business in London, (ii) which is not controlling, under the control of or
under common control with the Sponsor or any affiliate thereof, (iii) whose
quotations appear on the Telerate Page 3750 on the relevant Interest
Determination Date and (iv) which have been designated as such by the Trustee.
"Register": The register maintained by the Trustee in
accordance with Section 5.4 hereof, in which the names of the Owners are set
forth.
"Registrar": The Trustee, acting in its capacity as Registrar
appointed pursuant to Section 5.4 hereof, or any duly appointed and eligible
successor thereto.
"Registration Statement": The Registration Statement (No.
333-______) filed by the Sponsor with the Securities and Exchange Commission,
including all amendments thereto and including the Prospectus relating to the
Class [A] Certificates constituting a part thereof.
"Reimbursement Amount": With respect to Group I, the Group I
Reimbursement Amount and with respect to Group II, the Group II Reimbursement
Amount.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
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"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of the Code, and related provisions, and regulations and
rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
"REMIC Trust": The segregated pool of assets consisting of the
Trust Estate, except for the Supplemental Interest Trust, the Class [A-2]
Supplemental Interest Payment Account, the Capitalized Interest Account and the
Pre-Funding Account.
"Remittance Date": Any date on which the Master Servicer is
required to remit monies on deposit in the Principal and Interest Account to the
Trustee, which shall be no later than the 18th day of each month, or, if such
day is not a Business Day, the immediately succeeding Business Day, commencing
in the month following the month in which the Startup Day occurs.
"Remittance Period": The period beginning on the first day of
the calendar month immediately preceding the month in which a Remittance Date
occurs and ending on the last day of such immediately preceding calendar month.
"REO Property": A Property acquired by the Master Servicer or
any Sub-Servicer on behalf of the Trust through foreclosure or grant of a
deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the first day of the calendar month in which such
Qualified Replacement Mortgage is transferred and assigned to the Trust.
"Representation Letter": The letters to, or agreements with,
the Depository to effectuate a book entry system with respect to the Class [A]
Certificates registered in the Register under the nominee name of the
Depository.
"Representative": [Representative Underwriter], as
representative of the Underwriters.
"Required Distributions": The Group I Required Distributions
or the Group II Required Distributions, as applicable.
"Reserve Interest Rate": The rate per annum that the Trustee
determines to be either (i) the arithmetic mean (rounded to the nearest whole
multiple of 1/16%) of the one-month U.S. dollar lending rates which New York
City banks, selected by the Trustee, are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or, in the event that the Trustee can determine no such
arithmetic mean, (ii) the lowest one-month U.S. dollar lending rate which New
York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Schedule of Mortgage Loans": The Schedule of Mortgage Loans,
attached hereto as Schedule I as may be further supplemented in connection with
the transfer of Subsequent Mortgage Loans. Such Schedule shall also contain one
of the following codes for each Mortgage Loan or Subsequent Mortgage Loan: "C"
if such Mortgage Loan is an Unaffiliated Originator Loan or "A" for all other
Mortgage Loans. The information contained on each Schedule of Mortgage Loans
shall be delivered to the Trustee in an electronic media.
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"Securities Act": The Securities Act of 1933, as amended.
"Senior Lien": With respect to any Junior Mortgage Loan, the
mortgage loan relating to the corresponding Property having a priority lien.
"Servicer Affiliate": A Person (i) controlling, controlled by
or under common control with the Master Servicer and (ii) which is qualified to
service residential mortgage loans.
"Servicing Advance": As defined in Section 8.9(c) and Section
8.13 hereof.
"Servicing Fee": As to any Payment Date the product of (x)
one-twelfth of 0.50% and (y) the aggregate Loan Balances of the Mortgage Loans
as of the opening of business on the first day of the Remittance Period
preceding such Payment Date.
"Servicer Termination Loss Trigger": As defined in the
Insurance Agreement.
"Special Advance": Any advance made by the Master Servicer
pursuant to Section 8.9(d) hereof.
"Specified Overcollateralization Amount": As defined in the
Insurance Agreement.
"Sponsor": Advanta Conduit Receivables, Inc., a Nevada
corporation.
"Standard & Poor's": Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies.
"Startup Day": [___________, _____].
"Step-Up Payment Date": The Payment Date following the
calendar month in which the Initial Clean-Up Call Date occurs.
"Subsequent Cut-Off Date": With respect to any Subsequent
Mortgage Loans, the opening of business on the first day of the calendar month
in which such Subsequent Mortgage Loans are transferred and assigned to the
Trust.
"Subsequent Mortgage Loans": The Mortgage Loans sold to the
Trust pursuant to Section 3.8 hereof, which shall be listed on the Schedule of
Mortgage Loans attached to the Subsequent Transfer Agreement.
"Subsequent Transfer Agreement": Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Trustee and the
Sponsor substantially in the form of Exhibit M hereto, by which Subsequent
Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date": The date specified in each
Subsequent Transfer Agreement.
"Substitution Amount": In connection with the delivery of any
Qualified Replacement Mortgage, if the outstanding principal amount of such
Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is
less than the Loan Balance of the Mortgage Loan being replaced as of such
Replacement Cut-Off Date, an amount equal to such
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difference together with accrued and unpaid interest on such amount calculated
at the Coupon Rate (net of the Servicing Fee) of the Mortgage Loan being
replaced.
"Sub-Servicer": Any Person with whom the Master Servicer has
entered into a Sub-Servicing Agreement and who satisfies any requirements set
forth in Section 8.3 hereof in respect of the qualification of a Sub-Servicer .
"Sub-Servicing Agreement": The written contract between the
Master Servicer and any Sub-Servicer relating to servicing and/or administration
of certain Mortgage Loans as permitted by Section 8.3.
"Supplemental Interest Payment Amount Available": As defined
in Section 7.10(b) hereof.
"Supplemental Interest Right": As defined in Section 7.10(e)
hereof.
"Supplemental Interest Trust": The [Supplemental Interest
Trust] created pursuant to Section 7.10(a) hereof.
"Tax Matters Person": The Tax Matters Person appointed
pursuant to Section 11.17 hereof.
"Tax Matters Person Residual Interest": The 100% interest in
the [Residual Class] Certificate which shall be issued to and held by [Holder]
or certain affiliates throughout the term hereof unless another person that is
not a Disqualified Organization shall accept an assignment of such interest and
the designation of Tax Matters Person pursuant to Section 11.17 hereof.
"Termination Notice": As defined in Section 9.3(b) hereof.
"Termination Price": As defined in Section 9.2(a) hereof.
"Total Monthly Excess Cashflow": With respect to a Mortgage
Loan Group and any Payment Date, an amount equal to the sum of (x) the Monthly
Excess Interest Amount with respect to such Mortgage Loan Group plus (y) any
Overcollateralization Reduction Amount with respect to such Mortgage Loan Group.
"Transaction Documents": Collectively this Agreement, the
Insurance Agreement, the Underwriting Agreement relating to the Class [A]
Certificates, the Master Transfer Agreements, any Sub-Servicing Agreement, the
Indemnification Agreement, any Subsequent Transfer Agreements, the Registration
Statement relating to the Class [A] Certificates and the Certificates.
"Trust": [Trust], the trust created under this Agreement.
"Trust Estate": Collectively, all money, instruments and other
property, to the extent such money, instruments and other property are subject
or intended to be held in trust, and in the subtrusts, for the benefit of the
Owners, including all proceeds thereof, including, without limitation, (i) the
Mortgage Loans, (ii) such amounts including principal collections in respect of
the related Mortgage Loans received on or after the Initial Cut-Off Date and
each Subsequent Cut-Off date, including Eligible Investments, as from time to
time may be held in all Accounts
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(except as otherwise provided herein), except any premium recapture and interest
accrued prior to the Initial Cut-Off Date and each Subsequent Cut-Off Date,
(iii) any Property, the ownership of which has been effected on behalf of the
Trust as a result of foreclosure or acceptance by the Master Servicer of a deed
in lieu of foreclosure and that has not been withdrawn from the Trust, (iv) any
Insurance Policies relating to the Mortgage Loans and any rights of the Sponsor
or any Affiliated Originator under any Insurance Policies (excluding any
non-mortgage related or credit life insurance policies), (v) Net Liquidation
Proceeds with respect to any Liquidated Loan, (vi) the rights of the Trustee
under the Certificate Insurance Policy, (vii) the rights of the Sponsor against
any Originator pursuant to the related Master Transfer Agreement and (viii) the
amounts on deposit in the Pre-Funding Account and the Capitalized Interest
Account.
"Trustee": [Trustee], located on the date of execution of this
Agreement at [Trustee's Address], a national banking association, not in its
individual capacity but solely as Trustee under this Agreement, and any
successor hereunder.
"Trustee's Fees": With respect to any Payment Date and
Mortgage Loan Group, the product of (x) one-twelfth of the Trustee Fee Rate and
(y) the aggregate Loan Balance of the Mortgage Loan in the related Mortgage Loan
Group as of the beginning of the related Remittance Period.
"Trustee Fee Rate": [____%] per annum.
"Unaffiliated Originator Loan": Any Mortgage Loan purchased by
the Sponsor from an Unaffiliated Originator and sold to the Trust by the
Sponsor.
"Unaffiliated Originators": Any Originator who is not
affiliated with the Sponsor.
"Uncertificated Interest": As defined in Section 2.8(b)
hereof.
"Underwriters": [Underwriters].
"Upper-Tier REMIC": The REMIC established pursuant to Section
2.8 hereof. The assets of the Upper-Tier REMIC shall be the Lower-Tier REMIC
Regular Interests.
"Upper-Tier REMIC Regular Interests": As defined in Section
2.8(c) hereof.
"Warehouse Trust": Any trust established by an affiliate of
the Sponsor to finance the origination of mortgage loans, including, without
limitation, the Conduit Acquisition Trust.
SECTION 1.2. USE OF WORDS AND PHRASES.
"Herein", "hereby", "hereunder", "hereof", "hereinbefore", "hereinafter" and
other equivalent words refer to this Agreement as a whole and not solely to the
particular section of this Agreement in which any such word is used. The
definitions set forth in Section 1.1 hereof include both the singular and the
plural. Whenever used in this Agreement, any pronoun shall be deemed to include
both singular and plural and to cover all genders.
SECTION 1.3. CAPTIONS; TABLE OF CONTENTS.
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The captions or headings in this Agreement and the Table of Contents are for
convenience only and in no way define, limit or describe the scope and intent of
any provisions of this Agreement.
SECTION 1.4. OPINIONS.
Each opinion with respect to the validity, binding nature and enforceability
of documents or Certificates may be qualified to the extent that the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity (whether considered in a proceeding or action in
equity or at law) and may state that no opinion is expressed on the availability
of the remedy of specific enforcement, injunctive relief or any other equitable
remedy. Any opinion required to be furnished by any Person hereunder must be
delivered by counsel upon whose opinion the addressee of such opinion may
reasonably rely, and such opinion may state that it is given in reasonable
reliance upon an opinion of another, a copy of which must be attached,
concerning the laws of a foreign jurisdiction.
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
SECTION 2.1. ESTABLISHMENT OF THE TRUST.
The parties hereto do hereby create and establish, pursuant to the laws of the
State of New York and this Agreement, the Trust, which, for convenience, shall
be known as "[Trust]". Each Mortgage Loan Group shall constitute a subtrust of
the Trust.
SECTION 2.2. OFFICE.
The office of the Trust shall be in care of the Trustee, addressed to
[Trustee], [Trustee Address], or at such other address as the Trustee may
designate by notice to the Sponsor, the Master Servicer, the Owners and the
Certificate Insurer.
SECTION 2.3. PURPOSES AND POWERS.
The purpose of the Trust is to engage in the following activities, and only
such activities: (i) the issuance of the Certificates and the acquiring, owning
and holding of Mortgage Loans and the Trust Estate in connection therewith; (ii)
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith, including the
investment of monies in accordance with this Agreement; and (iii) such other
activities as may be required in connection with conservation of the Trust
Estate and distributions to the Owners; provided, however, that nothing
contained herein shall permit the Trustee to take any action which would result
in the loss of REMIC status for the REMIC Trust.
SECTION 2.4. APPOINTMENT OF THE TRUSTEE; DECLARATION OF TRUST.
The Sponsor hereby appoints the Trustee as trustee of the Trust effective as
of the Startup Day, to have all the rights, powers and duties set forth herein.
The Trustee hereby acknowledges and accepts such appointment, represents and
warrants its eligibility as of the Startup Day to serve as Trustee pursuant to
Section 10.8 hereof and declares that it will hold the Trust Estate in trust
upon
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and subject to the conditions set forth herein for the benefit of the Owners and
the Certificate Insurer, as their interests may appear.
SECTION 2.5. EXPENSES OF THE TRUST.
Any expenses of the Trust that have been reviewed and approved by the Sponsor
(which approval shall not be unreasonably withheld), including the reasonable
expenses of the Trustee shall be paid by the Sponsor to the Trustee or to such
other Person to whom such amounts may be due. Failure by the Sponsor to pay any
such fees or other expenses shall not relieve the Trustee of its obligations
hereunder. The Trustee hereby covenants with the Owners that every material
contract or other material agreement entered into by the Trustee on behalf of
the Trust shall expressly state therein that no Owner shall be personally liable
in connection with such contract or agreement.
SECTION 2.6. OWNERSHIP OF THE TRUST.
On the Startup Day the ownership interests in the Trust and the subtrusts
shall be transferred as set forth in Section 4.2 hereof, such transfer to be
evidenced by sale of the Certificates as described therein. Thereafter, transfer
of any ownership interest shall be governed by Sections 5.4 and 5.8 hereof.
SECTION 2.7. SITUS OF THE TRUST.
It is the intention of the parties hereto that the Trust constitute a trust
under the laws of the State of New York. The Trust will be created in, and all
Accounts maintained by the Trustee on behalf of the Trust will be located in,
the State of New York. The Trust will not have any employees and will not have
any real or personal property (other than property acquired pursuant to Section
8.13 hereof) located in any state other than in the State of New York and
payments will be received by the Trust only in the State of New York and
payments from the Trust will be made only from the State of New York. The
Trust's only office will be at the office of the Trustee as set forth in Section
2.2 hereof.
SECTION 2.8. MISCELLANEOUS REMIC PROVISIONS.
(a) The Trustee shall elect that each of the Lower-Tier REMIC
and the Upper-Tier REMIC shall be treated as a REMIC under Section 860D of the
Code. Any inconsistencies or ambiguities in this Agreement or in the
administration of this Agreement shall be resolved in a manner that preserves
the validity of such REMIC elections. The assets of the Lower-Tier REMIC shall
include the Mortgage Loans, the Accounts (except for the Non-REMIC Estate), any
REO Property, and any proceeds of the foregoing. The Lower-Tier REMIC Regular
Interests (as defined below) shall constitute the assets of the Upper-Tier
REMIC.
(b) The Lower-Tier REMIC will be evidenced by (x) Lower-Tier
Interest 1, Lower-Tier Interest 2, Lower-Tier Interest 3, Lower-Tier Interest 4,
and Lower-Tier Interest 5 (the "Lower-Tier REMIC Regular Interests"), which will
be uncertificated and non-transferable and are hereby designated as the "regular
interests" in the Lower-Tier REMIC and (y) the Lower-Tier REMIC Residual
Interest, which is hereby designated as the single "residual interest" in the
Lower-Tier REMIC (the Lower-Tier REMIC Regular Interests, together with the
Lower-Tier REMIC Residual Interest, the "Lower-Tier REMIC Interests"). The
Lower-Tier REMIC Regular Interests shall be recorded on the records of the
Lower-Tier REMIC as being issued to and held by the Trustee on behalf of the
Upper-Tier REMIC.
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Lower-Tier Interest 1 shall have an initial principal balance
equal to one percent of the sum of the initial principal balances of the Group I
Certificates (that is, [$_________]). Lower-Tier Interest 2 shall have an
initial principal balance equal to one percent of the Group I Original Balance
(that is, [$_________]). Lower-Tier Interest 3 shall have an initial principal
balance equal to one percent of the initial principal balance of the Class [A-2]
Certificates (that is, [$__________]). Lower-Tier Interest 4 shall have an
initial principal balance equal to one percent of the Group II Original Balance
(that is, [$__________]) Lower-Tier Interest 5 shall have an initial principal
balance equal to the excess of (i) the sum of the Group I Original Balance and
the Group II Original Balance over (ii) the sum of the initial principal
balances of Lower-Tier Interest 1, Lower-Tier Interest 2, Lower-Tier Interest 3,
and Lower-tier Interest 4 (that is, [$__________]).
On each Payment Date, principal payments on the Mortgage Loans
shall be allocated 99% to Lower-Tier Interest 2, Lower-Tier Interest 4 and
Lower-Tier Interest 5, and 1% to Lower-Tier Interest 1 and Lower-Tier Interest 3
until paid in full. The aggregate amount of principal allocated to the
Lower-Tier Interest 1 and Lower-Tier Interest 3 shall be apportioned between
such Interests in the same manner in which principal on the Mortgage Loans is
payable with respect to the Group I Certificates and the Class [A-2]
Certificates, respectively. The aggregate amount of principal allocated to
Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier Interest 5 shall be
allocated and apportioned among such Interests first, to Lower-Tier Interest 2
and Lower-Tier Interest 4 the least amount of principal necessary which when
applied to such Interests can be applied so that the ratio of the principal
balance of Lower-Tier Interest 2 to the principal balance of Lower-Tier Interest
4 equals the ratio of the sum of Loan Balances of the Mortgage Loans in the
Group I to the sum of the Loan Balances of the Mortgage Loans in the Group II
(the "Balance Ratio") and second, to Lower-Tier Interest 5.
Any Overcollateralization Increase Amount will not be paid as
interest to the Lower-Tier REMIC Regular Interests, but instead to the extent
available, a portion of the interest payable with respect to Lower-Tier Interest
5 which equals 1% of the Overcollateralization Increase Amount (and, to the
extent 1% of the Overcollateralization Increase Amount exceeds the interest
payable on Lower-Tier Interest 5, a pro rata portion of the interest payable on
the Lower-Tier Interest 2 and Lower-Tier Interest 4 equal to such excess) will
be payable as a reduction of the principal balances of Lower-Tier Interest 1 and
Lower-Tier Interest 3 in the same manner in which the Overcollateralization
Increase Amount is allocated among the Class [A-1] and [A-2], Certificates,
respectively (and will be accrued and added to principal on Lower-Tier Interest
2, Lower-Tier Interest 4 and Lower-Tier Interest 5 in the same proportion as
interest payable on such Interests is used to reduce principal on other
Interests as just described).
Notwithstanding the above, principal payments on the Mortgage
Loans that are attributable to the Overcollateralization Reduction Amount shall
be allocated to Lower-Tier Interest 2, Lower-Tier Interest 4 and Lower-Tier
Interest 5 (allocated first to Lower-Tier Interest 5 until such certificates are
paid in full, and second to Lower-Tier Interest 2 and Lower-Tier Interest 4 and
apportioned between Lower-Tier Interest 2 and Lower-Tier Interest 4 in such a
manner that the Balance Ratio is maintained until paid in full).
Realized Losses shall be applied such that after all
distributions have been made on such Payment Date the principal balances
Lower-Tier Interest 1 and Lower-Tier Interest 3 are each 1% of the principal
balances of the Group I Certificates and Class [A-2] Certificates, respectively,
and the aggregate principal balance of Lower-Tier Interest 2, Lower-Tier
Interest 4 and Lower-Tier Interest 5 is equal to the sum of the Loan Balances of
the Mortgage Loans less an amount equal to the sum of the principal balances of
Lower-Tier Interest 1 and Lower-Tier
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Interest 3 and is allocated and apportioned first, to Lower-Tier Interest 2 and
Lower-Tier Interest 4 the least amount of Realized Losses necessary which when
applied to such Interests can be applied in such a manner that the Balance Ratio
is maintained, and second, to Lower-Tier Interest 5.
Lower-Tier Interest 1 and Lower-Tier Interest 2 shall each
have Pass-Through Rates equal to the Group I Net Weighted Average Coupon Rate
(the sum expressed as a per annum rate on the sum of the Loan Balances for
Mortgage Loans in Group I). Lower-Tier Interest 3 and Lower-Tier Interest 4
shall each have a Pass-Through Rate equal to the Group II Net Weighted Average
Coupon Rate (the sum expressed as a per annum rate on the sum of the Loan
Balances for the Mortgage Loans in Group II). Lower-Tier Interest 5 shall have a
Pass-Through Rate equal to the weighted average of the Group I Net Weighted
Average Coupon Rate and the Group II Net Weighted Average Coupon Rate (the sum
expressed as a per annum rate on the sum of Loan Balances of the Mortgage
Loans). The Lower-Tier REMIC Residual Interest shall have no principal balance
and no Pass-Through Rate and shall be entitled to only those distributable
assets, if any, remaining in the Lower-Tier REMIC on each Payment Date after all
amounts required to be distributed to Lower-Tier Interest 1, Lower-Tier Interest
2, Lower-Tier Interest 3, Lower-tier Interest 4, and Lower-Tier Interest 5 and
applicable Trust expenses have been paid.
The Lower-Tier REMIC Interests will have the following
designations and Pass-Through Rates, and distributions of principal and interest
thereon shall be allocated to the Certificates in the following manner:
<TABLE>
<CAPTION>
Pass- Allocation Allocation
Lower-Tier REMIC Initial Through of of
Interests Balance Rate Principal Interest
--------- ------- ---- --------- --------
<S> <C> <C> <C> <C>
1 [$________] (1) (4) (5)
2 [$________] (1) (4) (5)
3 [$________] (2) (4) (5)
4 [$________] (2) (4) (5)
5 [$________] (3) (4) (5)
Lower-Tier (6) (6) (6)
Residual
</TABLE>
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- ----------------------
(1) The Pass-Through Rate on these Lower-Tier REMIC Regular Interests shall
at any time of determination equal the Group I Net Weighted Average
Coupon Rate.
(2) The Pass-Through Rate on these Lower-Tier REMIC Regular Interest shall
at any time of determination equal the Group II Net Weighted Average
Coupon Rate.
(3) The Pass-Through Rate on this Lower-Tier REMIC Regular Interest shall
at any time of determination equal the weighted average of the Group I
Net Weighted Average Coupon Rate and the Group II Net Weighted Average
Coupon Rate.
(4) Principal will be allocated to and apportioned among the Group I
Certificates and the Class [A-2] Certificates in the same proportion as
principal from the Mortgage Loans is payable with respect to such
Certificates, except that a portion of such principal in an amount
equal to the Overcollateralization Reduction Amount shall first be
allocated as a payment of interest to the Class [B] Certificates, and
all principal will be allocated as a payment of interest to the Class
[B] Certificates after the principal balances of the Class [A]
Certificates have been reduced to zero.
(5) Except as provided in the next sentence, interest will be allocated
among the Group I Certificates and Class [A-2] in the same proportion
as interest is payable on such Certificates.
Any interest with respect to each Lower-Tier REMIC Regular Interest in
excess of the product of (i) 100 times the weighted average coupon of
the Lower-Tier Interest 1, Lower-Tier Interest 2, Lower-Tier Interest
3, Lower-Tier Interest 4 and Lower-Tier Interest 5, where Lower-Tier
Interest 1 and Lower-Tier Interest 3 are first subject to a cap and
floor equal to the Group I Net Weighted Average Coupon Rate and Class
[A-2] Pass-Through Rate, respectively, and Lower-Tier Interest 2,
Lower-Tier Interest 4 and Lower-Tier Interest 5 are each subject to a
cap equal to 0%, and (ii) the principal balance of each such Lower-Tier
Interest, shall not be allocated to the Class [A] Certificates but will
be allocated to the Class B Certificates. However, the Class [B]
Certificates shall be subordinated to the extent provided in Section
7.5. hereof.
(6) On each Distribution Date, available funds, if any, remaining in the
Lower-Tier REMIC after payments of interest and principal, as
designated above, will be distributed to the Lower-Tier Residual
Interest. It is expected that there shall not be any distributions on
the Lower-Tier Residual Interest.
(c) The Class [A-1] and Class [A-2] Certificates are hereby
designated as "regular interests" with respect to the Upper-Tier REMIC (the
"Upper-Tier REMIC Regular Interests") and the [Residual Certificate] is hereby
designated as the single "residual interest" with respect to the Upper-Tier
REMIC. On each Payment Date, available funds, if any, remaining in the
Upper-Tier REMIC after payments of interest and principal as designated herein
shall be distributed to the [Residual Certificates].
(d) For federal income tax purposes, the "latest possible
maturity date" for each of the Lower-Tier REMIC Regular Interests and Upper-Tier
REMIC Regular Interests is hereby set to be the Payment Date of [_________,
_____].
(e) The Startup Day is hereby designated for each of the
Lower-Tier REMIC and Upper-Tier REMIC as the "startup day" within the meaning of
Section 860G(a)(9) of the Code.
(f) The Trustee shall provide to the Internal Revenue Service
and to the persons described in
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Section 860E(e)(3) and (6) of the Code, the information described in Treasury
regulations Section 1.860D-1(b)(5)(ii), or any successor regulation thereto,
with respect to each of the Lower-Tier REMIC and the Upper-Tier REMIC. Such
information will be provided in the manner described in Treasury regulations
Section 1.860E-2(a)(5), or any successor regulation thereto.
(g) The Owner of the Tax Matters Person Residual Interests in
the Upper-Tier REMIC and the Lower-Tier REMIC is hereby designated as "tax
matters person" as defined in the REMIC Provisions with respect to each such
REMIC.
(h) The Trust and each REMIC shall, for federal income tax
purposes, maintain books on a calendar year basis and report income on an
accrual basis.
(i) The final scheduled Payment Date for any Class of
Certificates is hereby established as follows:
CLASS FINAL SCHEDULED PAYMENT DATES
<TABLE>
<CAPTION>
Final Scheduled
Class Payment Date
----- ------------
<S> <C>
Class [A-1] [_________, _____]
Class [A-2] [_________, _____]
</TABLE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SPONSOR AND THE MASTER SERVICER;
COVENANT OF SPONSOR TO CONVEY MORTGAGE LOANS
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR.
The Sponsor hereby represents, warrants and covenants to the Trustee, the
Certificate Insurer and to the Owners as of the Startup Day that:
(a) The Sponsor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of its business, or the properties owned or leased by it make such qualification
necessary. The Sponsor has all requisite corporate power and authority to own
and operate its properties, to carry out its business as presently conducted and
as proposed to be conducted and to enter into and discharge its obligations
under this Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which the Sponsor is a party by the Sponsor and its
performance and compliance with the terms of this Agreement and of the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Sponsor and will not violate the
Sponsor's Articles of Incorporation or Bylaws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or other
instrument to which the Sponsor is a party or by which the Sponsor is bound, or
violate any statute or any order, rule or regulation of any court,
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governmental agency or body or other tribunal having jurisdiction over the
Sponsor or any of its properties.
(c) This Agreement and the other Operative Documents to which
the Sponsor is a party, assuming due authorization, execution and delivery by
the other parties hereto and thereto, each constitutes a valid, legal and
binding obligation of the Sponsor, enforceable against it in accordance with the
terms hereof and thereof, except as the enforcement hereof and thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law).
(d) The Sponsor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which might have consequences that would
materially and adversely affect the condition (financial or other) or operations
of the Sponsor or its properties or might have consequences that would
materially and adversely affect its performance hereunder and under the other
Operative Documents to which it is a party.
(e) No litigation is pending or, to the best of the Sponsor's
knowledge, threatened against the Sponsor which litigation might have
consequences that would prohibit its entering into this Agreement or any other
Operative Document to which it is a party or might have consequences that would
materially and adversely affect its performance hereunder and under the other
Operative Documents to which it is a party.
(f) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Sponsor contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement
which describe the Sponsor or matters or activities for which the Sponsor is
responsible in accordance with the Operative Documents or which are attributed
to the Sponsor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Sponsor or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
with respect to the Sponsor not misleading. To the best of the Sponsor's
knowledge and belief, the Registration Statement does not contain any untrue
statement of a material fact required to be stated therein or omit to state any
material fact required to be stated therein or necessary to make the statements
contained therein not misleading.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Sponsor makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Certificates and the execution and delivery by the
Sponsor of the Operative Documents to which it is a party, have been duly taken,
given or obtained, as the case may be, are in full force and effect on the date
hereof, are not subject and are not reasonably expected to be subject to any
pending proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no
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review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Sponsor and the performance
by the Sponsor of its obligations under this Agreement and such of the other
Operative Documents to which it is a party.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Sponsor.
(j) The Sponsor received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the Mortgage Loans
evidenced by the Certificates.
(k) The Sponsor did not sell any interest in any Mortgage Loan
evidenced by the Certificates with any intent to hinder, delay or defraud any of
its respective creditors.
(l) The Sponsor is solvent and the Sponsor will not be
rendered insolvent as a result of the sale of the Mortgage Loans to the Trust or
the issuance of the Certificates.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the Mortgage
Loans to the Trust.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF THE MASTER
SERVICER.
The Master Servicer hereby represents, warrants and covenants to the Trustee,
the Certificate Insurer and the Owners as of the Startup Day that:
(a) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is, and each Sub-Servicer is, in compliance with the laws of each state in which
any Property is located to the extent necessary to enable it to perform its
obligations hereunder and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business, or the properties owned or
leased by it make such qualification necessary. The Master Servicer and each
Sub-Servicer has all requisite corporate power and authority to own and operate
its properties, to carry out its business as presently conducted and as proposed
to be conducted and to enter into and discharge its obligations under this
Agreement and the other Operative Documents to which it is a party. The Master
Servicer has, on a consolidated basis with its parent, AMHC, equity of at least
$5,000,000, as determined in accordance with generally accepted accounting
principles.
(b) The execution and delivery of this Agreement by the Master
Servicer and its performance and compliance with the terms of this Agreement and
the other Operative Documents to which it is a party have been duly authorized
by all necessary corporate action on the part of the Master Servicer and will
not violate the Master Servicer's Articles of Incorporation or Bylaws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Master Servicer is a party
or by which the Master Servicer is bound or violate any statute or any order,
rule or regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Master Servicer or any of its properties.
(c) This Agreement and the other Operative Documents to which
the Master Servicer is a party, assuming due authorization, execution and
delivery by the other parties hereto and thereto, each constitutes a valid,
legal and binding obligation of the Master Servicer, enforceable against it in
accordance with the terms hereof, except as the enforcement hereof may
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be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law).
(d) The Master Servicer is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Master Servicer or its properties or might have consequences
that would materially and adversely affect its performance hereunder and under
the other Operative Documents to which the Master Servicer is a party.
(e) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which litigation
might have consequences that would prohibit its entering into this Agreement or
any other Operative Document to which it is a party or might have consequences
that would materially and adversely affect its performance hereunder and under
the other Operative Documents to which the Master Servicer is a party.
(f) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Master Servicer
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement
which describe the Master Servicer or matters or activities for which the Master
Servicer is responsible in accordance with the Operative Documents or which are
attributed to the Master Servicer therein are true and correct in all material
respects, and the Registration Statement does not contain any untrue statement
of a material fact with respect to the Master Servicer or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein with respect to the Master Servicer not misleading. To the
best of the Master Servicer's knowledge and belief, the Registration Statement
does not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
contained therein not misleading.
(h) [Reserved.]
(i) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Master Servicer makes no
such representation or warranty), that are necessary or advisable in connection
with the execution and delivery by the Master Servicer of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
reasonably expected to be subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Master Servicer and the
performance by the Master Servicer of its obligations under this Agreement and
such of the other Operative Documents to which it is a party.
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(j) The collection practices used by the Master Servicer with
respect to the Mortgage Loans directly serviced by it have been, in all material
respects, legal, proper, prudent and customary in the mortgage loan servicing
business.
(k) The transactions contemplated by this Agreement are in the
ordinary course of business of the Master Servicer.
(l) The terms of each existing Sub-Servicing Agreement and
each designated Sub-Servicer are acceptable to the Master Servicer and any new
Sub-Servicing Agreements or Sub-Servicers will comply with the provisions of
Section 8.3.
It is understood and agreed that the representations and
warranties set forth in this Section 3.2 shall survive delivery of the Mortgage
Loans to the Trustee.
Upon discovery by any of the Originators, the Master Servicer,
the Sponsor, any Sub-Servicer, the Certificate Insurer or the Trustee of a
breach of any of the representations and warranties set forth in this Section
3.2 which materially and adversely affects the interests of the Owners or of the
Certificate Insurer, the party discovering such breach shall give prompt written
notice to the other parties. Within 30 days of its discovery or its receipt of
notice of breach, the Master Servicer shall cure such breach in all material
respects and, upon the Master Servicer's continued failure to cure such breach,
may thereafter be removed by the Trustee or the Certificate Insurer pursuant to
Section 8.20 hereof; provided, however, that if the Master Servicer can
demonstrate to the reasonable satisfaction of the Certificate Insurer and the
Trustee that it is diligently pursuing remedial action, then the cure period may
be extended with the written approval of the Certificate Insurer and the
Trustee.
SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR
WITH RESPECT TO THE MORTGAGE LOANS.
(a) The Sponsor makes the following representations and
warranties as to the Mortgage Loans on which the Certificate Insurer relies and
the Trustee relies in accepting the Mortgage Loans in trust and executing and
authenticating the Certificates. Such representations and warranties speak as of
the Startup Day with respect to the Initial Mortgage Loans, as of the Subsequent
Transfer Date with respect to any Subsequent Mortgage Loan, or as of the date
upon which any Qualified Replacement Mortgage is added to the Trust, but shall
survive the sale, transfer, and assignment of the Mortgage Loans to the Trustee:
(i) The information with respect to each Mortgage Loan set
forth in the Schedules of Mortgage Loans is true and correct as of the
Initial Cut-Off Date, the Replacement Cut-Off Date or the Subsequent
Cut-Off Date, as the case may be;
(ii) All of the original or certified documentation set forth
in Section 3.5 (including all material documents related thereto) with
respect to each Mortgage Loan has been or will be delivered to the
Trustee no later than the Startup Day, the related Subsequent Transfer
Date or the date upon which any Qualified Replacement Mortgage is added
to the Trust, as the case may be, or as otherwise provided in Section
3.5;
(iii) Except for any Unaffiliated Originator Loans being
serviced by a servicer other than the Master Servicer, each Mortgage
Loan is being serviced by the Master Servicer or a Person controlling,
controlled by or under common control with the Master Servicer and
qualified to service mortgage loans;
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(iv) The Note related to each Mortgage Loan in Group I as of
the Initial Cut-Off Date bears a Coupon Rate of at least [____%] per
annum;
(v) As of the Initial Cut-Off Date, no more than [____%] of
the aggregate principal balances of the Initial Mortgage Loans are
30-59 days Delinquent and no Initial Mortgage Loan is 60 or more days'
Delinquent; as of the related Subsequent Cut-Off Date, no Subsequent
Mortgage Loan shall be 60 or more days Delinquent as of the related
Replacement Cut-Off Date, no Qualified Replacement Mortgage shall be 60
or more days Delinquent;
(vi) As of the Initial Cut-Off Date, no more than [____%] of
the aggregate principal balances of the Mortgage Loans is secured by
Properties located within any single zip code area and less than
[____%] of the aggregate Loan Balance of the Mortgage Loans consists of
Date of Payment Loans or "simple interest" Mortgage Loans;
(vii) All of the Mortgage Loans conform, in all material
respects, to the description thereof set forth in the Registration
Statement;
(viii) As of the Initial Cut-Off Date, no more than [____%] of
the Loan Balance of the Mortgage Loans relates to Mortgage Loans
originated under the Originators' non-income verification program for
self-employed borrowers;
(ix) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus; and
(x) Each Mortgage Loan is a Qualified Mortgage.
(b) The Sponsor hereby assigns to the Trustee for the benefit
of the Owners of the Certificates and the Certificate Insurer (so long as a
Certificate Insurer Default had not occurred and is continuing) all of its
right, title and interest in respect of each Master Transfer Agreement
applicable to the related Mortgage Loans. Insofar as such Master Transfer
Agreement provides for representations and warranties made by the related
Originator in respect of a Mortgage Loan and any remedies provided thereunder
for any breach of such representations and warranties, such right, title and
interest may be enforced by the Master Servicer or by the Trustee on behalf of
the Owners and the Certificate Insurer. Upon the discovery by the Sponsor, the
Master Servicer, the Certificate Insurer or the Trustee of a breach of any of
the representations and warranties made in a Master Transfer Agreement in
respect of any Mortgage Loan which materially and adversely affects the
interests of the Owners or of the Certificate Insurer in such Mortgage Loan, the
party discovering such breach shall give prompt written notice to the other
parties. The Master Servicer shall promptly notify the related Originator of
such breach and request that such Originator cure such breach or take the
actions described in Section 3.4(b) hereof within the time periods required
thereby, and if such Originator does not cure such breach in all material
respects, the Sponsor shall cure such breach or take such actions. The
obligations of the Sponsor or Master Servicer, as the case may be, set forth
herein with respect to any Mortgage Loan as to which such a breach has occurred
and is continuing shall constitute the sole obligations of the Master Servicer
and of the Sponsor in respect of such breach.
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SECTION 3.4. COVENANTS OF SPONSOR TO TAKE CERTAIN ACTIONS WITH
RESPECT TO THE MORTGAGE LOANS IN CERTAIN SITUATIONS.
(a) With the provisos and limitations as to remedies set forth
in this Section 3.4, upon the discovery by any Originator, the Sponsor, the
Master Servicer, the Certificate Insurer, any Sub-Servicer or the Trustee that
the representations and warranties set forth in Section 3.3 of this Agreement or
in a Master Transfer Agreement were untrue in any material respect as of the
Startup Day (or the Subsequent Transfer Date, as the case may be) and such
breaches of the representations and warranties materially and adversely affect
the interests of the Owners or of the Certificate Insurer, the party discovering
such breach shall give prompt written notice to the other parties.
The Sponsor acknowledges that a breach of any representation
or warranty (x) relating to marketability of title sufficient to transfer
unencumbered title to a Mortgage Loan, (y) relating to enforceability of the
Mortgage Loan against the related Mortgagor or Property or (z) set forth in
clause (ix) of Section 3.3 above constitutes breach of a representation or
warranty which materially and adversely affects the interests of the Owners or
of the Certificate Insurer in such Mortgage Loan.
(b) Upon the earliest to occur of the Sponsor's discovery, its
receipt of notice of breach from any one of the other parties hereto or from the
Certificate Insurer or such time as a breach of any representation and warranty
materially and adversely affects the interests of the Owners or of the
Certificate Insurer as set forth above, the Sponsor hereby covenants and
warrants that it shall promptly cure such breach in all material respects or it
shall (or shall cause an affiliate of the Sponsor to or an Originator to),
subject to the further requirements of this paragraph, on the second Remittance
Date next succeeding such discovery, receipt of notice or such other time (i)
substitute in lieu of each Mortgage Loan in the related Mortgage Loan Group
which has given rise to the requirement for action by the Sponsor a Qualified
Replacement Mortgage and deliver the Substitution Amount applicable thereto,
together with the aggregate amount of all Delinquency Advances and Servicing
Advances theretofore made with respect to such Mortgage Loan, to the Master
Servicer for deposit in the Principal and Interest Account or (ii) purchase such
Mortgage Loan from the REMIC Trust at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be delivered to the Master
Servicer for deposit in the Principal and Interest Account. In connection with
any such proposed purchase or substitution, the Sponsor at its expense, shall
cause to be delivered to the Trustee and the Certificate Insurer an opinion of
counsel experienced in federal income tax matters stating whether or not such a
proposed purchase or substitution would constitute a Prohibited Transaction for
the REMIC Trust or would jeopardize the status of the REMIC Trust as a REMIC,
and the Sponsor shall only be required to take either such action to the extent
such action would not constitute a Prohibited Transaction for the REMIC Trust or
would not jeopardize the status of the REMIC Trust as a REMIC. Any required
purchase or substitution, if delayed by the absence of such opinion shall
nonetheless occur upon the earlier of (i) the occurrence of a default or
imminent default with respect to the Mortgage Loan, (ii) the delivery of such
opinion or (iii) at the direction of the Control Party. It is understood and
agreed that the obligation of the Sponsor to cure the defect, or substitute for,
or purchase any Mortgage Loan as to which a representation or warranty is untrue
in any material respect and has not been remedied shall constitute the sole
remedy available to the Owners, the Trustee and the Certificate Insurer.
(c) In the event that any Qualified Replacement Mortgage is
delivered by an Originator or by the Sponsor (or by an affiliate of the Sponsor,
as the case may be) to the Trust pursuant to Section 3.3, Section 3.4 or Section
3.6 hereof, the related Originator and the Sponsor
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shall be obligated to take the actions described in Section 3.4(b) with respect
to such Qualified Replacement Mortgage upon the discovery by any of the Owners,
the Sponsor, the Master Servicer, the Certificate Insurer, any Sub-Servicer or
the Trustee that the representations and warranties set forth in the related
Master Transfer Agreement or in Section 3.3 above are untrue in any material
respect on the date such Qualified Replacement Mortgage is conveyed to the Trust
such that the interests of the Owners or the Certificate Insurer in the related
Qualified Replacement Mortgage are materially and adversely affected.
(d) It is understood and agreed that the covenants set forth
in this Section 3.4 shall survive delivery of the respective Mortgage Loans
(including Qualified Replacement Mortgage Loans) to the Trustee.
SECTION 3.5. CONVEYANCE OF THE MORTGAGE LOANS.
(a) The Sponsor, concurrently with the execution and delivery
hereof, hereby transfers, sells, assigns, sets over and otherwise conveys, or
shall request or cause to be transferred, sold, assigned, set over and otherwise
conveyed, without recourse, for good and valuable consideration, to the Trustee,
all right, title and interest of the Sponsor and the Warehouse Trusts in and to
each Initial Mortgage Loan, including all right, title and interest in and to
principal collected and interest accruing on each such Initial Mortgage Loan on
and after the Initial Cut-Off Date and all right, title and interest in and to
all Insurance Policies and any other assets included or to be included in the
Trust for the benefit of Owners and the Certificate Insurer. The transfer of the
Initial Mortgage Loans set forth on the Schedule of Mortgage Loans to the
Trustee is absolute and is intended by the Owners and all parties hereto to be
treated as a sale by the Sponsor or the Warehouse Trusts.
(b) The Sponsor agrees to take or cause to be taken such
actions and execute such documents (including, without limitation, the filing of
all necessary continuation statements for the UCC-1 financing statements filed
in the State of New York (which shall have been filed within 90 days of the
Startup Day or the Subsequent Transfer Date, as the case may be)) describing the
Mortgage Loans and naming the Sponsor and the appropriate Warehouse Trust, as
applicable, as debtor and the Trustee as the secured party and any amendments to
UCC-1 financing statements required to reflect a change in the name or corporate
structure of the debtor or the filing of any additional UCC-1 financing
statements due to a change in the principal officer of the debtor (within 90
days of any event necessitating such filing) as are necessary to perfect and
protect the Owners' and the Certificate Insurer's interests in each Mortgage
Loan and the proceeds thereof.
(c) In connection with the transfer and assignment of the
Mortgage Loans, the Sponsor agrees to:
(i) cause to be delivered, no later than the Startup Day or
any Subsequent Transfer Date, as applicable, without recourse, to the
Trustee the items listed in the definitions of "Advanta Mortgage Files"
and "Conduit Mortgage Files," as appropriate; provided that the
assignments of mortgage listed in clause (e) of Exhibit B hereto shall
be delivered to the Trustee with respect to the Designated Advanta
Mortgage Files within 75 Business Days of the Startup Day or any
Subsequent Transfer Date, as applicable.
(ii) cause, within 75 Business Days following the Startup Day
or any Subsequent Transfer Date, as applicable, the assignments of
Mortgage to be submitted for recording in the appropriate jurisdictions
wherein such recordation is necessary to perfect
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the lien thereof as against creditors of or purchasers from the related
Originator to the Trustee; provided, however, that, for administrative
convenience and facilitation of servicing and to reduce closing costs,
assignments of mortgage shall not be required to be submitted for
recording with respect to any Mortgage Loan which relates to an Advanta
Mortgage File only if the Trustee, the Certificate Insurer and each
Rating Agency has received an Opinion of Counsel, satisfactory in form
and substance to the Certificate Insurer and to each Rating Agency, to
the effect that the recordation of such assignments in any specific
jurisdiction is not necessary to protect the Trustee's interest in the
related Mortgage.
All recording required pursuant to this Section 3.5 shall be
accomplished at the expense of the Originators or of the Sponsor.
Notwithstanding anything to the contrary contained in this Section 3.5, in those
instances where the public recording office retains the original Mortgage, the
assignment of a Mortgage or the intervening assignments of the Mortgage after it
has been recorded, the Sponsor shall be deemed to have satisfied its obligations
hereunder upon delivery to the Trustee of a copy of such Mortgage, such
assignment or assignments of Mortgage certified by the public recording office
to be a true copy of the recorded original thereof.
Copies of all Mortgage assignments received by the Trustee
shall be kept in the related Mortgage Loan file.
Such assignments of mortgage shall, in addition to the
requirements specified in Exhibit B, be in recordable form. On or before the
Startup Day or any Subsequent Transfer Date, as applicable, the Sponsor shall
deliver to the Trustee original executed powers of attorney, from the current
recordholders of the related Mortgage substantially in the form of Exhibit H,
authorizing the Master Servicer on behalf of the Trustee to record the
assignments of mortgage as provided in clause (ii) above. Pursuant to such power
of attorney, the Trustee also may execute a new assignment of mortgage for any
Mortgage Loan if the original assignment of mortgage delivered by the Sponsor to
the Trustee is not in recordable form at such time as the assignment of mortgage
is to be recorded by the Trustee.
(d) In the case of Mortgage Loans which have been prepaid in
full on or after the Initial Cut-Off Date and prior to the Startup Day, or on or
after any Subsequent Cut-Off Date and prior to the related Subsequent Transfer
Date, as the case may be, the Sponsor, in lieu of the assignment of mortgage,
will deliver within 15 Business Days after the Startup Day or Subsequent
Transfer Date, to the Trustee a certification of an Authorized Officer of the
Sponsor in the form set forth in Exhibit C.
(e) The Sponsor (or any Warehouse Trust, or any affiliate of
the Sponsor) shall transfer, sell, assign, set over and otherwise convey without
recourse, to the Trustee all right, title and interest of the Sponsor (or any
Warehouse Trust or of such affiliate) in and to any Qualified Replacement
Mortgage delivered to the Trustee pursuant to Section 3.3, Section 3.4 or
Section 3.6 hereof and all its right, title and interest to principal collected
and interest accruing on such Qualified Replacement Mortgage on and after the
applicable Replacement Cut-Off Date; provided, however, that the Sponsor (or the
Conduit Acquisition or such affiliate) shall reserve and retain all right, title
and interest in and to payments of principal due and interest accrued on such
Qualified Replacement Mortgage prior to the applicable Replacement Cut-Off Date.
(f) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage therefor, the
Trustee will transfer, sell, assign, set over and otherwise convey without
recourse, on the Sponsor's order, all of its right, title and
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interest in and to such released Mortgage Loan and all the Trust's right, title
and interest to principal collected and interest accruing on such released
Mortgage Loan on and after the applicable Replacement Cut-Off Date; provided,
however, that the Trust shall reserve and retain all right, title and interest
in and to payments of principal collected and interest accruing on such released
Mortgage Loan prior to the applicable Replacement Cut-Off Date.
(g) In connection with any transfer and assignment of a
Qualified Replacement Mortgage to the Trustee on behalf of the Trust, the
Sponsor agrees to cause to be delivered to the Trustee the items described in
Section 3.5(c) on the date of such transfer and assignment or, if a later
delivery time is permitted by Section 3.5(c), then no later than such later
delivery time.
(h) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage the Trustee
shall deliver, on the date of conveyance of such Qualified Replacement Mortgage,
on the order of the Sponsor (i) the original Note, or the certified copy,
relating thereto, endorsed without recourse, to the Sponsor and (ii) such other
documents as constituted the File with respect thereto.
(i) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the Sponsor shall prepare a substitute assignment or cure such defect,
as the case may be, and thereafter cause each such assignment to be duly
recorded.
(j) The Sponsor shall cause to be reflected on the applicable
records that the Mortgage Loans have been sold to the Trust.
(k) To the extent that the ratings, if any, then assigned to
the unsecured debt of the Sponsor or of the Sponsor's ultimate corporate parent
are satisfactory to the Control Party and [Rating Agency/Agencies], then any of
the Document Delivery Requirements described above may be waived by an
instrument signed by the Control Party and [Rating Agency/Agencies] (or any
documents theretofore delivered to the Trustee returned to the Sponsor) on such
terms and subject to such conditions as the Control Party, [Rating
Agency/Agencies] may permit.
(l) The Sponsor shall, in connection with the delivery of each
Qualified Replacement Mortgage to the Trustee, provide the Trustee with the
information set forth in the Schedules of Mortgage Loans with respect to such
Qualified Replacement Mortgage.
SECTION 3.6. ACCEPTANCE BY TRUSTEE; CERTAIN SUBSTITUTIONS OF
MORTGAGE LOANS; CERTIFICATION BY TRUSTEE.
(a) The Trustee agrees to execute and deliver on the Startup
Day, on any Subsequent Transfer Date and any day on which a Qualified
Replacement Mortgage is conveyed to the Trust an acknowledgment of receipt in
the form attached as Exhibit D hereto of the Files delivered by the Sponsor, and
declares that it will hold such documents and any amendments, replacement or
supplements thereto, as well as any other assets included in the definition of
Trust Estate and delivered to the Trustee, as Trustee in trust upon and subject
to the conditions set forth herein for the benefit of the Owners and the
Certificate Insurer. On or before the tenth Business Day after the Startup Day,
any Subsequent Transfer Date, and any day on which a Qualified Replacement
Mortgage is conveyed to the Trust, the Trustee shall execute and deliver to the
Certificate Insurer and the Master Servicer an acknowledgment of receipt of the
original Notes
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for each Mortgage Loan. The Trustee further agrees to review any documents
delivered by the Sponsor within 90 days after the Startup Day (or within 90 days
with respect to any Subsequent Mortgage Loan or Qualified Replacement Mortgage
after the assignment thereof) and to deliver to the Sponsor, the Certificate
Insurer and the Master Servicer a Certification in the form attached as Exhibit
E hereto. The Trustee shall be under no duty or obligation to inspect, review or
examine any such documents, instruments, certificates or other papers to
determine that they are genuine, enforceable, or appropriate for the represented
purpose or that they are other than what they purport to be on their face, nor
shall the Trustee be under any duty to determine independently whether there are
any intervening assignments or assumption or modification agreements with
respect to any Mortgage Loan.
(b) If the Trustee during such 90-day period finds any
document constituting a part of a File which is not properly executed, has not
been received within the specified period, or is unrelated to the Mortgage Loans
identified in the Schedules of Mortgage Loans, or that any Mortgage Loan does
not conform in a material respect to the description thereof as set forth in the
Schedules of Mortgage Loans, the Trustee shall promptly so notify the Sponsor
and the Certificate Insurer. In performing any such review, the Trustee may
conclusively rely on the Sponsor as to the purported genuineness of any such
document and any signature thereon. The Sponsor agrees to use reasonable efforts
to remedy a material defect in a document constituting part of a File of which
it is so notified by the Trustee. If, however, within 60 days after the
Trustee's notice to it respecting such defect the Sponsor has not remedied or
caused to be remedied the defect and the defect materially and adversely affects
the interest in the related Mortgage Loan of the Owners or of the Certificate
Insurer, the Sponsor will (or will cause the related Originator or an affiliate
of the Sponsor to) on the next succeeding Remittance Date (i) substitute in lieu
of such Mortgage Loan a Qualified Replacement Mortgage and, deliver the
Substitution Amount applicable thereto to the Master Servicer for deposit in the
Principal and Interest Account or (ii) purchase such Mortgage Loan at a purchase
price equal to the Loan Purchase Price thereof, which purchase price shall be
delivered to the Master Servicer for deposit in the Principal and Interest
Account. In connection with any such proposed purchase or substitution the
Sponsor shall cause at the Sponsor's expense to be delivered to the Trustee and
the Certificate Insurer an opinion of counsel experienced in federal income tax
matters stating whether or not such a proposed purchase or substitution would
constitute a Prohibited Transaction for the Upper-Tier REMIC or Lower-Tier REMIC
or would jeopardize the status of the Upper-Tier REMIC or Lower-Tier REMIC as a
REMIC, and the Sponsor shall only be required to take either such action to the
extent such action would not constitute a Prohibited Transaction for the
Upper-Tier REMIC or Lower-Tier REMIC or would not jeopardize the status of the
Upper-Tier REMIC or Lower-Tier REMIC as a REMIC. Any required purchase or
substitution, if delayed by the absence of such opinion shall nonetheless occur
upon the earlier of (i) the occurrence of a default or imminent default with
respect to the Mortgage Loan or (ii) the delivery of such opinion or (iii) at
the direction of the Control Party.
SECTION 3.7. COOPERATION PROCEDURES.
(a) The Sponsor, the Master Servicer and the Trustee covenant
to provide each other and to the Certificate Insurer with all data and
information required to be provided by them hereunder at the times required
hereunder, and additionally covenant reasonably to cooperate with each other in
providing any additional information required by any of them in connection with
their respective duties hereunder.
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SECTION 3.8. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS.
(a) On any Subsequent Transfer Date, subject to the conditions
set forth in paragraph (b) below in consideration of the Trustee's delivery to
or upon the order of the Sponsor of all or a portion of the balance of funds in
the Pre-Funding Account which shall be [$____________] with respect to Group I
Loans and [$___________] with respect to Group II Loans, the Sponsor shall sell,
transfer, assign, set over and otherwise convey, or shall request or cause the
Trust to acquire from such Warehouse Trust all right, title and interest in and
to each Subsequent Mortgage Loan listed on the Schedule of Mortgage Loans
delivered by the Sponsor to the Trustee on such Subsequent Transfer Date, all
right, title and interest in and to principal collected and interest accruing on
each such Subsequent Mortgage Loan on and after the related Subsequent Cut-Off
Date and all right, title and interest in and to all Insurance Policies;
provided, however, that the Sponsor reserves and retains all its right, title
and interest in and to principal collected and interest accruing on each such
Subsequent Mortgage Loan prior to the related Subsequent Cut-Off Date. The
transfer to the Trust of the Subsequent Mortgage Loans set forth on the Schedule
of Mortgage Loans shall be absolute and shall be intended by the Sponsor and the
Owners and all parties hereto to be treated as a sale by the Sponsor or the
Warehouse Trust.
The amount released from the Pre-Funding Account shall be
equal to the aggregate Loan Balances of the Subsequent Mortgage Loans so
transferred.
(b) The Sponsor shall transfer or cause to be transferred to
the Trust the Subsequent Mortgage Loans and the other property and rights
related thereto described in paragraph (a) above only upon the satisfaction of
each of the following conditions on or prior to the related Subsequent Transfer
Date.
(i) the Sponsor shall have provided the Trustee, the
Certificate Insurer and [Rating Agency/Agencies] with an Addition
Notice and shall have provided any information in an electronic data
file form as reasonably requested by any of the foregoing and in a form
agreeable to any of the foregoing with respect to the Subsequent
Mortgage Loans;
(ii) the Sponsor shall have delivered to the Trustee
a duly executed written assignment (including an acceptance by the
Trustee) in substantially the form of Exhibit K (the "Subsequent
Transfer Agreement"), which shall include a Schedule of Mortgage Loans
listing the Subsequent Mortgage Loans and any other exhibits listed
thereon;
(iii) as of each Subsequent Transfer Date, the
Sponsor shall have deposited in the Principal and Interest Account all
principal collections and interest accrued (excluding premium recapture
and interest accrued prior to the related Subsequent Cut-Off Date) in
respect of the Subsequent Mortgage Loans received on or after the
related Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, none of the
related Originator, the Master Servicer or the Sponsor was insolvent
nor will any of them have been made insolvent by such transfer nor is
any of them aware of any pending insolvency;
(v) such addition will not result in a material
adverse tax consequence to the Trust or the Owners of the Certificates;
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(vi) the Pre-Funding Period shall not have
terminated;
(vii) the Sponsor shall have delivered to the Trustee
an Officer's Certificate confirming (A) the satisfaction of each
condition precedent specified in this paragraph (b) and paragraphs (c)
and (d) below, and in the related Subsequent Transfer Agreement and (B)
confirming that (i) neither the sale of the Subsequent Mortgage Loans
by Advanta nor the purchase of the Subsequent Mortgage Loans by the
Trust constitutes a "prohibited transaction", as defined in Section
860F(a)(2) of the Code, and (ii) the Subsequent Mortgage Loans are
Qualified Mortgages;
(viii) the Sponsor shall have delivered to the Rating
Agencies, the Certificate Insurer, and the Trustee, Opinions of Counsel
with respect to the transfer of the Subsequent Mortgage Loans
substantially in the form of the Opinions of Counsel delivered to the
Trustee on the Startup Day (bankruptcy, corporate and tax opinions);
(ix) an independent accountant retained by the
Sponsor provides the Sponsor with a letter (with copies provided to the
Rating Agencies, the Certificate Insurer, the Underwriters and the
Trustee) stating whether or not the characteristics of the Subsequent
Mortgage Loans conform to the characteristics described in the Pooling
and Servicing Agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable to
the Initial Mortgage Loans which were transferred to the Trust as of
the Startup Day;
(x) The Rating Agencies shall have provided
confirmation that the rating of the Certificates will not be adversely
affected by such transfer of Subsequent Mortgage Loans; and
(xi) the Certificate Insurer shall have approved the
transfer.
(c) The obligation of the Trust to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the following
requirements: (i) such Subsequent Mortgage Loan may not be 30 or more days
contractually delinquent as of the related Subsequent Cut-Off Date; (ii) the
remaining term to maturity of such Subsequent Mortgage Loan may not exceed 30
years; (iii) such Subsequent Mortgage Loan may not have a combined loan-to-value
ratio ("CLTV") in excess of 100%; (iv) such Subsequent Mortgage Loan may not
have a Loan Balance in excess of $500,000; and (v) following the purchase of
Subsequent Mortgage Loans for Group I by the Trust, the Mortgage Loans in Group
I (including the Subsequent Mortgage Loans) (a) will have a weighted average
Coupon Rate of at least [____%]; (b) will have a weighted average CLTV of not
more than [_____%]; (c) will have not less than [_____%], by aggregate principal
balance, Mortgage Loans that are considered "fully documented" loans; (d) will
have not less than [_____%], by aggregate principal balance, Mortgage Loans that
are related to single family detached residences; (e) will have at least
[_____%], by aggregate principal balance, Mortgage Loans which are first lien
mortgages, (f) will have at least [_____%] by aggregate principal balance of
Mortgage Loans which are "A-" classified or better, (g) will have not more than
[_____%], by aggregate principal balance, Mortgage Loans that are "C"
classified; (h) will have not more than [_____%], by aggregate principal
balance, Mortgage Loans that are "D" classified; (i) no more that [_____%] of
the Subsequent Mortgage Loans will be Unaffiliated Mortgage Loans; (j) no more
than [_____%] by aggregate principal balance of Mortgage Loans will have a CLTV
of [_____%] or greater; (k) no more than [_____%] by aggregate principal balance
of Mortgage Loans will have a CLTV of [_____%] or greater and (vi) following the
purchase of Subsequent Mortgage Loans for Group II by the Trust, the Mortgage
Loans in Group
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II (including the Subsequent Mortgage Loans) (a) will have a weighted average
Coupon Rate by aggregate principal balance of Mortgage Loans of at least
[_____%]; (b) will have a weighted average CLTV of no more than [_____%]; (c)
will not have less than [_____%] by aggregate principal of Mortgage Loans that
are considered "fully documented"; (d) will not have less than [_____%] by
aggregate principal balance of Mortgage Loans that are related to single family
detached residences; (e) will have a weighted average margin of at least
[_____%]; (f) no more than [_____%] of the Subsequent Mortgage Loans will be
Junior Mortgage Loans; (g) will have at least [_____%] by aggregate principal
balance of Mortgage Loans which are "A-" classified or better; (h) will have not
more than [_____%], by aggregate principal balance, Mortgage Loans that are "C"
classified; (i) will have not more than [_____%], by aggregate principal
balance, Mortgage Loans that are "D" classified; (j) no more that [_____%] of
the Subsequent Mortgage Loans will be Unaffiliated Mortgage Loans; (k) no more
than [_____%] by aggregate principal balance of Mortgage Loans will have a CLTV
of [_____%] or greater; (l) no more than [_____%] by aggregate principal balance
of Mortgage Loans will have a CLTV of [_____%] or greater. The Certificate
Insurer may waive or modify any of the above requirements or specify any
additional criteria provided that any such modification shall not materially and
adversely affect the Sponsor.
(d) In connection with the transfer and assignment of the
Subsequent Mortgage Loans, the Sponsor agrees to satisfy the conditions set
forth in Sections 3.5(b)-(j), 3.6, 3.7 and 3.8(b)-(c).
(e) In connection with each Subsequent Transfer Date and on
the Payment Dates occurring in [__________, _____], [__________, _____] and
[__________, _____] the Master Servicer and the Trustee shall co-operate in
determining (i) the amount and correct dispositions of Group I Capitalized
Interest Requirement, the Group II Capitalized Interest Requirement, the
Pre-Funding Earnings and the amount then on deposit in the Pre-Funding Account,
and (ii) any other necessary matters in connection with the administration of
the Pre-Funding Account and of the Capitalized Interest Account. In the event
that any amounts are incorrectly released to the Owners of the [Residual Class]
Certificates from either of the Pre-Funding Account or the Capitalized Interest
Account, such Owners of the [Residual Class] Certificates shall immediately
repay such amounts to the Trustee.
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
SECTION 4.1. ISSUANCE OF CERTIFICATES.
On the Startup Day, upon the Trustee's receipt from the Sponsor of an executed
Delivery Order in the form set forth as Exhibit F hereto, the Trustee shall
execute, authenticate and deliver the Certificates on behalf of the Trust in
accordance with the directions set forth in such Delivery Order.
SECTION 4.2. SALE OF CERTIFICATES.
At 11 a.m. New York City time on the Startup Day, at the offices of Dewey
Ballantine LLP, 1301 Avenue of the Americas, New York, New York, the Sponsor
will sell and convey the Initial Mortgage Loans and the money, instruments and
other property related thereto to the Trustee on behalf of the Trust, and the
Trustee will (i) deliver to the Representative, the Group I Certificates and the
Group II Certificates with an aggregate Percentage Interest in each Class equal
to 100%,
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registered in the name of Cede & Co. or in such other names as the
Representative shall direct, against payment of the purchase price thereof by
wire transfer of immediately available funds to the Trustee; (ii) deliver to the
Trustee, the Class B Certificate with an aggregate Percentage Interest equal to
100%, registered in the name of the Trustee on behalf of the Class [A-2]
Supplemental Interest Payment Account; (iii) deliver to [Residual Class
Certificateholder], the [Residual Class] Certificates with an aggregate
Percentage Interest equal to 100%, registered in such names as the [Residual
Class Certificateholder] shall request; and (iv) deliver to the Trustee on
behalf of the Owners of the Supplemental Interest Right, the certificate
representing the Supplemental Interest Right. Upon receipt of the proceeds of
the sale of the Certificates, the Trustee shall, from the proceeds of the sale
of the Certificates, pay other fees and expenses identified by the Sponsor,
deposit the Group I Original Pre-Funded Amount and the Group II Original
Pre-Funded Amount into the Pre-Funding Account, deposit the Group I Capitalized
Interest Deposit and the Group II Capitalized Interest Deposit into the
Capitalized Interest Account and pay to the Sponsor the balance after deducting
such amounts.
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 5.1. TERMS.
(a) The Certificates are pass-through securities having the rights described
therein and herein. Notwithstanding references herein or therein with respect to
the Certificates as to "principal" and "interest" no debt of any Person is
represented thereby, nor are the Certificates or the underlying Notes guaranteed
by any Person (except that the Notes may be recourse to the Mortgagors thereof
to the extent permitted by law and except for the rights of the Trustee with
respect to the Certificate Insurance Policy). Distributions on the Certificates
are payable solely from payments received on or with respect to the Mortgage
Loans (other than the Servicing Fees), monies in the Principal and Interest
Account, the Pre-Funding Account, the Capitalized Interest Account and, with
respect to the Class [A-2] Certificate, the Class [A-2] Supplemental Interest
Payment Account, except as otherwise provided herein, from earnings on monies
and the proceeds of property held as a part of the Trust Estate and, from
Insured Payments. Each Certificate entitles the Owner thereof to receive
monthly, on each Payment Date, in order of priority of distributions with
respect to such Class of Certificates, a specified portion of such payments with
respect to the Mortgage Loans in the related Mortgage Loan Group and Insured
Payments, pro rata in accordance with such Owner's Percentage Interest and, with
respect to the Class [A-2] Certificate, certain amounts payable from the Class
[A-2] Supplemental Interest Payment Account.
(b) Each Owner is required, and hereby agrees, to return to
the Trustee any Certificate with respect to which the Trustee has made the final
distribution due thereon. Any such Certificate as to which the Trustee has made
the final distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement, whether or not such Certificate
is ever returned to the Trustee.
SECTION 5.2. FORMS.
The Certificates shall be in substantially the forms set forth in Exhibit A
hereof with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Agreement or as may in the
Sponsor's judgment be necessary, appropriate or convenient
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to comply, or facilitate compliance, with applicable laws, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
applicable securities laws or as may, consistently herewith, be determined by
the Authorized Officer of the Sponsor executing such Delivery Order, as
evidenced by his execution thereof.
SECTION 5.3. EXECUTION, AUTHENTICATION AND DELIVERY.
Each Certificate shall be executed on behalf of the Trust, by the manual
signature of one of the Trustee's Authorized Officers and shall be authenticated
by the manual signature of one of the Trustee's Authorized Officers.
(a) Certificates bearing the manual signature of individuals
who were at any time the proper officers of the Trustee shall, upon proper
authentication by the Trustee, bind the Trust, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
execution and delivery of such Certificates or did not hold such offices at the
date of authentication of such Certificates.
(b) The initial Certificates shall be dated as of the Startup
Day and delivered at the Closing to the parties specified in Section 4.2 hereof.
(c) No Certificate shall be valid until executed and
authenticated as set forth above.
SECTION 5.4. REGISTRATION AND TRANSFER OF CERTIFICATES.
(a) The Trustee, as registrar, shall cause to be kept a
register (the "Register") in which, subject to such reasonable regulations as it
may prescribe, the Trustee shall provide for the registration of Certificates
and the registration of transfer of Certificates. The Trustee is hereby
appointed registrar for the purpose of registering Certificates and transfers of
Certificates as herein provided. The Owners and the Certificate Insurer shall
have the right to inspect the Register at all reasonable times and to obtain
copies thereof.
(b) Subject to the provisions of Section 5.8 hereof, upon
surrender for registration of transfer of any Certificate at the office
designated as the location of the Register, the Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
principal amount of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class
owned by such Owner may be exchanged for other Certificates authorized of like
Class, tenor and a like aggregate original principal amount and bearing numbers
not contemporaneously outstanding, upon surrender of the Certificates to be
exchanged at the office designated as the location of the Register. Whenever any
Certificate is so surrendered for exchange, the Trustee shall execute,
authenticate and deliver the Certificate or Certificates which the Owner making
the exchange is entitled to receive.
(d) Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
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(e) Any Certificate presented or surrendered for registration
of transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any
registration of transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates; any other expenses in connection with such transfer or
exchange shall be an expense of the Trust.
(g) It is intended that the Class [A] Certificates be
registered so as to participate in a global book-entry system with the
Depository, as set forth herein. Each Class of Class [A] Certificates shall,
except as otherwise provided in the next paragraph, be initially issued in the
form of a single fully registered Class [A] Certificate with a denomination
equal to the Aggregate Certificate Principal Balance. Upon initial issuance, the
ownership of each such Class [A] Certificate shall be registered in the Register
in the name of Cede & Co., or any successor thereto, as nominee for the
Depository.
The Sponsor and the Trustee are hereby authorized to execute
and deliver the Representation Letter with the Depository.
With respect to Class [A] Certificates registered in the
Register in the name of Cede & Co., as nominee of the Depository, the Sponsor,
the Master Servicer, the Certificate Insurer and the Trustee shall have no
responsibility or obligation to Direct or Indirect Participants or beneficial
owners for which the Depository holds Class [A] Certificates from time to time
as a Depository. Without limiting the immediately preceding sentence, the
Sponsor, the Master Servicer, the Certificate Insurer and the Trustee shall have
no responsibility or obligation with respect to (i) the accuracy of the records
of the Depository, Cede & Co., or any Direct or Indirect Participant with
respect to the ownership interest in the Class [A] Certificates, (ii) the
delivery to any Direct or Indirect Participant or any other Person, other than a
registered Owner of a Class [A] Certificate as shown in the Register, of any
notice with respect to the Class [A] Certificates or (iii) the payment to any
Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class [A] Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class [A]
Certificates. No Person other than a registered Owner of a Class [A] Certificate
as shown in the Register shall receive a certificate evidencing such Class [A]
Certificate.
Upon delivery by the Depository to the Trustee of written
notice to the effect that the Depository has determined to substitute a new
nominee in place of Cede & Co., and subject to the provisions hereof with
respect to the payment of interest by the mailing of checks or drafts to the
registered Owners of Class [A] Certificates appearing as registered Owners in
the registration books maintained by the Trustee at the close of business on a
Record Date, the name "Cede & Co." in this Agreement shall refer to such new
nominee of the Depository.
(h) In the event that (i) the Depository or the Sponsor
advises the Trustee and the Certificate Insurer in writing that the Depository
is no longer willing or able to discharge properly its responsibilities as
nominee and depository with respect to the Class [A] Certificates and the
Sponsor or the Trustee is unable to locate a qualified successor or (ii) the
Sponsor at its sole option elects to terminate the book-entry system through the
Depository, the Class [A] Certificates shall no longer be restricted to being
registered in the Register in the name of Cede &
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Co. (or a successor nominee) as nominee of the Depository. At that time, the
Sponsor may determine that the Class [A] Certificates shall be registered in the
name of and deposited with a successor depository operating a global book-entry
system, as may be acceptable to the Sponsor, or such depository's agent or
designee but, if the Sponsor does not select such alternative global book-entry
system, then the Class [A] Certificates may be registered in whatever name or
names registered Owners of Class [A] Certificates transferring Class [A]
Certificates shall designate, in accordance with the provisions hereof;
provided, that the cost of any such re-registration shall be paid by the
Sponsor.
(i) Notwithstanding any other provision of this Agreement to
the contrary, so long as any Class [A] Certificate is registered in the name of
Cede & Co., as nominee of the Depository, all distributions of principal or
interest on such Class [A] Certificates as the case may be and all notices with
respect to such Class [A] Certificates as the case may be shall be made and
given, respectively, in the manner provided in the Representation Letter.
(j) Neither the Sponsor, the Master Servicer, the Certificate
Insurer, nor the Trustee will have any liability for any actions taken by DTC or
its nominee, Euroclear or CEDEL, including, without limitation, actions for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Class [A] Certificates held by Euroclear, CEDEL or
Cede & Co., as nominee for DTC, or for maintaining supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 5.5. MUTILATED, DESTROYED, LOST OR STOLEN
CERTIFICATES.
If (i) any mutilated Certificate is surrendered to the Trustee, or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) in the case of any mutilated Certificate, such mutilated
Certificate shall first be surrendered to the Trustee, and in the case of any
destroyed, lost or stolen Certificate, there shall be first delivered to the
Trustee such security or indemnity as may be reasonably required by it to hold
the Trustee harmless (provided, that with respect to an Owner which is an
insurance company, a letter of indemnity furnished by it shall be sufficient for
this purpose; provided, that such insurance company possesses at least an
investment grade rating from any of the Rating Agencies), then, in the absence
of notice to the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like Class, tenor and aggregate principal amount, bearing a
number not contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section,
the Trustee may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto; any other
expenses in connection with such issuance shall be an expense of the Trust.
Every new Certificate issued pursuant to this Section in
exchange for or in lieu of any mutilated, destroyed, lost or stolen Certificate
shall constitute evidence of a substitute interest in the Trust, and shall be
entitled to all the benefits of this Agreement equally and proportionately with
any and all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Certificates.
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SECTION 5.6. PERSONS DEEMED OWNERS.
The Trustee and any agent of the Trustee may treat the Person in whose name
any Certificate is registered as the Owner of such Certificate for the purpose
of receiving distributions with respect to such Certificate and for all other
purposes whatsoever, and neither the Trustee nor any agent of the Trustee shall
be affected by notice to the contrary.
SECTION 5.7. CANCELLATION.
All Certificates surrendered for registration of transfer or exchange shall,
if surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. No Certificate shall be authenticated in
lieu of or in exchange for any Certificate cancelled as provided in this
Section, except as expressly permitted by this Agreement. All cancelled
Certificates may be held by the Trustee in accordance with its standard
retention policy.
SECTION 5.8. LIMITATION ON TRANSFER OF OWNERSHIP RIGHTS.
(a) No sale or other transfer of any Class [A] Certificate
shall be made to the Sponsor, any Originator or any of their respective
affiliates, other than Advanta National Bank or Advanta Bank Corp.
(b) No sale or other transfer of record or beneficial
ownership of a [Residual Class] Certificate (whether pursuant to a purchase, a
transfer resulting from a default under a secured lending agreement or
otherwise) shall be made to a Disqualified Organization or an agent of a
Disqualified Organization. The transfer, sale or other disposition of a
[Residual Class] Certificate (whether pursuant to a purchase, a transfer
resulting from a default under a secured lending agreement or otherwise) to a
Disqualified Organization shall be deemed to be of no legal force or effect
whatsoever and such transferee shall not be deemed to be an Owner for any
purpose hereunder, including, but not limited to, the receipt of distributions
on such [Residual Class] Certificate. Furthermore, in no event shall the Trustee
accept surrender for transfer, registration of transfer, or register the
transfer, of any [Residual Class] Certificate nor authenticate and make
available any new [Residual Class] Certificate unless the Trustee has received
an affidavit from the proposed transferee in the form attached hereto as Exhibit
I. Each holder of a [Residual Class] Certificate by his acceptance thereof,
shall be deemed for all purposes to have consented to the provisions of this
Section 5.08(b).
(c) No other sale or other transfer of record or beneficial
ownership of a [Residual Class] Certificate shall be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933, as
amended, and any applicable state securities laws or is made in accordance with
said Act and laws. In the event such a transfer is to be made within two years
from the Startup Day, (i) the Trustee or the Sponsor shall require a written
opinion of counsel acceptable to and in form and substance satisfactory to the
Sponsor that such transfer may be made pursuant to an exemption, describing the
applicable exemption and the basis therefor, from said Act and laws or is being
made pursuant to said Act and laws, which opinion of counsel shall not be an
expense of the Trustee or the Sponsor, and (ii) the Trustee shall require the
Transferee to execute an investment letter acceptable to and in form and
substance satisfactory to the Sponsor certifying to the Trustee and the Sponsor
the facts surrounding such transfer, which investment letter shall not be an
expense of the Trustee or the Sponsor. The Owner of a [Residual Class]
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Sponsor against any liability that may result if
the transfer is not so exempt or is not made in accordance with such federal and
state laws. No [Residual
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Class] Certificate shall be acquired by or transferred to (i) an employee
benefit plan (as defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) subject to the provisions of Title I
of ERISA, (ii) a plan (as defined in Section 4975(e)(1) of the Code) subject to
Section 4975 of the Code, or (iii) an entity whose underlying assets are deemed
to be assets of a plan described in (i) or (ii) above by reason of such plan's
investment in the entity (each, a "Benefit Plan Entity"). Any transferee of a
[Residual Class] Certificate shall deliver to the Trustee a certificate to the
effect that it is not a Benefit Plan Entity.
SECTION 5.9. ASSIGNMENT OF RIGHTS.
An Owner may pledge, encumber, hypothecate or assign all or any part of its
right to receive distributions hereunder, but such pledge, encumbrance,
hypothecation or assignment shall not constitute a transfer of an ownership
interest sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.4 and Section 5.8 hereof.
ARTICLE VI
COVENANTS
SECTION 6.1. DISTRIBUTIONS.
The Trustee will duly and punctually pay distributions with respect to the
Certificates in accordance with the terms of the Certificates and this
Agreement. Such distributions shall be made (i) by check mailed on each Payment
Date or (ii) if requested by any Owner, to such Owner by wire transfer to an
account within the United States designated no later than five Business Days
prior to the related Record Date, made on each Payment Date, in each case to
each Owner of record on the immediately preceding Record Date; provided,
however, that an Owner of a Class [A] Certificate shall only be entitled to
payment by wire transfer if such Owner owns Class [A] Certificates in the
aggregate denomination of at least $5,000,000.
SECTION 6.2. MONEY FOR DISTRIBUTIONS TO BE HELD IN TRUST;
WITHHOLDING.
(a) All payments of amounts due and payable with respect to
any Certificate that are to be made from amounts withdrawn from the Certificate
Account pursuant to Section 7.5 hereof or from Insured Payments shall be made by
and on behalf of the Trustee, and no amounts so withdrawn from the Certificate
Account for payments of the Certificates and no Insured Payment shall be paid
over to the Trustee except as provided in this Section.
(b) The Trustee on behalf of the Trust shall comply with all
requirements of the Code and applicable state and local law with respect to the
withholding from any distributions made by it to any Owner of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith.
(c) Any money held by the Trustee in trust for the payment of
any amount due with respect to any Class [A] Certificate and remaining unclaimed
by the Owner of such Class [A] Certificate for the period then specified in the
escheat laws of the State of New York after such amount has become due and
payable shall be discharged from such trust and be paid first, to the
Certificate Insurer on account of any Reimbursement Amount, and second to the
Owners of the [Residual Class] R Certificates; and the Owner of such Class [A]
Certificate shall thereafter, as an unsecured general creditor, look only to the
Owners of the [Residual Class]
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Certificates, or the Certificate Insurer for payment thereof (but only to the
extent of the amounts so paid to the Certificate Insurer or the Owners of the
[Residual Class] Certificates), and all liability of the Trustee with respect to
such trust money shall thereupon cease; provided, however, that the Trustee,
before being required to make any such payment, shall at the expense of the
Sponsor cause to be published once, in the eastern edition of The Wall Street
Journal, notice that such money remains unclaimed and that, after a date
specified therein, which shall be not fewer than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be paid to
the Certificate Insurer or the Owners of the [Residual Class] Certificates as
provided above. The Trustee shall, at the direction of the Sponsor, also adopt
and employ, at the expense of the Sponsor, any other reasonable means of
notification of such payment (including but not limited to mailing notice of
such payment to Owners whose right to or interest in monies due and payable but
not claimed is determinable from the Register at the last address of record for
each such Owner).
SECTION 6.3. PROTECTION OF TRUST ESTATE.
(a) The Trustee will hold the Trust Estate in trust for the
benefit of the Owners and the Certificate Insurer as their interests may appear,
and, upon request of the Certificate Insurer, or with the consent of the
Certificate Insurer, at the request and expense of the Sponsor, will from time
to time execute and deliver all such supplements and amendments hereto pursuant
to Section 11.14 hereof and all instruments of further assurance and other
instruments, and will take such other action upon such request as it deems
reasonably necessary or advisable, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of, or protect the validity of
any grant made or to be made by this Agreement;
(iii) enforce any of the Mortgage Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the ownership interests of the Owners
represented thereby, in such Trust Estate against the claims of all
Persons and parties.
The Trustee shall send copies of any request received from the
Certificate Insurer or the Sponsor to take any action pursuant to this Section
6.3 to the other party.
(b) The Trustee shall have the power to enforce, and shall
enforce the obligations of the other parties to this Agreement and of the
Certificate Insurer by action, suit or proceeding at law or equity, and shall
also have the power to enjoin, by action or suit in equity, any acts or
occurrences which may be unlawful or in violation of the rights of the Owners;
provided, however, that nothing in this Section shall require any action by the
Trustee unless the Trustee shall first (i) have been furnished indemnity
satisfactory to it and (ii) when required by this Agreement, have been requested
to take such action by a majority of the Percentage Interests represented by the
affected Class or Classes of Class [A] Certificates then Outstanding or, if
there are no longer any affected Class [A] Certificates then outstanding, by
such majority of the Percentage Interests represented by the [Residual Class]
Certificates.
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(c) The Trustee shall execute any instrument required pursuant
to this Section so long as such instrument does not conflict with this Agreement
or with the Trustee's fiduciary duties.
SECTION 6.4. PERFORMANCE OF OBLIGATIONS.
(a) The Trustee will not take any action that would release
the Sponsor or the Certificate Insurer from any of their respective covenants or
obligations under any instrument or document relating to the Trust Estate or the
Certificates or which would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or document, except as expressly provided
in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in
performing its duties hereunder.
SECTION 6.5. NEGATIVE COVENANTS.
The Trustee will not, to the extent within the control of the Trustee, take
any of the following actions:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Owner by reason of the payment
of any taxes levied or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty on behalf of the Trust any
indebtedness of any Person except pursuant to this Agreement;
(iv) dissolve or liquidate the Trust Estate in whole or in
part, except pursuant to Article IX hereof; or
(v) (A) impair the validity or effectiveness of this
Agreement, or release any Person from any covenants or obligations with
respect to the Trust or to the Certificates under this Agreement,
except as may be expressly permitted hereby or (B) create or extend any
lien, charge, adverse claim, security interest, mortgage or other
encumbrance to or upon the Trust Estate or any part thereof or any
interest therein or the proceeds thereof.
SECTION 6.6. NO OTHER POWERS.
The Trustee will not, to the extent within the control of the Trustee, permit
the Trust to engage in any business activity or transaction other than those
activities permitted by Section 2.3 hereof.
SECTION 6.7. LIMITATION OF SUITS.
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No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or the Certificate Insurance Policy or
for the appointment of a receiver or trustee, or for any other remedy hereunder,
unless:
(A) such Owner has previously given written notice to
the Sponsor, the Certificate Insurer, and the Trustee of such
Owner's intention to institute such proceeding;
(B) the Owners of not less than 25% of the Percentage
Interests represented by the affected Class or Classes of
Certificates then Outstanding or, if there are no affected
Classes of Class [A] or Class [B] Certificates then
Outstanding, by such percentage of the Percentage Interests
represented by the [Residual Class] Certificates, shall have
made written request to the Trustee to institute such
proceeding in respect of such Event of Default;
(C) such Owner or Owners have offered to the Trustee
reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(D) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
such proceeding;
(E) as long as any Class [A] Certificate or any
Reimbursement Amount is outstanding, the Certificate Insurer
consented in writing thereto; and
(F) no direction inconsistent with such written
request has been given to the Trustee during such 60-day
period by the Certificate Insurer or by the Owners of a
majority of the Percentage Interests represented by the Class
[A] Certificates or, if there are no Class [A] Certificates
then Outstanding, by such majority of the Percentage Interests
represented by the [Residual Class] Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or inconsistent requests and
indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates, the Trustee shall act at the
direction of the Certificate Insurer, notwithstanding any other provision of
this Agreement.
SECTION 6.8. UNCONDITIONAL RIGHTS OF OWNERS TO RECEIVE
DISTRIBUTIONS.
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
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SECTION 6.9. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided herein, no right or remedy herein conferred upon
or reserved to the Trustee, the Certificate Insurer or to the Owners is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. Except as otherwise provided herein, the assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.10. DELAY OR OMISSION NOT WAIVER.
No delay of the Trustee, the Certificate Insurer or any Owner of any
Certificate to exercise any right or remedy under this Agreement to any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article VI or by law to the Trustee, the Certificate Insurer or to the
Owners may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee, the Certificate Insurer or by the Owners, as the case
may be.
SECTION 6.11. CONTROL BY OWNERS.
The Certificate Insurer (so long as a Certificate Insurer Default has not
occurred and is continuing) or the Owners of a majority of the Percentage
Interests represented by the Class [A] Certificates then Outstanding, with the
consent of the Control Party (which may not be unreasonably withheld) or, if
there are no longer any Class [A] Certificates then Outstanding, by such
majority of the Percentage Interests represented by the [Residual Class]
Certificates then Outstanding, with the consent of the Control Party (which may
not be unreasonably withheld) may direct the time, method and place of
conducting any proceeding for any remedy available to the Control Party with
respect to the Certificates or exercising any trust or power conferred on the
Control Party with respect to the Certificates or the Trust Estate, including,
but not limited to, those powers set forth in Section 6.3 and Section 8.20
hereof; provided that:
(A) such direction shall not be in conflict with any
rule of law or with this Agreement;
(B) the Control Party shall have been provided with
indemnity satisfactory to it; and
(C) the Trustee may take any other action deemed
proper by the Trustee, which is not inconsistent with such
direction; provided, however, that the Trustee need not take
any action which it determines might involve it in liability
or may be unjustly prejudicial to the Owners not so directing;
provided, further, that in the event that any directions
provided by the Trustee and the Certificate Insurer conflict
with each other, the Certificate Insurer's direction shall
prevail.
So long as an Certificate Insurer Default has not occurred and
is continuing, the Certificate Insurer shall act as the Control Party and be
subrogated thereto until all Reimbursement Amounts have been paid.
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ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 7.1. COLLECTION OF MONEY.
Except as otherwise expressly provided herein, the Trustee may demand payment
or delivery of all money and other property payable to or receivable by the
Trustee pursuant to this Agreement, including all payments due on the Mortgage
Loans in accordance with the respective terms and conditions of such Mortgage
Loans and required to be paid over to the Trustee by the Master Servicer or by
any Sub-Servicer. The Trustee shall hold all such money and property received by
it, other than pursuant to or as contemplated by Section 6.2(b) hereof, as part
of the Trust Estate and shall apply it as provided in this Agreement.
SECTION 7.2. ESTABLISHMENT OF ACCOUNTS.
On or prior to the Startup Day, the Sponsor shall cause to be established, and
the Trustee shall maintain, at the corporate trust office of the Trustee, a
Certificate Account, a Pre-Funding Account, and a Capitalized Interest Account,
each of which is to be held by the Trustee in the name of the Trust for the
benefit of the Owners of the Certificates relating to such Mortgage Loan Group
and the Certificate Insurer, as their interests may appear.
SECTION 7.3. THE CERTIFICATE INSURANCE POLICY.
On each Determination Date the Trustee shall determine with respect to the
immediately following Payment Date:
(a) The amounts to be on deposit in the Certificate Account on
such Payment Date with respect to each Mortgage Loan Group (disregarding the
amounts of any Insured Payments with respect to such Mortgage Loan Group) and
equal to the sum of (x) such amounts excluding the amount of any Total Monthly
Excess Cashflow amounts included in such amounts and excluding an amount equal
to the Premium Amount with respect to such Mortgage Loan Group together with any
Servicing Fees and Trustee's Fees with respect to such Mortgage Loan Group for
the related Payment Date plus (y) any amounts of Total Monthly Excess Cashflow
to be applied on account of such Mortgage Loan Group; the amounts described in
the preceding clause (x) with respect to Group I and the related Payment Date,
are the "Group I Available Funds" and with respect to Group II and the related
Payment Date are the "Group II Available Funds"; the sum of the amounts
described in the preceding clauses (x) and (y) are the "Group I Total Available
Funds" with respect to the Mortgage Loans in Group I and "Group II Total
Available Funds" with respect to the Mortgage Loans in Group II; provided,
however, that the amounts which cannot be distributed to the Owners of the Class
[A] Certificates as a result of proceedings under the United States Bankruptcy
Code or similar insolvency laws will not be considered in determining the amount
of Available Funds;
(b) If a Group I Deficiency Amount and/or a Group II
Deficiency Amount exists with respect to any Payment Date, the Trustee shall
complete a Notice in the form of Exhibit A to the Certificate Insurance Policy
and submit such notice to the Certificate Insurer no later than 12:00 noon New
York City time on the second Business Day preceding such Payment Date as a claim
for an Insured Payment in an amount equal to such Group I and/or Group II
Deficiency Amount. Upon receipt of Insured Payments from the Certificate Insurer
under the
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Certificate Insurance Policy, the Trustee shall deposit such Insured Payments in
the Certificate Account.
(c) The Trustee shall distribute all Insured Payments
received, or the proceeds thereof, in accordance with Section 7.5(b)(F) to the
Owners of the related Class of Class [A] Certificates.
(d) The Trustee shall (i) receive Insured Payments as
attorney-in-fact of each Owner of the Class [A] Certificates of the related
Class receiving any Insured Payment from the Certificate Insurer and (ii)
disburse such Insured Payment to the Owners of the related Class [A]
Certificates as set forth in Section 7.5(b)(F). The Certificate Insurer shall be
entitled to receive the related Reimbursement Amount pursuant to Section
7.5(b)(D)(4) hereof with respect to each Insured Payment made by the Certificate
Insurer. The Trustee hereby agrees on behalf of each Owner of Class [A]
Certificates and the Trust for the benefit of the Certificate Insurer that it
recognizes that to the extent the Certificate Insurer makes Insured Payments,
either directly or indirectly (as by paying through the Trustee), to the Owners
of such Class [A] Certificates, the Certificate Insurer will be entitled to
receive the related Reimbursement Amount pursuant to Section 7.5(b)(D)(4)
hereof.
(e) The Trustee shall receive, as attorney-in-fact of each
Owner of a Class [A] Certificate, any Insured Payment from the Certificate
Insurer and disburse the same to each Owner of a Class [A] Certificate in
accordance with the provisions of Section 7.3. Insured Payments disbursed by the
Trustee from proceeds of the Certificate Insurance Policy shall not be
considered payment by the Trust Estate nor shall such payments discharge the
obligation of the Trust Estate with respect to such Class [A] Certificates, and
the Certificate Insurer shall become the owner of such unpaid amounts due from
the Trust Estate in respect of the Class [A] Certificates. The Trustee hereby
agrees on behalf of each Owner of a Class [A] Certificate for the benefit of the
Certificate Insurer that it recognizes that to the extent the Certificate
Insurer makes any Group I Insured Payment or Group II Insured Payment, as
applicable, either directly or indirectly (as by paying through the Trustee), to
the Class [A] Certificateholders, the Certificate Insurer will be subrogated to
the rights of the Class [A] Certificateholders with respect to such Insured
Payment, shall be deemed to the extent of payments so made to be a registered
Class [A] Certificateholder and shall receive all future distributions until all
such Insured Payments by the Certificate Insurer, together with interest thereon
at the interest rate borne by the Class [A] Certificates, have been fully
reimbursed. To evidence such subrogation, the Trustee shall, or shall cause the
Registrar to, note the Certificate Insurer's rights as subrogee on the
registration books maintained by the Trustee or the Registrar upon receipt from
the Certificate Insurer of proof of payment of any Group I Insured Payment or
Group II Insured Payment, as applicable. The effect of the foregoing provisions
is that, to the extent of Insured Payments made by it, the Certificate Insurer
shall be paid before payment of the balance of the distributions are made to the
other Owners of the Class [A] Certificates.
SECTION 7.4. PRE-FUNDING ACCOUNT AND CAPITALIZED INTEREST
ACCOUNT.
(a) On the Startup Day, the Trustee will deposit, on behalf of
the Owners, the Group I Original Pre-Funded Amount and the Group II Original
Pre-Funded Amount in the Pre-Funding Account from the proceeds of the sale of
the Certificates and on the Startup Day, the Trustee shall deposit, on behalf of
the Owners, the Group I Capitalized Interest Deposit and the Group II
Capitalized Interest Deposit in the Capitalized Interest Account from the
proceeds of the sale of the Certificates.
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(b) On any Subsequent Transfer Date, the Sponsor shall
instruct the Trustee in writing to withdraw from the Pre-Funding Account an
amount equal to 100% of the aggregate Loan Balances of the Subsequent Mortgage
Loans sold to the Trust on such Subsequent Transfer Date and pay such amount to
or upon the order of the Sponsor upon satisfaction of the conditions set forth
in Section 3.8 hereof with respect to such transfer.
(c) If (x) the Pre-Funded Amount with respect to the related
Mortgage Loan Group has not been reduced to zero by [__________, _____], or (y)
the Pre-Funded Amount has been reduced to $100,000 or less, or (z) any Event of
Default occurs and is continuing in each case after giving effect to any
reductions in the Pre-Funded Amount on or before the related such Remittance
Date, the Sponsor shall instruct the Trustee to withdraw from the Pre-Funding
Account on such Remittance Date and deposit in the Certificate Account (i) on
behalf of the owners of the Group I Certificates, the difference, if any,
between (A) the Group I Original Pre-Funded Amount and (B) all amounts
theretofore withdrawn from the Pre-Funding Account with respect to Subsequent
Mortgage Loans purchased for Group I and (ii) on behalf of the Owners of the
Group II Certificates, the difference, if any, between (A) the Group II Original
Pre-Funded Amount and (B) all amounts theretofore withdrawn from the Pre-Funding
Account with respect to Subsequent Mortgage Loans purchased for Group II.
(d) On each Payment Date during the Pre-Funding Period, the
Trustee shall transfer the Pre-Funding Earnings, if any, relating to such
Payment Date from the Pre-Funding Account to the Certificate Account.
(e) On the Payment Dates occurring in [__________, _____],
[__________, _____] and [__________, _____], the Trustee shall transfer from the
Capitalized Interest Account to the Certificate Account with respect to Group I,
the Group I Capitalized Interest Requirement, if any, for such Payment Dates and
with respect to Group II, the Group II Capitalized Interest Requirement, if any,
for such Payment Dates.
(f) On the Payment Date immediately following the end of the
Pre-Funding Period, any amounts remaining in the Capitalized Interest Account
after taking into account the transfers on such Payment Date described in clause
(e) above shall be paid to the Owners of the [Residual Class] Certificates, and
the Capitalized Interest Account shall be closed.
SECTION 7.5. FLOW OF FUNDS.
(a) On each Remittance Date, the Trustee shall deposit to the
Certificate Account with respect to each Mortgage Loan Group, without
duplication, (i) upon receipt, any Insured Payments relating to such Mortgage
Loan Group, the proceeds of any liquidation of the assets of the Trust, insofar
as such assets relate to such Mortgage Loan Group, together with the Monthly
Remittance Amount with respect to such Mortgage Loan Group remitted by the
Master Servicer or any Sub-Servicer and (ii) on the Payment Dates occurring in
[__________, _____], [__________, _____] and [__________, _____], as applicable,
(x) the Pre-Funding Earnings transferred by the Trustee pursuant to Section
7.4(d) hereof, (y) the Group I Capitalized Interest Requirement and the Group II
Capitalized Interest Requirement to be transferred on such Payment Dates from
the Capitalized Interest Account, pursuant to Section 7.4(e) hereof with respect
to such Mortgage Loan Group and (z) the portion of the amount, if any, to be
transferred on such Payment Date from the Pre-Funding Account, pursuant to
Section 7.4(c) hereof with respect to such Mortgage Loan Group.
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(b) On each Payment Date the Trustee shall make the following
allocations, disbursements and transfers of amounts then on deposit in the
Certificate Account with respect to each Mortgage Loan Group in the following
order of priority, and each such allocation, transfer and disbursement shall be
treated as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(A) first, from amounts then on deposit in the
Certificate Account with respect to such Mortgage Loan Group,
to the Trustee, an amount equal to the Trustee's Fees then due
to it with respect to such Mortgage Loan Group;
(B) second, from amounts then on deposit in the
Certificate Account with respect to such Mortgage Loan Group,
to the Certificate Insurer the related Premium Amount for such
Payment Date;
(C) third, from amounts then on deposit in the
Certificate Account to the Master Servicer, an amount equal to
any Servicing Fees then due to it, to the extent not
previously received by the Master Servicer pursuant to
Sections 8.8(c)(i) or 8.9(a) hereof;
(D) fourth, on each Payment Date, the Trustee shall
allocate the Total Monthly Excess Cashflow with respect to
each Mortgage Loan Group in the following order of priority:
1. first, such Total Monthly Excess Cashflow shall be
allocated on such Payment Date with respect to the
related Mortgage Loan Group in an amount equal to the
excess, if any, of (x) the related Insured
Distribution Amount for such Payment Date over (y)
the Available Funds with respect to such Mortgage
Loan Group for such Payment Date (the amount of such
difference being the "Available Funds Shortfall" with
respect to the related Mortgage Loan Group);
2. second, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the application described in clause
(1) above shall be allocated against any Available
Funds Shortfall with respect to the other Mortgage
Loan Group;
3. third, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the allocations described in clauses
(1) and (2) above shall be paid to the Certificate
Insurer in respect of amounts owed on account of any
Reimbursement Amount with respect to the related
Mortgage Loan Group;
4. fourth, any portion of the Total Monthly Excess
Cashflow with respect to such Mortgage Loan Group
remaining after the allocations described in clauses
(1), (2) and (3) above shall be paid to the
Certificate Insurer in respect of any Reimbursement
Amount with respect to the other Mortgage Loan Group;
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(E) fifth, the amount, if any, of the Total Monthly
Excess Cashflow with respect to a Mortgage Loan Group on a
Payment Date remaining after the allocations described in
clause (D) above is the "Net Monthly Excess Cashflow" with
respect to such Mortgage Loan Group for such Payment Date;
such amount is required to be applied in the following order
of priority:
1. first, such Net Monthly Excess Cashflow shall be
used to reduce to zero, through the payment of an
Overcollateralization Increase Amount, any
Overcollateralization Deficiency Amount with respect
to the related Mortgage Loan Group as of such Payment
Date;
2. second, any portion of the Net Monthly Excess
Cashflow remaining after the application described in
clause (1) above shall be used to reduce to zero,
through the payment of an Overcollateralization
Increase Amount, any Overcollateralization Deficiency
Amount with respect to the other Mortgage Loan Group;
3. third, any remaining Net Monthly Excess Cashflow
remaining after the applications described in clauses
(1) and (2) above shall be paid to the Master
Servicer to the extent of any unreimbursed
Delinquency Advances, unreimbursed Servicing Advances
and accrued and unpaid Servicing Fees, in each case
as certified to the Trustee by the Master Servicer to
be owing to it as of such Payment Date;
(F) sixth, following the making by the Trustee of all
allocations, transfers and disbursements described above under
Sections 7.3 and 7.10 hereof and the prior clauses of this
Section 7.5, from amounts (including any related Insured
Payment) then on deposit in the Certificate Account with
respect to each related Mortgage Loan Group, (such amount with
respect to each Mortgage Loan Group, the related "Group
Distribution Amount") shall be applied as follows:
1. with respect to the Group I Pool, the Group
Distribution Amount shall be applied:
(a) first, pro rata, to the Owners of the Group I
Certificates, their respective Class [A] Current
Interest;
(b) second, pro rata, to the Owners of the Group
I Certificates, their respective Class [A]
Interest Carry Forward
Amount;
(c) third, the lesser of (x) the remaining amount
of the Group Distribution Amount with respect to
the Group I Pool and (y) the Group I Class [A]
Principal Distribution Amount shall be applied in
the following order of priority:
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i. first, the Group I Class [A] Principal
Distribution Amount shall be distributed to
the Owners of the Class [A-1] Certificates
in an amount equal to the Class [A-1]
Principal Distribution Amount;
ii. second, to the Owners of the Class [A-1]
Certificates, any remaining amount of the
Group I Class [A] Principal Distribution
Amount for such Payment Date until the
Certificate Principal Balance of the Class
[A-1] Certificates has been reduced to zero.
Notwithstanding the foregoing, on any Payment Date on
which the Overcollateralization Amount related to
Group I is zero and the Certificate Insurer is in
default, the Principal Distribution Amount with
respect to the Group I Certificates shall be
distributed pro rata to the Owners of the Group I
Certificates and not in accordance with the above
priorities.
2. With respect to the Group II Pool, the Group
Distribution Amount shall be applied:
(a) first, pro rata, to the Owners of the Group
II Certificates, their respective Class [A]
Current Interest;
(b) second, pro, rata, to the Owners of the Group
II Certificates, their respective Class [A]
Interest Carry Forward
Amount;
(c) third, the lesser of (x) the remaining amount
of the Group Distribution Amount with respect to
the Group II Pool and (y) the Group II Class [A]
Principal Distribution Amount shall be
distributed to the Owners of the Class [A-2]
Certificates until the Certificate Principal
Balance of Class [A-2] has been reduced to zero;
(G) seventh, on each Payment Date, the Trustee shall
transfer from amounts then on deposit in the Certificate
Account to the Class [A-2] Supplemental Interest Payment
Account, the Class [B] Distribution Amount; such transfer
shall be deemed to be a distribution on the Class [B]
Certificates;
(H) eighth, on each Payment Date, the Trustee shall
transfer all remaining monies then on deposit in the
Certificate Account to the Owners of the [Residual Class]
Certificates.
(c) Notwithstanding paragraph (b) above, on any Payment Date
during the continuance of any Certificate Insurer Default, no Premium Amounts or
Reimbursement Amounts shall be paid to the Certificate Insurer unless the
Certificate Insurer or its custodian, trustee, agent, receiver or similar
official continues to make payment under the Policy, and any amounts otherwise
payable to the Certificate Insurer as Premium Amounts or Reimbursement Amounts
shall be retained in the Certificate Account as the Total Available Funds with
respect to the related Mortgage Loan Group, as appropriate. On any Payment Date
wherein such Certificate
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Insurer Default has been cured, the Premium Amounts or Reimbursement Amount
shall be paid to the Certificate Insurer.
(d) Notwithstanding any of the foregoing provisions, the
aggregate amount distributed to the Owners of any Class [A] Certificates on
account of principal shall not exceed the Certificate Principal Balance for the
related Class.
SECTION 7.6. INVESTMENT OF ACCOUNTS.
(a) So long as no event described in Sections 8.20(a) or (b)
hereof shall have occurred and be continuing, and consistent with any
requirements of the Code, all or a portion of the Accounts (other than the
Principal and Interest Account) held by the Trustee shall be invested and
reinvested by the Trustee in the name of the Trustee for the benefit of the
Owners and the Certificate Insurer, as their interests may appear, as directed
in writing by the Master Servicer, in one or more Eligible Investments bearing
interest or sold at a discount, other than the Capitalized Interest Account
which funds shall be invested and reinvested by the Trustee on behalf of the
Master Servicer. The Master Servicer may invest funds held in the Principal and
Interest Account in one or more Eligible Investments. During the continuance of
an event described in Sections 8.20(a) or (b) hereof and following any removal
of the Master Servicer, the Control Party shall direct such investments. No
investment in any Account shall mature later than the Business Day immediately
preceding the next Payment Date.
(b) If any amounts are needed for disbursement from any
Account held by the Trustee or the Master Servicer, as the case may be, and
sufficient uninvested funds are not available to make such disbursement, the
Trustee or the Master Servicer, as the case may be, shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Account. No investments will be liquidated prior to maturity unless the proceeds
thereof are needed for disbursement.
(c) Subject to Section 10.1 hereof, the Trustee shall not in
any way be held liable by reason of any insufficiency in any Account held by the
Trustee resulting from any loss on any Eligible Investment included therein
(except and only to the extent that the bank serving as Trustee is the obligor
thereon and is otherwise liable).
(d) The Trustee shall hold funds in the Accounts held by the
Trustee uninvested upon the occurrence of either of the following events:
(i) the Master Servicer or the Control Party, as the case may
be, shall have failed to give investment directions to the Trustee
within ten days after receipt of a written request for such directions
from the Trustee; or
(ii) the Master Servicer or the Control Party, as the case may
be, shall have failed to give investment directions to the Trustee
during the ten-day period described in clause (d)(i) preceding, by
11:15 a.m. New York time (or such other time as may be agreed by the
Master Servicer and the Trustee) on any Business Day (any such
investment by the Trustee pursuant to this clause (d)(ii) to mature on
the next Business Day after the date of such investment).
(e) For purposes of investment, the Trustee shall aggregate
all amounts on deposit in the Accounts. All income or other gain from
investments in the Accounts shall be
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deposited, pro rata, in the Accounts immediately on receipt, and any loss
resulting from such investments shall be charged, pro rata, to the Accounts.
SECTION 7.7. ELIGIBLE INVESTMENTS.
The following are Eligible Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.
(b) Federal Housing Administration debentures and rated Aa2 or
higher by Moody's and AA or better by Standard & Poor's.
(c) Freddie Mac senior debt obligations and rated Aa2 or
higher by Moody's and AA or better by Standard & Poor's.
(d) Federal Home Loan Banks' consolidated senior debt
obligations and rated Aa2 or higher by Moody's and AA or better by Standard &
Poor's.
(e) Fannie Mae senior debt obligations and rated Aa2 or higher
by Moody's.
(f) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A1 or better by Standard & Poor's and P-1 by Moody's.
(g) Investment agreements approved by the Control Party
provided:
1. The agreement is with a bank or insurance company
which has an unsecured, uninsured and unguaranteed obligation
(or claims-paying ability) rated Aa2 or better by Moody's and
AA or better by Standard & Poor's, and
2. Monies invested thereunder may be withdrawn
without any penalty, premium or charge upon not more than one
day's notice (provided such notice may be amended or canceled
at any time prior to the withdrawal date), and
3. The agreement is not subordinated to any other
obligations of such insurance company or bank, and
4. The same guaranteed interest rate will be paid on
any future deposits made pursuant to such agreement, and
5. The Trustee and the Certificate Insurer receive an
opinion of counsel that such agreement is an enforceable
obligation of such insurance company or bank.
(h) Commercial paper (having original maturities of not more
than 365 days) rated A1 or better by Standard & Poor's and P-1 or better by
Moody's.
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(i) Investments in money market funds rated AAAm or AAAM-G by
Standard & Poor's and Aaa or P-1 by Moody's.
(j) Investments approved in writing by the Control Party and
acceptable to the Rating Agencies and the Certificate Insurer;
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.
SECTION 7.8. REPORTS BY TRUSTEE.
(a) On each Payment Date the Trustee shall provide to each
Owner, to the Master Servicer, to the Certificate Insurer, to each Underwriter,
to the Sponsor and to each Rating Agency a written report in substantially the
form set forth as Exhibit I hereto with respect to each Mortgage Loan Group, as
such form may be revised by the Trustee and the Master Servicer from time to
time, but in every case setting forth the information requested on Exhibit I
hereto and the following information:
(i) the amount of the distribution with respect to the related
Class of Certificates;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Prepayments or other
unscheduled recoveries of principal included therein;
(iii) the amount of such distributions allocable to interest;
(iv) the Interest Carry Forward Amount for each Class;
(v) the Certificate Principal Balance for each Class of Class
[A] Certificates as of such Payment Date, together with the principal
amount of such Class of Class [A] Certificates (based on a Certificate
in an original principal amount of $1,000) then outstanding, in each
case after giving effect to any payment of principal on such Payment
Date;
(vi) with respect to the Class [A] Certificates, the amount of
any Class [A] Insured Payment included in the amounts distributed in
respect of the Class [A] Certificates;
(vii) the aggregate Loan Balance of all Mortgage Loans after
giving effect to any payment of principal on such Payment Date both in
the aggregate and in each of the Mortgage Loan Groups;
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(viii) information furnished by the Sponsor pursuant to
Section 6049(d)(7)(C) of the Code and the regulations promulgated
thereunder to assist the Owners in computing their market discount;
(ix) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution;
(x) the weighted average Coupon Rate of the Mortgage Loans
with respect to each Group;
(xi) the amount of any Class [A-2] Supplemental Interest
Amount;
(xii) the Overcollateralization Amount, for each Mortgage Loan
Group, after giving effect to any payment of principal on such Payment
Date;
(xiii) the aggregate Loan Balances of all Mortgage Loans in
each Mortgage Loan Group that were repurchased during the related
Remittance Period and any repurchases pursuant to Section 8.10;
(xiv) the amounts, if any, of any Realized Losses in each
Mortgage Loan Group for the related Remittance Period;
(xv) the Pool Cumulative Realized Losses (x) as a percentage
of the average Pool Principal Balance as of the close of business on
the last day of each of the twelve preceding Remittance Periods and (y)
as a percentage of the sum of the aggregate Loan Balances of the
Mortgage Loans as of the Initial Cut-Off Date;
(xvi) a number with respect to each Class (the "Pool Factor"
for such Class) computed by dividing the Certificate Principal Balance
for such Class (after giving effect to any distribution of principal to
be made on such Payment Date) by the Certificate Principal Balance for
such Class on the Startup Day;
(xvii) whether a Servicer Termination Loss Trigger has
occurred, as such terms are defined in the Insurance Agreement.
Items (i) through (iii) above shall, with respect to each
Class of Class [A] Certificates, be presented on the basis of a Certificate
having a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Certificates are outstanding, the Trustee
shall furnish a report to each Owner of record at any time during each calendar
year as to the aggregate of amounts reported pursuant to (i), (ii) and (iii)
with respect to the Certificates for such calendar year. If a Class of
Certificates is in book-entry form, DTC will supply such reports to the Owners
of such Class of Certificates as are in accordance with its procedures.
(b) In addition, on each Payment Date the Trustee will
distribute to each Owner, to the Certificate Insurer, to each Underwriter, to
the Master Servicer, to the Sponsor and to each Rating Agency, together with the
information described in Subsection (a) preceding, the following information
with respect to each Mortgage Loan Group as of the close of business on the last
Business Day of the prior calendar month, which is hereby required to be
prepared by the Master Servicer and furnished to the Trustee for such purpose on
or prior to the related Remittance Date:
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(i) the total number and aggregate Loan Balances of Mortgage
Loans in each Mortgage Loan Group and the percentage (based on the
aggregate Loan Balances) of the aggregate Loan Balances of such
Mortgage Loans in the related Mortgage Loan Group which are (a) 30-59
days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more days
Delinquent;
(ii) the number, aggregate Loan Balances and percentage (based
on the aggregate Loan Balances of the Mortgage Loans in such Mortgage
Loan Group) of all Mortgage Loans in the related Mortgage Loan Group in
foreclosure proceedings (and whether any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause
(i));
(iii) the number, aggregate Loan Balances and percentage
(based on the aggregate Loan Balances of the Mortgage Loans in such
Mortgage Loan Group) of all Mortgage Loans in the related Mortgage Loan
Group relating to Mortgagors in bankruptcy proceedings (and whether any
such Mortgage Loans are also included in any of the statistics
described in the foregoing clause (i));
(iv) the number, aggregate Loan Balances and percentage (based
on the aggregate Loan Balances of the Mortgage Loans in such Mortgage
Loan Group) of all Mortgage Loans in the related Mortgage Loan Group
relating to REO Properties (and whether any such Mortgage Loans are
also included in any of the statistics described in the foregoing
clause (i));
(v) the loan number of the Mortgage Loans and the book value
of any REO Property in each Mortgage Loan Group;
(vi) the aggregate Loan Balance of 60+ Day Delinquent Mortgage
Loans with respect to each Group; and
(vii) the book value of any REO Property.
(c) The foregoing reports shall be sent be to an Owner only
insofar as such Owner owns a Certificate with respect to the related Mortgage
Loan Group.
(d) The Sponsor and the Master Servicer, on behalf of
Certificateholders and the Trust (the "Trust Parties") hereby authorize the
Trustee to include the loan level information with respect to the Mortgage
Loans, excluding any information relating to the fees or amounts due to the
Certificate Insurer, contained in reports provided to the Certificate Insurer or
the Trustee by the Master Servicer hereunder and, if so directed by an
Authorized Officer of the Sponsor in writing to the Trustee, the monthly report
to the Owners prepared by the Trustee (the "Information") on The Bloomberg, an
on-line computer based on-line information network maintained by Bloomberg L.P.
("Bloomberg") or on any other on-line computer based on-line information network
or service ("Information Network"), or in other electronic or print information
services deemed acceptable by the Sponsor or the Master Servicer as designated
in writing to the Trustee by an Authorized Officer of the Master Servicer. The
Trust Parties agree not to commence any actions or proceedings, or otherwise
assert any claims, against the Trustee or its affiliates or any of the Trustee's
or its affiliates' respective agents, representatives, directors, officers or
employees (collectively, the "Designated Parties"), arising out of, or related
to or in connection with the dissemination and/or use of any Information by the
Trustee, including, but not limited to, claims based on allegations of
inaccurate or incomplete information by the Trustee
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to Bloomberg or to any Information Network or otherwise (other than in
connection with the Trustee's negligence or willful misconduct). The Trust
Parties waive their rights to assert any such claims against the Designated
Parties and fully and finally release the Designated Parties from any and all
such claims, demands, obligations, actions and liabilities (other than in
connection with such Designated Parties' negligence or willful misconduct). The
Trustee makes no representations or warranties, expressed or implied, of any
kind whatsoever with respect to the accuracy, adequacy, timeliness,
completeness, merchantability or fitness for any particular purpose of any
Information in any form or manner. The authorizations, covenants and obligations
of the Trust Parties under this section shall be irrevocable and shall survive
the termination of this Agreement.
SECTION 7.9. ADDITIONAL REPORTS BY TRUSTEE.
(a) The Trustee shall report to the Sponsor, the Certificate
Insurer and the Master Servicer with respect to the amount then held in each
Account (including investment earnings accrued or scheduled to accrue) held by
the Trustee and the identity of the investments included therein, as the
Sponsor, the Master Servicer or the Certificate Insurer may from time to time
request. Without limiting the generality of the foregoing, the Trustee shall, at
the request of the Sponsor, the Master Servicer or the Certificate Insurer,
transmit promptly to the Sponsor, the Certificate Insurer and the Master
Servicer copies of all accounting of receipts in respect of the Mortgage Loans
furnished to it by the Master Servicer and shall notify the Sponsor, the
Certificate Insurer and the Master Servicer if any such receipts have not been
received by the Trustee.
(b) The Trustee shall immediately report to the Certificate
Insurer, Sponsor and Master Servicer with respect to its actual knowledge,
without independent investigation, of any breach of any of the representations
or warranties relating to individual Mortgage Loans set forth in any Master
Transfer Agreement or in Section 3.3(a) hereof.
SECTION 7.10. SUPPLEMENTAL INTEREST PAYMENT ACCOUNT AND
SUPPLEMENTAL INTEREST PAYMENTS.
(a) The parties hereto do hereby create and establish a trust,
the "[Supplemental Interest Trust]" (the "Supplemental Interest Trust"). The
Supplemental Interest Trust shall hold a trust account (which shall be an
Eligible Account), the "Class [A-2] Supplemental Interest Payment Account" to be
held by the Trustee in its name on behalf of the Supplemental Interest Trust.
None of the assets of the Supplemental Interest Trust shall be considered assets
of the REMIC Trust, and any amounts transferred from the REMIC Trust to the
Supplemental Interest Trust shall be treated as distributions.
(b) The amount, if any, on deposit in the Class [A-2]
Supplemental Interest Payment Account on any Payment Date is the "Supplemental
Interest Payment Amount Available" on such Payment Date.
On each Payment Date, the Trustee shall withdraw from the
Class [A-2] Supplemental Interest Payment Account and pay to the Owners of the
Supplemental Interest Right (which Owners shall, in the absence of contrary
instructions received by the Trustee from the Owners of the Class [A-2]
Certificates, be the Owners of the Class [A-2] Certificates) the lesser of (x)
the sum of (i) the Class [A-2] Supplemental Interest Amount for such Payment
Date plus (ii) any Class [A-2] Supplemental Interest Shortfall Carry-Forward
Amount and (y) the Supplemental Interest Payment Amount Available.
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If, on any Payment Date, the Supplemental Interest Payment
Amount Available is insufficient to pay the Class [A-2] Supplemental Interest
Amount for such Payment Date (such deficiency, the "Class [A-2] Supplemental
Interest Shortfall Amount"), the Trustee shall demand that the Designated
Residual Owner fund such deficiency on the related Payment Date and the
Designated Residual Owner shall be required to fund such deficiency.
(c) Any portion of the Supplemental Interest Payment Amount
Available remaining after application of clause (b) above shall be distributed
to the owners of the Class [___] Certificates pro rata in accordance with their
Percentage Interests.
(d) The Trustee, on behalf of the Supplemental Interest Trust,
shall comply with all requirements of the Code and applicable state and local
law with respect to the withholding from any distributions made by it to any
Person entitled thereto of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection therewith.
(e) Notwithstanding any other provision of this Section 7.10,
the right to receive the Class [A-2] Supplemental Interest Amount plus any Class
[A-2] Supplemental Interest Shortfall Carry-Forward Amounts (such right, the
"Supplemental Interest Right") shall be separately transferable from the Class
[A-2] Certificates, subject to the restrictions on transfer set forth in Article
V hereof.
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
SECTION 8.1. MASTER SERVICER AND SUB-SERVICERS.
(a) Acting directly or through one or more Sub-Servicers as
provided in Section 8.3, the Master Servicer, as master servicer, shall service
and administer the Mortgage Loans in accordance with this Agreement on behalf of
the Trustee, the Owners and the Certificate Insurer in accordance with Accepted
Servicing Practices, and shall have full power and authority, acting alone, to
do or cause to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable.
(b) The duties of the Master Servicer shall include collecting
and posting of all payments, responding to inquiries of Mortgagors or by
federal, state or local government authorities with respect to the Mortgage
Loans, investigating delinquencies, reporting tax information to Mortgagors in
accordance with its customary practices and accounting for collections and
furnishing monthly and annual statements to the Trustee and the Certificate
Insurer, as applicable, with respect to distributions, paying Compensating
Interest and making Delinquency Advances and Servicing Advances pursuant hereto.
The Master Servicer shall follow its customary standards, policies and
procedures in performing its duties as Master Servicer. The Master Servicer
shall cooperate with the Trustee and furnish to the Trustee with reasonable
promptness information in its possession as may be necessary or appropriate to
enable the Trustee to perform its tax reporting duties hereunder
(c) Subject to clause (e) below, without limiting the
generality of the foregoing, the Master Servicer (i) shall continue, and is
hereby authorized and empowered by the
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Trustee, to execute and deliver, on behalf of itself, the Owners, the
Certificate Insurer and the Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of full release or discharge and all other
comparable instruments, with respect to the Mortgage Loans and with respect to
the related Properties; (ii) may consent to any modification of the terms of any
Note not expressly prohibited hereby if the effect of any such modification (x)
will not be to affect materially and adversely the security afforded by the
related Property, the timing of receipt of any payments required hereby or the
interests of the Certificate Insurer and (y) will not cause the Upper-Tier REMIC
or the Lower-Tier REMIC to fail to qualify as a REMIC.
(d) The Master Servicer shall have the right using that degree
of skill and attention that the Master Servicer exercises with respect to
comparable mortgage loans that it services for itself or others, to approve
applications of Mortgagors for consent to (i) partial releases of Mortgages,
(ii) alterations to Properties and (iii) removal, demolition or division of
Properties. No application for consent may be approved by the Master Servicer
unless: (x) the provisions of the related Note and Mortgage have been complied
with; (y) the Combined Loan-to-Value Ratio (which may, for this purpose, be
determined at the time of any such action in a manner reasonably acceptable to
the Trustee) and the Mortgagor's debt-to-income ratio after any release does not
exceed the Combined Loan-to-Value Ratio and debt-to-income ratio applicable to
such Mortgage Loan at origination and (z) the lien priority of the related
Mortgage is not adversely affected or reduced; provided, however, that the
foregoing requirements (x), (y) and (z) shall not apply to any such situation
described in this paragraph if such situation results from any condemnation or
easement activity by a governmental entity.
(e) The parties intend that each of the Lower-Tier REMIC and
the Upper-Tier REMIC shall constitute a REMIC and that the affairs of each shall
be conducted so as to qualify each as a REMIC. In furtherance of such intention,
the Master Servicer covenants and agrees that it shall act as agent (and the
Master Servicer is hereby appointed to act as agent) on behalf of each such
REMIC and that in such capacity it shall: (i) use its best efforts to conduct
the affairs of each such REMIC at all times that any Class of Certificates are
outstanding so as to maintain the status of each such REMIC as a REMIC under the
REMIC Provisions; (ii) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status of either
such REMIC or that would subject the Trust to tax and (iii) exercise reasonable
care not to allow either such REMIC to receive income from the performance of
services or from assets not permitted under the REMIC Provisions to be held by
each REMIC.
(f) The Master Servicer may in its discretion (i) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or the fees which may be collected
in the ordinary course of servicing the Mortgage Loans, (ii) if a Mortgagor is
in default or about to be in default because or a Mortgagor's financial
condition, arrange with the Mortgagor a schedule for the payment of delinquent
payments due on the related Mortgage Loan; provided, however, the Master
Servicer shall generally not be permitted to reschedule the payment of
delinquent payments more than one time in any twelve consecutive months with
respect to any Mortgagor and such modifications shall not be made in excess of
5% of the aggregate of the Group I Original Balance and the Group II Original
Balance Principal Balance without the prior written consent of the Certificate
Insurer; provided, however, that, if the Certificate Insurer has not given its
consent within five (5) Business Days after notice from the Master Servicer, the
Certificate Insurer shall be deemed to have given its consent to such
modification or rescheduling for payments of delinquent payments; provided,
however, that such notice and consent shall not be required in the event that
the Master Servicer determines, in its sole discretion that such modification is
required to be made prior to such five day period, or (iii)
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modify payments of monthly principal and interest on any Mortgage Loan becoming
subject to the terms of the Civil Relief Act in accordance with the Master
Servicer's general policies of the comparable mortgage loans subject to the
Civil Relief Act.
(g) Without limiting the generality of the foregoing, but
subject to Sections 8.13 and 8.14, the Master Servicer in its own name or in the
name of a Sub-Servicer may be authorized and empowered pursuant to a power of
attorney executed and delivered by the Trustee to execute and deliver, and may
be authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Owners, the Certificate Insurer and the Trustee or any of them, (i)
any and all instruments of satisfaction or cancellation or of partial or full
release or discharge and all other comparable instruments with respect to the
Mortgage Loans and with respect to the Properties, (ii) and to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to effect
ownership of any Property on behalf of the Trustee, and (iii) to hold title to
any Property upon such foreclosure or deed in lieu of foreclosure on behalf of
the Trustee; provided, however, that Section 8.14(a) shall constitute a power of
attorney from the Trustee to the Master Servicer or any Sub-Servicer to execute
an instrument of satisfaction (or assignment of mortgage without recourse) with
respect to any Mortgage Loan paid in full (or with respect to which payment in
full has been escrowed). Subject to Sections 8.13 and 8.14, the Trustee shall
furnish the Master Servicer and any Sub-Servicer with any powers of attorney and
other documents as the Master Servicer or such Sub-Servicer shall reasonably
request to enable the Master Servicer and such Sub-Servicer to carry out their
respective servicing and administrative duties hereunder.
(h) The Master Servicer shall give prompt notice to the
Trustee of any action, of which the Master Servicer has actual knowledge, to (i)
assert a claim against the Trust or (ii) assert jurisdiction over the Trust.
(i) Servicing Advances incurred by the Master Servicer or any
Sub-Servicer in connection with the servicing of the Mortgage Loans (including
any penalties in connection with the payment of any taxes and assessments or
other charges) on any Property shall be recoverable by the Master Servicer or
such Sub-Servicer to the extent described in Section 8.9(c) and in Section
7.5(b)(E)(3).
SECTION 8.2. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS.
(a) The Master Servicer shall, to the extent such procedures
shall be consistent with this Agreement and the terms and provisions of any
applicable Insurance Policies, follow Accepted Servicing Practices. Consistent
with the foregoing, the Master Servicer may in its discretion (i) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if a
Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan; provided, however, the
Master Servicer shall not reschedule the payment of delinquent payments more
than one time in any twelve consecutive months with respect to any Mortgagor.
(b) The Master Servicer shall hold in escrow on behalf of the
related Mortgagor all Prepaid Installments received by it, and shall apply such
Prepaid Installments as directed by such Mortgagor and as set forth in the
related Note.
SECTION 8.3. SUB-SERVICING AGREEMENTS BETWEEN MASTER SERVICER
AND SUB-SERVICERS.
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The Master Servicer may and is hereby authorized to perform any of its
servicing responsibilities with respect to all or certain of the Mortgage Loans
through a Sub-Servicer, which may be an Affiliate. Pursuant to the foregoing,
the Master Servicer may enter into Sub-Servicing Agreements for any servicing
and administration of Mortgage Loans with any institution which is in compliance
with the laws of each state necessary to enable it to perform its obligations
under such Sub-Servicing Agreement. The Master Servicer shall give notice to the
Certificate Insurer and the Trustee of the appointment of any Sub-Servicer. The
Master Servicer shall also furnish to the Certificate Insurer and the Trustee a
copy of the Sub-Servicing Agreement, except when the Sub-Servicer is an
affiliate of the Master Servicer. For purposes of this Agreement, the Master
Servicer shall be deemed to have received payments on Mortgage Loans when any
Sub-Servicer has received such payments. Any such Sub-Servicing Agreement shall
be consistent with and not violate the provisions of this Agreement.
SECTION 8.4. SUCCESSOR SUB-SERVICERS.
The Master Servicer may terminate any Sub-Servicing Agreement in accordance
with the terms and conditions of such Sub-Servicing Agreement and either
directly service the related Mortgage Loans itself or enter into a Sub-Servicing
Agreement with a successor Sub-Servicers that qualifies under Section 8.3.
SECTION 8.5. LIABILITY OF MASTER SERVICER.
The Master Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub-Servicer or otherwise, and the Master Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans. The Master Servicer
shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Master Servicer by such Sub-Servicer and nothing
contained in such Sub-Servicing Agreement shall be deemed to limit or modify
this Agreement. The Trust shall not indemnify the Master Servicer for any losses
due to the Master Servicer's negligence.
SECTION 8.6. NO CONTRACTUAL RELATIONSHIP BETWEEN SUB-SERVICER
AND TRUSTEE OR THE OWNERS.
Any Sub-Servicing Agreement and any other transactions or services relating to
the Mortgage Loans involving a Sub-Servicer shall be deemed to be between the
Sub-Servicer and the Master Servicer alone and the Certificate Insurer, the
Trustee and the Owners shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to any
Sub-Servicer except as set forth in Section 8.7.
SECTION 8.7. ASSUMPTION OR TERMINATION OF SUB-SERVICING
AGREEMENT BY TRUSTEE.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Master Servicer
hereunder by the Trustee pursuant to Section 8.20, it is understood and agreed
that the Master Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer may be
assumed or terminated by the Trustee at its option. Any termination fee due
under any such Sub-Servicing agreement shall be paid by the preceding Master
Servicer but in no event shall the Trustee be liable for any such fee.
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The Master Servicer shall, upon request of the Trustee, but at
the expense of the Master Servicer, deliver to the assuming party documents and
records relating to each Sub-Servicing Agreement and an accounting of amounts
collected and held by it and otherwise use its best reasonable efforts to effect
the orderly and efficient transfer of the Sub-Servicing Agreements to the
assuming party, without the payment of any fee by the Trustee, notwithstanding
any contrary provision in any Sub-Servicing Agreement.
SECTION 8.8. PRINCIPAL AND INTEREST ACCOUNT.
(a) The Master Servicer and/or each Sub-Servicer, as
applicable, shall establish in the name of the Trust for the benefit of the
Owners of the Certificates and the Certificate Insurer, as their interests may
appear, and maintain at one or more Designated Depository Institutions a
Principal and Interest Account.
Subject to Subsections (c) and (e) below, the Master Servicer
and any Sub-Servicer shall deposit all receipts of principal and accrued
interest related to the Mortgage Loans in each such Mortgage Loan Group to the
Principal and Interest Account on a daily basis (but no later than the first
Business Day after receipt).
(b) All funds in the Principal and Interest Account may only
be held (i) uninvested, up to the limits insured by the FDIC or (ii) invested in
Eligible Investments. The Principal and Interest Account shall be held in trust
in the name of the Trust and for the benefit of the Owners of the Certificates
and the Certificate Insurer. Any investment earnings on funds held in the
Principal and Interest Account shall be for the account of the Master Servicer
and may only be withdrawn from the Principal and Interest Account by the Master
Servicer immediately following the remittance of the Monthly Remittance Amounts
by the Master Servicer. Any references herein to amounts on deposit in the
Principal and Interest Account shall refer to amounts net of such investment
earnings. Any investment losses are at the expense of the Master Servicer and
shall be replaced on or prior to the Remittance Date.
(c) Subject to Subsection (e) below, the Master Servicer shall
deposit to the Principal and Interest Account all principal collected and
interest accrued on the Mortgage Loans on or after the Initial Cut-Off Date or
related Subsequent Cut-Off Date including any Prepaid Installments, Prepayments
and Net Liquidation Proceeds, all Loan Purchase Prices and Substitution Amounts
received or paid by the Master Servicer with respect to such Mortgage Loans,
other recoveries or amounts related to such Mortgage Loans received by the
Master Servicer, Compensating Interest and Delinquency Advances together with
any amounts which are reimbursable from such Principal and Interest Account, but
net of (i) the Servicing Fee with respect to each such Mortgage Loan and other
servicing compensation due to the Master Servicer as permitted by Section 8.15
hereof, (ii) principal (including Prepayments) collected on the related Mortgage
Loans prior to the Cut-Off Date, (iii) interest accruing on the related Mortgage
Loans prior to the Cut-Off Date and (iv) Net Liquidation Proceeds to the extent
such Net Liquidation Proceeds exceed the sum of the Loan Balance of the related
Mortgage Loan and accrued and unpaid interest thereon.
(d) (i) The Master Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes:
(1) to effect the timely remittance to the Trustee of
the Monthly Remittance Amounts due on the Remittance Date;
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(2) to reimburse itself pursuant to Section 8.9(a)
hereof for unreimbursed Delinquency Advances and Servicing
Advances and Nonrecoverable Advances;
(3) to withdraw investment earnings on amounts on
deposit in the Principal and Interest Account;
(4) to withdraw amounts that have been deposited to a
Principal and Interest Account in error;
(5) to clear and terminate each Principal and
Interest Account following the termination of the Trust Estate
pursuant to Article X; and
(6) to invest in Eligible Investments.
(ii) On the tenth day of each month, the Master Servicer shall
send to the Trustee a report, in the form of a computer tape, detailing
the payments on the Mortgage Loans during the prior Remittance Period.
Such tape shall be in the form and have the specifications as may be
agreed to between the Master Servicer and the Trustee from time to
time. The Certificate Insurer shall have the right to request this
computer tape upon providing 3 Business Days written notice to the
Master Servicer.
(iii) On each Remittance Date the Master Servicer shall remit
to the Trustee by wire transfer, or otherwise make funds available in
immediately available funds for deposit in the Certificate Account the
amounts specified in Section 7.5(a) of this Agreement, (A) for Group I,
the Group I Interest Remittance Amount and the Group I Principal
Remittance Amount and (B) for Group II, the Group II Interest
Remittance Amount and the Group II Principal Remittance Amount.
(e) To the extent that the ratings, if any, then assigned to
the unsecured debt of the Master Servicer or of the Master Servicer's ultimate
corporate parent are satisfactory to the Certificate Insurer, the Trustee and
each Rating Agency, then the requirement to maintain the Principal and Interest
Account and deposit of principal collections and accrued interest may be waived
by an instrument signed by the Certificate Insurer, Trustee and each Rating
Agency, and the Master Servicer may be allowed to co-mingle with its general
funds the amounts otherwise required to be deposited to the Principal and
Interest Account, on such terms and subject to such conditions as the
Certificate Insurer, the Trustee and each Rating Agency may permit.
SECTION 8.9. DELINQUENCY ADVANCES, COMPENSATING INTEREST AND
SERVICING ADVANCES.
(a) The Master Servicer is required, not later than each
Remittance Date, to deposit into the Principal and Interest Account an amount
equal to the sum of the interest portions accrued (net of the Servicing Fees and
certain other administrative amounts, if any) with respect to Delinquent
Mortgage Loans during the related Remittance Period but not collected on or
prior to such Remittance Date, but only if, in its good faith business judgment,
the Master Servicer reasonably believes that such amount will ultimately be
recoverable from the related Mortgage Loan. Such amounts are "Delinquency
Advances".
The Master Servicer shall be permitted to fund its payment of
Delinquency Advances on any Remittance Date and to reimburse itself for any
Delinquency Advances paid from the Master Servicer's own funds, from collections
on the related Mortgage Loan. The
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Master Servicer may use funds deposited to the Principal and Interest Account
subsequent to the related Remittance Period and shall deposit into the Principal
and Interest Account with respect thereto (i) late collections from the
Mortgagor whose Delinquency gave rise to the shortfall which resulted in such
Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account of
the related Mortgage Loan to the extent of the amount of aggregate Delinquency
Advances related thereto or (iii) from its own funds. If not therefore recovered
from the related Mortgagor or the related Net Liquidation Proceeds, Delinquency
Advances constituting Nonrecoverable Advances shall be recoverable pursuant to
Section 7.5(b)(E)(3) hereof.
The parties hereto intend the provision of this Section 8.9(a)
to comply with Treasury Regulation Section 1.860G-2(c)(3).
(b) On or prior to each Remittance Date, the Master Servicer
shall deposit in the Principal and Interest Account with respect to any full
Prepayment received on a Mortgage Loan during the related Remittance Period out
of its own funds without any right of reimbursement therefor, an amount equal to
the difference between (x) 30 days' interest at the Mortgage Loan's Coupon Rate
(less the Servicing Fee) on the Loan Balance of such Mortgage Loan as of the
first day of the related Remittance Period and (y) to the extent not previously
advanced, the interest (less the Servicing Fee) paid by the Mortgagor with
respect to the Mortgage Loan during such Remittance Period (any such amount paid
by the Master Servicer, "Compensating Interest"). The Master Servicer shall in
no event be required to pay Compensating Interest with respect to any Remittance
Period in an amount in excess of the aggregate Servicing Fee received by the
Master Servicer with respect to all Mortgage Loans for such Remittance Period
nor shall it be required to pay Compensating Interest due to partial prepayments
or Relief Act Shortfalls.
The parties hereto intend the provisions of this Section
8.9(b) to comply with Treasury Regulation Section 1.860G-2(e).
(c) The Master Servicer will pay all "out-of-pocket" costs and
expenses incurred by the Master Servicer in the performance of its servicing
obligations, including, but not limited to, the cost of (i) Preservation
Expenses (including the payment of flood insurance premiums), (ii) any
enforcement or judicial proceedings, including (a) foreclosures, and (b) other
legal actions and costs associated therewith that potentially affect the
existence, validity, priority, enforceability or collectibility of the Mortgage
Loans, including collection agency fees and costs of pursuing or obtaining
personal judgments, garnishments, levies, attachment and similar actions, (iii)
the conservation, management, liquidation, sale or other disposition of any
Mortgaged Property acquired in satisfaction of the related Mortgage Loan,
including reasonable fees paid to any independent contractor in connection
therewith, and (iv) advances to keep liens current; and with respect to any of
the foregoing, the Master Servicer is only required to pay such costs and
expenses to the extent the Master Servicer reasonably believes such costs and
expenses will be recoverable from the related Mortgage Loan. Each such amount so
paid will constitute a "Servicing Advance". The Master Servicer may recover
Servicing Advances (x) from the Mortgagors to the extent permitted by the
Mortgage Loans, from Liquidation Proceeds realized upon the liquidation of the
related Mortgage Loan and (y) as provided in Section 7.5(b)(E)(3) hereof. In no
case may the Master Servicer recover Servicing Advances from principal and
interest payments on any other Mortgage Loan or from any amounts relating to any
other Mortgage Loan except as provided pursuant to Section 7.5(b)(E)(3) hereof.
The parties intend that the provisions of this Section 8.9(c)
comply with Treasury Regulation Section 1.860G-2(c)(3)(iii).
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(d) On the Remittance Date in [__________, _____], the Master
Servicer shall make an advance (a "Special Advance") with respect to each
Mortgage Loan Group equal to the sum of (x) one-month's interest, calculated at
the weighted average Pass-Through Rate (applicable to the [__________, _____]
Payment Date, as the case may be, for the classes of Class [A] Certificates
related to such Group) with respect to all Mortgage Loans not having a payment
due prior to the [__________, _____] Remittance Date; the amounts of such
advances shall be included in the related Interest Remittance Amount.
Reimbursement of Special Advances shall be made only as provided in Section
7.5(b)(E)(3).
SECTION 8.10. PURCHASE OF MORTGAGE LOANS.
The Master Servicer may, but is not obligated to, purchase for its own account
any Mortgage Loan which becomes Delinquent, in whole or in part, as to four
consecutive monthly installments or any Mortgage Loan as to which enforcement
proceedings have been brought by the Master Servicer or by any Sub-Servicer
pursuant to Section 8.13. Any such Loan so purchased shall be purchased by the
Master Servicer on a Remittance Date at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be deposited in the Principal
and Interest Account. Notwithstanding the foregoing, the Master Servicer may not
purchase any such Mortgage Loan unless the Master Servicer has delivered to the
Trustee and the Certificate Insurer an opinion of counsel experienced in federal
income tax matters acceptable to the Trustee to the effect that such a purchase
would not constitute a Prohibited Transaction for the Trust or otherwise subject
the Trust to tax and would not jeopardize the status of either the Upper-Tier
REMIC or the Lower-Tier REMIC as a REMIC.
SECTION 8.11. MAINTENANCE OF INSURANCE.
(a) The Master Servicer shall cause to be maintained with
respect to each Mortgage Loan a hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage, and which
provides for a recovery by the Master Servicer on behalf of the Trust of
insurance proceeds relating to such Mortgage Loan in an amount not less than the
least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis and (iii) the full insurable value of the premises.
(b) If the Mortgage Loan at the time of origination relates to
a Property in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards, the Master Servicer
will cause to be maintained with respect thereto a flood insurance policy in a
form meeting the requirements of the current guidelines of the Federal Insurance
Administration with a generally acceptable carrier in an amount representing
coverage, and which provides for a recovery by the Master Servicer on behalf of
the Trust of insurance proceeds relating to such Mortgage Loan of not less than
the least of (i) the outstanding principal balance of the Mortgage Loan, (ii)
the minimum amount required to compensate for damage or loss on a replacement
cost basis and (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973. The Master Servicer shall indemnify the
Trust and the Certificate Insurer out of the Master Servicer's own funds for any
loss to the Trust and the Certificate Insurer resulting from the Master
Servicer's failure to maintain the insurance required by this Section.
(c) In the event that the Master Servicer shall obtain and
maintain a blanket policy insuring against fire, flood and hazards of extended
coverage on all of the Mortgage Loans, then, to the extent such policy names the
Master Servicer as loss payee and provides
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coverage in an amount equal to the aggregate unpaid principal balance on the
Mortgage Loans without co-insurance, and otherwise complies with the
requirements of this Section 8.11, the Master Servicer shall be deemed
conclusively to have satisfied its obligations with respect to fire and hazard
insurance coverage under this Section 8.11, it being understood and agreed that
such blanket policy may contain a deductible clause, in which case the Master
Servicer shall, in the event that there shall not have been maintained on the
related Property a policy complying with the preceding paragraphs of this
Section 8.11, and there shall have been a loss which would have been covered by
such policy, deposit in the Principal and Interest Account from the Master
Servicer's own funds the difference, if any, between the amount that would have
been payable under a policy complying with the preceding paragraphs of this
Section 8.11 and the amount paid under such blanket policy. Upon the request of
the Trustee or the Certificate Insurer, the Master Servicer shall cause to be
delivered to the Trustee and the Certificate Insurer, a certified true copy of
such policy.
The parties hereto intend that the provisions of this Section
8.11 comply with Treasury Regulation Section 1.860G-2(c)(3)(ii).
SECTION 8.12. DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION
AGREEMENTS.
When a Property has been or is about to be conveyed by the Mortgagor, the
Master Servicer shall, to the extent it has knowledge of such conveyance or
prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Master Servicer shall not exercise
any such right if (i) the "due-on-sale" clause, in the reasonable belief of the
Master Servicer, is not enforceable under applicable law or (ii) the Master
Servicer reasonably believes that to permit an assumption of the Mortgage Loan
would not materially and adversely affect the interest of the Owners or of the
Certificate Insurer. In such event, the Master Servicer shall enter into an
assumption and modification agreement with the person to whom such property has
been or is about to be conveyed, pursuant to which such person becomes liable
under the Note and, unless prohibited by applicable law or the Mortgage
Documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Master Servicer is authorized to enter into
a substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Note; provided, however, that to the
extent any such substitution of liability agreement would be delivered by the
Master Servicer outside of its usual procedures for mortgage loans held in its
own portfolio the Master Servicer shall, prior to executing and delivering such
agreement, obtain the prior written consent of the Control Party. The Mortgage
Loan, as assumed, shall conform in all respects to the requirements,
representations and warranties of this Agreement. The Master Servicer shall
notify the Trustee that any such assumption or substitution agreement has been
completed by forwarding to the Trustee the original copy of such assumption or
substitution agreement, which copy shall be added by the Trustee to the related
File and which shall, for all purposes, be considered a part of such File to the
same extent as all other documents and instruments constituting a part thereof.
The Master Servicer shall be responsible for recording or causing the
recordation any such assumption or substitution agreements. In connection with
any such assumption or substitution agreement, the required monthly payment on
the related Mortgage Loan shall not be changed but shall remain as in effect
immediately prior to the assumption or substitution, the stated maturity or
outstanding principal amount of such Mortgage Loan shall not be changed nor
shall any required monthly payments of principal or interest be deferred or
forgiven. Any fee collected by the Master Servicer or the Sub-Servicer for
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consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Master Servicer as additional
servicing compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Master Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Mortgage Loan by operation of law or any assumption which the
Master Servicer may be restricted by law from preventing, for any reason
whatsoever.
SECTION 8.13. REALIZATION UPON DEFAULTED MORTGAGE LOANS.
(a) The Master Servicer shall foreclose upon or otherwise
comparably effect the ownership on behalf of the Trust of Properties relating to
defaulted Mortgage Loans as to which no satisfactory arrangements can be made
for collection of Delinquent payments and which the Master Servicer has not
purchased pursuant to Section 8.10. In connection with such foreclosure or other
conversion, the Master Servicer shall exercise such of the rights and powers
vested in it hereunder, and use the same degree of care and skill in their
exercise or use, as prudent mortgage lenders would exercise or use under the
circumstances in the conduct of their own affairs, including, but not limited
to, advancing funds for the payment of taxes, amounts due with respect to Senior
Liens, and insurance premiums. Any amounts so advanced shall constitute
"Servicing Advances" within the meaning of Section 8.9(c) hereof. The Master
Servicer shall sell any REO Property within 35 months of its acquisition by the
Trust, unless the Master Servicer obtains for the Trustee an opinion of counsel
experienced in federal income tax matters, addressed to the Trustee, the
Certificate Insurer and the Master Servicer, to the effect that the holding by
the Trust of such REO Property for any greater period will not result in the
imposition of taxes on "Prohibited Transactions" of the Trust or any REMIC
therein as defined in Section 860F of the Code or cause either the Lower-Tier
REMIC or the Upper-Tier REMIC to fail to qualify as a REMIC under the REMIC
Provisions at any time that any Certificates are outstanding.
Notwithstanding the generality of the foregoing provisions,
the Master Servicer shall manage, conserve, protect and operate each REO
Property for the Owners and the Certificate Insurer solely for the purpose of
its prompt disposition and sale in a manner which does not cause such REO
Property to fail to qualify as "foreclosure property" within the meaning of
Section 860G(a)(8) of the Code or result in the receipt by the Lower-Tier REMIC
or the Upper Tier REMIC of any "income from non-permitted assets" within the
meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure
property" which is subject to taxation under the REMIC Provisions. Pursuant to
its efforts to sell such REO Property, the Master Servicer shall either itself
or through an agent selected by the Master Servicer protect and conserve such
REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Owners, rent the same, or
any part thereof, as the Master Servicer deems to be in the best interest of the
Owners for the period prior to the sale of such REO Property. The Master
Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on a REO Property in determining whether to foreclose upon or
otherwise comparably convert the ownership of such REO Property. With respect to
any Mortgage Loan secured by a mixed use REO Property, the Master Servicer
shall, prior to foreclosing upon or otherwise comparably effecting the ownership
in the name of the
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Master Servicer on behalf of the Trust, either (x) perform a "phase one
environmental study" of such REO Property or (y) repurchase such REO Property at
the Loan Purchase Price.
(b) The Master Servicer shall determine, with respect to each
defaulted Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan (exclusive of any possibility of a
deficiency judgment), whereupon such Mortgage Loan shall become a "Liquidated
Loan" and shall promptly deliver to the Certificate Insurer a related
liquidation report with respect to such Liquidated Loan.
SECTION 8.14. TRUSTEE TO COOPERATE; RELEASE OF FILES.
(a) Upon the payment in full of any Mortgage Loan (including
the repurchase of any Mortgage Loan or any liquidation of such Mortgage Loan
through foreclosure or otherwise), or the receipt by the Master Servicer or any
Sub-Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer or any Sub-Servicer shall
deliver to the Trustee a Master Servicer's Trust Receipt. Upon receipt of such
Master Servicer's Trust Receipt, the Trustee shall promptly release the related
File, in trust to the applicable party as directed in writing by the Master
Servicer in the Master Servicer's Trust Receipt, in each case pending its
release by the Master Servicer, such escrow agent or such employee, agent or
attorney of the Trustee, as the case may be. Upon any such payment in full, or
the receipt of such notification that such funds have been placed in escrow, the
Master Servicer or any Sub-Servicer is authorized to give, as attorney-in-fact
for the Trustee and the mortgagee under the Mortgage which secured the Note, an
instrument of satisfaction (or assignment of Mortgage without recourse)
regarding the Property relating to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of payment in full, it
being understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Principal and Interest Account. In lieu of executing any such
satisfaction or assignment, as the case may be, the Master Servicer or any
Sub-Servicer may prepare and submit to the Trustee, a satisfaction (or
assignment without recourse, if requested by the Person or Persons entitled
thereto) in form for execution by the Trustee with all requisite information
completed by the Master Servicer or any Sub-Servicer; in such event, the Trustee
shall execute and acknowledge such satisfaction or assignment, as the case may
be, and deliver the same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of
any Mortgage Loan, including, without limitation, foreclosure or other
comparable conversion of a Mortgage Loan or collection under any applicable
Insurance Policy, the Trustee shall (except in the case of the payment or
liquidation pursuant to which the related File is released to an escrow agent or
an employee, agent or attorney of the Trustee), upon request of the Master
Servicer or any Sub-Servicer and delivery to the Trustee of a Master Servicer's
Trust Receipt, release the related File to the Master Servicer and shall execute
such documents as shall be necessary to the prosecution of any such proceedings,
including, without limitation, an assignment without recourse of the related
Mortgage to the Master Servicer; provided that the Master Servicer shall not
have received and not returned at any one time more than 10% of the entire
number of Files. The Trustee shall complete in the name of the Trustee any
endorsement in blank on any Note prior to releasing such Note to the Master
Servicer or any Sub-Servicer. Such receipt shall obligate the Master Servicer or
any Sub-Servicer to return the File to the Trustee when the need therefor by the
Master Servicer or any Sub-Servicer no longer exists unless the Mortgage Loan
shall be liquidated, in which case, upon receipt of the liquidation information,
in physical or electronic
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form acceptable to the Master Servicer and the Trustee, a copy of the Master
Servicer's Trust Receipt shall be released by the Trustee to the Master Servicer
or any Sub-Servicer.
(c) No costs associated with the procedures described in this
Section 8.14 shall be an expense of the Trust.
(d) The provisions set forth in Subsections (a) and (b) may be
superseded by any waiver of the Document Delivery Requirement as may be given by
the Certificate Insurer and the Rating Agencies pursuant to Section 3.5(j)
hereof.
(e) Each Master Servicer's Trust Receipt may be delivered to
the Trustee (i) via mail or courier, (ii) via facsimile or (iii) by such other
means, including, without limitation, electronic or computer readable medium, as
the Master Servicer and the Trustee shall mutually agree. The Trustee shall
promptly release the related File(s) no later than seven (7) business days of
receipt of a properly completed Master Servicer's Trust Receipt pursuant to
clauses (i), (ii) or (iii) above or such shorter period as may be agreed upon by
the Master Servicer and the Trustee. Receipt of a Master Servicer's Trust
Receipt pursuant to clauses (i), (ii) or (iii) above shall be authorization to
the Trustee to release such Files, provided the Trustee has determined that such
Master Servicer's Trust Receipt has been executed, with respect to clauses (i)
or (ii) above, or approved, with respect to clause (iii) above, by an Authorized
Officer of the Master Servicer or any Sub-Servicer, and so long as the Trustee
complies with its duties and obligations under this Agreement. If the Trustee is
unable to release the Files within the time frames previously specified, the
Trustee shall immediately notify the Master Servicer or any Sub-Servicer
indicating the reason for such delay, but in no event shall such notification be
later than five business days after receipt of a Master Servicer's Trust
Receipt. If the Master Servicer is required to pay penalties or damages due to
the Trustee's negligent failure to release the related File or the Trustee's
negligent failure to execute and release documents in a timely manner, the
Trustee shall be liable for such penalties or damages.
On each day that the Master Servicer remits to the Trustee
Master Servicer's Trust Receipts pursuant to clauses (ii) or (iii) above, the
Master Servicer or any Sub-Servicer shall also submit to the Trustee a summary
of the total amount of such Master Servicer's Trust Receipts requested on such
day by the same method as described in such clauses (ii) or (iii) above.
SECTION 8.15. SERVICING COMPENSATION.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan. Additional servicing compensation in the form of investment income on the
Accounts, prepayment charges, release fees, bad check charges, assumption fees,
late payment charges, or any other servicing-related fees, Net Liquidation
Proceeds not required to be deposited in the Principal and Interest Account
pursuant to Section 8.8(c)(v) and similar items may, to the extent collected
from Mortgagors, be retained by the Master Servicer.
SECTION 8.16. ANNUAL STATEMENT AS TO COMPLIANCE.
The Master Servicer, at its own expense, will deliver to the Trustee, the
Certificate Insurer and each Rating Agency, on or before the last day of March
of each year, commencing in [Year], an Officer's Certificate stating, as to each
signer thereof, that (i) a review of the activities of the Master Servicer
during such preceding calendar year and of performance under this Agreement
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has been made under such officers' supervision, and (ii) to the best of such
officers' knowledge, based on such review, the Master Servicer has fulfilled all
its obligations under this Agreement for such year, or, if there has been a
default in the fulfillment of all such obligations, specifying each such default
known to such officers and the nature and status thereof including the steps
being taken by the Master Servicer to remedy such defaults.
SECTION 8.17. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
REPORTS.
On or before the last day of March of each year, commencing in [Year], the
Master Servicer, at its own expense, shall cause to be delivered to the Trustee,
the Certificate Insurer and each Rating Agency a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Control Party stating that such firm has, with respect to the
Master Servicer's overall servicing operations (i) performed applicable tests in
accordance with the compliance testing procedures as set forth in Appendix 3 of
the Audit Guide for Audits of HUD Approved Nonsupervised Mortgagees or (ii)
examined such operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and in either case stating such
firm's conclusions relating thereto or (iii) examined such operations in
accordance with the requirements of SAS 70.
SECTION 8.18. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS.
The Master Servicer shall provide to the Trustee, the Certificate Insurer, the
FDIC and the supervisory agents and examiners of each of the foregoing access to
the documentation regarding the Mortgage Loans required by applicable state and
federal regulations, such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the Master
Servicer designated by it.
Upon any change in the format of the electronic medium
maintained by the Master Servicer in respect of the Mortgage Loans, the Master
Servicer shall deliver a copy of such electronic medium to the Trustee and in
addition shall provide a copy of such computer tape to the Trustee and the
Certificate Insurer at such other times as the Trustee or the Certificate
Insurer may reasonably request.
SECTION 8.19. ASSIGNMENT OF AGREEMENT.
The Master Servicer may not assign its obligations under this Agreement, in
whole or in part, unless it shall have first obtained the written consent of the
Trustee and the Certificate Insurer, which such consent shall not be
unreasonably withheld; provided, however, that any assignee must meet the
eligibility requirements set forth in Section 8.20(g) hereof for a successor
servicer; and provided, further, this Section 8.19 does not apply to the
appointment of Sub-Servicers. Notice of any such assignment shall be given by
the Master Servicer to the Trustee, the Certificate Insurer and Moody's.
SECTION 8.20. REMOVAL OF MASTER SERVICER; RESIGNATION OF
MASTER SERVICER.
(a) The Trustee, with the consent of the Certificate Insurer
(or the Owners pursuant to Section 6.11 hereof) may remove the Master Servicer
upon the occurrence of any of the following events:
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(i) The Master Servicer shall fail to deliver to the Trustee
any proceeds or required payment, which failure continues unremedied
for five Business Days following written notice to an Authorized
Officer of the Master Servicer from the Trustee or from any Owner.
(ii) The Master Servicer shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (ii) admit in writing
its inability to pay its debts generally as they become due, (iii) make
a general assignment for the benefit of creditors, (iv) be adjudicated
a bankrupt or insolvent, (v) commence a voluntary case under the
federal bankruptcy laws of the United States of America or file a
voluntary petition or answer seeking reorganization, an arrangement
with creditors or an order for relief or seeking to take advantage of
any insolvency law or file an answer admitting the material allegations
of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding or (vi) take corporate action for the purpose of
effecting any of the foregoing;
(iii) If without the application, approval or consent of the
Master Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Master Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or similar
entity with respect to the Master Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being
contested by the Master Servicer in good faith, the same shall (A)
result in the entry of an order for relief or any such adjudication or
appointment or (B) continue undismissed or pending and unstayed for any
period of seventy-five (75) consecutive days; or
(iv) The Master Servicer shall fail to perform any one or more
of its obligations hereunder other than the obligations contemplated by
Subsection 8.20(i) above, and shall continue in default thereof for a
period of sixty (60) days after notice by the Trustee or the
Certificate Insurer of said failure; provided, however, that if the
Master Servicer can demonstrate to the reasonable satisfaction of the
Control Party that it is diligently pursuing remedial action, then the
cure period may be extended with the written approval of the Control
Party; or
(v) The Master Servicer shall fail to cure any breach of any
of its representations and warranties set forth in Section 3.2 which
materially and adversely affects the interests of the Owners or the
Certificate Insurer for a period of thirty (30) days after the Master
Servicer's discovery or receipt of notice thereof; provided, however,
that if the Master Servicer can demonstrate to the reasonable
satisfaction of the Control Party that it is diligently pursuing
remedial action, then the cure period may be extended with the written
approval of the Control Party.
(b) The Certificate Insurer also may remove the Master
Servicer upon the occurrence of any of the following events:
(i) upon the making of any Insured Payment; provided, however,
that the Certificate Insurer shall have no right to remove the Master
Servicer under this clause (i) if the Master Servicer can demonstrate
to the reasonable satisfaction of the Certificate
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Insurer that such event was due to circumstances beyond the control of
the Master Servicer; or
(ii) the failure by the Master Servicer to make any required
Servicing Advance; or
(iii) the failure by the Master Servicer to perform any one or
more of its obligations hereunder or under the Insurance Agreement,
which failure materially and adversely affects the interests of the
Certificate Insurer and the Trustee; or
(iv) the failure by the Master Servicer to make any required
Delinquency Advance, any Special Advance or to pay any Compensating
Interest; or
(v) the occurrence of a Servicer Termination Loss Trigger, as
such term is defined in the Insurance Agreement; or
(vi) the enactment of any law by a legislative body that
declares, or any finding or ruling by a court of competent
jurisdiction, that the Insurance Agreement or this Agreement is not
valid and binding on the Sponsor or the Master Servicer; or
(vii) Advanta National Bank fails to be "adequately
capitalized" as defined in Section 1831(o)(b)(1)(B) of the Federal
Deposit Insurance Corporation Improvement Act of 1991, as amended; or
(viii) The tangible net worth of AMHC, on a consolidated
basis, is less than $10,000,000;
provided, however, with respect to clause (iv), if the Master Servicer can
demonstrate to the reasonable satisfaction of the Control Party that any such
event was due to circumstances beyond the control of the Master Servicer, such
event shall not be considered an event of termination of the Master Servicer;
provided, however, that (x) prior to any removal of the Master Servicer by the
Control Party pursuant to clauses (i) or (ii) of this Section 8.20(b), the
Master Servicer shall first have been given by the Control Party and by
registered or certified mail, notice of the occurrence of one or more of the
events set forth in clauses (i), (ii) or (iii) above and the Master Servicer
shall not have remedied, or shall not have taken actions satisfactory to the
Control Party to remedy, such event or events within 30 days (60 days with
respect to clause (iii)) after the Master Servicer's receipt of such notice
(provided, however, that if the Master Servicer can demonstrate to the
reasonable satisfaction of the Control Party that it is diligently pursuing
remedial action, then the cure period in each case may be extended with the
written approval of the Control Party) and (y) in the event of the refusal or
inability of the Master Servicer to make any required Delinquency Advance or
Special Advance or to pay any Compensating Interest (as described in clause
(iv)) or Monthly Remittance, such removal shall be effective (without the
requirement of any action on the part of the Certificate Insurer or of the
Trustee) at 4 p.m. on the second Business Day following the day on which the
Trustee or the Certificate Insurer notifies an Authorized Officer of the Master
Servicer that a required Delinquency Advance or Special Advance has not been
received by the Trustee. Upon the Trustee's determination that a required
Delinquency Advance or Special Advance or payment of Compensating Interest has
not been made by the Master Servicer, the Trustee shall so notify in writing an
Authorized Officer of the Master Servicer and the Certificate Insurer as soon as
is reasonably practical.
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(c) The Master Servicer shall not resign from the obligations
and duties hereby imposed on it, except upon determination that its duties
hereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it,
the other activities of the Master Servicer so causing such a conflict being of
a type and nature carried on by the Master Servicer at the date of this
Agreement. Any such determination permitting the resignation of the Master
Servicer shall be evidenced by an opinion of counsel to such effect which shall
be delivered to the Trustee and the Certificate Insurer.
(d) No removal or resignation of the Master Servicer shall
become effective until the Trustee or a successor servicer shall have assumed
the Master Servicer's responsibilities and obligations in accordance with this
Section. If no successor servicer is available, the Trustee shall act as
successor servicer and perform all of the obligations of this Section,
including, without limitation, making Delinquency Advances and paying
Compensating Interest; provided, however, that the Trustee will not be obligated
to act as successor servicer if it is legally unable to perform its duties
hereunder.
(e) Upon removal or resignation of the Master Servicer, the
Master Servicer also shall promptly deliver or cause to be delivered to a
successor servicer or the Trustee all the books and records (including, without
limitation, records kept in electronic form) that the Master Servicer has
maintained for the Mortgage Loans, including all tax bills, assessment notices,
insurance premium notices and all other documents as well as all original
documents then in the Master Servicer's possession.
(f) Any collections received by the Master Servicer after
removal or resignation shall be endorsed by it to the Trustee and remitted
directly and immediately to the Trustee or the successor Master Servicer.
(g) Upon removal or resignation of the Master Servicer, the
Trustee (x) may solicit bids for a successor servicer as described below, and
(y) pending the appointment of a successor Master Servicer as a result of
soliciting such bids, shall serve as Master Servicer. The Trustee shall, if it
is unable to obtain a qualifying bid and is prevented by law from acting as
Master Servicer, appoint, or petition a court of competent jurisdiction to
appoint, any housing and home finance institution, bank or mortgage servicing
institution which has shareholders' equity of not less than $10,000,000, as
determined in accordance with generally accepted accounting principles, and
acceptable to the Certificate Insurer as the successor to the Master Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Master Servicer hereunder. The compensation of any
successor servicer (including, without limitation, the Trustee) so appointed
shall be the aggregate Servicing Fees, together with the other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in Sections 8.8 and 8.15; provided, however, that if the Trustee
acts as successor Master Servicer then the Sponsor agrees to pay to the Trustee
at such time that the Trustee becomes such successor Master Servicer a fee of
twenty-five dollars ($25.00) for each Mortgage Loan then included in the Trust
Estate. The Trustee shall be obligated to serve as successor Master Servicer
whether or not the $25.00 fee described in the preceding sentence is paid by the
Sponsor, but shall in any event be entitled to receive, and to enforce payment
of, such fee from the Sponsor.
(h) In the event the Trustee solicits bids as provided above,
the Trustee shall solicit, by public announcement, bids from housing and home
finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Master Servicer shall be entitled to the
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compensation set forth in clause (g) above. Within thirty days after any such
public announcement, the Trustee shall negotiate and effect the sale, transfer
and assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest satisfactory bid. The Trustee shall
deduct from any sum received by the Trustee from the successor to the Master
Servicer in respect of such sale, transfer and assignment all costs and expenses
of any public announcement and of any sale, transfer and assignment of the
servicing rights and responsibilities hereunder. After such deductions, the
remainder of such sum shall be paid by the Trustee to the Master Servicer at the
time of such sale, transfer and assignment to the Master Servicer's successor.
(i) The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. The Master Servicer agrees to cooperate with the Trustee and any
successor Master Servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor Master Servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Master Servicer, as applicable, all amounts which then have been or
should have been deposited in the Principal and Interest Account by the Master
Servicer or which are thereafter received with respect to the Mortgage Loans.
Neither the Trustee nor any other successor Master Servicer shall be held liable
by reason of any failure to make, or any delay in making, any distribution
hereunder or any portion thereof caused by (i) the failure of the Master
Servicer to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Master Servicer or (iii) any breaches of a predecessor Master Servicer.
(j) The Trustee or any other successor Master Servicer, upon
assuming the duties of Master Servicer hereunder, shall immediately make all
Delinquency Advances and pay all Compensating Interest which the Master Servicer
has theretofore failed to remit with respect to the Mortgage Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
shall only be required to make Delinquency Advances (including the Delinquency
Advances described in this clause (j)) if, in the Trustee's reasonable good
faith judgment, such Delinquency Advances will ultimately be recoverable from
the related Mortgage Loans.
(k) The Master Servicer which is being removed or is resigning
shall give notice to the Mortgagors and to each Rating Agency of the transfer of
the servicing to the successor.
(l) The Trustee shall give notice to the Certificate Insurer,
each Rating Agency and to the Owners of the occurrence of any event specified in
Section 8.20(a) of which the Trustee has knowledge.
(m) Notwithstanding anything herein to the contrary, upon
termination of the Master Servicer hereunder, any liabilities of the Master
Servicer which accrued prior to such termination shall survive such termination.
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SECTION 8.21. INSPECTIONS BY THE CERTIFICATE INSURER AND THE
TRUSTEE; ERRORS AND OMISSIONS INSURANCE.
(a) At any reasonable time and from time to time upon
reasonable notice, the Certificate Insurer, the Trustee, or any agents or
representatives thereof may inspect the Master Servicer's servicing operations
and discuss the servicing operations of the Master Servicer with any of its
officers or directors. The reasonable costs and expenses incurred by the Master
Servicer or its agents or representatives in connection with any such
examinations or discussions shall be paid by the Master Servicer.
(b) The Master Servicer agrees to maintain errors and
omissions coverage and a fidelity bond, each at least to the extent generally
maintained by prudent mortgage loan servicers having servicing portfolios of a
similar size.
SECTION 8.22. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS OF MASTER SERVICER.
Any corporation into which the Master Servicer 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 Master Servicer shall be a
party, or any corporation succeeding to all or substantially all of the business
of the Master Servicer, shall be the successor of the Master Servicer hereunder
upon notice to the Certificate Insurer, without the execution or filing of any
paper or any further act on the part of any of the parties hereto provided that
such corporation is a housing and home finance institution, bank or mortgage
servicing institution which has shareholders' equity of not less than
$10,000,000, as determined in accordance with generally accepted accounting
principles.
SECTION 8.23. NOTICES OF MATERIAL EVENTS.
The Master Servicer shall give prompt notice to the Certificate Insurer,
the Trustee, and each Rating Agency of the occurrence of any of the following
events:
(a) Any default or any fact or event which results, or which
with notice or the passage of time, or both, would result in the occurrence of a
default by the Sponsor, any Originator or the Master Servicer under any
Transaction Document or would constitute a material breach of a representation,
warranty or covenant under any Transaction Document;
(b) The submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Sponsor, the Master Servicer or AMHC in any federal, state or local court or
before any governmental body or agency, or before any arbitration board, or any
such proceedings threatened by any governmental agency, which, if adversely
determined, would have a material adverse effect upon any the Sponsor's, the
Master Servicer's or AMHC's ability to perform its obligations under any
Transaction Document;
(c) The commencement of any proceedings by or against the
Sponsor, the Master Servicer or AMHC under any applicable bankruptcy,
reorganization, liquidation, insolvency or other similar law now or hereafter in
effect or of any proceeding in which a receiver, liquidator, trustee or other
similar official shall have been, or may be, appointed or requested for the
Sponsor, the Master Servicer or AMHC; and
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(d) The receipt of notice from any agency or governmental body
having authority over the conduct of any of the Sponsor's the Master Servicer's
or the AMHC's business that the Sponsor, the Master Servicer or AMHC is to cease
and desist, or to undertake any practice, program, procedure or policy employed
by the Sponsor, the Master Servicer or AMHC in the conduct of the business of
any of them, and such cessation or undertaking will materially adversely affect
the conduct of the Sponsor's, the Master Servicer's or AMHC's business or its
ability to perform under the Transaction Documents or materially adversely
affect the financial affairs of the Sponsor, the Master Servicer or AMHC.
ARTICLE IX
TERMINATION OF TRUST
SECTION 9.1. TERMINATION OF TRUST.
The Trust created hereunder and all obligations created by this Agreement will
terminate upon the earlier of (i) the payment to the Owners of all Certificates
from amounts other than those available under the Certificate Insurance Policy
of all amounts held by the Trustee and required to be paid to such Owners
pursuant to this Agreement upon the later to occur of (a) the final payment or
other liquidation (or any advance made with respect thereto) of the last
Mortgage Loan in the Trust Estate or (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate, (ii) at
any time when a Qualified Liquidation of the REMIC Trust is effected as
described below or (iii) as described in Section 9.2 or 9.3 hereof. To effect a
termination of this Agreement pursuant to clause (ii) above, the Owners of all
Certificates then Outstanding shall (x) unanimously direct the Trustee on behalf
of the Lower-Tier REMIC and the Upper-Tier REMIC to adopt a plan of complete
liquidation with respect to each of the Mortgage Loan Groups as contemplated by
Section 860F(a)(4) of the Code and (y) provide to the Trustee an opinion of
counsel experienced in federal income tax matters to the effect that such
liquidation constitutes a Qualified Liquidation, and the Trustee either shall
sell the Mortgage Loans and distribute the proceeds of the liquidation of the
Trust Estate, or shall distribute equitably in kind all of the assets of the
Trust Estate to the remaining Owners of the Certificates based on their
interests in the Trust, and distribute to the Certificate Insurer any amounts
owed under the Insurance Agreement and return the Certificate Insurance Policy
to the Certificate Insurer, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of this Agreement occur no later
than the close of the 90th day after the date of adoption of the plan of
liquidation and such liquidation qualifies as a Qualified Liquidation. In no
event, however, will the Trust created by this Agreement continue beyond the
expiration of twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the United Kingdom, living on the date hereof. The Trustee shall give written
notice of termination of the Agreement to each Owner in the manner set forth in
Section 11.5.
SECTION 9.2. CLEAN-UP CALL TERMINATION.
(a) On any Remittance Date on or after the Initial Clean-Up
Call Date, either the Owners of a majority in Percentage Interest of the
[Residual Class] Certificates (the "Redeeming Owners") or the Master Servicer,
acting directly or through one or more of their respective affiliates or, if the
Redeeming Owners or the Master Servicer or their affiliates do not so elect
after having given notice to the Certificate Insurer, the Certificate Insurer
(the Redeeming Owners, the Master Servicer or its affiliates, or the Certificate
Insurer, the "Redeeming Party"),
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may determine to purchase and may cause the purchase from the Trust of all (but
not fewer than all) Mortgage Loans in the Trust Estate and all property
theretofore acquired in respect of any such Mortgage Loan by foreclosure, deed
in lieu of foreclosure, or otherwise then remaining in the Trust Estate at a
price equal to the sum of (v) the greater of (i) 100% of the aggregate Loan
Balances of all of the Mortgage Loans as of the day of purchase minus the amount
actually remitted by the Master Servicer representing the related Monthly
Principal Remittance Amount on such Remittance Date for the related Remittance
Period and (ii) the fair market value of such Mortgage Loans (disregarding
accrued interest), (w) if the Master Servicer is the Redeeming Party, the amount
of any difference between the related Monthly Interest Remittance Amount
actually remitted by the Master Servicer on such Remittance Date and the related
Monthly Interest Remittance Amount due on such Remittance Date, (x) the related
Reimbursement Amount, if any, and (y) if the Master Servicer is the Redeeming
Party, the aggregate amount of any Delinquency Advances and Servicing Advances
remaining unreimbursed, together with any accrued and unpaid Servicing Fees, as
of such Remittance Date (such amount, the "Termination Price"). In connection
with such purchase, the Redeeming Party shall remit to the Trustee all amounts
then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase. Notwithstanding the foregoing, the Redeeming Party may
not terminate the Trust pursuant to this Section 9.2 without the consent of the
Certificate Insurer, if termination would result in a draw on the Certificate
Insurance Policy.
(b) In connection with any such purchase, the Redeeming Party
shall provide to the Trustee an opinion of counsel experienced in federal income
tax matters to the effect that such purchase constitutes a Qualified Liquidation
of the Lower-Tier REMIC and Upper-Tier REMIC.
(c) Promptly following any such purchase, the Trustee will
release the Files to the Redeeming Party, or otherwise upon their order, in a
manner similar to that described in Section 8.14 hereof.
(d) Upon such purchase, the Certificate Insurance Policy will
terminate and shall be returned to the Certificate Insurer.
SECTION 9.3. TERMINATION UPON LOSS OF REMIC STATUS.
(a) Following a (x) final determination by the Internal
Revenue Service, or by a court of competent jurisdiction, in either case from
which no appeal is taken within the permitted time for such appeal, or (y) if
any appeal is taken, following a final determination of such appeal from which
no further appeal can be taken, to the effect that either the Upper-Tier REMIC
or Lower-Tier REMIC do not and will no longer qualify as a "REMIC" pursuant to
Section 860D of the Code (the "Final Determination") or (z) following the
delivery of an opinion of counsel ("REMIC Opinion") to the effect that the
effect of the Final Determination is to increase substantially the probability
that either the Upper-Tier REMIC or Lower-Tier REMIC will no longer qualify as a
"REMIC" pursuant to Section 860D of the Code, on any Remittance Date on or after
the date which is 30 calendar days following such Final Determination, the
Certificate Insurer, or if Certificate Insurer Default has occurred and is
continuing, the Owners of a majority in Percentage Interest represented by the
Class [A] Certificates then Outstanding may direct the Trustee to adopt a plan
of complete liquidation with respect to the Trust Estate. In connection with
such purchase, the Master Servicer shall remit to the Trustee all amounts then
on deposit in the Principal and Interest Account for deposit in the Certificate
Account, which deposit shall be deemed to have occurred immediately preceding
such purchase.
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(b) Upon receipt of such direction from the Certificate
Insurer or the Owners of such Class [A] Certificates, as applicable, the Trustee
shall notify the Master Servicer and holders of the [Residual Class]
Certificates of such election to liquidate or such determination to purchase, as
the case may be, (the "Termination Notice"). The Master Servicer or Owner of a
majority of the Percentage Interest of the [Residual Class] Certificates then
Outstanding acting directly or through one or more of their affiliates may, on
any Remittance Date, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all (but not fewer than all) Mortgage Loans in the Trust Estate, and all
property theretofore acquired by foreclosure, deed in lieu of foreclosure, or
otherwise in respect of any Mortgage Loan then remaining in the Trust Estate at
a purchase price equal to the Termination Price.
(c) If, during the Purchase Option Period, the Master Servicer
or the Owners of the Class R Certificates have not exercised the option
described in the immediately preceding paragraph, then upon the expiration of
the Purchase Option Period in the event that the Owners of the Class [A]
Certificates have given the Trustee the direction described in clause (a)(i)
above, the Trustee shall (with the prior consent of the Certificate Insurer, so
long as no Certificate Insurer Default has occurred and is continuing) sell the
Mortgage Loans and distribute the proceeds of the liquidation of the Trust
Estate, such that, if so directed, the liquidation of the Trust Estate, the
distribution of the proceeds of such liquidation occur no later than the close
of the 60th day, or such later day as the Owner of a majority of the Percentage
Interest of the Class [A] Certificates shall permit or direct in writing, after
the expiration of the Purchase Option Period.
(d) Following a Final Determination, the Owners of a majority
of the Percentage Interest of the [Residual Class] Certificates then Outstanding
may, at their option on any Remittance Date and upon delivery to the Owners of
the Class [A] Certificates and the Trustee of an opinion of counsel experienced
in federal income tax matters selected by the Owners of a majority of the
Percentage Interest of such [Residual Class] Certificates which opinion shall be
reasonably satisfactory in form and substance to a majority of the Percentage
Interests represented by the Class [A] Certificates then Outstanding and the
Trustee, to the effect that the effect of the Final Determination is to increase
substantially the probability that the gross income of either the Upper-Tier
REMIC or Lower-Tier REMIC will be subject to federal taxation, purchase from the
Trust all (but not fewer than all) Mortgage Loans in the Trust Estate, and all
property theretofore acquired by foreclosure, deed in lieu of foreclosure, or
otherwise in respect of any Mortgage Loan then remaining in the Trust Estate at
a purchase price equal to the Termination Price. In connection with such
purchase, the Master Servicer shall remit to the Trustee all amounts then on
deposit in the Principal and Interest Account for deposit to the Certificate
Account, which deposit shall be deemed to have occurred immediately preceding
such purchase. The foregoing opinion shall be deemed satisfactory unless the
Owners of a majority of the Percentage Interest represented by the Class [A]
Certificates then Outstanding or the Trustee give the Owners of a majority of
the Percentage Interest of the [Residual Class] Certificates notice that such
opinion is not satisfactory within thirty days after receipt of such opinion.
SECTION 9.4. DISPOSITION OF PROCEEDS.
The Trustee shall, upon receipt thereof, deposit the proceeds of any liquidation
of the Trust Estate pursuant to this Article IX to the Certificate Account;
provided, however, that any amounts representing Servicing Fees, unreimbursed
Delinquency Advances or unreimbursed Servicing Advances theretofore funded by
the Master Servicer from the Master Servicer's own funds shall be paid by the
Trustee to the Master Servicer.
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SECTION 9.5. NETTING OF AMOUNTS.
If any Person paying the Termination Price would receive a portion of the
amount so paid, such Person may net any such amount against the Termination
Price otherwise payable.
ARTICLE X
THE TRUSTEE
SECTION 10.1. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee (i) undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Trustee
and (ii) in the absence of bad faith on its part, may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished pursuant to and conforming to
the requirements of this Agreement; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be furnished
to the Trustee, shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Agreement.
(b) Notwithstanding the appointment of the Master Servicer
hereunder, the Trustee is hereby empowered to perform the duties of the Master
Servicer hereunder whether following the failure of the Master Servicer to
perform, pursuant to Section 8.20 hereof or otherwise. Specifically, and not in
limitation of the foregoing, the Trustee shall have the power:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Mortgage Loans;
(iii) to enforce due-on-sale clauses and to enter into
assumption and substitution agreements as permitted by Section 8.12
hereof;
(iv) to deliver instruments of satisfaction pursuant to
Section 8.14;
(v) to make Delinquency Advances and Servicing Advances and to
pay Compensating Interest, and
(vi) to enforce the Mortgage Loans.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the effect
of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by an Authorized Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
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(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Certificate Insurer or of the Owners of a
majority in Percentage Interest of the Certificates of the affected
Class or Classes and the Certificate Insurer relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement relating to such Certificates.
(d) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
(e) No provision of this Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(f) The permissive right of the Trustee to take actions
enumerated in this Agreement shall not be construed as a duty and the Trustee
shall not be answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any
suit, or to take any remedial proceeding under this Agreement, or to take any
steps in the execution of the trusts hereby created or in the enforcement of any
rights and powers hereunder until it shall be indemnified to its satisfaction
against any and all costs and expenses, outlays and counsel fees and other
reasonable disbursements and against all liability, except liability which is
adjudicated to have resulted from its negligence or willful misconduct, in
connection with any action so taken. The Trustee shall receive from the Sponsor
promptly upon demand therefor, reimbursement of expenses as are described in the
fee quote letter, dated [__________, _____] and executed by the Sponsor.
SECTION 10.2. REMOVAL OF TRUSTEE FOR CAUSE.
(a) The Trustee may be removed pursuant to paragraph (b)
hereof upon the occurrence of any of the following events (whatever the reason
for such event and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(A) the Trustee shall fail to distribute to the
Owners entitled thereto on any Payment Date amounts available
for distribution in accordance with the terms hereof; or
(B) the Trustee shall fail in the performance of, or
breach, any covenant or agreement of the Trustee in this
Agreement, or if any representation or warranty of the Trustee
made in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith shall
prove to be incorrect in any material respect as of the time
when the same shall have been made, and such failure or breach
shall continue or not be cured for a period of 30 days after
there shall have been given, by registered or certified mail,
to the
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Trustee by the Sponsor, the Certificate Insurer or by the
Owners of at least 25% of the aggregate Percentage Interests
represented by the Class [A] Certificates then Outstanding a
written notice specifying such failure or breach and requiring
it to be remedied; or
(C) a decree or order of a court or agency or
supervisory authority having jurisdiction for the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Trustee, and
such decree or order shall have remained in force undischarged
or unstayed for a period of 75 days; or
(D) a conservator or receiver or liquidator or
sequestrator or custodian of the property of the Trustee is
appointed in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or
relating to the Trustee or relating to all or substantially
all of its property; or
(E) the Trustee shall become insolvent (however
insolvency is evidenced), generally fail to pay its debts as
they come due, file or consent to the filing of a petition to
take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors,
voluntarily suspend payment of its obligations, or take
corporate action for the purpose of any of the foregoing.
The Sponsor shall give to the Certificate Insurer and each
Rating Agency notice of the occurrence of any such event of which the Sponsor is
aware.
(b) If any event described in Paragraph (a) occurs and is
continuing, then and in every such case (i) the Certificate Insurer or (ii) with
the prior written consent (which shall not be unreasonably withheld) of the
Certificate Insurer (x) the Sponsor or (y) the Owners of a majority of the
Percentage Interests represented by the Class [A] Certificates, or, if there are
no Class [A] Certificates then Outstanding, by such Percentage Interest
represented by any Class of [Residual Class] Certificates then Outstanding may,
whether or not the Trustee resigns pursuant to Section 10.9 hereof, immediately,
concurrently with the giving of notice to the Trustee, and without delaying the
30 days required for notice therein, appoint a successor Trustee pursuant to the
terms of Section 10.9 hereof.
SECTION 10.3. CERTAIN RIGHTS OF THE TRUSTEE.
Except as otherwise provided in Section 10.1 hereof:
(a) the Trustee may request and rely upon and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, note or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request or direction of the Sponsor, the Certificate
Insurer or the Owners of any Class of Certificates mentioned herein shall be
sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action
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hereunder, the Trustee (unless other evidence be herein specifically prescribed)
may, in the absence of bad faith on its part, rely upon an Officer's
Certificate;
(d) the Trustee may consult with counsel, and the written
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement at the request or
direction of any of the Owners pursuant to this Agreement, unless such Owners
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
note or other paper or document, but the Trustee in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed and supervised with
due care by it hereunder; and
(h) the Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person or within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication of the
Certificates.
SECTION 10.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
CERTIFICATES.
The recitals contained herein and in the Certificates, except any such
recitals relating to the Trustee, shall be taken as the statements of the
Sponsor and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representation as to the validity or sufficiency of this
Agreement or of the Certificates other than as to validity and sufficiency of
its authentication of the Certificates.
SECTION 10.5. MAY HOLD CERTIFICATES.
The Trustee or any agent of the Trust, in its individual or any other
capacity, may become an Owner or pledgee of Certificates and may otherwise deal
with the Trust with the same rights it would have if it were not Trustee or such
agent.
SECTION 10.6. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from other
trust funds except to the extent required herein or required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Sponsor and except to the extent of income
or other gain on investments which are deposits in or certificates of deposit of
the Trustee in its commercial capacity and income or other gain actually
received by the Trustee on Eligible Investments.
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SECTION 10.7. NO LIEN FOR FEES.
The Trustee shall have no lien on the Trust Estate for the payment of any fees
and expenses.
SECTION 10.8. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a corporation
or association organized and doing business under the laws of the United States
of America or of any State authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $100,000,000,
subject to supervision or examination by the United States of America or any
such State having a rating or ratings acceptable to the Certificate Insurer or,
if the last sentence of Section 11.18 hereof is applicable, the Sponsor and
having (x) long-term, unsecured debt rated at least A-1 by Moody's (or such
lower rating as may be acceptable to Moody's) and (y) a short-term deposit
rating of at least A-1 from Standard & Poor's (or such lower rating as may be
acceptable to Standard & Poor's). If such Trustee publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation or association shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall, upon the request of
the Sponsor (with the consent of the Certificate Insurer) (which consent shall
not be unreasonably withheld) or of the Certificate Insurer, resign immediately
in the manner and with the effect hereinafter specified in this Article X.
SECTION 10.9. RESIGNATION AND REMOVAL; APPOINTMENT OF
SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor trustee pursuant to this Article X shall become
effective until the acceptance of appointment by the successor trustee under
Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may resign at any time by giving written notice of resignation to the
Sponsor and by mailing notice of resignation by first-class Mail, postage
prepaid, to the Certificate Insurer and the Owners at their addresses appearing
on the Register. A copy of such notice shall be sent by the resigning Trustee to
each Rating Agency. Upon receiving notice of resignation, the Sponsor shall
promptly appoint a successor trustee or trustees by written instrument, in
duplicate, executed on behalf of the Trust by an Authorized Officer of the
Sponsor, one copy of which instrument shall be delivered to the Trustee so
resigning and one copy to the successor trustee or trustees. If no successor
trustee shall have been appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Owner may, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible
under Section 10.8 hereof and shall fail to resign after written request
therefor by the Sponsor or by the Certificate Insurer, the Certificate Insurer
or the Sponsor (with the written consent of the Certificate Insurer) may remove
the Trustee and appoint a successor trustee by written instrument, in duplicate,
executed on behalf of the Trust by an Authorized Officer of the Sponsor, one
copy of which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee.
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(d) The Owners of a majority of the Percentage Interests
represented by the Class [A] Certificates, or, if there are no Class [A]
Certificates then Outstanding, by such majority of the Percentage Interests
represented by [Residual Class] Certificates then Outstanding may at any time,
with the prior written consent of the Certificate Insurer, remove the Trustee
and appoint a successor trustee by delivering to the Trustee to be removed, to
the successor trustee so appointed, to the Sponsor and to the Certificate
Insurer, copies of the record of the act taken by the Owners, as provided for in
Section 11.3 hereof.
(e) If the Trustee fails to perform its duties in accordance
with the terms of this Agreement or becomes ineligible to serve as Trustee, the
Certificate Insurer or, if the last sentence of Section 11.18 hereof is
applicable, the Sponsor may remove the Trustee and appoint a successor trustee
by written instrument, in triplicate, signed by the Certificate Insurer and the
Sponsor duly authorized, one complete set of which instruments shall be
delivered to the Sponsor, one complete set to the Certificate Insurer, one
complete set to the Trustee so removed and one complete set to the successor
Trustee so appointed.
(f) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Trustee
for any cause, the Sponsor shall promptly appoint a successor Trustee acceptable
to the Certificate Insurer. If within one year after such resignation, removal
or incapability or the occurrence of such vacancy, a successor Trustee shall be
appointed by act of the Owners of a majority of the Percentage Interests
represented by the Class [A] Certificates then Outstanding or, if there are no
Class [A] Certificates then Outstanding, by such majority of the Percentage
Interest of the [Residual Class] Certificates delivered to the Sponsor and the
retiring Trustee, the successor Trustee so appointed shall forthwith upon its
acceptance of such appointment become the successor Trustee and supersede the
successor Trustee appointed by the Sponsor. If no successor Trustee shall have
been so appointed by the Sponsor or the Owners and shall have accepted
appointment in the manner hereinafter provided, any Owner may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor Trustee.
(g) The Sponsor shall give notice of any removal of the
Trustee by mailing notice of such event by first-class mail, postage prepaid, to
the Certificate Insurer and to the Owners as their names and addresses appear in
the Register. Each notice shall include the name of the successor Trustee and
the address of its corporate trust office.
SECTION 10.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Sponsor on behalf of the Trust and to its predecessor Trustee an
instrument accepting such appointment hereunder and stating its eligibility to
serve as Trustee hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts, duties and obligations of its predecessor hereunder; but, on
request of the Sponsor or the successor Trustee, such predecessor Trustee shall,
upon payment of its charges then unpaid, execute and deliver an instrument
transferring to such successor Trustee all of the rights, powers and trusts of
the Trustee so ceasing to act, and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such Trustee so ceasing to
act hereunder. Upon request of any such successor Trustee, the Sponsor on behalf
of the Trust shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
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Upon acceptance of appointment by a successor Trustee as
provided in this Section, the Sponsor shall mail notice thereof by first-class
mail, postage prepaid, to the Owners at their last addresses appearing upon the
Register. The Sponsor shall send a copy of such notice to each of the Rating
Agencies and the Certificate Insurer. If the Sponsor fails to mail such notice
within ten days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the
Trust.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor shall be qualified and eligible under
this Article X.
SECTION 10.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS OF THE TRUSTEE.
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided, however,
that such corporation or association shall be otherwise qualified and eligible
under this Article X. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such Trustee may adopt such execution and deliver the
Certificates so executed with the same effect as if such successor Trustee had
itself executed such Certificates.
SECTION 10.12. REPORTING; WITHHOLDING.
With respect to each of the REMIC Trusts and the Non-REMIC Estate, the Trustee
shall timely provide to the Owners (or other Persons entitled thereto) the
Internal Revenue Service's Form 1099 and any other statement required by
applicable Treasury regulations or analogous provisions of state or local law as
determined by the Sponsor, and shall withhold, as required by applicable law,
federal, state or local taxes, if any, applicable to distributions to the
Owners, including, but not limited to, backup withholding under Section 3406 of
the Code, the withholding tax on distributions to foreign investors under
Sections 1441 and 1442 of the Code and beginning after [__________, _____],
shall report as effectively connected income distributions with respect to
Supplemental Interest Rights held by foreign holders if such holders have not
provided certification that such distributions are not effectively connected
income.
SECTION 10.13. LIABILITY OF THE TRUSTEE.
The Trustee shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by the Trustee herein.
Neither the Trustee nor any of the directors, officers, employees or agents of
the Trustee shall be under any liability on any Certificate or otherwise to any
Account, the Sponsor, the Master Servicer or any Owner for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Trustee or any such Person against any liability which
would otherwise be imposed by reason of negligent action, negligent failure to
act or bad faith in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. Subject to the foregoing sentence, the
Trustee shall not be liable for losses on investments of amounts in any Account
(except for any losses on obligations on which the bank serving as Trustee is
the obligor and is otherwise liable).
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In addition, the Sponsor and Master Servicer covenant and agree to indemnify the
Trustee, and its officers, directors, employees and agents, including, without
limitation, when the Trustee is acting as Master Servicer, and hold it harmless
against, any and all losses, liabilities, damages, claims or expenses (including
legal fees and expenses) other than those resulting from the negligence or bad
faith of the Trustee. The indemnification provided in this Section 10.13 shall
survive the termination of this Agreement or the resignation or removal of the
Trustee hereunder. The Trustee and any director, officer, employee or agent of
the Trustee may rely and shall be protected in acting or refraining from acting
in good faith on any certificate, notice or other document of any kind prima
facie properly executed and submitted by the Authorized Officer of any Person
respecting any matters arising hereunder.
SECTION 10.14. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Estate or Property may at the time be located, the Master Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
and the Certificate Insurer to act as co-Trustee or co-Trustees, jointly with
the Trustee, of all or any part of the Trust Estate or separate Trustee or
separate Trustees of any part of the Trust Estate, and to vest in such Person or
Persons, in such capacity and for the benefit of the Owners, such title to the
Trust Estate, or any part thereof, and, subject to the other provisions of this
Section 10.14, such powers, duties, obligations, rights and trusts as the Master
Servicer and the Trustee may consider necessary or desirable. If the Master
Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request so to do, or in the case any event indicated in
Sections 8.20(a) or 8.20(b) shall have occurred and be continuing, the Trustee
alone shall have the power to make such appointment with the consent of the
Certificate Insurer. No co-Trustee or separate Trustee hereunder shall be
required to meet the terms of eligibility as a successor Trustee under Section
10.8 and no notice to Owner of the appointment of any co-Trustee or separate
Trustee shall be required under Section 10.8.
Every separate Trustee and co-Trustee shall, to the extent
permitted, be appointed and act subject to the following provisions and
conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate Trustee or
co-Trustee jointly (it being understood that such separate Trustee or
co-Trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Master Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate Trustee or co-Trustee, but solely at
the direction of the Trustee;
(ii) No co-Trustee hereunder shall be held personally liable
by reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Master Servicer and the Trustee acting jointly may
at any time accept the resignation of or remove any separate Trustee or
co-Trustee.
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Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate Trustees and
co-Trustees, as effectively as if given to each of them. Every instrument
appointing any separate Trustee or co-Trustee shall refer to this Agreement and
the conditions of this Section 10.14. Each separate Trustee and co-Trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee and a
copy thereof given to the Master Servicer.
Any separate Trustee or co-Trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate Trustee
or co-Trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor Trustee.
The Trustee shall give to the Rating Agencies, the Sponsor and
the Certificate Insurer notice of the appointment of any Co-Trustee or separate
Trustee.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Sponsor, the Certificate Insurer or the
Owners to the Trustee to take any action under any provision of this Agreement,
the Sponsor, the Certificate Insurer or the Owners, as the case may be, shall
furnish to the Trustee a certificate stating that all conditions precedent, if
any, provided for in this Agreement relating to the proposed action have been
complied with, except that in the case of any such application or request as to
which the furnishing of any documents is specifically required by any provision
of this Agreement relating to such particular application or request, no
additional certificate need be furnished.
Except as otherwise specifically provided herein, each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Agreement shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 11.2. FORM OF DOCUMENTS DELIVERED TO THE TRUSTEE.
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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 of an Authorized Officer of the Trustee may be
based, insofar as it relates to legal matters, upon an opinion of counsel,
unless such Authorized Officer knows, or in the exercise of reasonable care
should know, that the opinion is erroneous. Any such certificate of an
Authorized Officer of the Trustee or any opinion of counsel may be based,
insofar as it relates to factual matter upon a certificate or opinion of, or
representations by, one or more Authorized Officers of the Sponsor or of the
Master Servicer, stating that the information with respect to such factual
matters is in the possession of the Sponsor or of the Master Servicer, unless
such Authorized Officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Any opinion of counsel may also be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Authorized Officer of the Trustee, stating that the
information with respect to such matters is in the possession of the Trustee,
unless such counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Any opinion of counsel may be based on the written opinion of
other counsel, in which event such opinion of counsel shall be accompanied by a
copy of such other counsel's opinion and shall include a statement to the effect
that such counsel believes that such counsel and the Trustee may reasonably rely
upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
SECTION 11.3. ACTS OF OWNERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by the Owners may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Owners in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee, and, where it is hereby expressly required, to the Sponsor
and/or the Certificate Insurer. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"act" of the Owners signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee and the Trust, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
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(c) The ownership of Certificates shall be proved by the
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Owner of any Certificate shall bind the
Owner of every Certificate issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
SECTION 11.4. NOTICES, ETC., TO TRUSTEE.
Any request, demand, authorization, direction, notice, consent, waiver or act
of the Owners or other documents provided or permitted by this Agreement to be
made upon, given or furnished to, or filed with the Trustee by any Owner, the
Certificate Insurer or by the Sponsor shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with and received
by the Trustee at its corporate trust office as set forth in Section 2.2 hereof.
SECTION 11.5. NOTICES AND REPORTS TO OWNERS; WAIVER OF
NOTICES.
Where this Agreement provides for notice to Owners of any event or the mailing
of any report to Owners, such notice or report shall be sufficiently given
(unless otherwise herein expressly provided) if mailed, first-class postage
prepaid, to each Owner affected by such event or to whom such report is required
to be mailed, at the address of such Owner as it appears on the Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice or the mailing of such report. In any case where a
notice or report to Owners is mailed in the manner provided above, neither the
failure to mail such notice or report nor any defect in any notice or report so
mailed to any particular Owner shall affect the sufficiency of such notice or
report with respect to other Owners, and any notice or report which is mailed in
the manner herein provided shall be conclusively presumed to have been duly
given or provided.
Where this Agreement provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Owners shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Owners when such notice is required
to be given pursuant to any provision of this Agreement, then any manner of
giving such notice as shall be satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency
that rated any Certificates, failure to give such notice shall not affect any
other rights or obligations created hereunder.
SECTION 11.6. RULES BY TRUSTEE AND SPONSOR.
The Trustee may make reasonable rules for any meeting of Owners. The Sponsor
may make reasonable rules and set reasonable requirements for its functions.
SECTION 11.7. SUCCESSORS AND ASSIGNS.
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All covenants and agreements in this Agreement by any party hereto shall bind
its successors and assigns, whether so expressed or not.
SECTION 11.8. SEVERABILITY.
In case any provision in this Agreement or in the Certificates shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.9. BENEFITS OF AGREEMENT.
Nothing in this Agreement or in the Certificates, expressed or implied, shall
give to any Person, other than the Owners, the Certificate Insurer and the
parties hereto and their successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
SECTION 11.10. LEGAL HOLIDAYS.
In any case where the date of any Payment Date, any other date on which any
distribution to any Owner is proposed to be paid, or any date on which a notice
is required to be sent to any Person pursuant to the terms of this Agreement
shall not be a Business Day, then (notwithstanding any other provision of the
Certificates or this Agreement) payment or mailing need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made or mailed on the nominal date of any such Payment Date, or
such other date for the payment of any distribution to any Owner or the mailing
of such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
SECTION 11.11. GOVERNING LAW.
In view of the fact that Owners are expected to reside in many states and
outside the United States and the desire to establish with certainty that this
Agreement will be governed by and construed and interpreted in accordance with
the law of a state having a well-developed body of commercial and financial law
relevant to transactions of the type contemplated herein, this Agreement and
each Certificate shall be construed in accordance with and governed by the laws
of the State of New York applicable to agreements made and to be performed
therein.
SECTION 11.12. COUNTERPARTS.
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.13. USURY.
The amount of interest payable or paid on any Certificate under the terms of
this Agreement shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the State of New
York or any applicable law of the United States permitting a higher maximum
nonusurious rate that preempts such applicable New York laws, which could
lawfully be contracted for, charged or received (the "Highest Lawful Rate"). In
the event any payment of interest on any Certificate exceeds the Highest Lawful
Rate, the Trust stipulates that such excess amount will be deemed to have been
paid to the Owner of such
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Certificate as a result of an error on the part of the Trustee acting on behalf
of the Trust and the Owner receiving such excess payment shall promptly, upon
discovery of such error or upon notice thereof from the Trustee on behalf of the
Trust, refund the amount of such excess or, at the option of such Owner, apply
the excess to the payment of principal of such Certificate, if any, remaining
unpaid. In addition, all sums paid or agreed to be paid to the Trustee for the
benefit of Owners of Certificates for the use, forbearance or detention of money
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such Certificates.
SECTION 11.14. AMENDMENT.
(a) The Trustee, the Sponsor and the Master Servicer, may at
any time and from time to time, with the prior written consent of the
Certificate Insurer but without the giving of notice to or the receipt of the
consent of the Owners, amend this Agreement, and the Trustee shall consent to
such amendment, for the purpose of (i) curing any ambiguity, or correcting or
supplementing any provision hereof which may be inconsistent with any other
provision hereof, or to add provisions hereto which are not inconsistent with
the provisions hereof, (ii) upon receipt of an opinion of counsel experienced in
federal income tax matters to the effect that no entity-level tax will be
imposed on the Upper-Tier REMIC or the Lower-Tier REMIC or upon the transferor
of a [Residual Class] Certificate as a result of the ownership of any [Residual
Class] Certificate by a Disqualified Organization, removing the restriction on
transfer set forth in Section 5.8(b) hereof or (iii) complying with the
requirements of the Code and the regulations proposed or promulgated thereunder;
provided, however, that any such action shall not, as evidenced by an opinion of
counsel delivered to the Trustee, materially and adversely affect the interests
of any Owner (without its written consent).
(b) The Trustee, the Sponsor and the Master Servicer may, at
any time and from time to time, with the prior written consent of the
Certificate Insurer but without the giving of notice to or the receipt of the
consent of the Owners, amend this Agreement, and the Trustee shall consent to
such amendment, for the purpose of changing the definitions of "Group I
Specified Overcollateralization Amount," and "Group II Specified
Overcollateralization Amount"; provided, however, that no such change shall
affect the weighted average life of the related Class of Class [A] Certificates
(assuming an appropriate prepayment speed as determined by the Representative)
by more than five percent, as determined by the Representative.
(c) This Agreement may also be amended by the Trustee, the
Sponsor, and the Master Servicer at any time and from time to time, with the
prior written approval of the Certificate Insurer and not less than a majority
of the Percentage Interest represented by each affected Class of Certificates
then Outstanding, for the purpose of adding any provisions or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in
any manner the rights of the Owners hereunder; provided, however, that no such
amendment shall (a) change in any manner the amount of, or change the timing of,
payments which are required to be distributed to any Owner without the consent
of the Owner of such Certificate, (b) change or reduce the aforesaid percentages
of Percentage Interests which are required to consent to any such amendments or
(c) result in a down-rating or withdrawal of any ratings then assigned to the
Class [A] Certificates, without the consent of the Owners of all Certificates of
the Class or Classes affected then Outstanding.
(d) Each proposed amendment to this Agreement shall be
accompanied by an opinion of counsel nationally recognized in federal income tax
matters addressed to the Trustee and to the Certificate Insurer to the effect
that such amendment would not adversely
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affect the status of either the Upper-Tier REMIC or Lower-Tier REMIC as a REMIC.
Neither such opinion of counsel nor any expense of any such proposed amendment
shall be at the Trustee's expense.
(e) The Certificate Insurer, the Owners and each Rating Agency
shall be provided with copies of any amendments to this Agreement, together with
copies of any opinions or other documents or instruments executed in connection
therewith.
SECTION 11.15. REMIC STATUS; TAXES.
(a) The Tax Matters Person shall prepare and file or cause to
be filed with the Internal Revenue Service federal tax or information returns
with respect to the Upper-Tier REMIC and Lower-Tier REMIC and the Certificates
containing such information and at the times and in such manner as may be
required by the Code or applicable Treasury regulations, and shall furnish to
Owners such statements or information at the times and in such manner as may be
required thereby. For this purpose, the Tax Matters Person may, but need not,
rely on any proposed regulations of the United States Department of the
Treasury. The Tax Matters Person shall indicate the election to treat each of
the Upper-Tier REMIC and Lower-Tier REMIC as a REMIC (which election shall apply
to the taxable period ending [__________, _____] and each calendar year
thereafter) in such manner as the Code or applicable Treasury regulations may
prescribe. The Trustee, as Tax Matters Person appointed pursuant to Section
11.17 hereof shall sign all tax information returns filed pursuant to this
Section 11.15. The Tax Matters Person shall provide information necessary for
the computation of tax imposed on the transfer of a [Residual Class] Certificate
to a Disqualified Organization, or an agent of a Disqualified Organization, or a
pass-through entity in which a Disqualified Organization is the record holder of
an interest. The Tax Matters Person shall provide the Trustee with copies of any
Federal tax or information returns filed, or caused to be filed, by the Tax
Matters Person with respect to the REMIC Trust or the Certificates.
(b) The Tax Matters Person shall timely file all reports
required to be filed by the Trust with any federal, state or local governmental
authority having jurisdiction over the Trust, including other reports that must
be filed with the Owners, such as the Internal Revenue Service's Form 1066 and
Schedule Q and the form required under Section 6050K of the Code, if applicable
to REMICs. The Trustee shall be liable to the Master Servicer and the Sponsor
for any penalties or interest as a result of its negligence with respect to such
filings. Furthermore, the Tax Matters Person shall report to Owners, if
required, with respect to the allocation of expenses pursuant to Section 212 of
the Code in accordance with the specific instructions to the Tax Matters Person
by the Sponsor with respect to such allocation of expenses. The Tax Matters
Person shall collect any forms or reports from the Owners determined by the
Sponsor to be required under applicable federal, state and local tax laws. The
Trustee shall provide copies of all filings to the Master Servicer within 15
days of the required date of such filing. In addition, the Trustee agrees not to
file more than one extension per required filing without prior consultation
with, and the consent of, the Master Servicer. Further, the Trustee shall
provide to the Sponsor and the Master Servicer access to any documentation
regarding its tax reporting duties hereunder as well as providing access to the
Trustee's officers and personnel in order to discuss the methodology and
preparation of any filings or returns hereunder. Such access shall be provided
to the Master Servicer and the Sponsor without cost or charge.
(c) The Tax Matters Person shall provide to the Internal
Revenue Service and to persons described in Section 860E(e)(3) and (6) of the
Code the information described in Treasury Regulation Section
1.860D-1(b)(5)(ii), or any successor regulation thereto. Such
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information will be provided in the manner described in Treasury Regulation
Section 1.860E-2(a)(5), or any successor regulation thereto.
(d) The Sponsor covenants and agrees that within ten Business
Days after receiving a written request from the Trustee it shall provide to the
Trustee any information necessary to enable the Trustee to meet its obligations
under subsections (b) and (c) above.
(e) The Trustee, the Sponsor and the Master Servicer each
covenants and agrees for the benefit of the Owners (i) to take no action which
would result in the termination of "REMIC" status for the Upper-Tier REMIC and
Lower-Tier REMIC, (ii) not to engage in any "prohibited transaction", as such
term is defined in Section 860F(a)(2) of the Code and (iii) not to engage in any
other action which may result in the imposition on the Upper-Tier REMIC and
Lower-Tier REMIC of any other taxes under the Code.
(f) The Upper-Tier REMIC and Lower-Tier REMIC shall, for
federal income tax purposes, maintain books on a calendar year basis and report
income on an accrual basis.
(g) Except as otherwise permitted by Section 7.6(b), no
Eligible Investment shall be sold prior to its stated maturity (unless sold
pursuant to a plan of liquidation in accordance with Article IX hereof).
(h) Neither the Sponsor nor the Trustee shall enter into any
arrangement by which the Trustee will receive a fee or other compensation for
services rendered pursuant to this Agreement, which fee or other compensation is
paid from the Trust Estate, other than as expressly contemplated by this
Agreement.
(i) Notwithstanding the foregoing clauses (g) and (h), the
Trustee or the Sponsor may engage in any of the transactions prohibited by such
clauses, provided that the Trustee shall have received the prior written consent
of the Certificate Insurer and an opinion of counsel experienced in federal
income tax matters to the effect that such transaction does not result in a tax
imposed on the Trustee or cause a termination of REMIC status for either the
Upper-Tier REMIC or Lower-Tier REMIC; provided, however, that such transaction
is otherwise permitted under this Agreement.
SECTION 11.16. ADDITIONAL LIMITATION ON ACTION AND IMPOSITION
OF TAX.
(a) Any provision of this Agreement to the contrary
notwithstanding, the Trustee shall not, without having obtained, and delivered
to the Certificate Insurer, an opinion of counsel experienced in federal income
tax matters (which opinion shall be at the expense of the Sponsor) to the effect
that such transaction does not result in a tax imposed on the Trust or cause a
termination of REMIC status for either the Upper-Tier REMIC or Lower-Tier REMIC,
(i) sell any assets in the Trust Estate, (ii) accept any contribution of assets
after the Startup Day or (iii) agree to any modification of this Agreement.
(b) In the event that any tax is imposed on "prohibited
transactions" of either the Upper-Tier REMIC or Lower-Tier REMIC as defined in
Section 860F(a)(2) of the Code, on the "net income from foreclosure property" as
defined in Section 860G(c) of the Code, on any contribution to either the
Upper-Tier REMIC or Lower-Tier REMIC after the Startup Day pursuant to Section
860G(d) of the Code, or any other tax, including liability for withholding tax,
(other than any minimum tax imposed by Sections 23151(a) or 23153(a) of the
California
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<PAGE> 114
Revenue and Taxation Code) is imposed on the REMIC Trust or the Non-REMIC
Estate, such tax shall be paid by (i) the Trustee, if such tax arises out of or
results from a breach by the Trustee of any of its obligations under this
Agreement, (ii) the Master Servicer, if such tax arises out of or results from a
breach by the Master Servicer of any of its obligations under this Agreement, or
otherwise (iii) the Owners of the [Residual Class] Certificates in proportion to
their Percentage Interests. To the extent such tax is chargeable against the
Owners of the [Residual Class] Certificates, notwithstanding anything to the
contrary contained herein, the Trustee is hereby authorized to retain from
amounts otherwise distributable to the Owners of the [Residual Class]
Certificates on any Payment Date sufficient funds to reimburse the Trustee for
the payment of such tax (to the extent that the Trustee has not been previously
reimbursed or indemnified therefor).
(c) The Trustee shall pay out of its own funds, without any
right of reimbursement, any and all expenses relating to any tax audit of the
Trust Estate (including, but not limited to, any professional fees or any
administrative or judicial proceedings with respect thereto that involves the
Internal Revenue Service or state tax authorities); provided, however, that if
such audit resulted solely from the negligence of the Master Servicer or the
Sponsor, as the case may be, the Master Servicer or Sponsor shall pay such
expenses. The Trustee shall act on behalf of the Trust Estate in any
administrative or judicial proceeding relating to an examination or audit by any
governmental taxing authority with respect thereto.
(d) On or before April 15 of each calendar year, commencing
April 15, [Year], the Trustee shall deliver to the Master Servicer a Certificate
from a Responsible Officer of the Trustee stating the Trustee's compliance with
its tax reporting duties set forth in this Agreement.
(e) The Trustee agrees to indemnify the Trust Estate, the
Master Servicer and the Sponsor for any taxes and costs, including, without
limitation, any penalties, interest, professional fees and attorneys' fees
imposed on or incurred by the Trust Estate, the Master Servicer or the Sponsor,
as a result of a breach of the Trustee's covenants set forth in this Agreement
or as a result of the Trustee's negligence, willful misconduct or bad faith.
SECTION 11.17. APPOINTMENT OF TAX MATTERS PERSON.
The Owner of the [Residual Class] Certificate shall act as the Tax Matters
Person for the Upper-Tier REMIC and the Owner of the [Residual Class]
Certificate shall act as the Tax Matters Person for the Lower-Tier REMIC. The
Owners of the [Residual Class] Certificates hereby appoint the Trustee as their
agent for all purposes of the Code to perform, or cause to be performed, such
duties and take, or cause to be taken, such actions as are required to be
performed or taken by the Tax Matters Person for each REMIC under the Code.
SECTION 11.18. THE CERTIFICATE INSURER.
The Certificate Insurer is a third-party beneficiary of this Agreement. Any
right conferred to the Certificate Insurer shall be suspended during any period
in which the Certificate Insurer is in default in its payment obligations under
the Certificate Insurance Policy, except with respect to amendments to this
Agreement pursuant to Section 11.14. During the continuance of a Certificate
Insurer Default, the Certificate Insurer's rights hereunder shall vest in the
Trustee on behalf of the Owners of the Class [A] Certificates and shall be
exercisable by the Owners of at least a majority in Percentage Interest of the
Class [A] Certificates then Outstanding. At such time as the Class [A]
Certificates are no longer Outstanding hereunder and the Certificate Insurer
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<PAGE> 115
has been reimbursed for all Reimbursement Amounts to which it is entitled
hereunder and the Certificate Insurance Policy has expired, the Certificate
Insurer's rights hereunder shall terminate.
SECTION 11.19. MAINTENANCE OF RECORDS.
Each Originator and Owner of a [Residual Class] Certificate shall each
continuously keep an original executed counterpart of this Agreement in its
official records.
SECTION 11.20. NOTICES.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
The Trustee: [Trustee]
[Trustee's Address]
Attention: [___________]
Tel: [(___) ___-_____]
Fax: [(___) ___-_____]
The Sponsor: Advanta Conduit Receivables, Inc.
10790 Rancho Bernardo Road
San Diego, California 92127
Tel: (619) 674-3317
Attention: Structured Finance
The Master Servicer: Advanta Mortgage Corp. USA
10790 Rancho Bernardo Road
San Diego, California 92127
Tel: (619) 674-3317
Fax: (619) 674-3592
The Certificate Insurer: [Certificate Insurer]
[Certificate Insurer's Address]
Attention: [_____________]
[Rating Agency]: [Rating Agency]
[Rating Agency Address]
Attention: [______________]
Underwriter(s): [Underwriter/Representative]
[Underwriter's/Representative's Address]
Attention: [_____________]
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<PAGE> 116
IN WITNESS WHEREOF, the Sponsor, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
ADVANTA CONDUIT RECEIVABLES, INC.
as Sponsor
By: ________________________________
Name:
Title:
ADVANTA MORTGAGE CORP. USA
as Master Servicer
By: ________________________________
Name:
Title:
[TRUSTEE],
as Trustee
By: ________________________________
[POOLING AND SERVICING AGREEMENT]
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<PAGE> 117
STATE OF CALIFORNIA )
: ss.:
COUNTY OF )
On the ____ day of _________, ____, before me personally came
___________ to me known, who, being by me duly sworn did depose and say that
his/her office is located at [Trustee's Address]; that s/he is ________________
of [Trustee], the national banking corporation described in and that executed
the above instrument as Trustee; and that s/he signed his/her name thereto under
authority granted by the Board of Directors of said national banking
association.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
____________________________
Notary Public
<PAGE> 1
EXHIBIT 4.2
SALE AND SERVICING AGREEMENT
Among
ADVANTA MORTGAGE LOAN TRUST ____-_,
as Issuer,
ADVANTA CONDUIT RECEIVABLES, INC.,
as Sponsor,
ADVANTA MORTGAGE CORP. USA,
as Master Servicer,
and
[INDENTURE TRUSTEE]
as Indenture Trustee
Dated as of [DATE]
<PAGE> 2
TABLE OF CONTENTS
(Not a Part of this Agreement)
<TABLE>
<CAPTION>
Page
<S> <C>
Parties..................................................................................................1
Recitals.................................................................................................1
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION.............................................................2
Section 1.1. Definitions............................................................................2
Section 1.2. Use of Words and Phrases..............................................................15
Section 1.3. Captions; Table of Contents...........................................................15
Section 1.4. Opinions..............................................................................15
ARTICLE II CONVEYANCE OF MORTGAGE LOANS.................................................................15
Section 2.1. Conveyance of the Initial Mortgage Loans..............................................15
Section 2.2. Acceptance by the Issuer; Certain Substitutions of Mortgage Loans;
Certification by Indenture Trustee.................................................17
Section 2.3. Cooperation Procedures................................................................19
Section 2.4. Conveyance of the Subsequent Mortgage Loans...........................................19
Section 2.5. Retransfers of Mortgage Loans at Election of Sponsor..................................21
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SPONSOR AND THE MASTER SERVICER............22
Section 3.1. Representations and Warranties of the Sponsor.........................................22
Section 3.2. Representations and Warranties of the Master Servicer................................24
Section 3.3. Representations and Warranties of the Sponsor with Respect to the Mortgage
Loans..............................................................................26
Section 3.4. Covenants of Sponsor to Take Certain Actions with Respect to the Mortgage
Loans In Certain Situations........................................................27
ARTICLE IV SERVICING AND ADMINISTRATION OF MORTGAGE LOANS...............................................28
Section 4.1. Master Servicer and Sub-Servicers.....................................................28
Section 4.2. Collection of Certain Mortgage Loan Payments..........................................30
Section 4.3. Sub-Servicing Agreements Between Master Servicer and Sub-Servicers....................30
Section 4.4. Successor Sub-Servicers...............................................................30
Section 4.5. Liability of Master Servicer..........................................................31
Section 4.6. No Contractual Relationship Between Sub-Servicer and Indenture Trustee or the
Noteholders........................................................................31
Section 4.7. Assumption or Termination of Sub-Servicing Agreement by Indenture Trustee.............31
Section 4.8. Principal and Interest Account........................................................31
Section 4.9. Delinquency Advances, Compensating Interest and Servicing Advances....................33
Section 4.10. Purchase of Mortgage Loans...........................................................34
Section 4.11. Maintenance of Insurance.............................................................34
Section 4.12. Due-on-Sale Clauses; Assumption and Substitution Agreements..........................35
Section 4.13. Realization Upon Defaulted Mortgage Loans............................................36
Section 4.14. Indenture Trustee to Cooperate; Release of Files.....................................37
Section 4.15. Servicing Compensation...............................................................38
Section 4.16. Annual Statement as to Compliance....................................................38
Section 4.17. Annual Independent Certified Public Accountants' Reports.............................38
Section 4.18. Access to Certain Documentation and Information Regarding the Mortgage Loans.........39
Section 4.19. Assignment of Agreement..............................................................39
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V SERVICING TERMINATION.........................................................................39
Section 5.1. Events of Servicer Termination........................................................39
Section 5.2. Inspections by the Note Insurer and the Indenture Trustee; Errors and
Omissions Insurance................................................................44
Section 5.3. Merger, Conversion, Consolidation or Succession to Business of Master Servicer........44
Section 5.4. Notices of to Noteholders.............................................................44
ARTICLE VI ADMINISTRATIVE DUTIES OF THE MASTER SERVICER.................................................44
Section 6.1. Administrative Duties with Respect to the Indenture...................................44
Section 6.2. Records...............................................................................46
Section 6.3. Additional Information to be Furnished to the Issuer..................................46
ARTICLE VII MISCELLANEOUS...............................................................................46
Section 7.1. Compliance Certificates and Opinions..................................................46
Section 7.2. Form of Documents Delivered to the Indenture Trustee..................................47
Section 7.3. Acts of Noteholders...................................................................47
Section 7.4. Notices, etc., to Indenture Trustee...................................................48
Section 7.5. Notices and Reports to Noteholders; Waiver of Notices.................................48
Section 7.6. Rules by Indenture Trustee and Sponsor................................................49
Section 7.7. Successors and Assigns................................................................49
Section 7.8. Severability..........................................................................49
Section 7.9. Benefits of Agreement.................................................................49
Section 7.10. Legal Holidays.......................................................................49
Section 7.11. Governing Law........................................................................49
Section 7.12. Counterparts.........................................................................49
Section 7.13. Usury................................................................................49
Section 7.14. Amendment............................................................................50
Section 7.15. The Note Insurer.....................................................................50
Section 7.16. Notices..............................................................................51
Section 7.17. Limitation of Liability..............................................................51
</TABLE>
ii
<PAGE> 4
SCHEDULE I -- Schedules of Mortgage Loans
EXHIBIT A -- Form of Contents of Mortgage Loan File
EXHIBIT B -- Form of Certificate Re: Mortgage Loans Prepaid in Full
EXHIBIT C -- Form of Indenture Trustee's Acknowledgement of Receipt
EXHIBIT D -- Form of Certification
EXHIBIT E -- Form of Delivery Order
EXHIBIT F -- Form of Monthly Report
EXHIBIT G -- Form of Master Servicer's Trust Receipt
EXHIBIT H -- Form of Subsequent Transfer Agreement
EXHIBIT I -- Form of Addition Notice
iii
<PAGE> 5
SALE AND SERVICING AGREEMENT, relating to ADVANTA MORTGAGE
LOAN TRUST ____-_ (the "Trust" or "Issuer"), dated as of [DATE], by and among
ADVANTA CONDUIT RECEIVABLES, INC., a Nevada corporation, in its capacity as
sponsor of the Trust (the "Sponsor"), ADVANTA MORTGAGE CORP. USA, a Delaware
corporation, in its capacity as master servicer (the "Master Servicer"), and
[INDENTURE TRUSTEE], a national banking association, in its capacity as
indenture trustee (the "Indenture Trustee").
WHEREAS, the Trust desires to purchase a portfolio of the
Mortgage Loans (as defined herein) originated by the Originators (as defined
herein);
WHEREAS, the Sponsor has purchased such Mortgage Loans from
the Originators and is willing to sell such Mortgage Loans to the Trust;
WHEREAS, the Trust desires to purchase Subsequent Mortgage
Loans (as defined herein) to be originated by the Originators.
WHEREAS, the Sponsor is willing to sell such Subsequent
Mortgage Loans to the Trust and to direct or request the Trust to acquire such
Subsequent Mortgage Loans;
WHEREAS, the Master Servicer has agreed to service the
Mortgage Loans, which constitute the principal assets of the trust estate; and
WHEREAS, ______________________________ (the "Note Insurer")
is intended to be a third party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Sponsor, the Master Servicer, the Trust
and the Indenture Trustee hereby agree as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
SECTION 1.1. DEFINITIONS.
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise. In
addition, capitalized terms used herein and not defined herein shall have their
respective meanings as set forth in the Indenture:
"Accepted Servicing Practices": The Master Servicer's normal
servicing practices in servicing and administering mortgage loans for its own
account, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Mortgage Loans in the jurisdictions in
which the related Properties are located and will give due consideration to the
Noteholders' reliance on the Master Servicer.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust pursuant to Section 2.4(a) of this Agreement, a
notice in the form of Exhibit J hereto, which shall be given not later than five
Business Days prior to the related Subsequent Transfer Date, of the Sponsor's
designation of Subsequent Mortgage Loans to be sold to the Trust and the
aggregate Loan Balance and the weighted average Coupon Rate of such Subsequent
Mortgage Loans. Such Addition Notice shall include an electronic data file in a
form agreeable to the Indenture Trustee, the Note Insurer and the Master
Servicer.
"Advanta Mortgage Files": For any Mortgage Loan identified on
the related Schedule of Mortgage Loans with an "A" code, the items listed as
below:
(a) the original Mortgage Note, or a certified copy thereof,
bearing all intervening endorsements, endorsed either (i) "Pay to the order of
Bankers Trust Company of California, N.A., as custodian or trustee under the
applicable custody or trust agreement, without recourse" or (ii) "Pay to the
order of Bankers Trust Company of California, N.A., as custodian or trustee
under the applicable custody or trust agreement, without recourse, Advanta as
Master Servicer," or (iii) "Pay to the order of Bankers Trust Company of
California, N.A., as custodian or trustee" by [Seller, signature, name, title]
and signed in the name of the previous owner by an authorized officer (in the
event that the Mortgage Loan was acquired by the previous owner in a merger the
signature must be in the following form: "[the previous owner], successor by
merger to [name of predecessor]", in the event that the Mortgage Loan was
acquired or originated while doing business under another name, the signature
must be in the following form: "[the previous owner], formerly known as
[previous name]". The original Mortgage Note should be accompanied by any rider
made in connection with the origination of the related Mortgage Loan;
(b) the original of any guarantee executed in connection with
the Mortgage Note (if any);
(c) the original Mortgage with evidence of recording thereon
or copies certified by the related recording office or if the original Mortgage
has not yet been returned from the recording office, a certified copy of the
Mortgage;
(d) the originals of all assumption, modification,
consolidation or extension agreements; and
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<PAGE> 7
(e) the originals of all intervening assignments of Mortgage,
showing a complete chain of assignment from origination to the related Seller,
including warehousing assignments, with evidence of recording thereon (or, if an
original intervening assignment has not been returned from the recording office,
a certified copy thereof.
"Affiliated Originators": Advanta Mortgage Corp. USA, a
Delaware corporation, Advanta Mortgage Corp. Midatlantic, a Pennsylvania
corporation, Advanta Mortgage Corp. Midatlantic II, a Pennsylvania corporation,
Advanta Mortgage Corp. Midwest, a Pennsylvania corporation, Advanta Mortgage
Corp. of New Jersey, a New Jersey corporation, Advanta Mortgage Corp. Northeast,
a New York corporation, Advanta National Bank, a national banking association,
Advanta Bank Corp., a Utah industrial loan corporation, Advanta Finance Corp., a
Nevada corporation.
"Agreement": This Sale and Servicing Agreement, as it may be
amended from time to time, and including the Exhibits and Schedules attached
hereto.
"AMHC": Advanta Mortgage Holding Company, a Delaware
corporation and the corporate parent of Advanta Mortgage Corp. USA, and the
indirect corporate parent of Advanta Conduit Receivables, Inc.
"Appraised Value": The appraised value of any Property based
upon the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Property at such time of origination, if
such sales price is less than such appraised value.
"Authorized Officer": With respect to any Person, any person
who is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the Indenture
Trustee, the Sponsor, the Trust and the Master Servicer, initially including
those individuals whose names appear on the lists of Authorized Officers
delivered on the Closing Date.
"Balloon Loan": Any Mortgage Loan which has an amortization
schedule which extends beyond its maturity date, resulting in a relatively large
unamortized principal balance due in a single payment at maturity.
"Business Day": Any day that is not a Saturday, Sunday or
other day on which commercial banking institutions in the State of New York, the
State of California or in the city in which the principal corporate trust office
of the Indenture Trustee is located, are authorized or obligated by law or
executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest
Account established in accordance with Section 8.3 of the Indenture and
maintained by the Indenture Trustee.
"Capitalized Interest Requirement": As defined in the
Indenture.
"Certificate": As defined in the Trust Agreement.
"Closing Date": [DATE].
"Code": The Internal Revenue Code of 1986, as amended and any
successor statute.
3
<PAGE> 8
"Combined Loan-to-Value Ratio": With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Property and with
respect to any Junior Mortgage Loan, the percentage equal to (a) the sum of (i)
the remaining principal balance, as of origination of the Junior Mortgage Loan
of the Senior Lien note(s) relating to such Junior Mortgage Loan and (ii) the
Original Principal Amount of the Note relating to such Junior Mortgage Loan
divided by (b) the Appraised Value.
"Compensating Interest": As defined in Section 4.9(b) hereof.
"Conduit Mortgage Files": For any Mortgage Loan identified on
the related Schedule of Mortgage Loans with a "B" code, the items listed below:
(a) the original Mortgage Note, or a certified copy thereof,
bearing all intervening endorsements, endorsed either (i) "Pay to the order of
Bankers Trust Company of California, N.A., as custodian or trustee under the
applicable custody or trust agreement, without recourse" or (ii) "Pay to the
order of Bankers Trust Company of California, N.A., as custodian or trustee
under the applicable custody or trust agreement, without recourse, Advanta as
Master Servicer," or (iii) "Pay to the order of Bankers Trust Company of
California, N.A., as custodian or trustee" by [Seller, signature, name, title]
and signed in the name of the previous owner by an authorized officer (in the
event that the Mortgage Loan was acquired by the previous owner in a merger the
signature must be in the following form: "[the previous owner], successor by
merger to [name of predecessor]", in the event that the Mortgage Loan was
acquired or originated while doing business under another name, the signature
must be in the following form: "[the previous owner], formerly known as
[previous name]". The original Mortgage Note should be accompanied by any rider
made in connection with the origination of the related Mortgage Loan;
(b) the original of any guarantee executed in connection with
the Mortgage Note (if any);
(c) the original Mortgage with evidence of recording thereon
or copies certified by the related recording office or if the original Mortgage
has not yet been returned from the recording office, a certified copy of the
Mortgage;
(d) the originals of all assumption, modification,
consolidation or extension agreements;
(e) the original assignment of Mortgage of each Mortgage Loan
to "Bankers Trust Company of California, N.A., as custodian or trustee". In the
event that the Mortgage Loan was acquired by the previous owner in a merger, the
assignment of Mortgage must be the "(previous owner), successor by merger to
(names of predecessor)"; and in the event that the Mortgage Loan was acquired or
originated by the previous owner while doing business under another name, the
Assignment of Mortgage must be by the "(previous owner), formerly known as
(previous name)"; and
(f) the originals of all intervening assignments of Mortgage,
showing a complete chain of assignment from origination to the related Seller,
including warehousing assignments, with evidence of recording thereon (or, if an
original intervening assignment has not been returned from the recording office,
a certified copy thereof.
"Control Party": Until the last sentence of Section 7.15
hereof is applicable and so long as no Note Insurer Default has occurred and is
continuing, the Note Insurer, and thereafter, the Indenture Trustee.
4
<PAGE> 9
"Coupon Rate": The rate of interest borne by each Mortgage
Note.
"Cut-Off Date": The date as of which Initial Mortgage Loans
are transferred and assigned to the Trust, the opening of business, [DATE].
"Deficiency Amount": As defined in the Indenture.
"Definitive Notes": Notes issued in definitive form without
coupons.
"Delinquency Advance": As defined in Section 4.9(a) hereof.
"Delinquent": A Mortgage Loan is "delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as
Exhibit E hereto and delivered by the Trust to the Indenture Trustee on the
Closing Date pursuant to Section 2.2 of the Indenture.
"Depository": The Depository Trust Company, 7 Hanover Square,
New York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to the
Principal and Interest Account, an institution whose deposits are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC, the
long-term deposits of which shall be rated A2 or better by Moody's or A or
better by Standard & Poor's and in the highest short-term rating category for
Moody's, and Standard & Poor's unless otherwise approved in writing by the
Indenture Trustee. The Note Insurer, Moody's and Standard & Poor's, and which is
any of the following: (i) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (ii) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (iii) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Indenture Trustee, the Note Insurer, Moody's and Standard &
Poor's and, in each case acting or designated by the Master Servicer as the
depository institution for the Principal and Interest Account; provided,
however, that any such institution or association shall have combined capital,
surplus and undivided profits of at least $100,000,000. Notwithstanding the
foregoing, a Principal and Interest Account may be held by an institution
otherwise meeting the preceding requirements except that the only applicable
rating requirement shall be that the unsecured and uncollateralized debt
obligations thereof shall be rated Baa3 or better by Moody's or BBB or better by
Standard & Poor's if such institution has trust powers and the Principal and
Interest Account is held by such institution in its corporate trust department.
"Determination Date": As to each Payment Date, the third
Business Day preceding such Payment Date or such earlier day as shall be agreed
to by the Note Insurer and the Indenture Trustee.
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<PAGE> 10
"Direct Participant" or "DTC Participant" means any
broker-dealer, bank or other financial institution for which the Depository
holds Notes from time to time as a securities depository.
"Document Delivery Requirements": The Sponsor's obligations to
deliver certain legal documents, to prepare and record certain Mortgage
assignments or to deliver certain opinions relating to Mortgage assignments, in
each case with respect to the Mortgage Loans and as set forth in Section 2.1(b)
hereof.
"Eligible Investments": Those investments so designated
pursuant to Section 8.9 of the Indenture.
"Event of Servicer Termination": Any event described in clause
(a) of Section 5.1 hereof.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"File": The documents delivered to the Indenture Trustee
pursuant to Section 2.1 hereof pertaining to a particular Mortgage Loan and any
additional documents required to be added to the Advanta Mortgage File or
Conduit Mortgage File, as appropriate, pursuant to this Agreement.
"First Mortgage Loan": A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Property.
"Indemnification Agreement": The Indemnification Agreement
dated as of [DATE] between the Note Insurer and the Underwriter as may be
amended from time to time.
"Indenture": The Indenture dated as of [DATE] between the
Trust and the Indenture Trustee, as the same may be amended and supplemented
from time to time.
"Indenture Trustee": [INDENTURE TRUSTEE], located on the date
of execution of this Agreement at [ADDRESS], a national banking association, not
in its individual capacity but solely as Indenture Trustee under this Agreement,
and any successor hereunder.
"Indenture Trustee's Fees": With respect to any Payment Date,
the product of (x) one-twelfth of ____% and (y) the aggregate Loan Balance of
the Mortgage Loans as of the beginning of the related Remittance Period.
"Indirect Participant": Any financial institution for whom any
Direct Participant holds an interest in the Notes.
"Initial Mortgage Loans": The Mortgage Loans delivered to the
Trust on the Closing Date.
"Insurance Agreement": The Insurance and Indemnity Agreement
dated as of [DATE] among the Sponsor, the Indenture Trustee, the Master
Servicer, the Trust and the Note Insurer, as it may be amended from time to
time.
"Insurance Policy": Any hazard, title or primary mortgage
insurance policy relating to a Mortgage Loan.
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"Issuer" or "Trust": Advanta Mortgage Loan Trust ____-_, as
created by the Trust Agreement.
"Junior Mortgage Loan": A Mortgage Loan which constitutes a
subordinate priority mortgage lien with respect to the related Property.
"Late Payment Rate": For any Payment Date, means the lesser of
(a) the greater of (x) the per annum rate of interest publicly announced from
time to time by Citibank, N.A. as its prime or base lending rate (any change in
such rate of interest to be effective on the date such change is announced by
Citibank, N.A.), plus 2% per annum and (y) the then applicable highest rate of
interest on the Notes and (b) the maximum rate permissible under applicable
usury or similar laws limiting interest rates. The Late Payment Rate shall be
computed on the basis of the actual number of days elapsed over a year of 360
days.
"Liquidated Mortgage Loan": As defined in Section 4.13(b)
hereof. A Mortgage Loan which is purchased from the Trust pursuant to Section
3.3, 3.4, 2.2(b) or 4.10 hereof is not a "Liquidated Mortgage Loan".
"Liquidation Expenses": Expenses which are incurred by the
Master Servicer or any Sub-servicer in connection with the liquidation of any
defaulted Mortgage Loan, such expenses, including, without limitation, legal
fees and expenses, and any unreimbursed Servicing Advances expended by the
Master Servicer or any Sub-servicer pursuant to Section 4.9 with respect to the
related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated
Mortgage Loan, any amounts (including the proceeds of any Insurance Policy)
recovered by the Master Servicer in connection with such Liquidated Mortgage
Loan, whether through trustee's sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan, the
outstanding principal balance thereof as of the Cut-Off Date or Subsequent
Cut-Off-Date, as the case may be, less any related Principal Remittance Amounts
relating to such Mortgage Loan included in previous related Monthly Remittance
Amounts that were transferred by the Master Servicer or any Sub-servicer to the
Indenture Trustee for deposit in the Note Account; provided, however, (x) that
the Loan Balance for any Mortgage Loan which has become a Liquidated Mortgage
Loan shall be zero as of the first day of the Remittance Period following the
Remittance Period in which such Mortgage Loan becomes a Liquidated Mortgage
Loan, and at all times thereafter and (y) the Loan Balance "as of the Cut-Off
Date" for any Mortgage Loan originated during the period from the Cut-Off Date
to the Closing Date shall be the original Loan Balance thereof.
"Loan Purchase Price": With respect to any Mortgage Loan
purchased from the Trust on a Remittance Date pursuant to Section 3.3, 3.4,
2.2(b) or 4.10 hereof, an amount equal to the Loan Balance of such Mortgage Loan
as of the date of purchase, plus one month's interest on the outstanding Loan
Balance thereof as of the beginning of the preceding Remittance Period computed
at the Coupon Rate less the Servicing Fee (expressed as an annual percentage
rate), if any, together with, without duplication, the aggregate amount of (i)
all delinquent interest, all Delinquency Advances and Servicing Advances,
including Nonrecoverable Advances theretofore made with respect to such Mortgage
Loan and not subsequently recovered from the related Mortgage Loan, (ii) all
Delinquency Advances which the Master Servicer or any Sub-servicer has
theretofore failed to remit with respect to such Mortgage Loan and (iii) any
Reimbursement Amount relating to the Trust.
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"Master Servicer": Advanta Mortgage Corp. USA, a Delaware
corporation, and its permitted successors and assigns.
"Master Servicer's Trust Receipt": The Master Servicer's trust
receipt in the form set forth as Exhibit H hereto.
"Master Transfer Agreement": Any one of the Master Loan
Transfer Agreements among the Sponsor and one or more Originators, together with
any related Conveyance Agreements (as defined therein).
"Monthly Remittance Amounts". As defined in the Indenture.
"Moody's": Moody's Investors Service, Inc.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first or subordinate lien on an estate in fee simple interest in real
property securing a Mortgage Note.
"Mortgage Loans": Such of the mortgage loans transferred and
assigned to the Trust pursuant to Section 2.1(a) hereof, together with any
Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the
Mortgage Loans originally so held being identified in the Schedule of Mortgage
Loans. The term "Mortgage Loan" includes the terms "First Mortgage Loan" and
"Junior Mortgage Loan". The term "Mortgage Loan" includes any Mortgage Loan
which is Delinquent, which relates to a foreclosure or which relates to a
Property which is REO Property prior to such Property's disposition by the
Trust. Any mortgage loan which, although intended by the parties hereto to have
been, and which purportedly was, transferred and assigned to the Trust, in fact
was not transferred and assigned to the Trust for any reason whatsoever shall
nevertheless be considered a "Mortgage Loan" for all purposes of this Agreement.
The term "Mortgage Loan" includes the terms "Initial Mortgage Loan" and
"Subsequent Mortgage Loan".
"Mortgage Note": The note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgagor": The obligor on a Mortgage Note.
"Net Liquidation Proceeds": As to any Liquidated Mortgage
Loan, Liquidation Proceeds net of, without duplication, Liquidation Expenses and
unreimbursed Servicing Advances, unreimbursed Delinquency Advances and accrued
and unpaid Servicing Fees through the date of liquidation relating to such
Liquidated Mortgage Loan. In no event shall Net Liquidation Proceeds with
respect to any Liquidated Mortgage Loan be less than zero.
"Nonrecoverable Advances": With respect to any Mortgage Loan,
(a) any Delinquency Advance or Servicing Advance previously made and not
reimbursed pursuant to Section 8.7 (b)(xvii) of the Indenture or Section 4.9,
(b) a Delinquency Advance or Servicing Advance proposed to be made in respect of
a Mortgage Loan or REO Property either of which, in the good faith business
judgment of the Master Servicer, as evidenced by an Officer's Certificate
delivered promptly to the Note Insurer and the Indenture Trustee following such
determination would not be ultimately recoverable pursuant to Section
8.7(b)(xvii) of the Indenture or Section 4.9 or (c) any other advance identified
as a Nonrecoverable Advance in subsection 4.8(d).
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"Note": Any note issued by the Trust substantially in the form
of Exhibit A to the Indenture.
"Note Account": The Note Account established in accordance
with Section 8.3 of the Indenture and maintained by the Indenture Trustee.
"Note Insurer": As defined in the recitals.
"Note Insurer Default": Any one of the following events shall
have occurred and be continuing:
(a) The Note Insurer shall have failed to make a payment
required under the Note Policy;
(b) The Note Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the United
States Bankruptcy Code or any other similar Federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, (ii) made
a general assignment for the benefit of its creditors, or (iii) had an order for
relief entered against it under the United States Bankruptcy Code or any other
similar Federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization which is final and nonappealable; or
(c) A court of competent jurisdiction, the New York Department
of Insurance, or other competent regulatory authority shall have entered a final
and nonappealable order, judgment or decree (i) appointing a custodian, trustee,
agent or receiver for the Note Insurer or for all or any material portion of its
property or (ii) authorizing the taking of possession by a custodian, trustee,
agent or receiver of the Note Insurer (or the taking of possession of all or any
material portion of the property of the Note Insurer).
"Note Policy": The note guaranty insurance policy dated [DATE]
issued by the Note Insurer to the Indenture Trustee for the benefit of the
Noteholders.
"Note Principal Balance": As of the Closing Date,
$___________. As of any Payment Date with respect to the Notes, the Note
Principal Balance as of the Closing Date less any amounts actually distributed
theretofor as principal thereon to the Notes on all prior Payment Dates.
"Noteholders": The holders of the Notes.
"Officer's Certificate": A certificate signed by any
Authorized Officer of any Person delivering such certificate and delivered to
the Indenture Trustee.
"Operative Documents": Collectively, the Master Transfer
Agreements, the Insurance Agreement, the Indemnification Agreement, the Sale and
Servicing Agreement, the Subsequent Transfer Agreements, the Trust Agreement,
the Note Policy, the Indenture and the Notes.
"Original Pool Principal Balance": The Pool Principal Balance
as of the Closing Date.
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"Original Principal Amount": With respect to each Mortgage
Note, the principal amount of such Mortgage Note or the mortgage note relating
to a Senior Lien, as the case may be, on the date of origination thereof.
"Originator": Any entity from which the Sponsor has purchased
(or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans, or
Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage
Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of
New Jersey, Advanta Mortgage Corp. Northeast, Advanta National Bank and Advanta
Finance Corp.
"Outstanding": With respect to the Notes, as of any date of
determination, all such Notes theretofore executed and delivered hereunder
except:
(i) Notes theretofore cancelled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation;
(ii) Notes or portions thereof for which full and final
payment money in the necessary amount has been theretofore deposited
with the Indenture Trustee in trust for the Noteholders;
(iii) Notes in exchange for or in lieu of which other Notes
have been executed and delivered pursuant to this Agreement, unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser; and
(iv) Notes alleged to have been destroyed, lost or stolen for
which replacement Notes have been issued as provided for in Section 2.4
of the Indenture.
"Overall Event of Servicer Termination": Any event described
in clause (b) of Section 5.1 hereof.
"Owner Trustee": [OWNER TRUSTEE], not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, its successors
in interest or any successor Owner Trustee under the Trust Agreement.
"Payment Date": Any date on which the Indenture Trustee is
required to make distributions to the Noteholders, which shall be the 25th day
of each month, commencing in the month following the Closing Date or if the 25th
day is not a Business Day, then the next succeeding Business Day.
"Percentage Interest": As to any Note, that percentage,
expressed as a fraction, the numerator of which is the Note Principal Balance of
such Note as of the related Cut-Off Date and the denominator of which is the
Aggregate Note Principal Balance; and as to any Certificate, that Percentage
Interest set forth on such Certificate.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Cumulative Realized Losses": With respect to any period,
the sum of all Realized Losses with respect to the Mortgage Loans in the Trust
experienced during such period.
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"Pool Delinquency Rate": With respect to any Remittance
Period, the fraction, expressed as a percentage, equal to (x) the aggregate
principal balances of all Mortgage Loans 90 or more days Delinquent (including
all foreclosures and REO Properties) as of the close of business on the last day
of such Remittance Period over (y) the Pool Principal Balance as of the close of
business on the last day of such Remittance Period.
"Pool Principal Balance": The aggregate principal balances of
all Mortgage Loans.
"Pre-Funded Amount": With respect to any Determination Date,
the amount on deposit in the Pre-Funding Account and available for the purchase
of the Subsequent Mortgage Loans.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 8.3 of the Indenture and maintained by the Indenture
Trustee.
"Pre-Funding Earnings": With respect to the ___________
Payment Date, the actual investment earnings earned during the period [DATE]
through ______________ (inclusive) on the Pre-Funding Account during such period
as calculated by the Indenture Trustee pursuant to Section 2.4(g) hereof; with
respect to the _________ Payment Date, the actual investment earnings during the
period ______________ through ____________ (inclusive) on the Pre-Funding
Account during such period as calculated by the Indenture Trustee pursuant to
Section 2.4(g) hereof.
"Pre-Funding Period": The period commencing on the Closing
Date and ending on the earlier to occur of (i) the date on which the Pre-Funded
Amount (exclusive of any investment earnings) is less than $100,000 and (ii)
[DATE].
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received prior to the
scheduled due date for such installment, intended by the Mortgagor as an early
payment thereof and not as a Prepayment with respect to such Mortgage Loan.
"Prepayment": Any payment of principal of a Mortgage Loan in
full which is received by the Master Servicer in advance of the scheduled due
date for the payment of such principal (other than the principal portion of any
Prepaid Installment), and the proceeds of any Insurance Policy which are to be
applied as a payment of principal on the related Mortgage Loan shall be deemed
to be Prepayments for all purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Master
Servicer or any Sub-servicer in connection with a foreclosed Mortgage Loan prior
to the liquidation thereof, including, without limitation, expenditures for real
estate property taxes, hazard insurance premiums, property restoration or
preservation.
"Principal and Interest Account": Collectively, each Principal
and Interest Account created by the Master Servicer or any Sub-servicer pursuant
to Section 4.8(a) hereof, or pursuant to any Sub-Servicing Agreement.
"Property": The underlying property securing a Mortgage Loan.
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"Prospectus": That certain Prospectus dated [DATE] naming
Advanta Conduit Receivables, Inc. as registrant and describing certain
mortgage loan asset-backed securities to be issued from time to time as
described in the related Prospectus Supplement.
"Prospectus Supplement": That certain Prospectus Supplement
dated [DATE], discussing the Notes issued by the Trust.
"Qualified Replacement Mortgage": A Mortgage Loan substituted
for another pursuant to Section 3.3, 3.4 or 2.2(b) hereof, which (i) bears a
fixed rate of interest, (ii) has a Coupon Rate at least equal to the Coupon Rate
of the Mortgage Loan being replaced, , (iii) is of the same or better property
type and the same or better occupancy status as the replaced Mortgage Loan, (iv)
shall be of the same or better credit quality classification (determined in
accordance with the Originators' credit underwriting guidelines) as the Mortgage
Loan being replaced, (v) shall mature no later than the Payment Date in March,
2029, (vi) has a Combined Loan-to-Value Ratio as of the Cut-Off Date or
Subsequent Cut-Off Date no higher than the Combined Loan-to-Value Ratio of the
replaced Mortgage Loan at such time, (vii) has a Loan Balance as of the related
Replacement Cut-Off Date equal to or less than the Loan Balance of the replaced
Mortgage Loan as of such Replacement Cut-Off Date, (viii) satisfies all of the
representations and warranties set forth in Section 3.3, all as evidenced by an
Officer's Certificate of the Sponsor delivered to the Note Insurer and the
Indenture Trustee prior to any such substitution and (ix) is a valid First
Mortgage Loan if the Mortgage Loan to be substituted for is a valid First
Mortgage Loan or, Junior Mortgage Loan if the Mortgage Loan to be substituted
for is a Junior Mortgage Loan. In the event that one or more mortgage loans are
proposed to be substituted for one or more mortgage loans, the Note Insurer may
allow the foregoing tests to be met on a weighted average basis or other
aggregate basis acceptable to the Note Insurer, as evidenced by a written
consent delivered to the Indenture Trustee by the Note Insurer, except that the
requirement of clauses (vi) and (viii) hereof must be satisfied as to each
Qualified Replacement Mortgage.
"Realized Loss": As to any Liquidated Mortgage Loan, the
amount, if any, by which the Loan Balance thereof as of the date of liquidation
is in excess of Net Liquidation Proceeds realized thereon.
"Record Date": With respect to each Payment Date, [the
business day immediately preceding the Payment Date/ the last Business Day of
the calendar month immediately preceding the calendar month in which such
Payment Date occurs]; provided, that, if the Notes revert to Definitive Notes,
the Record Date with respect to each Payment Date thereafter shall be the last
Business Day of the calendar month immediately preceding the calendar month in
which such Payment Date occurs.
"Register": The register maintained by the Indenture Trustee
in accordance with Section 2.3 of the Indenture, in which the names of the
Noteholders are set forth.
"Registrar": The Indenture Trustee, acting in its capacity as
Indenture Trustee appointed pursuant to Section 6.13 of the Indenture, or any
duly appointed and eligible successor thereto.
"Registration Statement": The Registration Statement filed by
the Sponsor with the Securities and Exchange Commission, including all
amendments thereto and including the Prospectus and Prospectus Supplement
relating to the Notes constituting a part thereof.
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"Remittance Date": Any date on which the Master Servicer is
required to remit monies on deposit in the Principal and Interest Account to the
Indenture Trustee, which shall be no later than the 18th day of each month, or,
if such day is not a Business Day, the immediately succeeding Business Day,
commencing in the month following the month in which the Closing Date occurs.
"Remittance Period": The period (inclusive) beginning on the
first day of the calendar month immediately preceding the month in which a
Remittance Date occurs and ending on the last day of such immediately preceding
calendar month.
"REO Property": A Property acquired by the Master Servicer or
any Sub-servicer on behalf of the Trust through foreclosure or deed-in-lieu of
foreclosure in connection with a defaulted Mortgage Loan.
"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the first day of the calendar month in which such
Qualified Replacement Mortgage is conveyed to the Trust.
"Schedules of Mortgage Loans": The Schedules of Mortgage
Loans, attached hereto as Schedule I as they may be further supplemented in
connection with Subsequent Transfers. Such Schedules shall also contain one of
the following codes for each Mortgage Loan or Subsequent Mortgage Loan: "C" if
such Mortgage Loan is an Unaffiliated Originator Loan or "A" for all other
Mortgage Loans. The information contained on each Mortgage Loan Schedule shall
be delivered to the Indenture Trustee on a computer readable magnetic tape or
disk.
"Securities Act": The Securities Act of 1933, as amended.
"Senior Lien": With respect to any Junior Mortgage Loan, the
mortgage loan relating to the corresponding Property having a first or senior
priority lien.
"Servicer Affiliate": A Person (i) controlling, controlled by
or under common control with the Master Servicer and (ii) which is qualified to
service residential mortgage loans.
"Servicer Termination Loss Trigger". As defined in the
Insurance Agreement.
"Servicing Advance": As defined in Section 4.9(c) and Section
4.13(a) hereof.
"Servicing Fee": With respect to any Mortgage Loan, an amount
retained by the Master Servicer or by any successor thereto as compensation for
the servicing and administrative duties relating to such Mortgage Loan pursuant
to Section 4.15 hereof and equal to 0.50% per annum of the then outstanding Loan
Balance of such Mortgage Loan as of the opening of business on the first day of
each calendar month on a monthly basis.
"Sponsor": Advanta Conduit Receivables, Inc., a Nevada
corporation.
"Standard & Poor's": Standard & Poor's Ratings Group, a
division of The McGraw Hill Companies.
"Subsequent Cut-Off Date": With respect to any Subsequent
Mortgage Loans, the first day of the month in which such Subsequent Mortgage
Loans are transferred and assigned to the Trust.
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"Subsequent Mortgage Loans": The Mortgage Loans sold to the
Trust pursuant to Section 2.4 hereof, which shall be listed on the Schedule of
Mortgage Loans attached to the Subsequent Transfer Agreement.
"Subsequent Transfer Agreement": Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Indenture
Trustee and the Sponsor substantially in the form of Exhibit I hereto, by which
Subsequent Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date": The date specified in each
Subsequent Transfer Agreement.
"Substitution Amount": In connection with the delivery of any
Qualified Replacement Mortgage, if the outstanding principal amount of such
Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is
less than the Loan Balance of the Mortgage Loan being replaced as of such
Replacement Cut-Off Date, an amount equal to such difference together with
accrued and unpaid interest on such amount calculated at the Coupon Rate net of
the Servicing Fee of the Mortgage Loan being replaced.
"Sub-Servicer": Any Person with whom the Master Servicer has
entered into a Sub-Servicing Agreement and who satisfies any requirements set
forth in Section 4.3 hereof in respect of the qualification of a Sub-Servicer .
"Sub-Servicing Agreement": The written contract between the
Master Servicer and any Sub-Servicer relating to servicing
"Trust": Advanta Mortgage Loan Trust ____-_, the trust created
under the Trust Agreement.
"Trust Agreement": The Trust Agreement dated as of [DATE]
between the Owner Trustee and the Sponsor.
"Trust Estate": Collectively, all money, instruments and other
property, to the extent such money, instruments and other property are subject
or intended to be held in trust for the benefit of the Noteholders, including
all proceeds thereof, including, without limitation, (i) the Mortgage Loans,
(ii) such amounts including interest accrued and principal collections in
respect of the related Mortgage Loans received on or after the Cut-Off Date and
each Subsequent Cut-Off Date, but excluding any premium recapture, as
applicable, including Eligible Investments, as from time to time may be held in
the Note Account and by the Master Servicer in the Principal and Interest
Account (except as otherwise provided herein), each to be created pursuant to
this Agreement, (iii) any Property, the ownership of which has been effected on
behalf of the Trust as a result of foreclosure or acceptance by the Master
Servicer of a deed in lieu of foreclosure and that has not been withdrawn from
the Trust, (iv) any Insurance Policies relating to the Mortgage Loans (excluding
any non-mortgage related or credit-life insurance policies) and any rights of
the Sponsor or the Affiliated Originators under any Insurance Policies, (v) Net
Liquidation Proceeds with respect to any Liquidated Mortgage Loan.
"Trust Notes": The Note issued by the Trust.
"Unaffiliated Originator Loan": Any Mortgage Loan originated
by an Unaffiliated Originator and sold to the Trust.
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"Unaffiliated Originators": Any Originator who is not
affiliated with the Sponsor.
"Underwriter": _________________________________.
"Warehouse Trust": Any trust established by an affiliate of
the Sponsor to finance the origination of mortgage loans, including, without
limitation, the Conduit Acquisition Trust.
SECTION 1.2. USE OF WORDS AND PHRASES.
"Herein", "hereby", "hereunder", "hereof", "hereinbefore", "hereinafter" and
other equivalent words refer to this Agreement as a whole and not solely to the
particular section of this Agreement in which any such word is used. The
definitions set forth in Section 1.1 hereof include both the singular and the
plural. Whenever used in this Agreement, any pronoun shall be deemed to include
both singular and plural and to cover all genders.
SECTION 1.3. CAPTIONS; TABLE OF CONTENTS.
The captions or headings in this Agreement and the Table of Contents are for
convenience only and in no way define, limit or describe the scope and intent of
any provisions of this Agreement.
SECTION 1.4. OPINIONS.
Each opinion with respect to the validity, binding nature and enforceability
of documents or Certificates may be qualified to the extent that the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity (whether considered in a proceeding or action in
equity or at law) and may state that no opinion is expressed on the availability
of the remedy of specific enforcement, injunctive relief or any other equitable
remedy. Any opinion required to be furnished by any Person hereunder must be
delivered by counsel upon whose opinion the addressee of such opinion may
reasonably rely, and such opinion may state that it is given in reasonable
reliance upon an opinion of another, a copy of which must be attached,
concerning the laws of a foreign jurisdiction.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS
SECTION 2.1. CONVEYANCE OF THE INITIAL MORTGAGE LOANS.
(a) The Sponsor, concurrently with the execution and delivery
hereof, hereby transfers, assigns, sets over and otherwise conveys without
recourse, to the Trust, and hereby requests or directs the Trust to acquire, for
pledge to the Indenture Trustee on behalf of the Noteholders all right, title
and interest of the Sponsor and the Warehouse Trusts in and to (i) each Initial
Mortgage Loan listed on the Schedule of Mortgage Loans, including its Loan
Balance and all interest accrued and principal collected in respect thereof
received on or after the Cut-Off Date (excluding payments in respect of accrued
interest due prior to the Cut-Off Date and excluding any premium recapture);
(ii) property that secured a Mortgage Loan that is acquired by foreclosure or
deed in lieu of foreclosure; (iii) the Sponsor's rights under the hazard
insurance policies; and (iv) all other assets included or to be included in the
Trust Estate for pledge to the
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Indenture Trustee on behalf of the Noteholders and the Note Insurer. In
addition, on or prior to the Closing Date, the Sponsor shall cause the Note
Insurer to deliver the Note Policy to the Trust for pledge to the Indenture
Trustee on behalf of the Noteholders. The foregoing transfer, assignment,
set-over and conveyance shall be made by the Sponsor to the Trust for pledge to
the Indenture Trustee on behalf of the Noteholders, and each reference in this
Agreement to such transfer, assignment, set-over and conveyance shall be
construed accordingly.
The Sponsor agrees to take or cause to be taken such actions
and execute such documents (including, without limitation, the filing of all
necessary continuation statements for the UCC-1 financing statements filed in
the State of New York (which shall have been filed within 90 days of the Closing
Date) describing the Mortgage Loans and naming the Sponsor and the Warehouse
Trust, as appropriate, as debtor and the Indenture Trustee as secured party and
any amendments to UCC-1 financing statements required to reflect a change in the
name or corporate structure of the Sponsor or the filing of any additional UCC-1
financing statements due to the change in the principal office of the Sponsor
(within 90 days of any event necessitating such filing)) as are necessary to
perfect and protect the Noteholders' and the Note Insurer's interests in each
Mortgage Loan and the proceeds thereof.
(b) In connection with the transfer and assignment of the
Mortgage Loans, the Sponsor agrees to:
(i) cause to be delivered on the Closing Date, without
recourse, to the Indenture Trustee, with respect to the Initial
Mortgage Loans or, the Subsequent Transfer Date with respect to
Subsequent Mortgage Loans, or, the Transfer Date with respect to the
Qualified Replacement Mortgage listed on the Schedule of Mortgage
Loans, the items listed in the definitions of "Advanta Mortgage Files"
and "Conduit Mortgage Files," as appropriate; and
(ii) cause, within 75 Business Days following the Closing Date
or any Subsequent Transfer Date, as applicable, the assignments of
Mortgage to be submitted for recording in the appropriate jurisdictions
wherein such recordation is necessary to perfect the lien thereof as
against creditors of or purchasers from the related Originator to the
Indenture Trustee; provided, however, that for administrative
convenience and facilitation of servicing and to reduce closing costs,
assignments of mortgage shall not be required to be submitted for
recording with respect to any Mortgage Loan which relates to an Advanta
Mortgage File only if the Indenture Trustee has received an Opinion of
Counsel to the effect that the recordation of such assignments in any
specific jurisdiction is not necessary to protect the Indenture
Trustee's interest in the related Mortgagee.
All recording, if required pursuant to this Section 2.1, shall
be accomplished at the expense of the Sponsor. Notwithstanding anything to the
contrary contained in this Section 2.1, in those instances where the public
recording office retains the original Mortgage, the assignment of a Mortgage or
the intervening assignments of the Mortgage after it has been recorded, the
Sponsor shall be deemed to have satisfied its obligations hereunder upon
delivery to the Indenture Trustee of a copy of such Mortgage, such assignment or
assignments of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof.
Copies of all Mortgage assignments and any assignment of
Mortgage in recordable form received by the Indenture Trustee shall be kept in
the related Mortgage File.
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(c) In the case of Initial Mortgage Loans which have been
prepaid in full on or after the Initial Cut-Off Date and prior to the Closing
Date, or with respect to Subsequent Mortgage Loans which have been prepaid in
full on or after the Subsequent Cut-Off Date and prior to the Subsequent
Transfer Date, the Sponsor, in lieu of the foregoing, will deliver within 15
Business Days after the Closing Date, or Subsequent Transfer Date, as
applicable, to the Indenture Trustee a certification of an Authorized Officer in
the form set forth in Exhibit B.
(d) The Sponsor shall transfer, assign, set over and otherwise
convey to the Trust or request or direct the Trust to acquire without recourse,
for pledge to the Indenture Trustee on behalf of the Noteholders all right,
title and interest of the Sponsor in and to any Qualified Replacement Mortgage
delivered to the Trust by the Sponsor pursuant to Section, 2.2, Section 3.3,
Section 3.4 hereof and all its right, title and interest to principal collected
and interest accruing on such Qualified Replacement Mortgage on and after the
applicable Replacement Cut-Off Date; provided, however, that the Sponsor shall
reserve and retain all right, title and interest in and to payments of principal
and interest due on such Qualified Replacement Mortgage prior to the applicable
Replacement Cut-Off Date.
(e) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage therefor, the
Indenture Trustee will transfer, assign, set over and otherwise convey without
recourse, on the Sponsor's order, all of its right, title and interest in and to
such released Mortgage Loan and all of the Trust's right, title and interest to
principal collected and interest accruing on such released Mortgage Loan on and
after the applicable Replacement Cut-Off Date; provided, however, that the Trust
shall reserve and retain all right, title and interest in and to payments of
principal collected and interest accruing on such released Mortgage Loan prior
to the applicable Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a
Qualified Replacement Mortgage to the Trust, the Sponsor agrees to cause to be
delivered to the Indenture Trustee the items described in Section 2.1(b) on the
date of such transfer and assignment or, if a later delivery time is permitted
by Section 2.1(b), then no later than such later delivery time.
(g) As to each Mortgage Loan released from the Trust in
connection with the conveyance of a Qualified Replacement Mortgage the Indenture
Trustee shall deliver no later than the date of conveyance of such Qualified
Replacement Mortgage and on the order of the Sponsor (i) the original Mortgage
Note, or the certified copy, relating thereto, endorsed without recourse, to the
Sponsor and (ii) such other documents as constituted the File with respect
thereto.
(h) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the Sponsor shall prepare a substitute assignment or cure such defect,
as the case may be, and thereafter cause each such assignment to be duly
recorded.
(i) The Sponsor shall reflect on its records that the Mortgage
Loans have been sold to the Trust.
(j) To the extent that the ratings, if any, then assigned to
the unsecured debt of the Sponsor or of its ultimate corporate parent are
satisfactory to the Control Party, Moody's and Standard & Poor's, then any of
the Document Delivery Requirements described above may be waived by an
instrument signed by the Control Party, Standard & Poor's and Moody's (or any
documents theretofore delivered to the Indenture Trustee returned to the
Sponsor) on such terms and subject to such conditions as the Control Party,
Moody's and Standard & Poor's may permit.
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SECTION 2.2. ACCEPTANCE BY THE TRUST; CERTAIN SUBSTITUTIONS OF
MORTGAGE LOANS; CERTIFICATION BY INDENTURE TRUSTEE.
(a) The Indenture Trustee, on behalf of the Trust, hereby
acknowledges receipt of the Trust Estate and agrees to execute and deliver no
later than the Closing Date, each Subsequent Transfer Date and each Transfer
Date, as applicable, an acknowledgment of receipt of the Files delivered to it
on behalf of the Trust by the Sponsor in the form attached as Exhibit C hereto,
and declares that it will hold such documents and any amendments, replacement or
supplements thereto, as well as any other assets included in the definition of
Trust Estate and pledged to it on behalf of the Noteholders and the Note
Insurer.
The Indenture Trustee agrees to review any documents delivered
by the Sponsor within 90 days after the Closing Date (or within 90 days with
respect to any Subsequent Mortgage Loan or Qualified Replacement Mortgage after
the assignment thereof) and to deliver to the Sponsor, the Master Servicer and
the Note Insurer a Certification in the form attached hereto as Exhibit D
hereto. The Indenture Trustee shall be under no duty or obligation to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine that they are genuine, enforceable, or appropriate for the
represented purpose or that they are other than what they purport to be on their
face, nor shall the Indenture Trustee be under any duty to determine
independently whether there are any intervening assignments or assumption or
modification agreements with respect to any Mortgage Loan.
(b) If the Indenture Trustee during such 90-day period finds
any document constituting a part of a File which is not properly executed, has
not been received within the specified period, or is unrelated to the Mortgage
Loans identified in the Schedules of Mortgage Loans, or that any Mortgage Loan
does not conform in a material respect to the description thereof as set forth
in the Schedules of Mortgage Loans, the Indenture Trustee shall promptly so
notify the Sponsor, the Trust and the Note Insurer. In performing any such
review, the Indenture Trustee may conclusively rely on the Sponsor as to the
purported genuineness of any such document and any signature thereon. The
Sponsor agrees to use reasonable efforts to remedy a material defect in a
document constituting part of a File of which it is so notified by the Indenture
Trustee. If, however, within 60 days after the Indenture Trustee's notice to it
respecting such defect the Sponsor has not remedied or caused to be remedied the
defect and the defect materially and adversely affects the interest in the
related Mortgage Loan of the Noteholders or of the Note Insurer, the Sponsor
will then on the next succeeding Remittance Date (i) substitute in lieu of such
Mortgage Loan a Qualified Replacement Mortgage and, deliver the Substitution
Amount applicable thereto to the Master Servicer for deposit in the Principal
and Interest Account or (ii) purchase such Mortgage Loan at a purchase price
equal to the Loan Purchase Price thereof, which purchase price shall be
delivered to the Master Servicer for deposit in the Principal and Interest
Account. Upon receipt of any Qualified Replacement Mortgage or of written
notification signed by a Servicing Officer to the effect that the Loan Purchase
Price in respect of a Defective Mortgage Loan has been deposited into the
Principal and Interest Account, then as promptly as practicable, the Indenture
Trustee shall execute such documents and instruments of transfer presented by
the Sponsor, in each case without recourse, representation or warranty, and take
such other actions as shall reasonably be requested by the Sponsor to effect
such transfer by the Trust of such Defective Mortgage Loan pursuant to this
Section. It is understood and agreed that the obligation of the Sponsor to
accept a transfer of a Defective Mortgage Loan and to either convey a Qualified
Replacement Mortgage or to make a deposit of any related Loan Purchase Price
into the Principal and Interest Account shall constitute the sole remedy
respecting such defect available to Noteholders, the Indenture Trustee, the
Trust and the Note Insurer against the Sponsor.
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The Sponsor, promptly following the transfer of a Defective
Mortgage Loan from or to the Trust pursuant to this Section, shall deliver an
amended Mortgage Loan Schedule to the Indenture Trustee and the Note Insurer and
shall make appropriate entries in its general account records to reflect such
transfer. The Master Servicer shall, following such retransfer, appropriately
mark its records to indicate that it is no longer servicing such Mortgage Loan
on behalf of the Trust. The Sponsor, promptly following such transfer, shall
appropriately mark its electronic ledger and make appropriate entries in its
general account records to reflect such transfer.
(c) As to any Qualified Replacement Mortgage, the Sponsor
shall, if required to deliver any such Qualified Replacement Mortgage, deliver
to the Indenture Trustee with respect to such Qualified Replacement Mortgage
such documents and agreements as are required to be held by the Indenture
Trustee in accordance with Section 2.2. For any Remittance Period during which
the Sponsor substitutes one or more Qualified Replacement Mortgages, the Master
Servicer shall determine the Substitution Amount which amount shall be deposited
by the Sponsor in the Principal and Interest Account at the time of
substitution. All amounts received in respect of the Qualified Replacement
Mortgage during the Remittance Period in which the circumstances giving rise to
such substitution occur shall not be a part of the Trust Estate and shall not be
deposited by the Master Servicer in the Principal and Interest Account. All
amounts received by the Master Servicer during the Remittance Period in which
the circumstances giving rise to such substitution occur in respect of any
Defective Mortgage Loan so removed by the Trust Estate shall be deposited by the
Master Servicer in the Principal and Interest Account. Upon such substitution,
the Qualified Replacement Mortgage shall be subject to the terms of this
Agreement in all respects, and the Sponsor shall be deemed (i) to have made with
respect to such Qualified Replacement Mortgage or Loans, as of the date of
substitution, the covenants, representations and warranties set forth in Section
3.3 and (ii) to have certified that such Mortgage Loan(s) is/are Qualified
Replacement Loan(s). The procedures applied by the Sponsor in selecting each
Qualified Replacement Mortgage shall not be materially adverse to the interests
of the Indenture Trustee, the Trust, the Noteholders or the Note Insurer.
SECTION 2.3. COOPERATION PROCEDURES.
(a) The Sponsor shall, in connection with the delivery of each
Qualified Replacement Mortgage to the Indenture Trustee, provide the Indenture
Trustee with the information set forth in the Schedules of Mortgage Loans with
respect to such Qualified Replacement Mortgage.
(b) The Sponsor, the Master Servicer and the Indenture Trustee
covenant to provide each other with all data and information required to be
provided by them hereunder at the times required hereunder, and additionally
covenant reasonably to cooperate with each other in providing any additional
information required by any of them in connection with their respective duties
hereunder.
SECTION 2.4. CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS.
(a) Subject to the conditions set forth in paragraph (b)
below, in consideration of the Indenture Trustee's delivery on the related
Subsequent Transfer Dates to or upon the order of the Sponsor of all or a
portion of the balance of funds in the Pre-Funding Account, the Sponsor shall,
on Subsequent Transfer Dates, transfer, assign and convey to the Trust or
request or direct the Trust to acquire, without recourse, for pledge to the
Indenture Trustee on behalf of the Noteholders all right, title and interest of
the Sponsor and the Warehouse Trusts in and to each
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Subsequent Mortgage Loan listed on the Schedule of Mortgage Loans delivered by
the Sponsor on such Subsequent Transfer Date, all of the Sponsor's right, title
and interest in and to principal collected and interest accruing on each such
Subsequent Mortgage Loan on and after the related Subsequent Cut-Off Date;
provided, however, that the Sponsor reserves and retains all of its right, title
and interest in and to principal collected and interest accruing on each such
Subsequent Mortgage Loan prior to the related Subsequent Cut-Off Date.
Upon assignment of any Subsequent Mortgage Loan, the Indenture
Trustee shall release to the Sponsor an amount equal to the Loan Balance thereof
as of the related Subsequent Cut-Off Date from amounts then on deposit in the
Pre-Funding Account.
(b) The Sponsor shall transfer to the Indenture Trustee the
Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above only upon the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date.
(i) the Sponsor shall have provided the Indenture Trustee and
the Note Insurer with a timely Addition Notice and shall have provided
any information reasonably requested by any of the foregoing with
respect to the Subsequent Mortgage Loans;
(ii) the Sponsor shall have delivered to the Indenture Trustee
a duly executed written assignment (including an acceptance by the
Indenture Trustee) in substantially the form of Exhibit I (the
"Subsequent Transfer Agreement"), which shall include Schedules of
Mortgage Loans, listing the Subsequent Mortgage Loans and any other
exhibits listed thereon;
(iii) the Master Servicer shall have deposited in the
Principal and Interest Account all collections in respect of the
Subsequent Mortgage Loans received on or after the related Subsequent
Cut-Off Date;
(iv) as of each Subsequent Transfer Date, neither the Master
Servicer nor the Sponsor was insolvent nor will any of them have been
made insolvent by such transfer nor is any of them aware of any pending
insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Trust or the Noteholders;
(vi) the Pre-Funding Period shall not have terminated; and
(vii) the Sponsor shall have delivered to the Indenture
Trustee an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (b) and paragraphs (c)
and (d) below and in the related Subsequent Transfer Agreement;
(c) The obligation of the Trust to accept the assignment of a
Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the
following requirements: (i) such Subsequent Mortgage Loan may not be more than
30 days contractually delinquent as of the related Subsequent Cut-Off Date.
(d) The obligation of the Trust to accept the assignment of a
Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the
following additional
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requirements, any of which may be waived or modified in any respect by the
Insurer by a written instrument executed by the Insurer:
(1) (i) No such Subsequent Mortgage Loan may have (i) a
Combined Loan-to-Value Ratio greater than __%; (ii) a Loan Balance in
excess of $_______; (iii) a remaining term to stated maturity in excess
of 360 months; (iv) a Loan Rate (as of the related Subsequent Cut-Off
Date) below _____%; or (v) be more than 30 days Delinquent (as of the
related Subsequent Cut-off Date).
(2) After giving effect to the assignment to the Trust of any
such Subsequent Mortgage Loan (i) the weighted average net Loan Rate of
all Mortgage Loans shall be no less than ____%; (ii) the average Loan
Balance shall not exceed $______; (iii) no more than ____% of the Pool
Principal Balance as of such Subsequent Transfer Date shall relate to
Mortgaged Properties which are non-owner occupied; (iv) the weighted
average Combined Loan-to-Value Ratio of all Mortgage Loans shall be no
greater than __%; (v) at least __% of the Pool Principal Balance as of
such Subsequent Transfer Date shall be "full documentation" loans; (vi)
at least __% of the Pool Principal Balance as of such Subsequent
Transfer Date shall relate to Mortgaged Properties which are
single-family residences; (vii) no more than ___% of the Pool Principal
Balance as of such Subsequent Transfer Date shall relate to Mortgaged
Properties in any one zip code; (viii) no more than ___% of the Pool
Principal Balance as of such Subsequent Transfer Date shall relate to
Mortgaged Properties in any one state; (ix) at least __% of the Pool
Principal Balance as of such Subsequent Transfer Date shall relate to
Mortgage Loans characterized with a credit grade of at least "A-"; (x)
no more than __% of the Pool Principal Balance as of such Subsequent
Transfer Date shall relate to Mortgage Loans characterized with a
credit grade of "B"; (xi) no more than ___% of the Pool Principal
Balance as of such Subsequent Transfer Date shall relate to Mortgage
Loans characterized with a credit grade of "C"; (xii) no more than ___%
of the Pool Principal Balance as of such Subsequent Transfer Date shall
relate to Mortgage Loans characterized with a credit grade of "D"; and
(xiv) no more than ___% of the Pool Principal Balance as of such
Subsequent Transfer Date shall relate to Mortgage Loans secured by
junior liens.
(e) In connection with the transfer and assignment of the
Subsequent Mortgage Loans, the Sponsor agrees to satisfy the conditions set
forth in Sections 2.1(b)-(j), 2.2 and 2.3 hereof.
(f) In connection with the transfer of any Subsequent Mortgage
Loans to the Trust, the Sponsor, the Master Servicer and the Indenture Trustee
may, with the prior written consent of the Insurer, amend the definition of
"Specified Overcollateralization Amount" for the purpose of changing the
Specified Overcollateralization Amount; provided, however, that any such
amendment must comply with the provisions of Section 3.19 of the Indenture.
(g) In connection with each Subsequent Transfer Date and on
the Payment Date occurring in ____________ and __________, the Sponsor and the
Indenture Trustee will cooperate in determining (i) the amount and correct
dispositions of Capitalized Interest Requirement, the Pre-Funding Earnings, and
the amount then on deposit in the Pre-Funding Account and (ii) any other
necessary matters in connection with the administration of the Trust A
Pre-Funding Account and of the Capitalized Interest Account. In the event that
any amounts are incorrectly released to the owners of the Certificates from
either the Pre-Funding Account or the Capitalized Interest Account, such owners
or the Sponsor shall immediately repay such amounts to the Indenture Trustee.
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SECTION 2.5. RETRANSFERS OF MORTGAGE LOANS AT ELECTION OF
SPONSOR.
Subject to the conditions set forth below, the Sponsor may,
but shall not be obligated to (except the Sponsor shall be obligated upon a
breach of a representation or warranty), accept the reassignment of Mortgage
Loans from the Trust as of the close of business on a Payment Date (the
"Transfer Date"). On the fifth Business Day (the "Transfer Notice Date") prior
to the Transfer Date designated in such notice, the Sponsor shall give the
Indenture Trustee, the Note Insurer and the Master Servicer a notice of the
proposed reassignment that contains a list of the Mortgage Loans to be
reassigned. Such reassignment of Mortgage Loans shall be permitted upon
satisfaction of the following conditions:
(i) No Event of Default has occurred or will occur as a result
of such removal;
(ii) the Overcollateralization Amount as of such Payment Date
equals or exceeds the then Specified Overcollateralization Amount.
(iii) On or before the Transfer Date, the Sponsor shall have
delivered to the Indenture Trustee and the Note Insurer a revised
Schedule of Mortgage Loans, reflecting the proposed transfer and the
Transfer Date, and the Master Servicer shall have marked its servicing
records to show that the Mortgage Loans reassigned to the holder of the
Sponsor are no longer owned by the Trust;
(iv) The Sponsor shall represent and warrant that random
selection procedures were used in selecting the Mortgage Loans and no
other selection procedures were used which are adverse to the interests
of the Sponsor or the Noteholders or the Note Insurer were utilized in
selecting the Mortgage Loans to be removed from the Trust;
(v) The Sponsor shall have delivered to the Indenture Trustee
and the Insurer an Officer's Certificate certifying that the items set
forth in subparagraphs (i) through (iv), inclusive, have been performed
or are true and correct, as the case may be. The Indenture Trustee may
conclusively rely on such Officer's Certificate, shall have no duty to
make inquiries with regard to the matters set forth therein and shall
incur no liability in so relying.
Upon receiving the requisite information from the Sponsor, the Master Servicer
shall perform in a timely manner those acts required of it, as specified above.
Upon satisfaction of the above conditions, on the Transfer Date the Indenture
Trustee shall deliver, or cause to be delivered, to the Sponsor the File for
each Mortgage Loan being so reassigned, and the Indenture Trustee shall execute
and deliver to the Sponsor such other documents prepared by the Sponsor as shall
be reasonably necessary to reassign such Mortgage Loans to the Sponsor. Any such
transfer of the Trust's right, title and interest in and to Mortgage Loans shall
be without recourse, representation or warranty by or of the Indenture Trustee
or the Trust to the Sponsor.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE SPONSOR AND THE MASTER SERVICER
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR.
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The Sponsor hereby represents, warrants and covenants to the Indenture
Trustee, the Note Insurer and to the Noteholders as of the Closing Date that:
(a) The Sponsor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of its business, or the properties owned or leased by it make such qualification
necessary. The Sponsor has all requisite corporate power and authority to own
and operate its properties, to carry out its business as presently conducted and
as proposed to be conducted and to enter into and discharge its obligations
under this Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which the Sponsor is a party by the Sponsor and its
performance and compliance with the terms of this Agreement and of the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Sponsor and will not violate the
Sponsor's Articles of Incorporation or Bylaws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or other
instrument to which the Sponsor is a party or by which the Sponsor is bound, or
violate any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Sponsor or any of
its properties.
(c) This Agreement and the other Operative Documents to which
the Sponsor is a party, assuming due authorization, execution and delivery by
the other parties hereto and thereto, each constitutes a valid, legal and
binding obligation of the Sponsor, enforceable against it in accordance with the
terms hereof and thereof, except as the enforcement hereof and thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law).
(d) The Sponsor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which might have consequences that would
materially and adversely affect the condition (financial or other) or operations
of the Sponsor or its properties or might have consequences that would
materially and adversely affect its performance hereunder and under the other
Operative Documents to which it is a party.
(e) No litigation is pending or, to the best of the Sponsor's
knowledge, threatened against the Sponsor which litigation might have
consequences that would prohibit its entering into this Agreement or any other
Operative Document to which it is a party or that might have consequences that
would materially and adversely affect its performance hereunder and under the
other Operative Documents to which it is a party.
(f) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the Sponsor contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement
which describe the Sponsor or matters or activities for which the Sponsor is
responsible in accordance with the Operative Documents or which are attributed
to the Sponsor therein are true and correct in all
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material respects, and the Registration Statement does not contain any untrue
statement of a material fact with respect to the Sponsor or omit to state a
material fact required to be stated therein or necessary in order to make the
statements contained therein with respect to the Sponsor not misleading. To the
best of the Sponsor's knowledge and belief, the Registration Statement does not
contain any untrue statement of a material fact required to be stated therein or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein not misleading.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Sponsor makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Notes and the execution and delivery by the Sponsor
of the Operative Documents to which it is a party, have been duly taken, given
or obtained, as the case may be, are in full force and effect on the date
hereof, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review thereof may
be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents on the part of the Sponsor and the performance by the
Sponsor of its obligations under this Agreement and such of the other Operative
Documents to which it is a party.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Sponsor.
(j) The Sponsor received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the Mortgage Loans
to the Trust.
(k) The Sponsor did not sell any interest in any Mortgage Loan
with any intent to hinder, delay or defraud any of its respective creditors.
(l) The Sponsor is solvent and the Sponsor will not be
rendered insolvent as a result of the sale of the Mortgage Loans to the Trust.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the Mortgage
Loans to the Indenture Trustee.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF THE MASTER
SERVICER.
The Master Servicer hereby represents, warrants and covenants to the Indenture
Trustee, the Note Insurer and to the Noteholders as of the Closing Date that:
(a) The Master Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is, and each Sub-Servicer is, in compliance with the laws of each state in which
any Property is located to the extent necessary to enable it to perform its
obligations hereunder and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business, or the properties owned or
leased by it make such qualification necessary. The Master Servicer and each
Sub-servicer has all requisite corporate power and authority to own and operate
its properties, to carry out its business as
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presently conducted and as proposed to be conducted and to enter into and
discharge its obligations under this Agreement and the other Operative Documents
to which it is a party. The Master Servicer has, on a consolidated basis with
its parent, AMHC, equity of at least $5,000,000, as determined in accordance
with generally accepted accounting principles.
(b) The execution and delivery of this Agreement by the Master
Servicer and its performance and compliance with the terms of this Agreement and
the other Operative Documents to which it is a party have been duly authorized
by all necessary corporate action on the part of the Master Servicer and will
not violate the Master Servicer's Articles of Incorporation or Bylaws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any material
contract, agreement or other instrument to which the Master Servicer is a party
or by which the Master Servicer is bound or violate any statute or any order,
rule or regulation of any court, governmental agency or body or other tribunal
having jurisdiction over the Master Servicer or any of its properties.
(c) This Agreement and the other Operative Documents to which
the Master Servicer is a party, assuming due authorization, execution and
delivery by the other parties hereto and thereto, each constitutes a valid,
legal and binding obligation of the Master Servicer, enforceable against it in
accordance with the terms hereof, except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law).
(d) The Master Servicer is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Master Servicer or its properties or might have consequences
that would materially and adversely affect its performance hereunder and under
the other Operative Documents to which the Master Servicer is a party.
(e) No litigation is pending or, to the best of the Master
Servicer's knowledge, threatened against the Master Servicer which litigation
might have consequences that would prohibit its entering into this Agreement or
any other Operative Document to which it is a party or that would materially and
adversely affect its performance hereunder and under the other Operative
Documents to which the Master Servicer is a party.
(f) The statements contained in the Registration Statement
which describe the Master Servicer or matters or activities for which the Master
Servicer is responsible in accordance with the Operative Documents or which are
attributed to the Master Servicer therein are true and correct in all material
respects, and the Registration Statement does not contain any untrue statement
of a material fact with respect to the Master Servicer or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein with respect to the Master Servicer not misleading.
(g) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Master Servicer makes no
such representation or warranty), that are necessary or advisable in connection
with the execution and delivery by the Master Servicer of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the
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case may be, are in full force and effect on the date hereof, are not subject to
any pending proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative Documents on
the part of the Master Servicer and the performance by the Master Servicer of
its obligations under this Agreement and such of the other Operative Documents
to which it is a party.
(h) The collection practices used by the Master Servicer with
respect to the Mortgage Loans directly serviced by it have been, in all material
respects, legal, proper, prudent and customary in the mortgage loan servicing
business.
(i) The transactions contemplated by this Agreement are in the
ordinary course of business of the Master Servicer.
(j) The terms of each existing Sub-Servicing Agreement and
each designated Sub-servicer are acceptable to the Master Servicer and any new
Sub-Servicing Agreements or Sub-servicers will comply with the provisions of
Section 4.3.
It is understood and agreed that the representations and
warranties set forth in this Section 3.2 shall survive delivery of the Mortgage
Loans to the Indenture Trustee.
Upon discovery by any of the Master Servicer, the Sponsor, any
Sub-Servicer, the Note Insurer or the Indenture Trustee of a breach of any of
the representations and warranties set forth in this Section 3.2 which
materially and adversely affects the interests of the Noteholders or of the Note
Insurer, the party discovering such breach shall give prompt written notice to
the other parties. Within 60 days of its discovery or its receipt of notice of
breach, the Master Servicer shall cure such breach in all material respects;
provided, however, that, if the Master Servicer can demonstrate to the
reasonable satisfaction of the Note Insurer and the Indenture Trustee that it is
diligently pursuing remedial action, then the cure period may be extended with
the written approval of the Note Insurer.
SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF THE SPONSOR
WITH RESPECT TO THE MORTGAGE LOANS.
(a) The Sponsor makes the following representations and
warranties as to the Mortgage Loans on which the Note Insurer relies and the
Indenture Trustee relies in accepting the Mortgage Loans in trust and executing
and authenticating the Noteholders. Such representations and warranties speak as
of the Closing Date with respect to the Initial Mortgage Loans, as of the
related Subsequent Transfer Date with respect to any Subsequent Mortgage Loan,
or as of the Transfer Date upon which any Qualified Replacement Mortgage is
added to the Trust, but shall in each case survive the pledge of the Mortgage
Loans to the Indenture Trustee pursuant to the Indenture:
(i) The information with respect to each Mortgage Loan set
forth in the Schedules of Mortgage Loans is true and correct as of the
Cut-Off Date or the Subsequent Cut-Off Date, as the case may be;
(ii) All of the original or certified documentation set forth
in Section 2.1 (including all material documents related thereto) with
respect to each Mortgage Loan
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has been or will be delivered to the Indenture Trustee on the Closing
Date or the related Subsequent Transfer Date, as the case may be, or as
otherwise provided in Section 2.1;
(iii) Except for any Unaffiliated Originator Loans being
serviced by a servicer other than the Master Servicer, each Mortgage
Loan is being serviced by the Master Servicer or a Person controlling,
controlled by or under common control with the Master Servicer and
qualified to service mortgage loans;
(iv) The Mortgage Note related to each Mortgage Loan in the
Trust bears a Coupon Rate of at least ____% per annum;
(v) As of the Cut-Off Date, none of the Initial Mortgage Loans
are more than 59 days Delinquent; as of the related Subsequent Cut-Off
Date, no Subsequent Mortgage Loan shall be more than 30 days
Delinquent;
(vi) As of the Closing Date and any Subsequent Transfer Date,
no more than ___% of the aggregate Loan Balances of the Initial
Mortgage Loans or the Subsequent Mortgage Loans, as applicable, is
secured by Properties located within any single zip code area;
(vii) Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform, in all material respects to the description
thereof set forth in the Registration Statement; and
(viii) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the description
thereof set forth in the Prospectus.
(b) The Sponsor hereby assigns to the Indenture Trustee for
the benefit of the Noteholders and the Note Insurer (so long as a Note Insurer
Default has not occurred and is continuing) all of its right, title and interest
in respect of each Master Transfer Agreement applicable to the related Mortgage
Loan. Insofar as such Master Transfer Agreement provides for representations and
warranties made by the related Originator in respect of a Mortgage Loan and any
remedies provided thereunder for any breach of such representations and
warranties, such right, title and interest may be enforced by the Master
Servicer or by the Indenture Trustee on behalf of the Noteholders and the Note
Insurer. Upon the discovery by the Sponsor, the Master Servicer, the Note
Insurer or the Indenture Trustee of a breach of any of the representations and
warranties made in a Master Transfer Agreement in respect of any Mortgage Loan
which materially and adversely affects the interests of the Noteholders or of
the Note Insurer in such Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other parties. The Master Servicer shall
promptly notify the related Originator of such breach and request that such
Originator cure such breach or take the actions described in Section 3.4(b)
hereof within the time periods required thereby, and if such Originator does not
cure such breach in all material respects, the Sponsor shall cure such breach or
take such actions. The obligations of the Sponsor or Master Servicer, as the
case may be, set forth herein with respect to any Mortgage Loan as to which such
a breach has occurred and is continuing shall constitute the sole obligations of
the Master Servicer and of the Sponsor in respect of such breach.
SECTION 3.4. COVENANTS OF SPONSOR TO TAKE CERTAIN ACTIONS WITH
RESPECT TO THE MORTGAGE LOANS IN CERTAIN SITUATIONS.
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(a) With the provisos and limitations as to remedies set forth
in this Section 3.4, upon the discovery by the Sponsor, the Master Servicer, the
Note Insurer, any Sub-Servicer or the Indenture Trustee that the representations
and warranties set forth in Section 3.3 of this Agreement or in the Master
Transfer Agreement were untrue in any material respect as of the Closing Date
(or the Subsequent Transfer Date, as the case may be) and such breaches of the
representations and warranties materially and adversely affect the interests of
the Noteholders or of the Note Insurer, the party discovering such breach shall
give prompt written notice to the other parties.
The Sponsor acknowledges that a breach of any representation
or warranty (x) relating to marketability of title sufficient to transfer
unencumbered title to a Mortgage Loan, (y) relating to enforceability of the
Mortgage Loan against the related Mortgagor or Property or (z) set forth in
clause (viii) of Section 3.3 above constitutes breach of a representation or
warranty which materially and adversely affects the interests of the Noteholders
or of the Note Insurer in such Mortgage Loan.
(b) Upon the earliest to occur of the Sponsor's discovery, its
receipt of notice of breach from any one of the other parties hereto or from the
Note Insurer or such time as a breach of any representation and warranty
materially and adversely affects the interests of the Noteholders or of the Note
Insurer as set forth above, the Sponsor hereby covenants and warrants that it
shall promptly cure such breach in all material respects or it shall (or shall
cause an affiliate of the Sponsor to), subject to the further requirements of
this paragraph, on the second Remittance Date next succeeding such discovery,
receipt of notice or such other time (i) substitute in lieu of each Mortgage
Loan which has given rise to the requirement for action by the Sponsor a
Qualified Replacement Mortgage and deliver the Substitution Amount applicable
thereto, together with the aggregate amount of all Delinquency Advances and
Servicing Advances, including Nonrecoverable Advances, theretofore made with
respect to such Mortgage Loan, to the Master Servicer for deposit in the
Principal and Interest Account or (ii) purchase such Mortgage Loan from the
Trust at a purchase price equal to the Loan Purchase Price thereof, which
purchase price shall be delivered to the Master Servicer for deposit in the
Principal and Interest Account. It is understood and agreed that the obligation
of the Sponsor to cure the defect, or substitute for, or purchase any Mortgage
Loan as to which a representation or warranty is untrue in any material respect
and has not been remedied shall constitute the sole remedy available to the
Noteholders, the Indenture Trustee or the Note Insurer.
(c) In the event that any Qualified Replacement Mortgage is
delivered by an Originator or by the Sponsor (or by an affiliate of the Sponsor,
as the case may be) to the Trust pursuant to Section 3.3, Section 3.4 or Section
2.2 hereof, the related Originator and the Sponsor shall be obligated to take
the actions described in Section 3.4(b) with respect to such Qualified
Replacement Mortgage upon the discovery by any of the Noteholders, the Sponsor,
the Master Servicer, the Note Insurer, any Sub-Servicer or the Indenture Trustee
that the representations and warranties set forth in the related Master Transfer
Agreement or in Section 3.3 above are untrue in any material respect on the date
such Qualified Replacement Mortgage is conveyed to the Trust such that the
interests of the Noteholders or the Note Insurer in the related Qualified
Replacement Mortgage are materially and adversely affected; provided, however,
that for the purposes of this subsection (c) the representations and warranties
in the related Master Transfer Agreement or as set forth in Section 3.3 above
referring to items "as of the Cut-Off Date" or "as of the Subsequent Cut-Off
Date" or "as of the Closing Date" or "as of the Subsequent Transfer Date" shall
be deemed to refer to such items as of the date such Qualified Replacement
Mortgage is conveyed to the Trust.
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(d) It is understood and agreed that the covenants set forth
in this Section 3.4 shall survive delivery of the respective Mortgage Loans
(including Qualified Replacement Mortgage Loans) to the Indenture Trustee on
behalf of the Trust.
ARTICLE IV
SERVICING AND ADMINISTRATION
OF MORTGAGE LOANS
SECTION 4.1. MASTER SERVICER AND SUB-SERVICERS.
(a) Acting directly or through one or more Sub-Servicers as
provided in Section 4.3, the Master Servicer, as master servicer, shall service
and administer the Mortgage Loans in accordance with this Agreement and on
behalf of the Indenture Trustee and the Note Insurer and with reasonable care,
and using that degree of skill and attention that the Master Servicer exercises
with respect to comparable mortgage loans that it services for itself or others,
and shall have full power and authority, acting alone, to do or cause to be done
any and all things in connection with such servicing and administration which it
may deem necessary or desirable.
(b) The duties of the Master Servicer shall include collecting
and posting of all payments, responding to inquiries of Mortgagors or by
federal, state or local government authorities with respect to the Mortgage
Loans, investigating delinquencies, reporting tax information to Mortgagors in
accordance with its customary practices and accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the Note
Insurer, as applicable, with respect to distributions, paying Compensating
Interest and making Delinquency Advances and Servicing Advances pursuant hereto.
The Master Servicer shall follow its customary standards, policies and
procedures in performing its duties as Master Servicer. The Master Servicer
shall cooperate with the Indenture Trustee and furnish to the Indenture Trustee
with reasonable promptness information in its possession as may be necessary or
appropriate to enable the Indenture Trustee to perform its tax reporting duties
hereunder. The Indenture Trustee shall furnish the Master Servicer or any
Sub-servicer with any powers of attorney and other documents necessary or
appropriate to enable the Master Servicer or any Sub-servicer to carry out its
servicing and administrative duties hereunder.
(c) The Master Servicer shall have the right using that degree
of skill and attention that the Master Servicer exercises with respect to
comparable mortgage loans that it services for itself or others, to approve
applications of Mortgagors for consent to (i) partial releases of Mortgages,
(ii) alterations to Properties and (iii) removal, demolition or division of
Properties. No application for such approval shall be considered by the Master
Servicer unless: (x) the provisions of the related Note and Mortgage have been
complied with; (y) the Combined Loan-to-Value Ratio and the Mortgagor's
debt-to-income ratio after any release does not exceed the Combined
Loan-to-Value Ratio and debt-to-income ratio applicable to such Mortgage Loan at
origination and (z) the lien priority of the related Mortgage is not adversely
affected; provided, however, that the foregoing requirements (x), (y) and (z)
shall not apply to any such situation described in this paragraph if such
situation results from any condemnation or easement activity by a governmental
entity.
(d) The Master Servicer may, and is hereby authorized to,
perform any of its servicing responsibilities with respect to all or certain of
the Mortgage Loans through a Sub-Servicer as it may from time to time designate,
but no such designation of a Sub-Servicer shall
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serve to release the Master Servicer from any of its obligations under this
Agreement. Such Sub-Servicer shall have all the rights and powers of the Master
Servicer with respect to such Mortgage Loans under this Agreement.
(e) Without limiting the generality of the foregoing, but
subject to Sections 4.13 and 4.14, the Master Servicer in its own name or in the
name of a Sub-Servicer may be authorized and empowered pursuant to a power of
attorney executed and delivered by the Indenture Trustee to execute and deliver,
and may be authorized and empowered by the Indenture Trustee, to execute and
deliver, on behalf of itself, the Noteholders, the Note Insurer and the
Indenture Trustee or any of them, (i) any and all instruments of satisfaction or
cancellation or of partial or full release or discharge and all other comparable
instruments with respect to the Mortgage Loans and with respect to the
Properties, (ii) to institute foreclosure proceedings or obtain a deed in lieu
of foreclosure so as to effect ownership of any Property on behalf of the
Indenture Trustee, (iii) to hold title to any Property upon such foreclosure or
deed in lieu of foreclosure on behalf of the Indenture Trustee, and (iv) to
consent to any modification of the terms of any Note not expressly prohibited
hereby if the effect of any such modification will not be to affect materially
and adversely the security afforded by the related Property and the timing of
the receipt of payments required hereby or the interests of the Note Insurer;
provided, however, that Section 4.14(a) shall constitute a power of attorney
from the Indenture Trustee to the Master Servicer or any Sub-servicer to execute
an instrument of satisfaction (or assignment of mortgage without recourse) with
respect to any Mortgage Loan paid in full (or with respect to which payment in
full has been escrowed).
(f) The Master Servicer shall give prompt notice to the
Indenture Trustee of any action, of which the Master Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.
(g) Servicing Advances incurred by the Master Servicer or any
Sub-Servicer in connection with the servicing of the Mortgage Loans (including
any penalties in connection with the payment of any taxes and assessments or
other charges) on any Property shall be recoverable by the Master Servicer or
such Sub-Servicer to the extent described in Section 4.9(c) and in Section
8.7(b)(xvii) of the Indenture.
SECTION 4.2. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS.
(a) The Master Servicer shall, to the extent such procedures
shall be consistent with this Agreement and the terms and provisions of any
applicable Insurance Policies, follow Accepted Servicing Practices. Consistent
with the foregoing, the Master Servicer may in its discretion (i) waive any
assumption fees, late payment charges, charges for checks returned for
insufficient funds, prepayment fees, if any, or other fees which may be
collected in the ordinary course of servicing the Mortgage Loans, (ii) if a
Mortgagor is in default or about to be in default because of a Mortgagor's
financial condition, arrange with the Mortgagor a schedule for the payment of
delinquent payments due on the related Mortgage Loan; provided, however, the
Master Servicer shall not reschedule the payment of delinquent payments more
than one time in any twelve consecutive months with respect to any Mortgagor.
(b) The Master Servicer shall hold in escrow on behalf of the
related Mortgagor all Prepaid Installments received by it, and shall apply such
Prepaid Installments as directed by such Mortgagor and as set forth in the
related Note.
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SECTION 4.3. SUB-SERVICING AGREEMENTS BETWEEN MASTER SERVICER
AND SUB-SERVICERS.
The Master Servicer may enter into Sub-Servicing Agreements for any servicing
and administration of Mortgage Loans with any institution which may be an
Affiliate, and which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Sub-Servicing Agreement. The
Master Servicer shall give notice to the Note Insurer and the Indenture Trustee
of the appointment of any Sub-Servicer and shall furnish to the Note Insurer and
the Indenture Trustee a copy of the Subservicing Agreement. For purposes of this
Agreement, the Master shall be deemed to have received payments on Mortgage
Loans when any Sub-Servicer has received such payments. Any such Sub-Servicing
Agreement shall be consistent with and not violate the provisions of this
Agreement.
SECTION 4.4. SUCCESSOR SUB-SERVICERS.
The Master Servicer may terminate any Sub-Servicing Agreement in accordance
with the terms and conditions of such Sub-Servicing Agreement and to either
itself directly service the related Mortgage Loans itself or enter into a
Sub-Servicing Agreement with a successor Sub-Servicers that qualifies under
Section 4.3.
SECTION 4.5. LIABILITY OF MASTER SERVICER.
The Master Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub-Servicer or otherwise, and the Master Servicer shall be
obligated to the same extent and under the same terms and conditions as if it
alone were servicing and administering the Mortgage Loans. The Master Servicer
shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Master by such Sub-Servicer and nothing contained in such
Sub-Servicing Agreement shall be deemed to limit or modify this Agreement. The
Trust shall not indemnify the Master Servicer for any losses due to the Master
Servicer's negligence.
SECTION 4.6. NO CONTRACTUAL RELATIONSHIP BETWEEN SUB-SERVICER
AND INDENTURE TRUSTEE OR THE NOTEHOLDERS.
Any Sub-Servicing Agreement and any other transactions or services relating to
the Mortgage Loans involving a Sub-Servicer shall be deemed to be between the
Sub-Servicer and the Master Servicer alone and the Note Insurer, the Indenture
Trustee and the Noteholders shall not be deemed parties thereto and shall have
no claims, rights, obligations, duties or liabilities with respect to any
Sub-Servicer except as set forth in Section 4.7.
SECTION 4.7. ASSUMPTION OR TERMINATION OF SUB-SERVICING
AGREEMENT BY INDENTURE TRUSTEE.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Master Servicer
hereunder by the Indenture Trustee pursuant to Section 5.1, it is understood and
agreed that the Master Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer may be
assumed or terminated by the Indenture Trustee at its option. Any termination
fee due under any such Sub-servicing agreement shall be paid by the preceding
Master Servicer but in no event shall the Indenture Trustee be liable for any
such fee.
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The Master Servicer shall, upon request of the Indenture
Trustee, but at the expense of the Master Servicer, deliver to the assuming
party documents and records relating to each Sub-Servicing Agreement and an
accounting of amounts collected and held by it and otherwise use its best
reasonable efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements to the assuming party, without the payment of any fee
by the Indenture Trustee, notwithstanding any contrary provision in any
Sub-Servicing Agreement.
SECTION 4.8. PRINCIPAL AND INTEREST ACCOUNT.
(a) The Master Servicer and/or each Sub-servicer, as
applicable, shall establish in the name of the Trust for the benefit of the
Noteholders and the Note Insurer, as their interests may appear, and maintain at
one or more Designated Depository Institutions the Principal and Interest
Account.
Subject to Subsections (c) and (e) below, the Master Servicer
and any Sub-servicer shall deposit all receipts related to the Mortgage Loans to
the Principal and Interest Account on a daily basis (but no later than the
second Business Day after receipt).
Within one Business Day of the Closing Date, on each
Subsequent Transfer Date and each Transfer Date, the Sponsor and/or the Master
Servicer shall deposit to the Principal and Interest Account all receipts
related to the Mortgage Loans which relate to or are received on or after the
Cut-Off Date or the Subsequent Cut-Off Date, as the case may be.
(b) All funds in the Principal and Interest Account may only
be held (i) uninvested, up to the limits insured by the FDIC or (ii) invested in
Eligible Investments. The Principal and Interest Account shall be held in the
Trust in the name of the Trust and for the benefit of the Noteholders and the
Note Insurer. Any investment earnings on funds held in the Principal and
Interest Account shall be for the account of the Master Servicer and may only be
withdrawn from the Principal and Interest Account by the Master Servicer
immediately following the remittance of the Monthly Remittance Amounts by the
Master Servicer. Any references herein to amounts on deposit in the Principal
and Interest Account shall refer to amounts net of such investment earnings. Any
investment losses are at the expense of the Master Servicer and shall be
replaced on or prior to the Remittance Date.
(c) Subject to Subsection (e) below, the Master Servicer shall
deposit to the Principal and Interest Account all principal and interest
collections on the Mortgage Loans received on or after the Cut-Off Date or
related Subsequent Cut-Off Date including any Prepaid Installments, Prepayments
and Net Liquidation Proceeds, all Loan Purchase Prices and Substitution Amounts
received or paid by the Master Servicer with respect to the Mortgage Loans,
other recoveries or amounts related to the Mortgage Loans received by the Master
Servicer, Compensating Interest and Delinquency Advances together with any
amounts which are reimbursable from the Principal and Interest Account, but net
of (i) the Servicing Fee with respect to each Mortgage Loan and other servicing
compensation to the Master Servicer as permitted by Section 4.15 hereof, (ii)
principal (including Prepayments) collected on the related Mortgage Loans prior
to the Cut-Off Date or related Subsequent Cut-Off Date, (iii) interest accruing
on the related Mortgage Loans prior to the Cut-Off Date or related Subsequent
Cut-Off Date and (iv) Net Liquidation Proceeds to the extent such Net
Liquidation Proceeds exceed the Loan Balance of the related Mortgage Loan.
(d) (i) The Master Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes:
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(1) to effect the timely remittance to the Indenture
Trustee of the Monthly Remittance Amounts due on the
Remittance Date;
(2) to reimburse itself for unreimbursed Delinquency
Advances and Servicing Advances and Nonrecoverable Advances;
(3) to withdraw investment earnings on amounts on
deposit in the Principal and Interest Account;
(4) to withdraw amounts that have been deposited to
the Principal and Interest Account in error; and
(5) to clear and terminate the Principal and Interest
Account following the termination of the Trust Estate pursuant
to Article X of the Indenture.
(ii) On the tenth day of each month, the Master Servicer shall
send to the Indenture Trustee a report, in the form of a computer tape,
detailing the payments on the Mortgage Loans during the prior
Remittance Period. Such tape shall be in the form and have the
specifications as may be agreed to between the Master Servicer and the
Indenture Trustee from time to time. The Note Insurer shall have the
right to request this computer tape upon providing 3 Business Days
written notice to the Master Servicer.
(iii) On each Remittance Date the Master Servicer shall remit
to the Indenture Trustee by wire transfer, or otherwise make funds
available in immediately available funds for deposit in the Note
Account pursuant to Section 8.7(a) of the Indenture, the Interest
Remittance Amount and the Principal Remittance Amount.
(e) To the extent that the ratings, if any, then assigned to
the unsecured debt of the Master Servicer or of the Master Servicer's ultimate
corporate parent are satisfactory to the Note Insurer, the Indenture Trustee,
Moody's and Standard & Poor's, then the requirement to maintain the Principal
and Interest Account may be waived by an instrument signed by the Note Insurer,
Standard & Poor's, Indenture Trustee, and Moody's, and the Master Servicer may
be allowed to co-mingle with its general funds the amounts otherwise required to
be deposited to the Principal and Interest Account, on such terms and subject to
such conditions as the Note Insurer, the Indenture Trustee, Moody's and Standard
& Poor's may permit.
SECTION 4.9. DELINQUENCY ADVANCES, COMPENSATING INTEREST AND
SERVICING ADVANCES.
(a) The Master Servicer is required, not later than each
Remittance Date, to deposit into the Principal and Interest Account an amount
equal to the sum of the interest portions (net of the Servicing Fees) due, but
not collected, with respect to Delinquent Mortgage Loans during the prior
Remittance Period, but only if, in its good faith business judgment, the Master
Servicer reasonably believes that such amount will ultimately be recovered from
the related Mortgage Loan. Such amounts are "Delinquency Advances".
The Master Servicer shall be permitted to fund its payment of
Delinquency Advances on any Remittance Date and to reimburse itself for any
Delinquency Advances paid from the Master Servicer's own funds, from collections
on the related Mortgage Loan. The Master Servicer may use funds deposited to the
Principal and Interest Account subsequent to the related Remittance Period to
fund its payment of Delinquency Advances related to a Payment Date. The Master
Servicer shall also fund Delinquency Advances from the deposits into the
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Principal and Interest Account with respect thereto (i) late collections from
the Mortgagor whose Delinquency gave rise to the shortfall which resulted in
such Delinquency Advance and (ii) Net Liquidation Proceeds recovered on account
of the related Mortgage Loan to the extent of the amount of aggregate
Delinquency Advances related thereto or (iii) from its own funds. If not
therefore recovered from the related Mortgagor or the related Net Liquidation
Proceeds, Delinquency Advances constituting Nonrecoverable Advances shall be
recoverable pursuant to Section 8.7(b)(xvii) of the Indenture and Section 4.8(a)
hereof.
(b) On or prior to each Remittance Date, the Master Servicer
shall deposit in the Principal and Interest Account with respect to any full
Prepayment received on a Mortgage Loan during the related Remittance Period out
of its own funds without any right of reimbursement therefor, an amount equal to
the difference between (x) 30 days' interest at the Mortgage Loan's Coupon Rate
(less the Servicing Fee) on the Loan Balance of such Mortgage Loan as of the
first day of the related Remittance Period and (y) to the extent not previously
advanced, the interest (less the Servicing Fee) paid by the Mortgagor with
respect to the Mortgage Loan during such Remittance Period (any such amount paid
by the Master Servicer, "Compensating Interest"). The Master Servicer shall in
no event be required to pay Compensating Interest with respect to any Remittance
Period in an amount in excess of the aggregate Servicing Fee received by the
Master Servicer with respect to all Mortgage Loans for such Remittance Period
nor shall it be required to pay Compensating Interest due to partial prepayments
or Relief Act Shortfalls.
(c) The Master Servicer will pay all "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of (i) Preservation Expenses, (ii) any enforcement
or judicial proceedings, including (a) foreclosures and (b) other legal actions
and costs associated therewith that potentially affect the existence, validity,
priority, enforceability, or collectibility of the Mortgage Loans, including
collection agency fees and costs of pursuing or obtaining personal judgments,
garnishments, levies, attachment and similar actions, and (iii) the costs of the
conservation, management, liquidation, sale or other disposition of any REO
Property, including reasonable fees paid to any independent contractor in
connection therewith, and (iv) advances to keep liens current, unless with
respect to any of the foregoing the Master Servicer has determined that such
advance would not be recoverable. Each such amount so paid will constitute a
"Servicing Advance". The Master Servicer may recover Servicing Advances (x) from
the Mortgagors to the extent permitted by the Mortgage Loans, from Liquidation
Proceeds realized upon the liquidation of the related Mortgage Loan and (y) as
provided in Section 4.8(d) hereof.
(d) On the Remittance Date in ___________, the Master Servicer
shall make a special non-recoverable advance equal to one-month's interest,
calculated at the Note Interest Rate (applicable to the __________ Payment Date)
for the Notes with respect to all Mortgage Loans in the Trust not having a
payment due during __________ and the amounts of such advance shall be included
in the Interest Remittance Amount related to the Trust.
SECTION 4.10. PURCHASE OF MORTGAGE LOANS.
The Master Servicer may, but is not obligated to, purchase for its own account
any Mortgage Loan which becomes Delinquent, in whole or in part, as to four
consecutive monthly installments or any Mortgage Loan as to which enforcement
proceedings have been brought by the Master Servicer or by any Sub-Servicer
pursuant to Section 4.13. Any such Mortgage Loan so purchased shall be purchased
by the Master Servicer on a Remittance Date at a purchase price equal to the
Loan Purchase Price thereof, which purchase price shall be deposited in the
Principal and Interest
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Account; provided, that the Master Servicer may not purchase any Mortgage Loans
pursuant to this Section 4.10 if such purchase will cause the aggregate purchase
price to exceed 10% of the Original Pool Principal Balance.
SECTION 4.11. MAINTENANCE OF INSURANCE.
(a) The Master Servicer shall cause to be maintained with
respect to each Mortgage Loan a hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage, and which
provides for a recovery by the Master Servicer on behalf of the Trust of
insurance proceeds relating to such Mortgage Loan in an amount not less than the
least of (i) the outstanding principal balance of the Mortgage Loan, (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis and (iii) the full insurable value of the premises.
(b) If the Mortgage Loan at the time of origination relates to
a Property in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards, the Master Servicer
will cause to be maintained with respect thereto a flood insurance policy in a
form meeting the requirements of the current guidelines of the Federal Insurance
Administration with a generally acceptable carrier in an amount representing
coverage, and which provides for a recovery by the Master Servicer on behalf of
the Trust of insurance proceeds relating to such Mortgage Loan of not less than
the least of (i) the outstanding principal balance of the Mortgage Loan, (ii)
the minimum amount required to compensate for damage or loss on a replacement
cost basis and (iii) the maximum amount of insurance that is available under the
Flood Disaster Protection Act of 1973. The Master Servicer shall indemnify the
Trust and the Note Insurer out of the Master Servicer's own funds for any loss
to the Trust and the Note Insurer resulting from the Master Servicer's failure
to maintain the insurance required by this Section.
(c) It is understood and agreed that such insurance shall be
with insurers approved by the Master Servicer and that no earthquake or other
additional insurance is to be required of any Mortgagor or to be maintained on
property acquired in respect of a defaulted loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. Any cost incurred by the Master Servicer in
maintaining any such insurance shall be added to the amount owing under the
Mortgage Loan where the terms of the Mortgage Loan so permit. Such costs shall
be recoverable by the Master Servicer pursuant to Section 4.9.
(d) In the event that the Master Servicer shall obtain and
maintain a blanket policy insuring against fire, flood and hazards of extended
coverage on all of the Mortgage Loans, then, to the extent such policy names the
Master Servicer as loss payee and provides coverage in an amount equal to the
aggregate unpaid principal balance on the Mortgage Loans without co-insurance,
and otherwise complies with the requirements of this Section 4.11, the Master
Servicer shall be deemed conclusively to have satisfied its obligations with
respect to fire and hazard insurance coverage under this Section 4.11, it being
understood and agreed that such blanket policy may contain a deductible clause,
in which case the Master Servicer shall, in the event that there shall not have
been maintained on the related Property a policy complying with the preceding
paragraphs of this Section 4.11, and there shall have been a loss which would
have been covered by such policy, deposit in the Principal and Interest Account
from the Master Servicer's own funds the difference, if any, between the amount
that would have been payable under a policy complying with the preceding
paragraphs of this Section 4.11 and the amount paid under such blanket policy.
Upon the request of the Indenture Trustee or the Note Insurer, the
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Master Servicer shall cause to be delivered to the Indenture Trustee and the
Note Insurer, a certified true copy of such policy.
SECTION 4.12. DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION
AGREEMENTS.
When a Property has been or is about to be conveyed by the Mortgagor, the
Master Servicer shall, to the extent it has knowledge of such conveyance or
prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Master Servicer shall not exercise
any such right if (i) the "due-on-sale" clause, in the reasonable belief of the
Master Servicer, is not enforceable under applicable law or (ii) the Master
Servicer reasonably believes that to permit an assumption of the Mortgage Loan
would not materially and adversely affect the interest of the Noteholders or of
the Note Insurer. In such event, the Master Servicer shall enter into an
assumption and modification agreement with the person to whom such property has
been or is about to be conveyed, pursuant to which such person becomes liable
under the Note and, unless prohibited by applicable law or the Mortgage
Documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Master Servicer is authorized to enter into
a substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Note; provided, however, that to the
extent any such substitution of liability agreement would be delivered by the
Master Servicer outside of its usual procedures for mortgage loans held in its
own portfolio the Master Servicer shall, prior to executing and delivering such
agreement, obtain the prior written consent of the Control Party. The Mortgage
Loan, as assumed, shall conform in all respects to the requirements,
representations and warranties of this Agreement. The Master Servicer shall
notify the Indenture Trustee that any such assumption or substitution agreement
has been completed by forwarding to the Indenture Trustee the original copy of
such assumption or substitution agreement, which copy shall be added by the
Indenture Trustee to the related File and which shall, for all purposes, be
considered a part of such File to the same extent as all other documents and
instruments constituting a part thereof. The Master Servicer shall be
responsible for recording or causing the recordation any such assumption or
substitution agreements. In connection with any such assumption or substitution
agreement, the required monthly payment on the related Mortgage Loan shall not
be changed but shall remain as in effect immediately prior to the assumption or
substitution, the stated maturity or outstanding principal amount of such
Mortgage Loan shall not be changed nor shall any required monthly payments of
principal or interest be deferred or forgiven. Any fee collected by the Master
Servicer or the Sub-Servicer for consenting to any such conveyance or entering
into an assumption or substitution agreement shall be retained by or paid to the
Master Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Master Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Mortgage Loan by operation of law or any assumption which the
Master Servicer may be restricted by law from preventing, for any reason
whatsoever.
SECTION 4.13. REALIZATION UPON DEFAULTED MORTGAGE LOANS.
(a) The Master Servicer shall foreclose upon or otherwise
comparably effect the ownership on behalf of the Trust of Properties relating to
defaulted Mortgage Loans as to which no satisfactory arrangements can be made
for collection of Delinquent payments and
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which the Master Servicer has not purchased pursuant to Section 4.10. In
connection with such foreclosure or other conversion, the Master Servicer shall
exercise such of the rights and powers vested in it hereunder, and use the same
degree of care and skill in their exercise or use, as prudent mortgage lenders
would exercise or use under the circumstances in the conduct of their own
affairs, including, but not limited to, advancing funds for the payment of
taxes, amounts due with respect to Senior Liens, and insurance premiums. Any
amounts so advanced shall constitute "Servicing Advances" within the meaning of
Section 4.9(c) hereof.
Notwithstanding the generality of the foregoing provisions,
the Master Servicer shall manage, conserve, protect and operate each REO
Property for the Noteholders solely for the purpose of its prompt disposition
and sale. Pursuant to its efforts to sell such REO Property, the Master Servicer
shall either itself or through an agent selected by the Master Servicer protect
and conserve such REO Property in the same manner and to such extent as is
customary in the locality where such REO Property is located and may, incident
to its conservation and protection of the interests of the Noteholders, rent the
same, or any part thereof, as the Master Servicer deems to be in the best
interest of the Noteholders for the period prior to the sale of such REO
Property. The Master Servicer shall take into account the existence of any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and Liability
Act, the Resource Conservation and Recovery Act of 1976, or other federal, state
or local environmental legislation, on a Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of such Property.
(b) The Master Servicer shall determine, with respect to each
defaulted Mortgage Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Mortgage Loan, whereupon such Mortgage Loan shall
become a "Liquidated Mortgage Loan" and shall promptly deliver to the Note
Insurer, with a copy to the Indenture Trustee, a related liquidation report with
respect to such Liquidated Mortgage Loan.
SECTION 4.14. INDENTURE TRUSTEE TO COOPERATE; RELEASE OF
FILES.
(a) Upon the payment in full of any Mortgage Loan (including
the repurchase of any Mortgage Loan or any liquidation of such Mortgage Loan
through foreclosure or otherwise), or the receipt by the Master Servicer or any
Sub-servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer or any Sub-servicer shall
deliver to the Indenture Trustee a Master Servicer's Trust Receipt attached
hereto as Exhibit G. Upon receipt of such Master Servicer's Trust Receipt, the
Indenture Trustee shall promptly release the related File, in trust to the
applicable party as directed in writing by the Master Servicer on the Master
Servicer's Trust Receipt, in each case pending its release by the such party.
Upon any such payment in full, or the receipt of such notification that such
funds have been placed in escrow, the Master Servicer or any Sub-servicer is
authorized to give, as attorney-in-fact for the Indenture Trustee and the
mortgagee under the Mortgage which secured the Note, an instrument of
satisfaction (or assignment of Mortgage without recourse) regarding the Property
relating to such Mortgage, which instrument of satisfaction or assignment, as
the case may be, shall be delivered to the Person or Persons entitled thereto
against receipt therefor of payment in full, it being understood and agreed that
no expense incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Principal and
Interest Account. In lieu of executing any such satisfaction or assignment, as
the case may be, the Master Servicer or any Sub-servicer may prepare and submit
to the Indenture Trustee, a satisfaction (or assignment without recourse, if
requested by the Person or Persons entitled thereto) in form for execution by
the Indenture Trustee with all requisite information completed
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by the Master Servicer or any Sub-servicer; in such event, the Indenture Trustee
shall execute and acknowledge such satisfaction or assignment, as the case may
be, and deliver the same with the related File, as aforesaid.
(b) From time to time and as appropriate in the servicing of
any Mortgage Loan, including, without limitation, foreclosure or other
comparable conversion of a Mortgage Loan or collection under any applicable
Insurance Policy, the Indenture Trustee shall (except in the case of the payment
or liquidation pursuant to which the related File is released to an escrow agent
or an employee, agent or attorney of the Indenture Trustee), upon request of the
Master Servicer or any Sub-servicer and delivery to the Indenture Trustee of a
Master Servicer's Trust Receipt, release the related File to the Master Servicer
and shall execute such documents as shall be necessary to the prosecution of any
such proceedings, including, without limitation, an assignment without recourse
of the related Mortgage to the Master Servicer. The Indenture Trustee shall
complete in the name of the Indenture Trustee any endorsement in blank on any
Note prior to releasing such Note to the Master Servicer or any Sub-servicer.
Such receipt shall obligate the Master Servicer or any Sub-servicer to return
the File to the Indenture Trustee when the need therefor by the Master Servicer
or any Sub-servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of the liquidation information, in
physical or electronic form, the Master Servicer's Trust Receipt shall be
released by the Indenture Trustee to the Master Servicer or any Sub-servicer.
(c) No costs associated with the procedures described in this
Section 4.14 shall be an expense of the Trust.
(d) The provisions set forth in Subsections (a) and (b) may be
superseded by any waiver of the Document Delivery Requirement as may be given by
the Note Insurer, Moody's and Standard & Poor's pursuant to Section 2.1(b)
hereof.
(e) Each Master Servicer's Trust Receipt may be delivered to
the Indenture Trustee (i) via mail or courier, (ii) via facsimile or (iii) by
such other means, including, without limitation, electronic or computer readable
medium, as the Master Servicer and the Indenture Trustee shall mutually agree.
The Indenture Trustee shall promptly release the related File(s) within five (5)
to seven (7) business days of receipt of a properly completed Master Servicer's
Trust Receipt pursuant to clauses (i), (ii) or (iii) above or such shorter
period as may be agreed upon by the Master Servicer and the Indenture Trustee.
Receipt of a Master Servicer's Trust Receipt pursuant to clauses (i), (ii) or
(iii) above shall be authorization to the Indenture Trustee to release such
Files, provided the Indenture Trustee has determined that such Master Servicer's
Trust Receipt has been executed, with respect to clauses (i) or (ii) above, or
approved, with respect to clause (iii) above, by an Authorized Officer of the
Master Servicer or any Sub-servicer, and so long as the Indenture Trustee
complies with its duties and obligations under this Agreement. If the Indenture
Trustee is unable to release the Files within the time frames previously
specified, the Indenture Trustee shall immediately notify the Master Servicer or
any Sub-servicer indicating the reason for such delay, but in no event shall
such notification be later than five business days after receipt of a Master
Servicer's Trust Receipt. If the Master Servicer is required to pay penalties or
damages due solely to the Indenture Trustee's negligent failure to release the
related File or the Indenture Trustee's negligent failure to execute and release
documents in a timely manner, the Indenture Trustee shall be liable for such
penalties or damages.
On each day that the Master Servicer remits to the Indenture
Trustee Master Servicer's Trust Receipts pursuant to clauses (ii) or (iii)
above, the Master Servicer or any Sub-
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servicer shall also submit to the Indenture Trustee a summary of the total
amount of such Master Servicer's Trust Receipts requested on such day by the
same method as described in such clauses (ii) or (iii) above.
SECTION 4.15. SERVICING COMPENSATION.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan. Additional servicing compensation in the form of prepayment charges,
release fees, bad check charges, assumption fees, late payment charges, or any
other servicing-related fees, Net Liquidation Proceeds not required to be
deposited in the Principal and Interest Account pursuant to Section 4.8(c)(v)
and similar items may, to the extent collected from Mortgagors, be retained by
the Master Servicer.
SECTION 4.16. ANNUAL STATEMENT AS TO COMPLIANCE.
The Master Servicer, at its own expense, will deliver to the Indenture
Trustee, the Note Insurer, Standard & Poor's, and Moody's, on or before the last
day of March of each year, commencing in ___, an Officer's Certificate stating,
as to each signer thereof, that (i) a review of the activities of the Master
Servicer during such preceding calendar year and of performance under this
Agreement has been made under such officers' supervision, and (ii) to the best
of such officers' knowledge, based on such review, the Master Servicer has
fulfilled all its obligations under this Agreement for such year, or, if there
has been a default in the fulfillment of all such obligations, specifying each
such default known to such officers and the nature and status thereof including
the steps being taken by the Master Servicer to remedy such defaults.
SECTION 4.17. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
REPORTS.
On or before the last day of March of each year, commencing in ___, the Master
Servicer, at its own expense, shall cause to be delivered to the Indenture
Trustee, the Note Insurer, Standard & Poor's and Moody's a letter or letters of
a firm of independent, nationally recognized certified public accountants
reasonably acceptable to the Control Party stating that such firm has, with
respect to the Master Servicer's overall servicing operations (i) performed
applicable tests in accordance with the compliance testing procedures as set
forth in Appendix 3 of the Audit Guide for Audits of HUD Approved Nonsupervised
Mortgagees or (ii) examined such operations in accordance with the requirements
of the Uniform Single Audit Program for Mortgage Bankers, and in either case
stating such firm's conclusions relating thereto.
SECTION 4.18. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS.
The Master Servicer shall provide to the Indenture Trustee, the Note Insurer,
the FDIC and the supervisory agents and examiners of each of the foregoing
access to the documentation regarding the Mortgage Loans required by applicable
state and federal regulations, such access being afforded without charge but
only upon reasonable request and during normal business hours at the offices of
the Master Servicer designated by it.
Upon any change in the format of the computer tape maintained
by the Master Servicer in respect of the Mortgage Loans, the Master Servicer
shall deliver a copy of such computer tape to the Indenture Trustee and in
addition shall provide a copy of such computer tape to the Indenture Trustee at
such other times as the Indenture Trustee may reasonably request. The
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Note Insurer may request a copy of this computer tape upon three Business Days
prior written notice to the Master Servicer.
SECTION 4.19. ASSIGNMENT OF AGREEMENT.
The Master Servicer may not assign its obligations under this Agreement, in
whole or in part, unless it shall have first obtained the written consent of the
Indenture Trustee and the Note Insurer, which such consent shall not be
unreasonably withheld; provided, however, that any assignee must meet the
eligibility requirements set forth in Section 5.1(g) hereof for a successor
servicer. Notice of any such assignment shall be given by the Master Servicer to
the Indenture Trustee, the Note Insurer and Moody's.
ARTICLE V
SERVICING TERMINATION
SECTION 5.1. EVENTS OF SERVICER TERMINATION.
(a) The Master Servicer may be removed with respect to the
Trust if any one of the following events ("Events of Servicer Termination")
shall occur and be continuing:
(i) The Master Servicer shall fail to deliver to the Indenture
Trustee any proceeds or required payment, which failure continues
unremedied for five Business Days following written notice to an
Authorized Officer of the Master Servicer from the Indenture Trustee or
from Noteholders evidencing Percentage Interest aggregating not less
than 25%.
(ii) The Master Servicer shall fail to perform any one or more
of its obligations hereunder other than the obligations contemplated by
Subsection 5.1(i) above, and shall continue in default thereof for a
period of sixty (60) days after notice by the Indenture Trustee or the
Note Insurer of said failure; provided, however, that if the Master
Servicer can demonstrate to the reasonable satisfaction of the Control
Party that it is diligently pursuing remedial action, then the cure
period may be extended with the written approval of the Control Party;
or
(iii) The Master Servicer shall fail to cure any breach of any
of its representations and warranties set forth in Section 3.2 which
materially and adversely affects the interests of the Noteholders or
the Note Insurer for a period of thirty (30) days after the Master
Servicer's discovery or receipt of notice thereof; provided, however,
that if the Master Servicer can demonstrate to the reasonable
satisfaction of the Control Party that it is diligently pursuing
remedial action, then the cure period may be extended with the written
approval of the Control Party; or
(iv) The failure by the Master Servicer to make any required
Servicing Advance and such failure continues for fifteen days;
provided, however; that if the Master Servicer can demonstrate to the
reasonable satisfaction of the Control Party that any such event was
due to circumstances beyond the control of the Master Servicer, such
event shall not be considered an event of termination of the Master
Servicer; or
(v) The failure by the Master Servicer to make any required
Delinquency Advance or to pay any Compensating Interest; provided,
however, that if the Master
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Servicer can demonstrate to the reasonable satisfaction of the Control
Party that any such event was due to circumstances beyond the control
of the Master Servicer, such event shall not be considered an event of
termination of the Master Servicer;
Then, and in each and every such case, so long as a Event of Servicer
Termination shall not have been remedied by the Master Servicer, either
the Indenture Trustee, the Note Insurer or the Noteholders evidencing
Percentage Interests aggregating not less than 51% in each case with
the consent of the Note Insurer, or the Note Insurer, by notice then
given in writing to the Master Servicer (and to the Indenture Trustee
if given by the Note Insurer of the Noteholders) may terminate all of
the rights and obligations of the Master Servicer as servicer of the
Trust under this Agreement. Any such notice to the Master Servicer
shall also be given to each Rating Agency and the Note Insurer. On and
after the receipt by the Master Servicer of such written notice, all
authority and power of the Master Servicer under this Agreement,
whether with respect to the Notes or the Mortgage Loans or otherwise,
shall pass to and be vested in the Indenture Trustee pursuant to and
under this Section 5.1(a) and, without limitation, the Indenture
Trustee is hereby authorized and empowered to execute and deliver, on
behalf of the Master Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all
other acts or things necessary or appropriate to effect the purposes of
such notice of termination, whether to complete the transfer and
endorsement of each Mortgage Loan and related documents, or otherwise.
The Master Servicer agrees to cooperate with the Indenture Trustee in
effecting the termination of the responsibilities and rights of the
Master Servicer hereunder, including, without limitation, the transfer
to the Indenture Trustee for the administration by it of all cash
amounts that shall at the time be held by the Master Servicer and to be
deposited by it in the Note Account, or that have been deposited by the
Master Servicer in the Note Account or thereafter received by the
Master Servicer with respect to the Mortgage Loans. All reasonable
costs and expenses (including attorneys' fees) incurred in connection
with amending this Agreement to reflect such succession as Master
Servicer pursuant to this Section 5.1 shall be paid by the predecessor
Master Servicer (or if the predecessor Master Servicer is the Indenture
Trustee, the initial Master Servicer) upon presentation of reasonable
documentation of such costs and expenses.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 5.1(a)(i) for a period of two Business Days or under
Section 5.1(ii), (iii), (iv), or (v) for a period of 60 days, shall not
constitute a Event of Servicer Termination if such delay or failure
could not be prevented by the exercise of reasonable diligence by the
Master Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public
disorder, rebellion or sabotage, epidemics, landslides, lightning,
fire, hurricanes, earthquakes, floods or similar causes. The preceding
sentence shall not relieve the Master Servicer from using its best
efforts to perform its respective obligations in a timely manner in
accordance with the terms of this Agreement and the Master Servicer
shall provide the Indenture Trustee, the Sponsor, the Note Insurer and
the Noteholders with an Officer's Certificate giving prompt notice of
such failure or delay by it, together with a description of its efforts
to so perform its obligations. The Master Servicer shall immediately
notify the Indenture Trustee and the Note Insurer in writing of any
Event of Servicer Termination.
(b) The Master Servicer may be removed with respect to the
Trust if any one of the following events ("Overall Events of Servicer
Termination") shall occur and be continuing:
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(i) The occurrence of a Servicer Termination Loss Trigger, as
such terms are defined in the Insurance Agreement; or
(ii) The Master Servicer shall (I) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (II) admit in writing
its inability to pay its debts generally as they become due, (III) make
a general assignment for the benefit of creditors, (IV) be adjudicated
a bankrupt or insolvent, (V) commence a voluntary case under the
federal bankruptcy laws of the United States of America or file a
voluntary petition or answer seeking reorganization, an arrangement
with creditors or an order for relief or seeking to take advantage of
any insolvency law or file an answer admitting the material allegations
of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding or (VI) take corporate action for the purpose of
effecting any of the foregoing; or
(iii) If, without the application, approval or consent of the
Master Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Master Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or similar
entity with respect to the Master Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being
contested by the Master Servicer in good faith, the same shall (A)
result in the entry of an order for relief or any such adjudication or
appointment or (B) continue undismissed or pending and unstayed for any
period of seventy-five (75) consecutive days.
Then, and in each and every such case, so long as an Overall Event of Servicer
Termination shall not have been remedied by the Master Servicer, either the
Indenture Trustee, the Note Insurer or the Noteholders evidencing Percentage
Interests aggregating not less than 51% with the consent of the Note Insurer, or
the Note Insurer, by notice then given in writing to the Master Servicer (and to
the Indenture Trustee if given by the Note Insurer of the Noteholders) may
terminate all of the rights and obligations of the Master Servicer as servicer
under this Agreement. Any such notice to the Master Servicer shall also be given
to each Rating Agency and the Note Insurer. On and after the receipt by the
Master Servicer of such written notice, all authority and power of the Master
Servicer under this Agreement, whether with respect to the Trust Notes or the
Mortgage Loans or otherwise, shall pass to and be vested in the Indenture
Trustee pursuant to and under this Section 5.1(b) and, without limitation, the
Indenture Trustee is hereby authorized and empowered to execute and deliver, on
behalf of the Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Mortgage
Loan in the Trust and related documents, or otherwise. The Master Servicer
agrees to cooperate with the Indenture Trustee in effecting the termination of
the responsibilities and rights of the Master Servicer hereunder, including,
without limitation, the transfer to the Indenture Trustee for the administration
by it of all cash amounts that shall at the time be held by the Master Servicer
and to be deposited by it in the Note Account, or that have been deposited by
the Master Servicer in the Note Account or thereafter received by the Master
Servicer with respect to the Mortgage Loans. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with amending this Agreement
to reflect such succession as Master Servicer pursuant to this Section 5.1(b)
shall be paid by the predecessor Master
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Servicer (or if the predecessor Master Servicer is the Indenture Trustee, the
initial Master Servicer) upon presentation of reasonable documentation of such
costs and expenses.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it, except upon determination that its duties hereunder
are no longer permissible under applicable law or are in material conflict by
reason of applicable law with any other activities carried on by it, the other
activities of the Master Servicer so causing such a conflict being of a type and
nature carried on by the Master Servicer at the date of this Agreement. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an opinion of counsel to such effect which shall be delivered to
the Indenture Trustee and the Note Insurer.
(c) No removal or resignation of the Master Servicer shall
become effective until the Indenture Trustee or a successor servicer shall have
assumed the Master Servicer's responsibilities and obligations in accordance
with this Section. If no successor servicer is available, the Indenture Trustee
shall act as successor servicer and perform all of the obligations of this
Section, including, without limitation, making Delinquency Advances and paying
Compensating Interest; provided, however, that the Indenture Trustee will not be
obligated to act as successor servicer if it is legally unable to perform its
duties hereunder.
(d) Upon removal or resignation of the Master Servicer, the
Master Servicer also shall promptly deliver or cause to be delivered to a
successor servicer or the Indenture Trustee all the books and records
(including, without limitation, records kept in electronic form) that the Master
Servicer has maintained for the Mortgage Loans, including all tax bills,
assessment notices, insurance premium notices and all other documents as well as
all original documents then in the Master Servicer's possession.
(e) Any collections received by the Master Servicer after
removal or resignation shall be endorsed by it to the Indenture Trustee and
remitted directly and immediately to the Indenture Trustee or the successor
Master Servicer.
(f) Upon removal or resignation of the Master Servicer, the
Indenture Trustee (x) may solicit bids for a successor servicer as described
below, and (y) pending the appointment of a successor Master Servicer as a
result of soliciting such bids, shall serve as Master Servicer. The Indenture
Trustee shall, if it is unable to obtain a qualifying bid and is prevented by
law from acting as Master Servicer, appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution which has shareholders' equity of not less than
$10,000,000, as determined in accordance with generally accepted accounting
principles, and acceptable to the Note Insurer as the successor to the Master
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer hereunder. The compensation of any
successor servicer (including, without limitation, the Indenture Trustee) so
appointed shall be the aggregate Servicing Fees, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 4.8 and 4.15; provided, however, that, if the
Indenture Trustee acts as successor Master Servicer then the Sponsor agrees to
pay to the Indenture Trustee at such time that the Indenture Trustee becomes
such successor Master Servicer a fee of twenty-five dollars ($25.00) for each
Mortgage Loan then included in the Trust Estate. The Indenture Trustee shall be
obligated to serve as successor Master Servicer whether or not the $25.00 fee
described in the preceding sentence is paid by the Sponsor, but shall in any
event be entitled to receive, and to enforce payment of, such fee from the
Sponsor.
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(g) In the event the Indenture Trustee solicits bids as
provided above, the Indenture Trustee shall solicit, by public announcement,
bids from housing and home finance institutions, banks and mortgage servicing
institutions meeting the qualifications set forth above. Such public
announcement shall specify that the successor Master Servicer shall be entitled
to the full amount of the aggregate Servicing Fees as servicing compensation,
together with the other servicing compensation in the form of assumption fees,
late payment charges or otherwise as provided in Sections 4.8 and 4.15. Within
thirty days after any such public announcement, the Indenture Trustee shall
negotiate and effect the sale, transfer and assignment of the servicing rights
and responsibilities hereunder to the qualified party submitting the highest
satisfactory bid. The Indenture Trustee shall deduct from any sum received by
the Indenture Trustee from the successor to the Master Servicer in respect of
such sale, transfer and assignment all costs and expenses of any public
announcement and of any sale, transfer and assignment of the servicing rights
and responsibilities hereunder. After such deductions, the remainder of such sum
shall be paid by the Indenture Trustee to the Master Servicer at the time of
such sale, transfer and assignment to the Master Servicer's successor.
(h) The Indenture Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. The Master Servicer agrees to cooperate with the Indenture
Trustee and any successor Master Servicer in effecting the termination of the
Master Servicer's servicing responsibilities and rights hereunder and shall
promptly provide the Indenture Trustee or such successor Master Servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Master Servicer's functions hereunder and shall promptly also
transfer to the Indenture Trustee or such successor Master Servicer, as
applicable, all amounts which then have been or should have been deposited in
the Principal and Interest Account by the Master Servicer or which are
thereafter received with respect to the Mortgage Loans. Neither the Indenture
Trustee nor any other successor Master Servicer shall be held liable by reason
of any failure to make, or any delay in making, any distribution hereunder or
any portion thereof caused by (i) the failure of the Master Servicer to deliver,
or any delay in delivering, cash, documents or records to it, or (ii)
restrictions imposed by any regulatory authority having jurisdiction over the
Master Servicer or (iii) any breaches of a predecessor Master Servicer.
(i) The Indenture Trustee or any other successor Master
Servicer, upon assuming the duties of Master Servicer hereunder, shall
immediately make all Delinquency Advances and pay all Compensating Interest
which the Master Servicer has theretofore failed to remit with respect to the
Mortgage Loans; provided, however, that if the Indenture Trustee is acting as
successor Master Servicer, the Indenture Trustee shall be required to make
Delinquency Advances (including the Delinquency Advances described in this
clause (i)) only if, in the Indenture Trustee's reasonable good faith judgment,
such Delinquency Advances will ultimately be recoverable from the related
Mortgage Loans.
(j) The Master Servicer which is being removed or is resigning
shall give notice to the Mortgagors and to Moody's and Standard and & Poor's of
the transfer of the servicing to the successor.
(k) The Indenture Trustee shall give notice to the Note
Insurer, Moody's, Standard & Poor's and to the Noteholders of the occurrence of
any event specified in Section 5.1(a), 5.1(b) or any other event in which the
Master Servicer is no longer acting as Master Servicer hereunder of which the
Indenture Trustee has actual knowledge.
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SECTION 5.2. INSPECTIONS BY THE NOTE INSURER AND THE INDENTURE
TRUSTEE; ERRORS AND OMISSIONS INSURANCE.
(a) At any reasonable time and from time to time upon
reasonable notice, the Note Insurer, the Indenture Trustee, or any agents or
representatives thereof may inspect the Master Servicer's servicing operations
and discuss the servicing operations of the Master Servicer with any of its
officers or directors. The costs and expenses incurred by the Master Servicer or
its agents or representatives in connection with any such examinations or
discussions shall be paid by the Master Servicer.
(b) The Master Servicer agrees to maintain errors and
omissions coverage and a fidelity bond, each at least to the extent generally
maintained by prudent mortgage loan servicers having servicing portfolios of a
similar size.
SECTION 5.3. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION
TO BUSINESS OF MASTER SERVICER.
Any corporation into which the Master Servicer 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 Master Servicer shall be a party, or
any corporation succeeding to all or substantially all of the business of the
Master Servicer, shall be the successor of the Master Servicer hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto provided that such corporation meets the
qualifications set forth in Section 5.1(g).
SECTION 5.4. NOTICES OF TO NOTEHOLDERS.
Upon any termination or appointment of a successor to the Master Servicer
pursuant to this Article V, the Indenture Trustee shall give prompt written
notice thereof to the Noteholders at their respective addresses appearing in the
Note Register, the Note Insurer and each Rating Agency.
ARTICLE VI
ADMINISTRATIVE DUTIES OF THE MASTER SERVICER
SECTION 6.1. ADMINISTRATIVE DUTIES WITH RESPECT TO THE
INDENTURE.
The Master Servicer shall perform all its duties and the duties of the Trust
under the Indenture. In addition, the Master Servicer shall consult with the
Owner Trustee as the Master Servicer deems appropriate regarding the duties of
the Trust under the Indenture. The Master Servicer shall monitor the performance
of the Trust and shall advise the Owner Trustee when action is necessary to
comply with the Trust's duties under the Indenture. The Master Servicer shall
prepare for execution by the Trust 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 Trust to prepare, file
or deliver pursuant to the Indenture. In furtherance of the foregoing, the
Master Servicer shall take all necessary action that is the duty of the Trust to
take pursuant to the Indenture.
(a) Duties with Respect to the Trust.
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<PAGE> 50
(i) In addition to the duties of the Master Servicer set forth
in this Agreement or any of the Documents, the Master Servicer shall
perform such calculations and shall prepare for execution by the Trust
or the Owner Trustee or shall cause the preparation by other
appropriate Persons of all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the
Trust or the Owner Trustee to prepare, file or deliver pursuant to this
Agreement or any of the Operative Documents or under state and federal
tax and securities laws, and at the request of the Owner Trustee shall
take all appropriate action that it is the duty of the Trust to take
pursuant to this Agreement or any of the Operative Documents. In
accordance with the directions of the Trust or the Owner Trustee, the
Master Servicer shall administer, perform or supervise the performance
of such other activities in connection with the Mortgage Loans
(including the Operative Documents) as are not covered by any of the
foregoing provisions and as are expressly requested by the Trust or the
Owner Trustee and are reasonably within the capability of the Master
Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Operative Documents to the contrary, the Master Servicer shall be
responsible for promptly notifying the Owner Trustee and the Indenture
Trustee in the event that any withholding tax is imposed on the Trust's
payments (or allocations of income) with respect to the Certificates as
contemplated by this Agreement. Any such notice shall be in writing and
specify the amount of any withholding tax required to be withheld by
the Owner Trustee or the Indenture Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the
Operative Documents to the contrary, the Master Servicer shall be
responsible for performance of the duties of the Trust or the Sponsor
set forth in [Section 5.1(a), (b), (c) and (d) of the Trust Agreement]
with respect to, among other things, accounting and reports with
respect to the Certificates.
(iv) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Master Servicer may enter into
transactions with or otherwise deal with any of its Servicer
Affiliates; provided, however, that the terms of any such transactions
or dealings shall be in accordance with any directions received from
the Trust and shall be, in the Master Servicer's opinion, no less
favorable to the Trust in any material respect.
(b) Non-Ministerial Matters. With respect to matters that in
the reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article VI unless within a
reasonable time before the taking of such action, the Master Servicer shall have
notified the Owner Trustee and the Note Insurer of the proposed action and the
Owner Trustee and the Note Insurer shall not have withheld consent or provided
an alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include:
(A) the amendment of or any supplement to the
Indenture;
(B) the initiation of any claim or lawsuit by the
Trust and the compromise of any action, claim or lawsuit
brought by or against the Trust (other than in connection with
the collection of the Mortgage Loans);
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<PAGE> 51
(C) the amendment, change or modification of this
Agreement or any of the Operative Documents;
(D) the appointment of successor Note Registrars,
successor Paying Agents and successor Indenture Trustees
pursuant to the Indenture or the appointment of Successor
Servicers or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee of its
obligations under the Indenture; and
(E) the removal of the Indenture Trustee.
(c) Exceptions. Notwithstanding anything to the contrary in
this Agreement, except as expressly provided herein or in the other Operative
Documents, the Master Servicer, in its capacity hereunder, shall not be
obligated to, and shall not, (1) make any payments to the Noteholders under the
Operative Documents, (2) sell the Trust Property pursuant to Section 5.1 of the
Indenture, (3) take any other action that the Trust directs the Master Servicer
not to take on its behalf or (4) in connection with its duties hereunder assume
any indemnification obligation of any other Person.
(d) The Indenture Trustee or any successor Servicer shall not
be responsible for any obligations or duties of the Master Servicer under
Section 6.1.
SECTION 6.2. RECORDS.
The Master Servicer shall maintain appropriate books of account and records
relating to services performed under this Agreement, which books of account and
records shall be accessible for inspection by the Trust and the Indenture
Trustee at any time during normal business hours.
SECTION 6.3. ADDITIONAL INFORMATION TO BE FURNISHED TO THE
TRUST.
The Master Servicer shall furnish to the Trust and the Indenture Trustee from
time to time such additional information regarding the Mortgage Loans as the
Trust and the Indenture Trustee shall reasonably request.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Sponsor, the Note Insurer or the
Noteholders to the Indenture Trustee to take any action under any provision of
this Agreement, the Sponsor, the Note Insurer or the Noteholders, as the case
may be, shall furnish to the Indenture Trustee a certificate stating that all
conditions precedent, if any, provided for in this Agreement relating to the
proposed action have been complied with, except that in the case of any such
application or request as to which the furnishing of any documents is
specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Agreement shall include:
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<PAGE> 52
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 7.2. FORM OF DOCUMENTS DELIVERED TO THE 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 of an Authorized Officer of the Indenture
Trustee may be based, insofar as it relates to legal matters, upon an opinion of
counsel, unless such Authorized Officer knows, or in the exercise of reasonable
care should know, that the opinion is erroneous. Any such certificate of an
Authorized Officer of the Indenture Trustee or any opinion of counsel may be
based, insofar as it relates to factual matter upon a certificate or opinion of,
or representations by, one or more Authorized Officers of the Sponsor or of the
Master Servicer, stating that the information with respect to such factual
matters is in the possession of the Sponsor or of the Master Servicer, unless
such Authorized Officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Any opinion of counsel may also be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Authorized Officer of the Indenture Trustee, stating that
the information with respect to such matters is in the possession of the
Indenture Trustee, unless such counsel knows, or in the exercise of reasonable
care should know, that the certificate or opinion or representations with
respect to such matters are erroneous. Any opinion of counsel may be based on
the written opinion of other counsel, in which event such opinion of counsel
shall be accompanied by a copy of such other counsel's opinion and shall include
a statement to the effect that such counsel believes that such counsel and the
Indenture Trustee may reasonably rely upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
SECTION 7.3. ACTS OF NOTEHOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by the Noteholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Noteholders in person or by an
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 Indenture Trustee, and, where it is hereby expressly
required, to the Sponsor and/or the Note Insurer. Such instrument or instruments
(and the action embodied
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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 Agreement and conclusive in favor of the
Indenture Trustee and the Trust, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Notes shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Noteholders shall bind the Noteholders
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Trust in reliance thereon, whether or not notation of
such action is made upon such Notes.
SECTION 7.4. NOTICES, ETC., TO INDENTURE TRUSTEE.
Any request, demand, authorization, direction, notice, consent, waiver or act
of the Notes or other documents provided or permitted by this Agreement to be
made upon, given or furnished to, or filed with the Indenture Trustee by any
Notes, the Note Insurer or by the Sponsor shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with and received
by the Indenture Trustee at its corporate trust office as set forth in the
Indenture.
SECTION 7.5. NOTICES AND REPORTS TO NOTEHOLDERS; WAIVER OF
NOTICES.
Where this Agreement provides for notice to Noteholders of any event or the
mailing of any report to Noteholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Noteholder affected by such event or to
whom such report is required to be mailed, at the address of such Noteholder as
it appears on the Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice or the mailing of
such report. In any case where a notice or report to Noteholders is mailed in
the manner provided above, neither the failure to mail such notice or report nor
any defect in any notice or report so mailed to any particular Noteholder shall
affect the sufficiency of such notice or report with respect to other
Noteholders, and any notice or report which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided.
Where this Agreement provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by 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 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
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Noteholders when such notice is required to be given pursuant to any provision
of this Agreement, then any manner of giving such notice as shall be
satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving
of such notice.
Where this Agreement provides for notice to any rating agency
that rated any Notes, failure to give such notice shall not affect any other
rights or obligations created hereunder.
SECTION 7.6. RULES BY INDENTURE TRUSTEE AND SPONSOR.
The Indenture Trustee may make reasonable rules for any meeting of
Noteholders.
SECTION 7.7. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by any party hereto shall bind
its successors and assigns, whether so expressed or not.
SECTION 7.8. SEVERABILITY.
In case any provision in this Agreement or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 7.9. BENEFITS OF AGREEMENT.
Nothing in this Agreement or in the Notes, expressed or implied, shall give to
any Person, other than the Noteholders, the Note Insurer and the parties hereto
and their successors hereunder, any benefit or any legal or equitable right,
remedy or claim under this Agreement.
SECTION 7.10. LEGAL HOLIDAYS.
In any case where the date of any Payment Date, any other date on which any
distribution to any Noteholder is proposed to be paid, or any date on which a
notice is required to be sent to any Person pursuant to the terms of this
Agreement shall not be a Business Day, then (notwithstanding any other provision
of the Notes or this Agreement) payment or mailing need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made or mailed on the nominal date of any such Payment Date, or
such other date for the payment of any distribution to any Noteholder or the
mailing of such notice, as the case may be, and no interest shall accrue for the
period from and after any such nominal date, provided such payment is made in
full on such next succeeding Business Day.
SECTION 7.11. GOVERNING LAW.
In view of the fact that Noteholders are expected to reside in many states and
outside the United States and the desire to establish with certainty that this
Agreement will be governed by and construed and interpreted in accordance with
the law of a state having a well-developed body of commercial and financial law
relevant to transactions of the type contemplated herein, this Agreement and
each Note shall be construed in accordance with and governed by the laws of the
State of New York applicable to agreements made and to be performed therein.
SECTION 7.12. COUNTERPARTS.
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This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 7.13. USURY.
The amount of interest payable or paid on any Note under the terms of this
Agreement shall be limited to an amount which shall not exceed the maximum
nonusurious rate of interest allowed by the applicable laws of the State of New
York or any applicable law of the United States permitting a higher maximum
nonusurious rate that preempts such applicable New York laws, which could
lawfully be contracted for, charged or received (the "Highest Lawful Rate"). In
the event any payment of interest on any Note exceeds the Highest Lawful Rate,
the Trust stipulates that such excess amount will be deemed to have been paid to
the Noteholder as a result of an error on the part of the Indenture Trustee
acting on behalf of the Trust and the Noteholder receiving such excess payment
shall promptly, upon discovery of such error or upon notice thereof from the
Indenture Trustee on behalf of the Trust, refund the amount of such excess or,
at the option of such Noteholder, apply the excess to the payment of principal
of such Note, if any, remaining unpaid. In addition, all sums paid or agreed to
be paid to the Indenture Trustee for the benefit of Noteholders for the use,
forbearance or detention of money shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such Notes.
SECTION 7.14. AMENDMENT.
(a) The Indenture Trustee, the Sponsor and the Master
Servicer, may at any time and from time to time, with the prior written consent
of the Note Insurer but without the giving of notice to or the receipt of the
consent of the Noteholders, amend this Agreement, and the Indenture Trustee
shall consent to such amendment, for the purpose of (i) curing any ambiguity, or
correcting or supplementing any provision hereof which may be inconsistent with
any other provision hereof, or to add provisions hereto which are not
inconsistent with the provisions hereof, (ii) complying with the requirements of
the Code and the regulations proposed or promulgated thereunder; provided,
however, that any such action shall not, as evidenced by an opinion of counsel
delivered to the Indenture Trustee, materially and adversely affect the
interests of any Noteholder (without its written consent).
(b) The Indenture Trustee, the Sponsor and the Master Servicer
may, at any time and from time to time, with the prior written consent of the
Note Insurer but without the giving of notice to or the receipt of the consent
of the Noteholders, amend this Agreement, and the Indenture Trustee shall
consent to such amendment, for the purpose of changing the definitions of
Specified Overcollateralization Amount; provided, however, that no such change
shall affect the weighted average life of the Notes (assuming an appropriate
prepayment speed as determined by the Underwriter by more than five percent, as
determined by the Underwriter.
(c) This Agreement may also be amended by the Indenture
Trustee, the Sponsor, and the Master Servicer at any time and from time to time,
with the prior written approval of the Note Insurer and not less than a majority
of the Percentage Interest represented by each the Notes then Outstanding, for
the purpose of adding any provisions 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 hereunder; provided, however, that no such amendment shall
(a) change in any manner the amount of, or change the timing of, payments which
are required to be distributed to any Noteholder without the consent of the
Noteholder, (b) reduce the aforesaid
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percentages of Percentage Interests which are required to consent to any such
amendments or (c) result in a down-rating or withdrawal of any ratings then
assigned to the Notes, without the consent of the Noteholders of the then
Outstanding Notes.
(d) The Note Insurer, the Noteholders, Moody's and Standard &
Poor's shall be provided with copies of any amendments to this Agreement,
together with copies of any opinions or other documents or instruments executed
in connection therewith.
SECTION 7.15. THE NOTE INSURER.
The Note Insurer is a third-party beneficiary of this Agreement. Any right
conferred to the Note Insurer shall be suspended during any period in which the
Note Insurer is in default in its payment obligations under the Note Policy,
except with respect to amendments to this Agreement pursuant to Section 11.14.
During the continuance of a Note Insurer Default, the Note Insurer's rights
hereunder shall vest in the Indenture Trustee on behalf of the Noteholders and
shall be exercisable by the Noteholders of at least a majority in Percentage
Interest of the Notes then Outstanding or, if there are no Notes then
Outstanding and the Note Policy has expired or a Note Insurer Default has
occurred and is continuing, or if there are no Notes outstanding and any and all
amounts due and owing the Note Insurer under the Insurance Agreement have been
paid in full, and the Note Policy has expired or is unavailable due to a Note
Insurer Default, by at least a majority of the Certificates then Outstanding. At
such time as the Notes are no longer Outstanding hereunder and the Note Insurer
has been reimbursed for all Reimbursement Amounts to which it is entitled
hereunder and the Note Policy has expired, the Note Insurer's rights hereunder
shall terminate.
SECTION 7.16. NOTICES.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
<TABLE>
<S> <C>
The Indenture Trustee: [ADDRESS]
The Sponsor: Advanta Conduit Receivables, Inc.
10790 Rancho Bernardo Road
San Diego, California 92127
Tel:(619) 674-3317
Fax:(619) 674-3666
Attention: Structured Finance
The Master Servicer: Advanta Mortgage Corp. USA
10790 Rancho Bernardo Road
San Diego, California 92127
Tel: (619) 674-3317
Fax: (619) 674-3666
The Note
Insurer: [ADDRESS]
Moody's: Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: The Mortgage Monitoring Department
</TABLE>
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<TABLE>
<S> <C>
Standard & Poor's: Standard & Poor's Ratings Group
26 Broadway, 15th Floor
New York, New York 10004
Attention: Manager, Structured Finance Operations Group
Underwriter: [ADDRESS]
The Trust: Advanta Mortgage Loan Trust ____-_
c/o [OWNER TRUSTEE], as Owner Trustee
[ADDRESS]
</TABLE>
SECTION 7.17. LIMITATION OF LIABILITY.
It is expressly understood and agreed by the parties hereto
that (a) this Agreement is executed and delivered by [OWNER TRUSTEE], not
individually or personally but solely as Owner Trustee of the Trust under the
Trust Agreement, in the exercise of the powers and authority conferred and
vested in it, (b) each of the representations, undertakings and agreements
herein made on the part of the Trust is made and intended not as personal
representations, undertakings and agreements by [OWNER TRUSTEE] but is made and
intended for the purpose for binding only the Trust, (c) nothing herein
contained shall be construed as creating any liability on [OWNER TRUSTEE]
individually or personally, to perform any covenant either expressed or implied
contained herein, all such liability, if any, being expressly waived by the
parties to this Agreement and by any person claiming by, through or under them
and (d) under no circumstances shall [OWNER TRUSTEE] be personally liable for
the payment of any indebtedness or expenses of the Trust or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaking by the Trust under this Agreement or any related documents.
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IN WITNESS WHEREOF, the Sponsor, the Trust, the Master
Servicer and the Indenture Trustee have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized, all as of the
day and year first above written.
ADVANTA CONDUIT RECEIVABLES, INC.,
as Sponsor
By: __________________________________
ADVANTA MORTGAGE CORP. USA
as Master Servicer
By: __________________________________
ADVANTA MORTGAGE LOAN
TRUST ____-_, as Issuer
By: [OWNER TRUSTEE], not in its individual
capacity but solely as Owner Trustee,
By: ___________________________________
Name:
Title:
[INDENTURE TRUSTEE],
as Indenture Trustee
By: ___________________________________
[SIGNATURE PAGE TO THE SALE AND SERVICING AGREEMENT]
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STATE OF CALIFORNIA )
: ss.:
COUNTY OF )
On the ____ day of _________, ____ before me personally came
___________ to me known, who, being by me duly sworn did depose and say that
his/her office is located at [ADDRESS]; that s/he is ________________ of
[INDENTURE TRUSTEE], the national banking corporation described in and that
executed the above instrument as Indenture Trustee; and that s/he signed his/her
name thereto under authority granted by the Board of Directors of said national
banking association.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
______________________________________
Notary Public
<PAGE> 1
Exhibit 4.3
TRUST AGREEMENT
between
ADVANTA CONDUIT RECEIVABLES, INC.,
as Sponsor,
and
[OWNER TRUSTEE],
as Owner Trustee
Dated as of [Date]
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
ARTICLE I. Definitions.........................................................................................1
SECTION 1.1 Capitalized Terms.................................................................1
SECTION 1.2 Other Definitional Provisions.....................................................3
SECTION 1.3 Action by or Consent of Noteholders and Certificateholders........................4
ARTICLE II. Organization.......................................................................................4
SECTION 2.1 Name..............................................................................4
SECTION 2.2 Office............................................................................4
SECTION 2.3 Purposes and Powers...............................................................4
SECTION 2.4 Appointment of Owner Trustee......................................................6
SECTION 2.5 Initial Capital Contribution of Trust Estate......................................6
SECTION 2.6 Declaration of Trust..............................................................7
SECTION 2.7 Liability.........................................................................7
SECTION 2.8 Title to Trust Property...........................................................7
SECTION 2.9 Situs of Trust....................................................................7
SECTION 2.10 Representations and Warranties of the Sponsor.....................................8
SECTION 2.11 Federal Income Tax Allocations....................................................8
SECTION 2.12 Covenants of the Sponsor..........................................................9
SECTION 2.13 Covenants of the Certificateholders...............................................9
SECTION 2.14 Investment Companies.............................................................10
ARTICLE III. Certificates and Transfer of Interests...........................................................10
SECTION 3.1 Initial Ownership................................................................10
SECTION 3.2 The Certificates.................................................................11
SECTION 3.3 Authentication of Certificates...................................................11
SECTION 3.4 Registration of Transfer and Exchange of Certificates............................11
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Certificates................................12
SECTION 3.6 Persons Deemed Certificateholders................................................12
SECTION 3.7 Access to List of Certificateholders' Names and Addresses........................12
SECTION 3.8 Maintenance of Office or Agency..................................................12
SECTION 3.9 ERISA............................................................................13
SECTION 3.10 Restrictions on Transfer of Certificates.........................................13
SECTION 3.11 Acceptance of Obligations........................................................14
SECTION 3.12 Payments on Certificates.........................................................14
ARTICLE IV. Voting Rights and Other Actions...................................................................14
SECTION 4.1 Prior Notice to Certificateholders with Respect to Certain Matters...............14
SECTION 4.2 Action by Certificateholders with Respect to Certain Matters.....................15
SECTION 4.3 Action by Certificateholders with Respect to Bankruptcy..........................15
SECTION 4.4 Restrictions on Certificateholders' Power........................................15
SECTION 4.5 Majority Control.................................................................16
SECTION 4.6 Rights of Note Insurer...........................................................16
</TABLE>
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<TABLE>
<S> <C> <C> <C>
ARTICLE V. Certain Duties.....................................................................................16
SECTION 5.1 Accounting and Records to the Noteholders, Certificateholders,
the Internal Revenue Service and Others........................................16
SECTION 5.2 Signature on Returns; Tax Matters Partner........................................17
ARTICLE VI. Authority and Duties of Owner Trustee.............................................................17
SECTION 6.1 General Authority................................................................17
SECTION 6.2 General Duties...................................................................17
SECTION 6.3 Action upon Instruction..........................................................18
SECTION 6.4 No Duties Except as Specified in this Agreement or in Instructions...............18
SECTION 6.5 No Action Except under Specified Documents or Instructions.......................19
SECTION 6.6 Restrictions.....................................................................19
ARTICLE VII. Concerning the Owner Trustee.....................................................................19
SECTION 7.1 Acceptance of Trust and Duties...................................................19
SECTION 7.2 Furnishing of Documents..........................................................20
SECTION 7.3 Representations and Warranties...................................................20
SECTION 7.4 Reliance; Advice of Counsel......................................................21
SECTION 7.5 Not Acting in Individual Capacity................................................21
SECTION 7.6 Owner Trustee Not Liable for Certificates or Mortgage Loans......................21
SECTION 7.7 Owner Trustee May Own Certificates and Notes.....................................22
SECTION 7.8 Payments from Owner Trust Estate.................................................22
SECTION 7.9 Doing Business in Other Jurisdictions............................................22
ARTICLE VIII. Compensation of Owner Trustee...................................................................22
SECTION 8.1 Owner Trustee's Fees and Expenses................................................22
SECTION 8.2 Indemnification..................................................................23
SECTION 8.3 Payments to the Owner Trustee....................................................23
SECTION 8.4 Non-recourse Obligations.........................................................23
ARTICLE IX. Termination of Trust Agreement....................................................................23
SECTION 9.1 Termination of Trust Agreement...................................................23
ARTICLE X. Successor Owner Trustees and Additional Owner Trustees.............................................24
SECTION 10.1 Eligibility Requirements for Owner Trustee.......................................24
SECTION 10.2 Resignation or Removal of Owner Trustee..........................................25
SECTION 10.3 Successor Owner Trustee..........................................................25
SECTION 10.4 Merger or Consolidation of Owner Trustee.........................................26
SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee........................26
ARTICLE XI. Miscellaneous.....................................................................................27
SECTION 11.1 Supplements and Amendments.......................................................27
SECTION 11.2 No Legal Title to Owner Trust Estate in Certificateholders.......................28
SECTION 11.3 Limitations on Rights of Others..................................................28
SECTION 11.4 Notices..........................................................................29
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SECTION 11.5 Severability.....................................................................29
SECTION 11.6 Separate Counterparts............................................................29
SECTION 11.7 Assignments; Note Insurer........................................................29
SECTION 11.8 No Petition......................................................................29
SECTION 11.9 No Recourse......................................................................30
SECTION 11.10 Headings.........................................................................30
SECTION 11.11 GOVERNING LAW....................................................................30
SECTION 11.12 Master Servicer..................................................................30
EXHIBITS
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
</TABLE>
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<PAGE> 5
TRUST AGREEMENT relating to the Advanta Mortgage Loan Trust
____-_ dated as of [Date] between ADVANTA CONDUIT RECEIVABLES, INC., a Nevada
corporation as Sponsor, and [OWNER TRUSTEE], a Delaware banking corporation as
Owner Trustee.
ARTICLE I.
Definitions
SECTION 1.1 Capitalized Terms.
For the purposes of this Agreement, the following terms shall have the meanings
set forth below.
"Accounts" shall have the meaning ascribed thereto in the
Indenture.
"Affiliate" shall mean with respect to any specified Person, a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, or owns, directly or
indirectly, 50% or more of, the Person specified.
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.9.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code Section 3801 et. seq. as the same may be amended
from time to time.
"Certificate" means a trust certificate evidencing the
beneficial ownership interest of a Certificateholder in the Trust, substantially
in the form of Exhibit A attached hereto.
"Certificateholder" or "Holder" shall initially mean Holding
Trust, until and unless Holding Trust transfers any or all of its interest in
the Certificate to any other Person and thereafter "Certificateholder" shall
also mean or include such Person.
"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 maintained and the registrar appointed pursuant to Section 3.4.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
[Address], Attention: Corporate Trust Administration, or at such other address
as the Owner Trustee may designate by notice to the Certificateholders, the
Sponsor and Holding Trust, or the principal corporate trust office of any
successor Owner Trustee (the address of which the successor owner trustee will
notify the Certificateholders and the Sponsor).
"Definitive Certificates" shall mean Certificates issued in
certificated, fully registered form.
<PAGE> 6
"ERISA" shall have the meaning assigned to such term in
Section 3.9.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Holding Trust" shall mean Advanta Mortgage Holding Trust
____-_.
"Indemnification Agreement" shall mean the Indemnification
Agreement dated as of [Date] between the Note Insurer and
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Indenture" shall mean the Indenture dated as of [Date]
between the Sponsor and the Trust, as the same may be amended and supplemented
from time to time.
"Indenture Trustee" shall initially mean [INDENTURE TRUSTEE].,
in its capacity as indenture trustee, including its successors in interest,
until and unless a successor Person shall have become the Indenture Trustee
pursuant to the Sale and Servicing Agreement and thereafter "Indenture Trustee"
shall mean such successor Person.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3.
"Insurance Agreement" shall mean the Insurance and Indemnity
Agreement dated as of [Date] among the Note Insurer, the Sponsor, the Master
Servicer, the Trust, and the Indenture Trustee.
"Issuer" shall mean Advanta Mortgage Loan Trust ____-_.
"Master Servicer" shall mean Advanta Mortgage Corp. USA, a
Delaware corporation, and its permitted successors and assigns.
"Note Account" as defined in the Indenture.
"Note Insurer" shall mean ______________, or its successor in
interest.
"Operative Documents" shall mean this Agreement, the Sale and
Servicing Agreement, the Master Transfer Agreement, the Subsequent Transfer
Agreements, the Note Policy, the Insurance Agreement, the Indemnification
Agreement, the Indenture, and the Notes.
"Originators" shall mean any entity from which the Sponsor has
purchased (or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage
Loans, or Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic,
Advanta Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta
Mortgage Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta National
Bank and Advanta Finance Corp.
"Outstanding" shall have the meaning assigned to such term in
the Indenture.
"Owner Trustee" shall mean [OWNER TRUSTEE], a Delaware banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor Owner Trustee hereunder.
"Owner Trust Estate" shall mean all right, title and interest
of the Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Accounts and the Note Account and all other property of the Trust
from time to time, including any rights of the Owner Trustee and the Trust
pursuant to the Sale and Servicing Agreement.
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"Record Date" shall mean with respect to any Payment Date, the
close of business on the last Business Day immediately preceding such Payment
Date, provided, that if the Certificates or Notes are in definitive form, the
Record Date with respect to each Payment Date shall be the last Business Day of
the calendar month immediately preceding the calendar month in which such
Payment Date occurs.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement relating to the Trust among the Trust, the Sponsor, Advanta
Mortgage Corp. USA, as Master Servicer and the Indenture Trustee, dated as of
[Date], as the same may be amended and supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Security Majority" means a majority by principal amount of
the Noteholders so long as the Notes are Outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Sponsor" shall mean Advanta Conduit Receivables, Inc. in its
capacity as Sponsor hereunder.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles as in effect on the
date of this Agreement or any such certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, 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.
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<PAGE> 8
SECTION 1.2 Action by or Consent of Noteholders and
Certificateholders.
Whenever any provision of this Agreement refers to action to be taken, or
consented to, by Noteholders or Certificateholders, such provision shall be
deemed to refer to the Certificateholder or Noteholder, as the case may be, of
record as of the Record Date immediately preceding the date on which such action
is to be taken, or consent given, by Noteholders or Certificateholders. Solely
for the purposes of any action to be taken, or consented to, by Noteholders or
Certificateholders, any Note or Certificate registered in the name of the
Sponsor, Holding Trust or any Affiliate thereof shall be deemed not to be
outstanding; provided, however, that, solely for the purpose of determining
whether the Indenture Trustee is entitled to rely upon any such action or
consent, only Notes or Certificates which the Owner Trustee, or the Indenture
Trustee, respectively, knows to be so owned shall be so disregarded.
ARTICLE II.
Organization
SECTION 2.1 Name.
There is hereby formed a trust to be known as "Advanta Mortgage Loan Trust
____-_", in which name the Owner Trustee may conduct the business of Trust, make
and execute contracts and other instruments on behalf of the Trust and sue and
be sued.
SECTION 2.2 Office.
The office of the Trust shall be in care of the Owner Trustee at the
Corporate Trust Office or at such other address as the Owner Trustee may
designate by written notice to the Certificateholders and the Sponsor.
SECTION 2.3 Purposes and Powers.
(a) The purpose of the Trust is, and the Trust shall have the
power and authority, to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and
the Certificates pursuant to this Agreement, and to sell the Notes;
(ii) with the proceeds of the sale of the Notes, to
fund the Pre-Funding Account relating to the Trust and to pay the
organizational, start-up and transactional expenses of the Trust and to
pay the balance to the Sponsor pursuant to the Sale and Servicing
Agreement;
(iii) to assign, grant, transfer, pledge, mortgage
and convey the Owner Trust Estate to the Indenture Trustee on behalf of
the Noteholders and for the benefit of the Note Insurer and to hold,
manage and distribute to the Certificateholders pursuant to the terms
of the Sale and Servicing Agreement any portion of the Owner Trust
Estate released from the lien of, and remitted to the Trust pursuant
to, the Indenture;
(iv) to enter into and perform its obligations under
the Operative Documents to which it is a party;
4
<PAGE> 9
(v) to engage in those activities, including entering
into agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(vi) subject to compliance with the Operative
Documents, to engage in such other activities as may be required in
connection with conservation of the Owner Trust Estate and the making
of distributions to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities.
(b) The Trust shall not engage in any activity other than in
connection with those described in Section 2.3(a) or other than as required or
authorized by the terms of this Agreement or the Operative Documents. In
addition, the Trust shall not:
(i) incur any indebtedness other than the Notes
issued pursuant to the Indenture
(ii) engage in any dissolution, liquidation,
consolidation, merger or sale of assets;
(iii) amend this Trust Agreement without a
confirmation from each applicable Rating Agency then rating the Notes,
that such amendment would not result in the qualification, downgrade or
withdrawal of the rating on the Notes;
(iv) effect a transfer of any direct or indirect
ownership interest in the Trust such that either (y) the transferee
owns more than a 49% interest in the Trust, or (z) the transferee is an
affiliate or a family member of a transferor which owned more than a
49% interest in the Borrower before such transfer may be made unless
such transfer is conditioned upon the delivery of an acceptable
non-consolidation opinion to the Rating Agencies concerning, as
applicable, the transferee and/or their respective owners;
(v) engage in any business activity in which it is
not currently engaged;
(vi) take any action that might cause the Trust to
become insolvent; or
(vii) form, or caused to be formed, any subsidiaries;
(c) The Trust shall:
(i) maintain books and records separate from any
other person or entity;
(ii) maintain its bank accounts separate from any
other person or entity;
(iii) not commingle its assets with those of any
other person or entity and will hold all of its assets in its own name;
(iv) conduct its own business in its own name;
(v) maintain separate financial statements, showing
its assets and liabilities separate and apart from those of any other
person or entity and not have its assets listed on the financial
statement of any other entity;
5
<PAGE> 10
(vi) file its tax returns separate from those of any
other entity and not file a consolidated federal income tax return with
any other entity;
(vii) except as set forth herein, pay its own
liabilities and expenses only out of its own funds;
(viii) observe all organizational formalities;
(ix) enter into transactions with affiliates only
where 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;
(x) pay the salaries of its own employees from its
own funds;
(xi) maintain a sufficient number of employees in
light of its contemplated business operations;
(xii) not guarantee or become obligated for the debts
of any other entity or person;
(xiii) not hold out its credit as being available to
satisfy the obligation of any other person or entity;
(xiv) not acquire the obligations or securities of
its affiliates or owners, including partners, members or shareholders,
as appropriate;
(xv) not make loans to any other person or entity or
buy or hold evidence of indebtedness issued by any other person or
entity (except for cash and investment-grade securities);
(xvi) allocate fairly and reasonably any overhead
expenses that are shared with an affiliate, including paying for office
space and services performed by any employee of any affiliate;
(xvii) not pledge its asset for the benefit of any
other person or entity other than with respect to the Notes;
(xviii) hold itself out as a separate identity;
(xix) correct any known misunderstanding regarding
its separate identity;
(xx) not identify itself as a division of any other
person or entity; and
(xxi) maintain adequate capital in light of its
contemplated business operations.
SECTION 2.4 Appointment of Owner Trustee.
The Sponsor 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 and in the Business Trust Statute.
SECTION 2.5 Initial Capital Contribution of Trust Estate.
6
<PAGE> 11
The Sponsor 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 Sponsor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Note Account. On or prior to the Closing Date, the
Owner Trustee will also, upon receipt thereof, acknowledge on behalf of the
Trust, receipt of the Mortgage Loans pursuant to the Sale and Servicing
Agreement. The Sponsor shall pay the organizational expenses of the Trust as
they may arise.
SECTION 2.6 Declaration of Trust.
The Owner Trustee hereby declares that it will hold the Owner Trust Estate
in trust upon and subject to the conditions set forth herein for the use and
benefit of the Certificateholders, subject to the obligations of the Trust under
the Operative 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 income tax purposes, the Trust
shall be treated as a branch; provided, however, that in the event Certificates
are owned by more than one Certificateholder, it is the intention of the parties
hereto that, solely for income and franchise tax purposes, the Trust shall then
be treated as a partnership and that, unless otherwise required by appropriate
tax authorities, only after such time the Trust will file or cause to be filed
annual or other necessary returns, reports and other forms consistent with the
characterization of the Trust as a partnership for such tax purposes. Effective
as of the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and to the extent not inconsistent herewith, in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
The Owner Trustee shall file the Certificate of Trust with the Secretary of
State.
SECTION 2.7 Liability.
No Holder shall have any personal liability for any liability or obligation
of the Trust.
SECTION 2.8 Title to Trust Property.
(a) Legal title to all of the Owner Trust Estate shall be
vested at all times in the Trust as a separate legal entity except where
applicable law in any jurisdiction requires title to any part of the Owner Trust
Estate to be vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Owner Trustee, a co-trustee and/or a separate
trustee, as the case may be.
(b) The Certificateholders shall not have legal title to any
part of the Trust Property. The Certificateholders shall be entitled to receive
distributions with respect to their undivided ownership interest therein only in
accordance with Article IX. No transfer, by operation of law or otherwise, of
any right, title or interest by any Certificateholder of its 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 Trust Property.
SECTION 2.9 Situs of Trust.
The Trust will be located and administered in the State of Delaware. All
bank accounts maintained by the Owner Trustee on behalf of the Trust shall be
located in the State of Delaware or the State of New York. 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. The Trust shall not have any employees
in any state other than Delaware; provided, however, that nothing herein shall
restrict or prohibit the Owner Trustee, the Master Servicer or any agent of the
Trust from having employees within or without the State of Delaware. The only
office of the Trust will be at the Corporate Trust Office in Delaware.
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<PAGE> 12
SECTION 2.10 Representations and Warranties of the Sponsor.
The Sponsor makes the following representations and warranties on which the
Owner Trustee relies in accepting the Owner Trust Estate in trust and issuing
the Certificates and upon which the Note Insurer relies in issuing the Note
Policy.
(a) The Sponsor is duly organized and validly existing as a
Delaware corporation with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted and is proposed to be conducted pursuant to this Agreement
and the Operative Documents;
(b) It is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of its property,
the conduct of its business and the performance of its obligations under this
Agreement and the Operative Documents requires such qualification;
(c) The Sponsor has the corporate power and authority to
execute and deliver this Agreement and to carry out its terms; the Sponsor has
full power and authority to sell and assign the property to be sold and assigned
to and deposited with the Trust and the Sponsor has duly authorized such sale
and assignment and deposit to the Trust by all necessary corporate action; and
the execution, delivery and performance of this Agreement has been duly
authorized by the Sponsor by all necessary corporate action. The Sponsor has
duly executed this Agreement and this Agreement constitutes a legal, valid and
binding obligation of the Sponsor enforceable against the Sponsor, in accordance
with its terms.
(d) To the best knowledge of the Sponsor, no consent, license,
approval or authorization or registration or declaration with, any Person or
with any governmental authority, bureau or agency is required in connection with
the execution, delivery or performance of this Agreement and the Operative
Documents, except for such as have been obtained, effected or made;
(e) 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 certificate of
incorporation or by-laws of the Sponsor, or any material indenture, agreement or
other instrument to which the Sponsor is a party or by which it is bound; nor
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Operative Documents); nor violate any law or, to the
best of the Sponsor's knowledge, any order, rule or regulation applicable to the
Sponsor of any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Sponsor or its properties; and
(f) There are no proceedings or investigations pending or, to
its knowledge threatened against it before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over it or its properties (A) asserting the invalidity of this
Agreement or any of the Operative Documents, (B) seeking to prevent the issuance
of the Certificates or the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Documents, (C) seeking
any determination or ruling that might materially and adversely affect its
performance of its obligations under, or the validity or enforceability of, this
Agreement or any of the Operative Documents, or (D) seeking to adversely affect
the federal income tax or other federal, state or local tax attributes of the
Notes or the Certificates.
SECTION 2.11 Federal Income Tax Allocations.
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<PAGE> 13
In the event that the Trust is treated as a partnership for Federal income
tax purposes, net income of the Trust for any month as determined for Federal
income tax purposes (and each item of income, gain, loss, credit and deduction
entering into the computation thereof) shall be allocated to the extent of
available net income, among the Certificateholders as of the first Record Date
following the end of such month, in proportion to their ownership percentage of
principal amount of Certificates on such date.
Net losses of the Trust, if any, for any month as determined
for Federal income tax purposes (and each item of income, gain, loss, credit and
deduction entering into the computation thereof) shall be allocated among the
Certificateholders as of the Record Date in proportion to their ownership
percentage of principal amount of Certificates on such Record Date until the
principal balance of the Certificates is reduced to zero. The Sponsor, as agent
on behalf of the Certificateholders, is authorized to modify the allocations in
this paragraph if necessary or appropriate, in its sole discretion, for the
allocations to fairly reflect the economic income, gain or loss to the
Certificateholders, or as otherwise required by the Code.
SECTION 2.12 Covenants of the Sponsor.
The Sponsor agrees and covenants for the benefit of each Certificateholder,
the Note Insurer and the Owner Trustee, during the term of this Agreement, and
to the fullest extent permitted by applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as permitted by
its certificate of incorporation and the Operative Documents;
(b) it shall not, for any reason, institute proceedings for
the Trust to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against The Trust, or file a
petition seeking or consenting to reorganization or relief under any applicable
federal or state law relating to the bankruptcy of The Trust, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Trust or a substantial part of the property of the
Trust or cause or permit the Trust to make any assignment for the benefit of
creditors, or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the debt of
the Trust or take any action in furtherance of any such action;
(c) it shall obtain from each counterparty to each Operative
Document to which it or the Trust is a party and each other agreement entered
into on or after the date hereof to which it or the Trust is a party, an
agreement by each such counterparty that prior to the occurrence of the event
specified in Section 9.1(e) such counterparty shall not institute against, or
join any other Person in instituting against, it or The Trust, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States; and
(d) it shall not, for any reason, withdraw or attempt to
withdraw from this Agreement, dissolve, institute proceedings for it to be
adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law relating
to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of it or a
substantial part of its property, or make any assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
SECTION 2.13 Covenants of the Certificateholders.
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Each Certificateholder agrees:
(a) to be bound by the terms and conditions of the
Certificates and of this Agreement, including any supplements or amendments
hereto and to perform the obligations of a Certificateholder as set forth
therein or herein, in all respects as if it were a signatory hereto. This
undertaking is made for the benefit of The Trust, the Owner Trustee, the Note
Insurer and all other Certificateholders present and future;
(b) to hereby appoint the Sponsor as such Certificateholder's
agent and attorney-in-fact to sign any federal income tax information return
filed on behalf of The Trust, if any, and agree that, if requested by The Trust,
it will sign such federal income tax information return in its capacity as
holder of an interest in the Trust. Each Certificateholder also hereby agrees
that in its tax returns it will not take any position inconsistent with those
taken in any tax returns that may be filed by the Trust;
(c) if such Certificateholder is other than an individual or
other entity holding its Certificate through a broker who reports securities
sales on Form 1099-B, to notify the Owner Trustee of any transfer by it of a
Certificate in a taxable sale or exchange, within 30 days of the date of the
transfer; and
(d) until the completion of the events specified in Section
9.1(e), not to, for any reason, institute proceedings for the Trust or the
Sponsor to be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against The Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Sponsor or the Trust or a substantial part of its property, or
cause or permit the Sponsor or the Trust to make any assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or declare or effect a moratorium on its debt or take any
action in furtherance of any such action.
Except as provided in this Section 2.13, and notwithstanding
any other provision to the contrary in this Agreement, no Certificateholder
shall be deemed to have adopted, be bound by, or succeed in any way to any
representation by, or duty of indemnification by or any other duty of, the
Sponsor, including those contained in Sections 2.10, 2.12, 8.2 or elsewhere
herein.
SECTION 2.14 Investment Company.
Neither the Sponsor nor any Certificateholders shall take any action that
would cause the Trust to become an "Investment Company" required to register
under the Investment Company Act of 1940, as amended.
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1 Initial Ownership.
Upon the formation of the Trust by the contribution by the Sponsor pursuant
to Section 2.5, the Owner Trustee, contemporaneously therewith, having full
power, authority, and authorization to do so, has executed, authenticated,
dated, issued, and delivered, in the name and on behalf of The Trust, to the
Sponsor, one or more Certificates representing in the aggregate a 100% interest
in The Trust, and the Sponsor shall direct that such Certificate(s) on the
Certificate Register be registered in the name of Holding Trust. Accordingly,
Holding Trust shall initially be the sole beneficiary of the Trust. Such
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Certificate(s) are duly authorized, validly issued, and entitled to the benefits
of this Agreement. For so long as Holding Trust shall own such 100% interest in
The Trust, Holding Trust shall be the sole beneficial owner of the Trust.
SECTION 3.2 The Certificates.
The Certificates shall be issued in denominations of $1,000 and integral
multiples of $1,000 in excess thereof. The Certificates shall be executed on
behalf of the Trust by manual or facsimile signature of an authorized officer of
the Owner Trustee. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of The Trust, shall be validly issued and entitled
to the benefit of this Agreement, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Certificates or did not hold such offices at the date of
authentication and delivery of such Certificates. Subject to Section 2.13(d), a
transferee of a Certificate shall become a Certificateholder, and shall be
entitled to the rights and subject to the obligations of a Certificateholder
hereunder, upon due registration of such Certificate in such transferee's name
pursuant to Section 3.4.
SECTION 3.3 Authentication of Certificates.
Concurrently with the initial sale of the Mortgage Loans to the Trust
pursuant to the Sale and Servicing Agreement, the Owner Trustee shall cause each
Certificate, to be executed on behalf of The Trust, authenticated and delivered
to or upon the written order of the Sponsor, signed by its chairman of the
board, its president or any vice president, its treasurer or any assistant
treasurer without further corporate action by the Sponsor, in authorized
denominations. No Certificate shall entitle its holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A, executed by the Owner Trustee, by manual signature; such
authentication shall constitute conclusive evidence that such Certificate shall
have been duly authenticated and delivered hereunder. All Certificates shall be
dated the date of their authentication.
SECTION 3.4 Registration of Transfer and Exchange of
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 Certificates and of transfers and
exchanges of Certificates as herein provided. The Owner Trustee shall be the
initial Certificate Registrar.
In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that it has no right to or interest in any monies at any time held in the
Pre-Funding Account prior to the release of such monies pursuant to Section
8.7(b)(vii) of the Indenture (other than Pre-Funding Earnings), such monies
being held in trust for the benefit of the Noteholders and the Note Insurer.
Notwithstanding the foregoing, in the event that it is ever determined that the
monies held in the Pre-Funding Account constitute a pledge of collateral, then
the provisions of the Sale and Servicing Agreement shall be considered to
constitute a security agreement and the Sponsor and the Certificateholders
hereby grant to the Indenture Trustee and the Note Insurer a first priority
perfected security interest in such amounts. In addition, each
Certificateholder, by acceptance of its Certificate, hereby appoints the Sponsor
as its agent to pledge a first priority perfected security interest in the
Pre-Funding Account, and any amounts held therein from time to time to the
Indenture Trustee and the Note Insurer and agrees to execute and deliver such
instruments of conveyance, assignment, grant, confirmation, etc., as well as any
financing statements, in each case as the Note Insurer shall consider reasonably
necessary in order to perfect the Indenture Trustee's security interest in the
Mortgage Loans.
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SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated 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 Certificate and (b) there
shall be delivered to the Certificate Registrar, the Owner Trustee and the Note
Insurer such security or indemnity as may be required by them to save each of
them harmless, then in the absence of notice that such Certificate shall have
been acquired by a bona fide purchaser, the Owner Trustee on behalf of the Trust
shall execute and the Owner Trustee shall authenticate and deliver, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a
new Certificate of like class, tenor and denomination. In connection with the
issuance of any new 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 Certificate issued pursuant to this Section shall constitute
conclusive evidence of an ownership interest in The Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
SECTION 3.6 Persons Deemed Certificateholders.
Except as otherwise stated herein, every Person by virtue of becoming a
Certificateholder in accordance with this Agreement and the rules and
regulations of the Certificate Registrar shall be deemed to be bound by the
terms of this Agreement. Prior to due presentation of a Certificate for
registration of transfer, the Owner Trustee, the Certificate Registrar and the
Note Insurer and any agent of the Owner Trustee, the Certificate Registrar and
the Note Insurer, may treat the Person in whose name any Certificate shall be
registered in the Certificate Register as the owner of such Certificate for the
purpose of receiving distributions pursuant to the Sale and Servicing Agreement
and the Indenture and for all other purposes whatsoever, and none of the Owner
Trustee, the Certificate Registrar or the Note Insurer nor any agent of the
Owner Trustee, the Certificate Registrar or the Note Insurer shall be bound by
any notice to the contrary.
SECTION 3.7 Access to List of Certificateholders' Names and
Addresses.
The Owner Trustee shall furnish or cause to be furnished to the Master
Servicer, the Sponsor or the Note Insurer, within 15 days after receipt by the
Owner Trustee of a request therefor from such Person in writing, a list, of the
names and addresses of the Certificateholders as of the most recent Record Date.
If three or more Certificateholders or one or more Certificateholders evidencing
not less than 25% by Percentage Interest apply in writing to the Owner Trustee,
and such application states that the applicants desire to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Certificateholder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Sponsor, the
Master Servicer, the Owner Trustee or the Note Insurer or any agent thereof
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 3.8 Maintenance of Office or Agency.
The Owner Trustee shall maintain in Wilmington, Delaware an office or
offices or agency or agencies where Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Certificates and the Operative Documents may
be served. The Owner Trustee initially designates its Corporate Trust Office for
such purposes. The Owner Trustee shall give prompt written notice to the
Sponsor, the Certificateholders and the Note Insurer of any change in the
location of the Certificate Register or any such office or agency.
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SECTION 3.9 ERISA.
The Certificates may not be acquired by or for the account of (i) an
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that is subject to the
provisions of Title I of ERISA, (ii) a plan (as defined in Section 4975(e)(1) of
the Code) that is subject to Section 4975 of the Code, or (iii) any entity whose
underlying assets include assets of a plan described in (i) or (ii) plan assets
by reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its beneficial ownership interest in its Certificate, the
Holder thereof shall be deemed to have represented and warranted that it is not
a Benefit Plan.
SECTION 3.10 Restrictions on Transfer of Certificates.
(a) The Certificates shall be assigned, transferred,
exchanged, pledged, financed, hypothecated or otherwise conveyed (collectively,
for purposes of this Section 3.10 and any other Section referring to the
Certificates, "transferred" or a "transfer") only in accordance with this
Section 3.10.
(b) No transfer of a Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. Except for the initial issuance of the
Certificate to Holding Trust and its initial transferee, the Owner Trustee shall
require (i) the transferee to execute an investment letter acceptable to and in
form and substance satisfactory to the Owner Trustee and the Note Insurer
certifying to the Owner Trustee and the Note Insurer the facts surrounding such
transfer, which investment letter shall not be an expense of the Owner Trustee
or the Note Insurer or (ii) if the investment letter is not delivered, a written
Opinion of Counsel acceptable to and in form and substance satisfactory to the
Owner Trustee, the Note Insurer and the Sponsor that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor from said Act or is being made pursuant to said Act, which Opinion of
Counsel shall not be an expense of the Owner Trustee, the Note Insurer or the
Sponsor. The Certificateholder desiring to effect such transfer shall, and does
hereby agree to, indemnify the Sponsor, the Owner Trustee and the Note Insurer
against any liability that may result if the transfer is not so exempt or is not
made in accordance with such federal and state laws.
(c) The Certificates and any interest therein shall not be
transferred except upon satisfaction of the following conditions precedent: (i)
the Person that acquires a Certificate shall (A) be organized and existing under
the laws of the United States of America or any state thereof or the District of
Columbia; (B) expressly assume, by an agreement supplemental hereto, executed
and delivered to the Owner Trustee, the performance of every covenant and
obligation of the Sponsor hereunder except for the covenants and obligations
contained in Sections 3.1, 3.3, 3.4 of the Sale and Servicing Agreement, and
Sections 2.10, 2.12 or 8.2 of this Agreement; (ii) the person that acquires a
Certificate shall deliver to the Owner Trustee and the Note Insurer an Officer's
Certificate stating that such transfer and such supplemental agreement comply
with this Section 3.10 and that all conditions precedent provided by this
subsection 3.10 have been complied with and an Opinion of Counsel stating that
such transfer and such supplemental agreement comply with this Section 3.10 and
that all conditions precedent provided by this Section 3.10 have been complied
with, and the Owner Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying; (iii) the person that
acquires a Certificate shall deliver to the Owner Trustee and the Note Insurer a
letter from each Rating Agency confirming that its rating of the Notes, after
giving effect to such transfer, will not be reduced or withdrawn without regard
to the Note Policy; (iv) the person that acquires a Certificate shall deliver to
the Owner Trustee and the Note Insurer an Opinion of Counsel to the effect that
(a) such transfer will not adversely affect the treatment of the Notes after
such transfer as debt for federal and applicable state income tax purposes, (b)
such transfer will not result in the Trust being subject to tax at the entity
level for federal or applicable state tax
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purposes, (c) such transfer will not have any material adverse impact on the
federal or applicable state income taxation of a Noteholder and (d) such
transfer will not result in the arrangement created by this Agreement or any
"portion" of the Trust, being treated as a taxable mortgage pool as defined in
Section 7701(i) of the Code; (v) all filings and other actions necessary to
continue the perfection of the interest of the Trust in the Mortgage Loans and
the other property conveyed hereunder shall have been taken or made.
Notwithstanding the foregoing, the requirement set forth in subclause (i)(A) of
this Section 3.10 shall not apply in the event the Owner Trustee and the Note
Insurer shall have received a letter from each Rating Agency confirming that its
rating of the Notes, after giving effect to a proposed transfer to a Person that
does not meet the requirement set forth in subclause (i)(A), shall not be
reduced or withdrawn without regard to the Note Policy. Notwithstanding the
foregoing, the requirements set forth in this paragraph (b) shall not apply to
the initial issuance of the Certificates to the Holding Trust and its initial
transferee.
(d) Except for the initial issuance of the Certificates to
Holding Trust and its initial transferee, no transfer of a Certificate shall be
made unless the Owner Trustee shall have received a representation letter from
the transferee of such Certificate, acceptable to and in form and substance
satisfactory to the Owner Trustee, to the effect that such transferee is not a
Benefit Plan and is not acting on behalf of or using the assets of a Benefit
Plan, which representation letter shall not be an expense of the Owner Trustee.
(e) No transfer or pledge of the Certificates shall result in
more than 98 other holders of Certificates.
SECTION 3.11 Acceptance of Obligations.
The Sponsor agrees to be bound by and to perform all the duties of the
Sponsor set forth in this Agreement.
SECTION 3.12 Payments on Certificates.
The Certificateholders will be entitled to distributions on each Payment
Date, as provided in the Indenture.
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1 Prior Notice to Certificateholders with Respect to
Certain Matters.
With respect to the following matters, the Owner Trustee shall not take
action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Certificateholders shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) 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 or unless such amendment would not materially and
adversely affect the interests of the Holders);
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required;
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(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
or
(d) except pursuant to Section 7.14 of the Sale and Servicing
Agreement, the amendment, change or modification of the Sale and Servicing
Agreement, except to cure any ambiguity or defect or to amend or supplement any
provision in a manner that would not materially adversely affect the interests
of the Certificateholders.
The Owner Trustee shall notify the Certificateholders in writing of any
appointment of a successor Note Registrar, or Certificate Registrar within five
Business Days thereof.
SECTION 4.2 Action by Certificateholders with Respect to
Certain Matters.
(a) The Owner Trustee shall not have the power, except upon
the direction of the Note Insurer or in the event that a Note Insurer Default
shall have occurred and is continuing, the Security Majority in accordance with
the Operative Documents, to (i) remove the Master Servicer under the Sale and
Servicing Agreement or (ii) except as expressly provided in the Operative
Documents, sell the Mortgage Loans after the termination of the Indenture. The
Owner Trustee shall take the actions referred to in the preceding sentence only
upon written instructions signed by the Note Insurer or the Noteholders, as the
case may be, and the furnishing of indemnification satisfactory to the Owner
Trustee by the Certificateholders.
(b) Upon the written request of any Certificateholder (a
"Proposer"), the Owner Trustee shall distribute promptly to all
Certificateholders any request for action or consent of Certificateholders
submitted by such Proposer. The Owner Trustee shall provide a reasonable method
for collecting responses to such request and shall tabulate and report the
results thereof to the Certificateholders and the Sponsor. The Owner Trustee
shall have no responsibility or duty to determine if any such proposed action or
consent is permitted under the terms of this Agreement or applicable law.
SECTION 4.3 Action by Certificateholders with Respect to
Bankruptcy.
Until one year and one day following the day on which the Notes have been
paid in full, the Owner Trustee shall not have the power to, and shall not,
commence any proceeding or other actions contemplated by Section 2.12(b)
relating to the Trust without the prior written consent of the Note Insurer
(unless a Note Insurer Default shall have occurred and is continuing) or upon a
Note Insurer Default, the Security Majority. Until one year and one day
following the day on which the Notes have been paid in full, all amounts due to
the Note Insurer under the Insurance Agreement have been paid in full, the Note
Policy has terminated and the Indenture Trustee has surrendered the Note Policy
to the Note Insurer, the Owner Trustee shall not have the power to, and shall
not, commence any proceeding or other actions contemplated by Section 2.12(b)
relating to the Trust without the prior written consent of all of the
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4 Restrictions on Certificateholders' Power.
(a) The Certificateholders shall not direct the Owner Trustee
to take or refrain from taking any action if such action or inaction would be
contrary to any obligation of the Trust or the Owner Trustee under this
Agreement or any of the Operative Documents or would be contrary to Section 2.3
or otherwise contrary to law nor shall the Owner Trustee be obligated to follow
any such direction, if given.
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(b) No Certificateholder (other than Holding Trust or its
initial transferee) shall have any right by virtue or by availing itself of any
provisions of this Agreement to institute any suit, action, or proceeding in
equity or at law upon or under or with respect to this Agreement or any
Operative Document, unless the Certificateholders are the Instructing Party
pursuant to Section 6.3 and unless a Certificateholder previously shall have
given to the Owner Trustee a written notice of default and of the continuance
thereof, as provided in this Agreement, and also unless Certificateholders
evidencing not less than 25% by Percentage Interest shall have made written
request upon the Owner Trustee to institute such action, suit or proceeding in
its own name as Owner Trustee under this Agreement and shall have offered to the
Owner Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Owner
Trustee, for 30 days after its receipt of such notice, request, and offer of
indemnity, shall have neglected or refused to institute any such action, suit,
or proceeding, and during such 30-day period no request or waiver inconsistent
with such written request has been given to the Owner Trustee pursuant to and in
compliance with this Section or Section 6.3; it being understood and intended,
and being expressly covenanted by each Certificateholder with every other
Certificateholder and the Owner Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb, or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner provided in this Agreement and for the equal, ratable, and common benefit
of all Certificateholders. For the protection and enforcement of the provisions
of this Section 4.4, each and every Certificateholder and the Owner Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 4.5 Majority Control.
No Certificateholder shall have any right to vote or in any manner
otherwise control the operation and management of the Trust except as expressly
provided in this Agreement. Except as otherwise expressly provided herein, any
action that may be taken by the Certificateholders under this Agreement may be
taken by the Holders of Certificates evidencing not less than a majority
interest in the Trust. Except as otherwise expressly provided herein, any
written notice of the Certificateholders delivered pursuant to this Agreement
shall be effective if signed by Certificateholders evidencing not less than a
majority interest in the Trust at the time of the delivery of such notice.
SECTION 4.6 Rights of Note Insurer.
Notwithstanding anything to the contrary in the Operative Documents,
without the prior written consent of the Note Insurer (or if a Note Insurer
Default shall have occurred and is continuing, the Security Majority) the Owner
Trustee shall not (i) remove the Master Servicer, (ii) initiate any claim, suit
or proceeding by the Trust or compromise any claim, suit or proceeding brought
by or against The Trust, other than with respect to the enforcement of any
Mortgage Loan or any rights of the Trust thereunder, (iii) authorize the merger
or consolidation of the Trust with or into any other business trust or other
entity (other than in accordance with Section 3.10 of the Indenture), (iv) amend
the Certificate of Trust or (v) amend this Agreement in accordance with Section
11.1 of this Agreement.
ARTICLE V.
Certain Duties
SECTION 5.1 Accounting and Records to the Noteholders,
Certificateholders, the Internal Revenue Service
and Others.
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The Sponsor shall (a) maintain (or cause to be maintained) the books of the
Trust on a calendar year basis on the accrual method of accounting, including,
without limitation, the allocations of net income under Section 2.11 hereof, (b)
deliver (or cause to be delivered) to each Certificateholder, as may be required
by the Code and applicable Treasury Regulations, such information as may be
required (including Schedule K-1, if applicable) to enable each
Certificateholder to prepare its Federal and state income tax returns, (c) file
or cause to be filed, if necessary, such tax returns relating to the Trust
(including a partnership information return, Form 1065), and direct the Owner
Trustee or the Master Servicer, as the case may be, to make such elections as
may from time to time be required or appropriate under any applicable state or
Federal statute or rule or regulation thereunder so as to maintain the Trust's
characterization as a branch, or if applicable, as a partnership, for Federal
income tax purposes and (d) collect or cause to be collected any withholding tax
as described in and in accordance with Section 6.1(a)(ii) of the Sale and
Servicing Agreement with respect to income or distributions to
Certificateholders and the appropriate forms relating thereto. The Owner Trustee
or the Master Servicer, as the case may be, shall make all elections pursuant to
this Section as directed in writing by the Sponsor. The Owner Trustee shall sign
all tax information returns presented to it in final execution form, if any,
filed pursuant to this Section 5.1 and any other returns as may be required by
law, and in doing so shall rely entirely upon, and shall have no liability for
information provided by, or calculations provided by, the Sponsor or the Master
Servicer. The Owner Trustee shall elect under Section 1278 of the Code to
include in income currently any market discount that accrues with respect to the
Mortgage Loans. The Owner Trustee shall not make the election provided under
Section 754 of the Code.
SECTION 5.2 Signature on Returns; Tax Matters Partner.
(a) Notwithstanding the provisions of Section 5.1 and in the
event that the Trust is characterized as a partnership, the Owner Trustee shall
sign on behalf of the Trust the tax returns of the Trust presented to it in
final execution form, unless applicable law requires a Certificateholder to sign
such documents, in which case such documents shall be signed by the Sponsor, as
agent, on behalf of the Certificateholders.
(b) In the event that the Trust is characterized as a
partnership, each Certificateholder shall be the "tax matters partner" of the
Trust pursuant to the Code.
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1 General Authority.
The Owner Trustee is authorized and directed to execute and deliver the
Operative Documents to which the Trust is named as a party and each certificate
or other document attached as an exhibit to or contemplated by the Operative
Documents to which the Trust is named as a party and any amendment thereto, in
each case, in such form as the Sponsor 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 Notes in the aggregate
principal amount of $____________. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Operative Documents. The Owner Trustee is further
authorized from time to time to take such action as the Instructing Party
recommends with respect to the Operative Documents so long as such activities
are consistent with the terms of the Operative Documents.
SECTION 6.2 General Duties.
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It shall be the duty of the Owner Trustee to discharge (or cause to be
discharged) all of its responsibilities pursuant to the terms of this Agreement
and to administer the Trust in the interest of the Holders, subject to the
Operative 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 Operative
Documents to the extent the Master Servicer has agreed in the Sale and Servicing
Agreement to perform any act or to discharge any duty of the Trust or the Owner
Trustee hereunder or under any Operative Document, and the Owner Trustee shall
not be liable for the default or failure of the Master Servicer to carry out its
obligations under the Sale and Servicing Agreement.
SECTION 6.3 Action upon Instruction.
(a) Subject to Article IV, the Note Insurer (so long as a Note
Insurer Default shall not have occurred and be continuing) or the
Certificateholders (if a Note Insurer Default shall have occurred and be
continuing) (the "Instructing Party") shall have the exclusive right to direct
the actions of the Owner Trustee in the management of The Trust, so long as such
instructions are not inconsistent with the express terms set forth herein or in
any Operative Document. The Instructing Party shall not instruct the Owner
Trustee in a manner inconsistent with this Agreement or the Operative Documents.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Operative Document if the Owner Trustee shall have
reasonably determined, or shall have been advised by counsel, that such action
is likely to result in liability on the part of the Owner Trustee or is contrary
to the terms hereof or of any Operative Document or is otherwise contrary to
law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Operative Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Instructing Party received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within ten days of
such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Operative Documents, as it shall deem to
be in the best interests of the Certificateholders, and shall have no liability
to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Operative Document or any
such provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Instructing
Party requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action, not inconsistent with this Agreement or the Operative
Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4 No Duties Except as Specified in this Agreement or
in Instructions.
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The Owner Trustee shall not have any duty or obligation to manage, make any
payment with respect to, register, record, sell, dispose of, or otherwise deal
with the Owner Trust Estate, or to otherwise take or refrain from taking any
action under, or in connection with, any document contemplated hereby to which
the Owner Trustee is a party, except as expressly provided by the terms of this
Agreement or in any document or written instruction received by the Owner
Trustee pursuant to Section 6.3; and no implied duties or obligations shall be
read into this Agreement or any Operative Document against the Owner Trustee.
The Owner Trustee shall have no responsibility for filing any financing or
continuation statement in any public office at any time or to otherwise perfect
or maintain the perfection of any security interest or lien granted to it
hereunder or to prepare or file any Commission filing for the Trust or to record
this Agreement or any Operative Document. The Owner Trustee nevertheless agrees
that it will, at its own cost and expense, promptly take all action as may be
necessary to discharge any liens on any part of the Owner Trust Estate that
result from actions by, or claims against, the Owner Trustee (solely in its
individual capacity) and 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 Operative Documents and
(iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6 Restrictions.
The Owner Trustee shall not take any action (a) that is inconsistent with
the purposes of the Trust set forth in Section 2.3 or (b) that, to the actual
knowledge of the Owner Trustee, would result in the Trust becoming taxable as a
corporation or a publicly traded partnership for Federal income tax purposes.
The Certificateholders 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 Trust and Duties.
The Owner Trustee accepts the trust hereby created and agrees to perform
its duties hereunder with respect to such trust but only upon the terms of this
Agreement. The Owner Trustee also agrees to disburse all monies actually
received by it constituting part of the Owner Trust Estate upon the terms of the
Operative Documents and this Agreement. The Owner Trustee shall not be
answerable or accountable hereunder or under any Operative Document under any
circumstances, except (i) for its own willful misconduct, bad faith or gross
negligence, (ii) in the case of the inaccuracy of any representation or warranty
contained in Section 7.3 expressly made by the Owner Trustee in its individual
capacity, (iii) for liabilities arising from the failure of the Owner Trustee to
perform obligations expressly undertaken by it in the last sentence of Section
6.4 hereof, (iv) for any investments issued by the Owner Trustee or any branch
or affiliate thereof in its commercial capacity or (v) for taxes, fees or other
charges on, based on or measured by, any fees, commissions or compensation
received by the Owner Trustee. In particular, but not by way of limitation (and
subject to the exceptions set forth in the preceding sentence):
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(a) the Owner Trustee shall not be liable for any error of
judgment, not constituting gross negligence, 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 if such action or omission is in
accordance with the instructions of the Instructing Party, the Sponsor, the
Master Servicer or any Certificateholder pursuant to the terms hereof;
(c) no provision of this Agreement or any Operative Document
shall require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights or powers hereunder
or under any Operative Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Operative 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 Sponsor or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Operative Documents, other than
the certificate of authentication on the Certificates, and the Owner Trustee
shall in no event assume or incur any liability, duty or obligation to the
Sponsor, the Note Insurer, Indenture Trustee, any Certificateholder, other than
as expressly provided for herein and in the Operative Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Sponsor, the Note Insurer, the Indenture Trustee, the Trust,
or the Master Servicer under any of the Operative Documents or otherwise and the
Owner Trustee shall have no obligation or liability to perform the obligations
under this Agreement or the Operative Documents that are required to be
performed by the Sponsor under this Agreement, by the Indenture Trustee under
the Indenture or the Master Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Operative Document, at the request, order or
direction of the Instructing Party or any of the Certificateholders, unless such
Instructing Party or Certificateholders have offered to the Owner Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Operative Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its negligence, bad faith
or willful misconduct in the performance of any such act.
SECTION 7.2 Furnishing of Documents.
The Owner Trustee shall furnish to the Certificateholders promptly upon
receipt of a written request therefor, duplicates or copies of all reports,
notices, requests, demands, certificates, financial statements and any other
instruments furnished to the Owner Trustee under the Operative Documents.
SECTION 7.3 Representations and Warranties.
The Owner Trustee hereby represents and warrants, in its individual
capacity, to the Sponsor and the Holders (which shall have relied on such
representations and warranties in issuing the Note Policy), that:
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(a) It is a Delaware 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.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware state law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
SECTION 7.4 Reliance; Advice of Counsel.
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper believed by
it to be genuine and believed by it to be signed by the proper party or parties.
The Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer, secretary or other authorized officers of the
relevant party, as to such fact or matter, and such certificate shall constitute
full protection to the Owner Trustee for any action taken or omitted to be taken
by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or the
Operative Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them, 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 according to such opinion not contrary to this Agreement or any
Operative Document.
SECTION 7.5 Not Acting in Individual Capacity.
Except as provided in this Article VII, in accepting the trusts hereby
created [OWNER TRUSTEE] acts solely as Owner Trustee hereunder and not in its
individual capacity and all Persons having any claim against the Owner Trustee
by reason of the transactions contemplated by this Agreement or any Operative
Document shall look only to the Owner Trust Estate for payment or satisfaction
thereof.
SECTION 7.6 Owner Trustee Not Liable for Certificates or
Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
signature and countersignature of the Owner Trustee on the Certificates) shall
be taken as the statements of the Sponsor 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
Operative Document or of the Certificates (other than the signature and
countersignature of the Owner Trustee on the Certificates) or the Notes, or of
any Mortgage Loan or related documents. The Owner Trustee shall at no time have
any
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responsibility or liability for or with respect to the legality, validity and
enforceability of any Mortgage Loan, or the perfection and priority of any
security interest created by any Mortgage Loan 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 payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the Indenture,
including, without limitation: the existence, condition and ownership of any
Mortgage Loan; the existence and enforceability of any insurance thereon; the
existence and contents of any Mortgage Loan on any computer or other record
thereof; the validity of the assignment of any Mortgage Loan to the Trust or of
any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan; the compliance by the Sponsor,
the Master Servicer or any other Person with any warranty or representation made
under any Operative Document or in any related document or the accuracy of any
such warranty or representation or any action of the Indenture Trustee or the
Master Servicer or any Sub-Servicer taken in the name of the Owner Trustee.
SECTION 7.7 Owner Trustee May Own Certificates and Notes.
The Owner Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates or Notes and may deal with the Sponsor, the
Indenture Trustee and the Master Servicer in banking transactions with the same
rights as it would have if it were not Owner Trustee.
SECTION 7.8 Payments from Owner Trust Estate.
All payments to be made by the Owner Trustee under this Agreement or any of
the Operative Documents to which the Trust or the Owner Trustee is a party shall
be made only from the income and proceeds of the Owner Trust Estate and only to
the extent that the Trust shall have received income or proceeds from the Owner
Trust Estate to make such payments in accordance with the terms hereof. [OWNER
TRUSTEE], or any successor thereto, in its individual capacity, shall not be
liable for any amounts payable under this Agreement or any of the Operative
Documents to which the Trust or the Owner Trustee is a party.
SECTION 7.9 Doing Business in Other Jurisdictions.
Notwithstanding anything contained to the contrary, neither [OWNER TRUSTEE]
or any successor thereto, nor the Owner Trustee shall be required to take any
action in any jurisdiction other than in the State of Delaware if the taking of
such action will, even after the appointment of a co-trustee or separate trustee
in accordance with Section 10.5 hereof, (i) require the consent or approval or
authorization or order of or the giving of notice to, or the registration with
or the taking of any other action in respect of, any state or other governmental
authority or agency of any jurisdiction other than the State of Delaware ; (ii)
result in any fee, tax or other governmental charge under the laws of the State
of Delaware becoming payable by [OWNER TRUSTEE] (or any successor thereto); or
(iii) subject [OWNER TRUSTEE] (or any successor thereto) to personal
jurisdiction in any jurisdiction other than the State of Delaware for causes of
action arising from acts unrelated to the consummation of the transactions by
[OWNER TRUSTEE] (or any successor thereto) or the Owner Trustee, as the case may
be, contemplated hereby.
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1 Owner Trustee's Fees and Expenses.
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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
Sponsor and the Owner Trustee, and the Owner Trustee shall be entitled to be
reimbursed by the Sponsor 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 and under the Operative Documents.
SECTION 8.2 Indemnification.
The Sponsor shall be liable as primary obligor for, and shall indemnify the
Owner Trustee (in its individual and trust capacities) and its officers,
directors, 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 (in its
trust or individual capacities) at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Operative Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, except only that the Sponsor shall not be liable
for or required to indemnify the Owner Trustee from and against Expenses arising
or resulting from any of the matters described in the third sentence of Section
7.1. The indemnities contained in this Section and the rights under Section 8.1
shall survive the resignation or termination of the Owner Trustee or the
termination of this Agreement. In any event of any claim, action or proceeding
for which indemnity will be sought pursuant to this Section, the Owner Trustee's
choice of legal counsel shall be subject to the approval of the Sponsor which
approval shall not be unreasonably withheld.
SECTION 8.3 Payments to the Owner Trustee.
Any amounts paid to the Owner Trustee pursuant to this Article VIII shall
be deemed not to be a part of the Owner Trust Estate immediately after such
payment.
SECTION 8.4 Non-recourse Obligations.
Notwithstanding anything in this Agreement or any Operative Document, the
Owner Trustee agrees in its individual capacity and in its capacity as Owner
Trustee for the Trust that all obligations of the Trust to the Owner Trustee
individually or as Owner Trustee for the Trust shall be recourse to the Owner
Trust Estate only and specifically shall not be recourse to the assets of any
Certificateholder.
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1 Termination of Trust Agreement.
(a) This Agreement and the Trust shall terminate and be of no
further force or effect upon the later of (i) the maturity or other liquidation
of the last Mortgage Loan (including the redemption by the Majority
Certificateholders at its option of the corpus of the Trust as described in
Section 10.1(b) of the Indenture) and the subsequent distribution of amounts in
respect of such Mortgage Loans as provided in the Operative Documents or (ii)
the payment to Certificateholders of all amounts required to be paid to them
pursuant to this Agreement and the payment to the Note Insurer of all amounts
payable or reimbursable to it pursuant to the Sale and Servicing Agreement and
the Insurance Agreement; provided, however, that the rights to indemnification
under Section 8.2 and the rights under Section 8.1 shall survive the termination
of the Trust. The Master Servicer shall promptly
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notify the Owner Trustee and the Note Insurer of any prospective termination
pursuant to this Section 9.1. The bankruptcy, liquidation, dissolution, death or
incapacity of any Certificateholder shall not (x) operate to terminate this
Agreement or The Trust, nor (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Owner Trust Estate nor (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in clause (a), neither the Sponsor nor
any other Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of The Trust, specifying the
Payment Date upon which the Certificateholders shall surrender their
Certificates to the Indenture Trustee for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
redemption from the Master Servicer given pursuant to Section 10.1 of the Sale
and Servicing Agreement, stating (i) the Payment Date upon or with respect to
which final payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Indenture Trustee therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Payment Date is not applicable, payments being
made only upon presentation and surrender of the Certificates at the office of
the Indenture Trustee therein specified. The Owner Trustee shall give such
notice to the Certificate Registrar (if other than the Owner Trustee) and the
Indenture Trustee at the time such notice is given to Certificateholders. Upon
presentation and surrender of the Certificates, the Indenture Trustee shall
cause to be distributed to Certificateholders amounts distributable on such
Payment Date pursuant to Section 8.7(b)(xx) of the Indenture.
In the event that all of the Certificateholders shall not
surrender their 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
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the 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 Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds remaining in the Trust after
exhaustion of such remedies shall be distributed, subject to applicable escheat
laws, by the Owner Trustee to the Sponsor and Certificateholders shall look
solely to the Sponsor for payment.
(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall be
distributed by the Owner Trustee to the Sponsor.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
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 (i) satisfying the
provisions of Section 3807(a) of the Business Trust Statute; (ii) authorized to
exercise corporate trust powers; (iii) having a combined capital and surplus of
at least $50,000,000 and subject to supervision or examination by Federal or
State
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authorities; (iv) having (or having a parent which has) a rating of at least
Baa3 by Moody's or A-1 by Standard & Poors or being otherwise acceptable to the
Rating Agencies; and (v) acceptable to the Note Insurer in its sole discretion.
If such corporation shall publish reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section, the Owner Trustee shall resign immediately in
the manner and with the effect specified in Section 10.2.
SECTION 10.2 Resignation or Removal of Owner Trustee.
The Owner Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Sponsor, the Note Insurer
and the Master Servicer. Upon receiving such notice of resignation, the Sponsor
shall promptly appoint a successor Owner Trustee, meeting the qualifications set
forth in Section 10.1 herein, 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, provided that the Sponsor shall have received
written confirmation from each of the Rating Agencies that the proposed
appointment will not result in an increased capital charge to the Note Insurer
by either of the Rating Agencies. If no successor Owner Trustee shall have been
so appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Owner Trustee or the Note Insurer may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Sponsor, 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 a majority of the Certificateholders with the consent of the
Note Insurer (so long as no Note Insurer Default shall have occurred and is
continuing) may remove the Owner Trustee. If a majority of the
Certificateholders shall remove the Owner Trustee under the authority of the
immediately preceding sentence, the Sponsor shall promptly appoint a successor
Owner Trustee, meeting the qualifications set forth in Section 10.1 herein, by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the outgoing Owner Trustee so removed, one copy to the Note Insurer
and one copy to the successor Owner Trustee and the Sponsor shall pay all fees
owed to the outgoing Owner Trustee, if not previously paid by the Trust.
Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of appointment by the
successor Owner Trustee pursuant to Section 10.3 and payment of all reasonable
fees and expenses owed to the outgoing Owner Trustee.
Notwithstanding any other provision of this Agreement, and in
addition to any other method of removal of the Owner Trustee contained herein,
upon a proposal made pursuant to Section 4.2(b) and the subsequent consent of
Certificateholders representing no less than a 66-2/3% interest in The Trust,
the Owner Trustee may be removed as Owner Trustee , subject to the consent of
the Note Insurer (so long as no Note Insurer Default shall have occurred and is
continuing), which consent is not to be unreasonably withheld. In the event the
Owner Trustee is removed pursuant to this paragraph, the provisions of this
Agreement, including Article X herein, shall apply as if the Owner Trustee had
resigned hereunder.
SECTION 10.3 Successor Owner Trustee.
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Any successor Owner Trustee appointed pursuant to Section 10.2 shall
execute, acknowledge and deliver to the Sponsor, the Master Servicer, the Note
Insurer and to its predecessor Owner Trustee an instrument accepting such
appointment under this Agreement, and thereupon the resignation or removal of
the predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Sponsor and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as
provided in this Section unless at the time of such acceptance such successor
Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section, the Master Servicer shall mail notice of the successor
of such Owner Trustee to all Certificateholders, the Indenture Trustee and the
Noteholders. If the Master Servicer shall fail to mail such notice within 10
days after acceptance of appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Master Servicer.
The successor Owner Trustee shall file an amendment to the
Certificate of Trust with the Secretary of State reflecting the name and
principal place of business of such successor Owner Trustee in the State of
Delaware.
SECTION 10.4 Merger or Consolidation of Owner Trustee.
Any corporation into which the Owner Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided further that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
SECTION 10.5 Appointment of Co-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, the Master Servicer and the Owner Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Note Insurer to act as co-trustee,
jointly with the Owner Trustee, or separate trustee or separate trustees, of all
or any part of the Owner Trust Estate, and to vest in such Person, in such
capacity, such title to The Trust, or any part thereof, and, subject to the
other provisions of this Section, such powers, duties, obligations, rights and
trusts as the Master Servicer and the Owner Trustee may consider necessary or
desirable. If the Master Servicer shall not have joined in such appointment
within 15 days after the receipt by it of a request so to do, the Owner Trustee
subject to the approval of the Note Insurer (which approval shall not be
unreasonably withheld) shall have the power to make such appointment. No
co-trustee or separate trustee under this Agreement shall be required to meet
the terms of eligibility as a successor trustee pursuant to Section 10.1 and no
notice of the appointment of any co-trustee or separate trustee shall be
required pursuant to Section 10.3.
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Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred upon and
exercised or performed by the Owner Trustee and such separate trustee
or co-trustee jointly (it being understood that such separate trustee
or co-trustee is not authorized to act separately without the Owner
Trustee joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are to be
performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any other trustee
under this Agreement; and
(iii) the Master Servicer and the Owner Trustee
acting jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Master Servicer and the Note Insurer.
Any separate trustee or co-trustee may at any time appoint the
Owner Trustee, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
ARTICLE XI.
Miscellaneous
SECTION 11.1 Supplements and Amendments.
(a) This Agreement may be amended by the Sponsor and the Owner
Trustee, with the prior written consent of the Note Insurer (so long as no Note
Insurer Default shall have occurred and is continuing), without the consent of
any of the Noteholders or Certificateholders (i) to cure any ambiguity or defect
or (ii) to correct, supplement or modify any provisions in this Agreement;
provided, however, that such action shall not, as evidenced by an Opinion of
Counsel which may be based upon a certificate of the Master Servicer, adversely
affect in any material respect the interests of any Noteholder or
Certificateholder.
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(b) This Agreement may also be amended from time to time, with
the prior written consent of the Note Insurer which consent shall not be
unreasonably withheld (so long as no Note Insurer Default shall have occurred
and is continuing) by the Sponsor and the Owner Trustee, with prior written
notice to the Rating Agencies, and, to the extent such amendment materially and
adversely affects the interests of the Noteholders, with the consent of the
Noteholders evidencing not less than a majority of the Outstanding amount of the
Notes and, the consent of the Certificateholders evidencing not less than a
majority interest in the Trust (which consent of any Holder of a Certificate or
Note given pursuant to this Section or pursuant to any other provision of this
Agreement shall be conclusive and binding on such Holder and on all future
Holders of such Certificate or Note and of any Certificate or Note issued upon
the transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the Certificate or Note) for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, however, that, subject to the
express rights of the Note Insurer under the Operative Documents, no such
amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Mortgage Loans or
distributions that shall be required to be made for the benefit of the
Noteholders or the Certificateholders or (b) reduce the aforesaid percentage of
the Outstanding Amount of the Notes and the Certificates, the Holders of which
are required to consent to any such amendment, without the consent of the
Holders of all the outstanding Notes and holders of all outstanding
Certificates.
Promptly after the execution of any such amendment or consent,
the Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder and the Indenture Trustee.
It shall not be necessary for the consent of
Certificateholders, 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 thereof. The
manner of obtaining such consents (and any other consents of Certificateholders
provided for in this Agreement or in any other Operative Document) and of
evidencing the authorization of the execution thereof by Certificateholders
shall be subject to such reasonable requirements as the Owner Trustee may
prescribe. Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or
the Certificate of Trust, the Owner Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.2 No Legal Title to Owner Trust Estate in
Certificateholders.
The Certificateholders shall not have legal title to any part of the Owner
Trust Estate. The Certificateholders shall be entitled to receive distributions
with respect to their ownership interest therein only in accordance with Article
IX. No transfer, by operation of law or otherwise, of any right, title or
interest of the Certificateholders to and in their ownership interest in the
Owner Trust Estate shall operate to terminate this Agreement or the trusts
hereunder or entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the Owner Trust Estate.
SECTION 11.3 Limitations on Rights of Others.
Except for Section 11.7, the provisions of this Agreement are solely for
the benefit of the Owner Trustee, the Sponsor, the Certificateholders, the
Master Servicer and, to the extent expressly provided
28
<PAGE> 33
herein, the Note Insurer, the Indenture Trustee and the Noteholders, and nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Owner Trust
Estate or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.4 Notices.
(a) Unless otherwise expressly specified or permitted by the
terms hereof, all notices shall be in writing and shall be deemed given upon
receipt personally delivered, delivered by overnight courier or mailed first
class mail or certified mail, in each case return receipt requested, and shall
be deemed to have been duly given upon receipt, if to the Owner Trustee,
addressed to the Corporate Trust Office; if to the Sponsor, addressed to Advanta
Conduit Receivables Inc., Welsh & McKean Roads, Spring House, Pennsylvania
19477; if to the Note Insurer, addressed to, _____________, Attention:
____________, Telecopy No.: __________; or, as to each party, at such other
address as shall be designated by such party in a written notice to each other
party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.5 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdictional 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 Assignments; Note Insurer.
(a) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement shall also inure to the benefit of the Note Insurer for
so long as a Note Insurer Default shall not have occurred and be continuing.
Without limiting the generality of the foregoing, all covenants and agreements
in this Agreement which confer rights upon the Note Insurer shall be for the
benefit of and run directly to the Note Insurer, and the Note Insurer shall be
entitled to rely on and enforce such covenants, subject, however, to the
limitations on such rights provided in this Agreement and the Operative
Documents. The Note Insurer may disclaim any of its rights and powers under this
Agreement (but not its duties and obligations under the Note Policy) upon
delivery of a written notice to the Owner Trustee.
SECTION 11.8 No Petition.
The Owner Trustee (not in its individual capacity but solely as Owner
Trustee), by entering into this Agreement, each Certificateholder, by accepting
a Certificate, and the Indenture Trustee and each Noteholder by accepting the
benefits of this Agreement, hereby covenants and agrees that they will not at
any time institute against the Sponsor, or join in any institution against the
Sponsor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings
29
<PAGE> 34
under any United States Federal or state bankruptcy or similar law in connection
with any obligations relating to the Certificates, the Notes, this Agreement or
any of the Operative Documents.
SECTION 11.9 No Recourse.
Each Certificateholder by accepting a Certificate acknowledges that such
Certificateholder's Certificates represent beneficial interests in the Trust
only and do not represent interests in or obligations of the Master Servicer,
the Sponsor, the Owner Trustee, the Indenture Trustee, the Note 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 Certificates or the Operative Documents.
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 Master Servicer.
The Master Servicer is authorized to prepare, or cause to be prepared,
execute and deliver on behalf of the Trust all such documents, reports, filings,
instruments, certificates and opinions as it shall be the duty of the Trust or
Owner Trustee to prepare, file or deliver pursuant to the Operative Documents.
Upon written request, the Owner Trustee shall execute and deliver to the Master
Servicer a limited power of attorney appointing the Master Servicer the Trust's
agent and attorney-in-fact to prepare, or cause to be prepared, execute and
deliver all such documents, reports, filings, instruments, certificates and
opinions.
30
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized as of the day and year first above written.
[OWNER TRUSTEE], as Owner Trustee
By:________________________________
Name:
Title:
ADVANTA CONDUIT RECEIVABLES, INC.,
as Sponsor
By:________________________________
Name:
Title:
31
<PAGE> 36
Exhibit A
CERTIFICATE
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE REPRESENTS CERTAIN RESIDUAL RIGHTS TO PAYMENT TO THE
EXTENT DESCRIBED HEREIN AND IN THE TRUST AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED
STATES PERSON.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE
WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A
TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION
AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 3.10 OF THE TRUST
AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE UNLESS THE OWNER TRUSTEE
SHALL HAVE RECEIVED A REPRESENTATION LETTER FROM THE TRANSFEREE OF SUCH
CERTIFICATE, ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO
THE OWNER TRUSTEE, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT A BENEFIT
PLAN AND NOT ACTING ON BEHALF OF OR USING THE ASSETS OF A BENEFIT PLAN,
WHICH REPRESENTATION LETTER SHALL NOT BE AN EXPENSE OF THE OWNER
TRUSTEE.
NO TRANSFER OF A CERTIFICATE SHALL BE MADE UNLESS SUCH TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS OR IS MADE
IN ACCORDANCE WITH SAID ACT AND LAWS. EXCEPT FOR THE INITIAL ISSUANCE
OF THE CERTIFICATES TO HOLDING TRUST AND ITS INITIAL TRANSFEREE, THE
OWNER TRUSTEE SHALL REQUIRE (i) THE TRANSFEREE TO EXECUTE AN INVESTMENT
LETTER ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE
OWNER TRUSTEE AND THE NOTE INSURER CERTIFYING TO THE OWNER TRUSTEE AND
THE NOTE INSURER THE FACTS SURROUNDING SUCH TRANSFER, WHICH INVESTMENT
LETTER SHALL NOT BE AN EXPENSE OF THE OWNER TRUSTEE OR THE NOTE INSURER
OR (ii) IF THE INVESTMENT LETTER IS NOT DELIVERED, A WRITTEN OPINION OF
COUNSEL ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE
OWNER TRUSTEE, THE NOTE INSURER AND THE SPONSOR THAT SUCH TRANSFER MAY
BE MADE PURSUANT TO AN EXEMPTION, DESCRIBING THE APPLICABLE EXEMPTION
AND THE BASIS THEREFOR, FROM SAID ACT OR IS BEING MADE PURSUANT TO SAID
ACT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE OWNER
TRUSTEE, THE NOTE INSURER OR THE SPONSOR. THE HOLDER OF A CERTIFICATE
DESIRING TO EFFECT SUCH TRANSFER SHALL, AND DOES HEREBY AGREE TO,
INDEMNIFY THE SPONSOR AND THE NOTE INSURER 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.
<PAGE> 37
THE CERTIFICATES AND ANY INTEREST THEREIN SHALL NOT BE TRANSFERRED
EXCEPT UPON SATISFACTION OF THE FOLLOWING CONDITIONS PRECEDENT: (I) THE
PERSON THAT ACQUIRES A CERTIFICATE SHALL (A) BE ORGANIZED AND EXISTING
UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE OR THE
DISTRICT OF COLUMBIA THEREOF, (B) EXPRESSLY ASSUME, BY AN AGREEMENT
SUPPLEMENTAL HERETO, EXECUTED AND DELIVERED TO THE OWNER TRUSTEE, THE
PERFORMANCE OF EVERY COVENANT AND OBLIGATION OF THE SPONSOR UNDER THE
TRUST AGREEMENT, EXCEPT FOR THE COVENANTS AND OBLIGATIONS CONTAINED IN
SECTIONS 3.1, 3.3, AND 3.4 OF THE SALE AND SERVICING AGREEMENT, AND
SECTIONS 2.10, 2.12 OR 8.2 OF THE TRUST AGREEMENT; (II) THE PERSON THAT
ACQUIRES A CERTIFICATE SHALL DELIVER TO THE OWNER TRUSTEE AND THE NOTE
INSURER AN OFFICER'S CERTIFICATE STATING THAT SUCH TRANSFER AND SUCH
SUPPLEMENTAL AGREEMENT COMPLY WITH SECTION 3.10 OF THE TRUST AGREEMENT
AND THAT ALL CONDITIONS PRECEDENT PROVIDED BY SECTION 3.10 OF THE TRUST
AGREEMENT HAVE BEEN COMPLIED WITH AND AN OPINION OF COUNSEL STATING
THAT SUCH TRANSFER AND SUCH SUPPLEMENTAL AGREEMENT COMPLY WITH SECTION
3.10 AND THAT ALL CONDITIONS PRECEDENT PROVIDED BY SECTION 3.10 HAVE
BEEN COMPLIED WITH, AND THE OWNER TRUSTEE MAY CONCLUSIVELY RELY ON SUCH
OFFICER'S CERTIFICATE, SHALL HAVE NO DUTY TO MAKE INQUIRIES WITH REGARD
TO THE MATTERS SET FORTH THEREIN AND SHALL INCUR NO LIABILITY IN SO
RELYING; (III) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL DELIVER TO
THE OWNER TRUSTEE AND THE NOTE INSURER A LETTER FROM EACH RATING AGENCY
CONFIRMING THAT ITS RATING OF THE NOTES, AFTER GIVING EFFECT TO SUCH
TRANSFER, WILL NOT BE REDUCED OR WITHDRAWN WITHOUT REGARD TO THE NOTE
POLICY; (IV) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL DELIVER TO
THE OWNER TRUSTEE AND THE NOTE INSURER AN OPINION OF COUNSEL TO THE
EFFECT THAT (A) SUCH TRANSFER WILL NOT ADVERSELY AFFECT THE TREATMENT
OF THE NOTES AFTER SUCH TRANSFER AS DEBT FOR FEDERAL AND APPLICABLE
STATE INCOME TAX PURPOSES, (B) SUCH TRANSFER WILL NOT RESULT IN THE
TRUST BEING SUBJECT TO TAX AT THE ENTITY LEVEL FOR FEDERAL OR
APPLICABLE STATE TAX PURPOSES, (C) SUCH TRANSFER WILL NOT HAVE ANY
MATERIAL ADVERSE IMPACT ON THE FEDERAL OR APPLICABLE STATE INCOME
TAXATION OF A NOTEHOLDER AND (D) SUCH TRANSFER WILL NOT RESULT IN THE
ARRANGEMENT CREATED BY THE TRUST AGREEMENT OR ANY "PORTION" OF THE
TRUST, BEING TREATED AS A TAXABLE MORTGAGE POOL AS DEFINED IN SECTION
7701(I) OF THE CODE; (V) ALL FILINGS AND OTHER ACTIONS NECESSARY TO
CONTINUE THE PERFECTION OF THE INTEREST OF THE TRUST IN THE MORTGAGE
LOANS AND THE OTHER PROPERTY CONVEYED UNDER THE TRUST AGREEMENT SHALL
HAVE BEEN TAKEN OR MADE.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
<PAGE> 38
ADVANTA MORTGAGE LOAN TRUST
____-_ CERTIFICATE
Percentage Interest: 100%
Date of Cut-Off Date:
[Date]
First Payment Date: Issue Date: [Date]
April 26, 1999
No. 1
---------------------------------
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the
within-mentioned Trust Agreement.
[OWNER TRUSTEE]
not in its individual
capacity but solely as
Owner Trustee
by:____________________________________
Authenticating Agent
The Trust was created pursuant to a Trust Agreement dated as
of [Date] (the "Trust Agreement"), between the Sponsor and [OWNER TRUSTEE], as
owner trustee (the "Owner Trustee"), a summary of certain of the pertinent
provisions of which is set forth below. To the extent not otherwise defined
herein, the capitalized terms used herein have the meanings assigned to them in
the Trust Agreement.
This Certificate is one of the duly authorized Certificates
designated as Advanta Mortgage Loan Trust ____-_ Certificates (herein called the
"Certificates"). Also issued under the Indenture dated as of [Date], among the
Trust and [INDENTURE TRUSTEE], as indenture trustee (the "Indenture Trustee")
are Notes (the "Notes"). These Certificates are issued under and are subject to
the terms, provisions and conditions of the Trust Agreement, to which Trust
Agreement the holder of this Certificate by virtue of the acceptance hereof
assents and by which such holder is bound. The property of the Trust includes a
pool of fixed-rate mortgage loans secured by first or second deeds of trust or
Mortgages on primarily one-to-four family residential properties.
Under the Trust Agreement, there will be distributed on the
25th day of each month or, if such 25th day is not a Business Day, the next
Business Day (the "Payment Date"), commencing on April 26, 1999, to the Person
in whose name this Certificate is registered at the close of business on the
<PAGE> 39
Business Day preceding such Payment Date (the "Record Date") such
Certificateholder's Percentage Interest in the amount to be distributed to
Certificateholders on such Payment Date.
The holder of this Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as applicable.
The holder of this Certificate, by acceptance of this
Certificate, specifically acknowledges that it has no right to or interest in
any monies at any time held pursuant to the Pre-Funding Account or prior to the
release of such monies pursuant to Section 8.7 of the Indenture, such monies
being held in trust for the benefit of the Noteholders and the Note Insurer.
Notwithstanding the foregoing, in the event that it is ever determined that the
monies held in the Pre-Funding Account constitute a pledge of collateral, then
the provisions of the Sale and Servicing Agreement shall be considered to
constitute a security agreement and the holder of this Certificate hereby grants
to the Indenture Trustee and the Note Insurer a first priority perfected
security interest in such amounts. In addition, each Certificateholder, by
acceptance of its Certificate, hereby appoints the Sponsor as its agent to
pledge a first priority perfected security interest in the Pre-Funding Account
and agrees to execute and deliver such instruments of conveyance, assignment,
grant, confirmation, etc., as well as any financing statements, in each case as
the Note Insurer shall consider reasonably necessary in order to perfect the
Indenture Trustee's security interest in the Trust Property.
It is the intent of the Sponsor, the Master Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a branch. In the event that the Certificates are held by more than
one Holder, it is the intent of the Sponsor, the Master Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a partnership and the Certificateholders will be treated as partners
in that partnership. The Sponsor and any other Certificateholders, by acceptance
of a Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Certificates for such tax purposes as partnership interests in
the Trust. Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Trust or the Sponsor, or join in any institution against the Trust or the
Sponsor 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 Certificates, the Notes, the Trust Agreement or any of the Operative
Documents.
Distributions on this Certificate will be made as provided in
the Sale and Servicing Agreement and the Indenture by the Indenture Trustee by
wire transfer or check mailed to the Certificateholder of record in the
Certificate Register without the presentation or surrender of this Certificate
or the making of any notation hereon. Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Owner Trustee of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office or agency maintained for the purpose by the Owner
Trustee in the Corporate Trust Office.
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Trust Agreement or the Sale and Servicing Agreement or be valid for
any purpose.
<PAGE> 40
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust
and not in its individual capacity, has caused this Certificate to be duly
executed.
ADVANTA MORTGAGE LOAN TRUST ____-_
By: [OWNER TRUSTEE] not in its individual capacity but
solely as Owner Trustee
Dated: [Date]
By:_________________________________________
Name:
Title:
<PAGE> 41
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an
interest in, the Originators, the Sponsor, the Master Servicer, the Note
Insurer, the Owner Trustee or any Affiliates of any of them and no recourse may
be had against such parties or their assets, except as may be expressly set
forth or contemplated herein or in the Trust Agreement, the Indenture or the
Operative Documents. In addition, this Certificate is not guaranteed by any
governmental agency or instrumentality and is limited in right of payment to
certain collections with respect to the Mortgage Loans, as more specifically set
forth herein, in the Sale and Servicing Agreement and in the Indenture. A copy
of each of the Sale and Servicing Agreement and the Trust Agreement may be
examined during normal business hours at the principal office of the Sponsor,
and at such other places, if any, designated by the Sponsor, by any
Certificateholder upon written request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Sponsor and the rights of the Certificateholders under the
Trust Agreement at any time by the Sponsor and the Owner Trustee with the prior
written consent of the Note Insurer and with the consent of the holders of the
Notes and the Certificates evidencing not less than a majority of the
outstanding Notes and the Certificates. Any such consent by the holder of this
Certificate shall be conclusive and binding on such holder and on all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Trust Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
holders of any of the Certificates (other than the Sponsor or the Note Insurer).
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registrable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Corporate Trust Office, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
in authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate Registrar
appointed under the Trust Agreement is [OWNER TRUSTEE].
Except for Certificates issued to Advanta Mortgage Holding
Trust ____-_, the Certificates are issuable only as registered Certificates
without coupons in denominations of $1,000 or integral multiples of $1,000 in
excess thereof. As provided in the Trust Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates in authorized denominations evidencing the same aggregate
denomination, as requested by the holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Registrar, the Note Insurer
and any agent of the Owner Trustee, the Certificate Registrar, the Note Insurer
or the Note Insurer may treat the person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Registrar, the Note Insurer nor any such agent shall be affected
by any notice to the contrary.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement, the Indenture and the Sale and Servicing Agreement and the
disposition of all property held as part of the Trust. The Certificateholder may
at its option elect
<PAGE> 42
to redeem the corpus of the Trust at a price specified in the Sale and Servicing
Agreement, and after such redemption of the Mortgage Loans and other property of
the Trust, all proceeds will be distributed to the Certificateholders; however,
the Certificateholder's right to elect to redeem is exercisable, subject to
certain restrictions, only on any Payment Date on or after the Payment Date
immediately prior to which the Note Principal Balance is less than 10% of the
Original Note Principal Balance and all amounts due and owing to the Note
Insurer for unpaid premiums and unreimbursed draws on the Note Policy and all
other amounts due and owing to the Note Insurer pursuant to the Insurance
Agreement, together with interest thereon as provided under the Insurance
Agreement, have been paid.
The recitals contained herein shall be taken as the statements
of the Sponsor or the Master Servicer, as the case may be, 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 Certificate or of
any Mortgage Loan or related document.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual or
facsimile signature, this Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Sale and Servicing Agreement or be
valid for any purpose.
<PAGE> 43
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within 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
of the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatever. Such signature must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be determined
by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE> 44
EXHIBIT B
CERTIFICATE OF TRUST OF
ADVANTA MORTGAGE LOAN TRUST ____-_
This Certificate of Trust of Advanta Mortgage Loan Trust
____-_ (the "Trust"), dated as of [Date], is being duly executed and filed by
[OWNER TRUSTEE], a Delaware banking corporation, as trustee, to form a business
trust under the Delaware Business Trust Act (12 Del. Code, Section 3801 et
seq.).
1. Name. The name of the business trust formed hereby is
Advanta Mortgage Loan Trust ____-_.
2. Delaware Trust. The name and business address of the Owner
Trustee of the Trust in the State of Delaware is [OWNER TRUSTEE], [ADDRESS]
Attn: Corporate Trust Administration.
3. This Certificate of Trust will be effective [Date].
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
The Trust, has executed this Certificate of Trust as of the date first above
written.
[OWNER TRUSTEE]
not in its individual capacity but solely
as Owner Trustee of the Trust.
By:_________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4.4
- --------------------------------------------------------------------------------
ADVANTA MORTGAGE LOAN TRUST ____-_
Mortgage Backed Notes, Series ____-_
----------
INDENTURE
Dated as of [DATE]
----------
[INDENTURE TRUSTEE]
Indenture Trustee
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I. Definitions and Incorporation by Reference
SECTION 1.1. Definitions.................................................................................2
SECTION 1.2. Incorporation by Reference of the Trust Indenture Act......................................22
SECTION 1.3. Rules of Construction......................................................................23
SECTION 1.4. Action by or Consent of Noteholders........................................................23
SECTION 1.5. Conflict with TIA..........................................................................23
ARTICLE II. The Notes
SECTION 2.1. Form.......................................................................................23
SECTION 2.2. Execution, Authentication and Delivery.....................................................24
SECTION 2.3. Registration; Registration of Transfer and Exchange........................................24
SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes.................................................25
SECTION 2.5. Persons Deemed Owners......................................................................26
SECTION 2.6. Payment of Principal and Interest; Defaulted Interest......................................27
SECTION 2.7. Cancellation...............................................................................27
SECTION 2.8. Release of Collateral......................................................................28
SECTION 2.9. Book-Entry Notes...........................................................................28
SECTION 2.10. Notices to Clearing Agency.................................................................29
SECTION 2.11. Definitive Notes...........................................................................29
ARTICLE III. Covenants
SECTION 3.1. Payment of Principal and Interest..........................................................29
SECTION 3.2. Maintenance of Office or Agency............................................................30
SECTION 3.3. Money for Payments to be Held in Trust.....................................................30
SECTION 3.4. Existence..................................................................................31
SECTION 3.5. Protection of Trust Estate.................................................................31
SECTION 3.6. Opinions as to Trust Estate................................................................32
SECTION 3.7. Performance of Obligations; Servicing of Mortgage Loans....................................32
SECTION 3.8. Negative Covenants.........................................................................33
SECTION 3.9. Annual Statement as to Compliance..........................................................34
SECTION 3.10. Issuer Shall Not Consolidate or Transfer Assets............................................34
SECTION 3.11. No Other Business..........................................................................34
SECTION 3.12. No Borrowing...............................................................................34
SECTION 3.13. Guarantees, Loans, Advances and Other Liabilities..........................................35
SECTION 3.14. Capital Expenditures.......................................................................35
SECTION 3.15. Compliance with Laws.......................................................................35
SECTION 3.16. Restricted Payments........................................................................35
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SECTION 3.17. Notice of Event of Defaults and Events of Servicing Termination............................35
SECTION 3.18. Further Instruments and Acts...............................................................35
SECTION 3.19. Amendments of Sale and Servicing Agreement and Trust Agreement.............................35
SECTION 3.20. Income Tax Characterization................................................................36
ARTICLE IV. Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture....................................................36
SECTION 4.2. Application of Trust Money.................................................................37
SECTION 4.3. Repayment of Monies Held by Note Paying Agent..............................................37
ARTICLE V. Remedies
SECTION 5.1. Rights Upon an Event of Default............................................................37
SECTION 5.2. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee..................38
SECTION 5.3. Remedies...................................................................................38
SECTION 5.4. Indenture Trustee May File Proofs of Claim.................................................39
SECTION 5.5. Indenture Trustee May Enforce Claims Without Possession of Notes...........................40
SECTION 5.6. Application of Money Collected.............................................................40
SECTION 5.7. Limitation of Suits........................................................................41
SECTION 5.8. Unconditional Rights of Noteholders to Receive Principal and Interest......................41
SECTION 5.9. Restoration of Rights and Remedies.........................................................42
SECTION 5.10. Rights and Remedies Cumulative.............................................................42
SECTION 5.11. Delay or Omission Not a Waiver.............................................................42
SECTION 5.12. Control by Noteholders.....................................................................42
SECTION 5.13. Undertaking for Costs......................................................................42
SECTION 5.14. Waiver of Stay or Extension Laws...........................................................43
SECTION 5.15. Action on Notes............................................................................43
SECTION 5.16. Performance and Enforcement of Certain Obligations.........................................43
SECTION 5.17. Subrogation................................................................................44
SECTION 5.18. Preference Claims..........................................................................44
SECTION 5.19. Waiver of Past Defaults....................................................................45
ARTICLE VI. The Indenture Trustee
SECTION 6.1. Duties of Indenture Trustee................................................................45
SECTION 6.2. Rights of Indenture Trustee................................................................47
SECTION 6.3. Individual Rights of Indenture Trustee.....................................................48
SECTION 6.4. Indenture Trustee's Disclaimer.............................................................48
SECTION 6.5. Notice of Defaults.........................................................................48
SECTION 6.6. Reports by Indenture Trustee to Holders....................................................48
SECTION 6.7. Compensation and Indemnity.................................................................48
SECTION 6.8. Replacement of Indenture Trustee...........................................................49
SECTION 6.9. Successor Indenture Trustee by Merger......................................................50
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SECTION 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee..........................51
SECTION 6.11. Eligibility: Disqualification..............................................................52
SECTION 6.12. Preferential Collection of Claims Against Issuer...........................................52
SECTION 6.13. Appointment and Powers.....................................................................53
SECTION 6.14. Performance of Duties......................................................................53
SECTION 6.15. Limitation on Liability....................................................................53
SECTION 6.16. Reliance Upon Documents....................................................................53
SECTION 6.17. Representations and Warranties of the Indenture Trustee....................................53
SECTION 6.18. Waiver of Setoffs..........................................................................54
SECTION 6.19. Control by the Control Party...............................................................54
SECTION 6.20. Indenture Trustee May Enforce Claims Without Possession of Notes...........................54
SECTION 6.21. Suits for Enforcement......................................................................54
SECTION 6.22. Mortgagor Claims...........................................................................55
ARTICLE VII. Noteholders' Lists and Reports
SECTION 7.1. Issuer to Furnish to Indenture Trustee Names and Addresses of Noteholders..................55
SECTION 7.2. Preservation of Information; Communications to Noteholders.................................56
SECTION 7.3. Reports by Issuer..........................................................................56
SECTION 7.4. Reports by Indenture Trustee...............................................................57
ARTICLE VIII. Payments and Statements to Noteholders and Certificateholders; Accounts, Disbursements and Releases
SECTION 8.1. Collection of Money........................................................................57
SECTION 8.2. Release of Trust Estate....................................................................57
SECTION 8.3. Establishment of Accounts..................................................................58
SECTION 8.4. The Note Policy............................................................................58
SECTION 8.5. Reserved...................................................................................58
SECTION 8.6. Pre-Funding Account and Capitalized Interest Account.......................................58
SECTION 8.7. Flow of Funds..............................................................................59
SECTION 8.8. Investment of Accounts.....................................................................61
SECTION 8.9. Eligible Investments.......................................................................62
SECTION 8.10. Reports by Indenture Trustee...............................................................63
SECTION 8.11. Additional Reports by Indenture Trustee....................................................66
SECTION 8.12. Opinion of Counsel.........................................................................67
ARTICLE IX. Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders.....................................67
SECTION 9.2. Supplemental Indentures with Consent of Noteholders........................................68
SECTION 9.3. Execution of Supplemental Indentures.......................................................70
SECTION 9.4. Effect of Supplemental Indenture...........................................................70
SECTION 9.5. Conformity With Trust Indenture Act........................................................70
SECTION 9.6. Reference in Notes to Supplemental Indentures..............................................70
</TABLE>
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<TABLE>
<S> <C> <C> <C>
SECTION 9.7. Amendment..................................................................................70
ARTICLE X. Redemption of Notes
SECTION 10.1. Redemption.................................................................................71
SECTION 10.2. Surrender of Notes.........................................................................72
SECTION 10.3. Form of Redemption Notice..................................................................73
SECTION 10.4. Notes Payable on Redemption Date...........................................................74
ARTICLE XI. Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc..................................................74
SECTION 11.2. Form of Documents Delivered to Indenture Trustee...........................................74
SECTION 11.3. Acts of Noteholders........................................................................75
SECTION 11.4. Notices, etc. to Indenture Trustee, Issuer and Rating Agencies.............................76
SECTION 11.5. Notices to Noteholders; Waiver.............................................................77
SECTION 11.6. Alternate Payment and Notice Provisions....................................................77
SECTION 11.7. Conflict with Trust Indenture Act..........................................................78
SECTION 11.8. Effect of Headings and Table of Contents...................................................78
SECTION 11.9. Successors and Assigns.....................................................................78
SECTION 11.10. Separability...............................................................................78
SECTION 11.11. Benefits of Indenture......................................................................78
SECTION 11.12. Legal Holidays.............................................................................78
SECTION 11.13. Governing Law..............................................................................78
SECTION 11.14. Counterparts...............................................................................79
SECTION 11.15. Recording of Indenture.....................................................................79
SECTION 11.16. Trust Obligation...........................................................................79
SECTION 11.17. No Petition................................................................................79
SECTION 11.18. Inspection.................................................................................79
SECTION 11.19. Limitation of Liability....................................................................80
ARTICLE XII. Events of Default
SECTION 12.1. Events of Default..........................................................................80
EXHIBITS
Exhibit A -- Form of Note
</TABLE>
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INDENTURE dated as of [DATE], between ADVANTA MORTGAGE LOAN
TRUST ____-_, a Delaware business trust (the "Trust" or the "Issuer"), and
[INDENTURE TRUSTEE], a ___________, as Indenture Trustee (the "Indenture
Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Trust's
Mortgage Backed Notes Series ____-_ (the "Notes"):
As security for the payment and performance by the Trust of
its obligations under this Indenture and the Notes, the Trust has agreed to
pledge the Collateral (as defined herein) to the Indenture Trustee on behalf of
the Noteholders.
___________________________ (the "Note Insurer") has issued
and delivered a financial guaranty insurance policy, dated as of the Closing
Date, pursuant to which the Note Insurer guarantees the Insured Payments (as
defined herein).
As an inducement to the Note Insurer to issue and deliver the
Note Policy, the Trust and the Note Insurer have executed and delivered the
Insurance and Indemnity Agreement, dated as of [DATE] (as amended from time to
time, the "Insurance Agreement"), among the Note Insurer, the Trust, Advanta
Conduit Receivables, Inc. and the Indenture Trustee.
As an additional inducement to the Note Insurer to issue the
Note Policy, and as security for the performance by the Trust of the Note
Insurer Issuer Secured Obligations and as security for the performance by the
Trust of the Indenture Trustee Issuer Secured Obligations, the Trust has agreed
to grant and assign the Collateral (as defined below) to the Indenture Trustee
for the benefit of the Trust Secured Parties, as their respective interests may
appear.
<PAGE> 7
GRANTING CLAUSE
The Trust hereby Grants to the Indenture Trustee at the
Closing Date, for the benefit of the Trust Secured Parties all of the Trust's
right, title and interest in and to (i) certain [fixed/adjustable] rate mortgage
loans (the "Mortgage Loans") made or to be made and conveyed to the Trust under
certain mortgage notes ("Notes"); (ii) interest accrued and principal collected
in respect of the Mortgage Loans on or after the Cut-Off Date and each
Subsequent Cut-Off Date, as applicable, including eligible investments as from
time to time may be held by the Indenture Trustee in the Note Account and by the
Master Servicer in the related Principal and Interest Account (except as
otherwise provided in the Sale and Servicing Agreement but excluding any premium
recapture, each to be created pursuant to the Sale and Servicing Agreement,
(iii) property, the ownership of which has been effected on behalf of the Trust,
as a result of foreclosure or acceptance by the Master Servicer of a deed in
lieu of foreclosure and that has not been withdrawn from the Trust; (iv) rights
of the Sponsor or any Affiliated Originators under Insurance Policies relating
to the Mortgage Loans (excluding any non-mortgage related or credit-life
insurance policies); (v) the Note Policy; (vi) Net Liquidation Proceeds with
respect to any Liquidated Mortgage Loan; (vii) amounts on deposit in the
Pre-Funding Account and the Capitalized Interest Account; (viii) all rights of
the Trust under the Sale and Servicing Agreement; and (ix) any and all proceeds
of the foregoing (the foregoing, collectively, the "Collateral").
The foregoing Grant is made in trust to the Indenture Trustee,
for the benefit first, of the Noteholders, and second, for the benefit of the
Note Insurer. The Indenture Trustee hereby acknowledges such Grant, accepts the
trust under this Indenture in accordance with the provisions of this Indenture
and agrees to perform the duties required of it by this Indenture to the best of
its ability to the end that the interests of such parties, recognizing the
priorities of their respective interests, may be adequately and effectively
protected.
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
Except as otherwise specified herein, the following terms have the
respective meanings set forth below for all purposes of this Indenture. In
addition, other capitalized terms used herein and not defined herein shall have
their respective meanings as set forth in the Sale and Servicing Agreement.
"Accelerated Principal Payments": With respect to any Payment
Date, a payment received as a payment of principal by the Noteholders for the
purpose of increasing the Overcollateralization Amount to the Specified
Overcollateralization Amount applicable to such Payment Date, and to be paid
from amounts remaining in the Note Account on such Payment Date, after deduction
of the amounts described in clauses (i) through (viii) of Section 8.7(b) hereof
(the "Remaining Cashflow") on such Payment Date and equal to the lesser of (x)
the amount of such Remaining Cashflow and (y) the Overcollateralization
Deficiency Amount.
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"Account": Any account established in accordance with Section
8.3 hereof or Section 4.8 of the Sale and Servicing Agreement.
"Act" has the meaning specified in Section 11.3(a) hereof.
"Affiliate" means, with respect to any specified Person, any
other Person controlling, controlled by or under common control with such
Person. For the purposes of this definition, "control" means the power to direct
the management and policies of a Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AMHC": Advanta Mortgage Holding Company, a Delaware
corporation and the corporate parent of Advanta Mortgage Corp. USA, and the
indirect corporate parent of Advanta Conduit Receivables, Inc.
"Appraised Value": The appraised value of any Property based
upon the appraisal or other valuation made at the time of the origination of the
related Mortgage Loan, or, in the case of a Mortgage Loan which is a purchase
money mortgage, the sales price of the Property at such time of origination, if
such sales price is less than such appraised value.
"Authorized Newspapers": Any of the following, The Wall Street
Journal, the New York Times, the Washington Post, the Los Angeles Times or such
other newspaper determined by the Indenture Trustee in its sole judgment.
"Authorized Officer": With respect to any Person, any person
who is authorized to act for such Person in matters relating to this Agreement,
and whose action is binding upon such Person and, with respect to the Indenture
Trustee, the Master Servicer and the Sponsor, initially including those
individuals whose names appear on the lists of Authorized Officers delivered on
the Closing Date.
"Available Funds Cap Carry-Forward Amount:" With respect to
any Payment Date, the amount, if any, by which (x) the Available Funds Cap
Current Amount payable as of the immediately preceding Payment Date exceeded (y)
the amount of the actual distribution made to the Noteholders on such
immediately preceding Payment Date on account of the Available Funds Cap
Carry-Forward Amount.
"Available Funds Cap Current Amount": With respect to any
Payment Date, the sum of (i) the excess of (x) the Interest Distribution Amount
due on such Payment Date, calculated using the Note Formula Rate over (y) the
Interest Distribution Amount due on such Payment Date, calculated using the
Available Funds Cap Rate and (ii) the Available Funds Cap Carry-Forward Amount.
"Available Funds Cap Rate": As to any Payment Date, an amount,
expressed as a per annum rate, equal to (a)(i) the aggregate amount of interest
due and collected (or advanced) on all of the Mortgage Loans in the Trust for
the related Remittance Period, minus (ii) the aggregate of the Servicing Fee,
the Indenture Trustee's Fee, the Owner Trustee's Fee and the Premium Amount on
such Payment Date, minus (iii) commencing on the seventh Payment Date following
the Closing Date, an amount equal to ____% per annum times the aggregate Loan
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Balances of the Mortgage Loans in the Trust as of the beginning of such related
Remittance Period divided by (b) the aggregate Loan Balances of the Mortgage
Loans in the Trust as of the beginning of such related Remittance Period
calculated on the basis of a [360-day year and the actual number of days
elapsed/a year of 360 days and consisting of 12 thirty-day months].
"Available Reserve Amount": As defined in Section 8.5(a)
hereof.
"Benefit Plan": As defined in Section 2.3 hereof.
"Book Entry Notes": 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 2.9 hereof.
"Business Day": Any day that is not a Saturday, Sunday or
other day on which commercial banking institutions in the State of New York, the
State of California or in the city in which the principal Corporate Trust Office
of the Indenture Trustee is located, are authorized or obligated by law or
executive order to be closed.
"Capitalized Interest Account Deposit": $____________.
"Capitalized Interest Account": The capitalized interest
account established in accordance with Section 8.3 hereof and maintained by the
Indenture Trustee.
"Capitalized Interest Amount": With respect to any
Determination Date, the amount on deposit in the Capitalized Interest Account.
"Capitalized Interest Requirement": As to any Payment Date
occurring during the Pre-Funding Period, the difference, if any, between (x) the
interest due on the portion of the Notes represented by the Pre-Funding Amount
plus the related portion of the Premium Amount on such Payment Date and (y) any
Pre-Funding Earnings to be transferred to the Note Account on such Payment Date
pursuant to Section 8.6(c) hereof.
"Certificate": As defined in the Trust Agreement.
"Certificateholders": The holders of the Certificates issued
pursuant to the Trust Agreement.
"Civil Relief Act": The Soldiers and Sailors' Civil Relief Act
of 1940, as amended from time to time.
"Clearing Agency Participant": A broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Clearing Agency" An organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Closing Date": [DATE].
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"Code": The Internal Revenue Code of 1986, as amended and any
successor statute.
"Collateral": As defined in the Recitals hereof.
"Combined Loan-to-Value Ratio": With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Property and with
respect to any Junior Mortgage Loan, the percentage equal to (a) the sum of (i)
the remaining Loan Balance, as of origination of the Junior Mortgage Loan, as
appropriate, of the Senior Lien note(s) relating to such Junior Mortgage Loan,
as appropriate, and (ii) the Original Principal Amount of the Note relating to
such Junior Mortgage Loan, as appropriate, divided by (b) the Appraised Value.
"Compensating Interest": As defined in Section 4.9(b) of the
Sale and Servicing Agreement.
"Conduit Acquisition Trust": As defined in the Sale and
Servicing Agreement.
"Control Party": As defined in the Sale and Servicing
Agreement.
"Corporate Trust Office": As of the Closing Date, the
Indenture Trustee's office at [ADDRESS].
"Coupon Rate": The rate of interest borne by each Note.
"Cut-Off Date": The date as of which Initial Mortgage Loans
are transferred and assigned to the Trust, the opening of business, [DATE].
"Deficiency Amount": (a) For any Payment Date, any shortfalls
in the Total Available Funds to pay the sum of (i) the Interest Distribution
Amount (excluding any Available Funds Cap Current Amounts, Available Funds Cap
Carry Forward Amounts, and any Relief Act Shortfalls), and (ii) the
Overcollateralization Deficit and (b) on the Final Scheduled Payment Date, any
shortfall in the Total Available Funds to pay the outstanding Note Principal
Balance.
"Definitive Notes": Notes issued in definitive form without
coupons.
"Delinquency Advances": As defined in Section 4.9(a) of the
Sale and Servicing Agreement.
"Delinquent": A Mortgage Loan is "delinquent" if any payment
due thereon is not made by the close of business on the day such payment is
scheduled to be due. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
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"Delivery Order": The delivery order in the form set forth as
Exhibit E of the Sale and Servicing Agreement and required to be delivered by
the Trust pursuant to Section 2.2 hereof.
"Depository": The Depository Trust Company, 7 Hanover Square,
New York, New York 10004 and any successor Depository hereafter named.
"Designated Depository Institution": With respect to each
Account, an institution whose deposits are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the FDIC, the long-term deposits of
which shall be rated A2 or better by Moody's or A or better by Standard & Poor's
and in the highest short-term rating category for Moody's, and Standard & Poor's
unless otherwise approved in writing by the Note Insurer, Moody's and Standard &
Poor's, and which is any of the following: (i) a federal savings and loan
association duly organized, validly existing and in good standing under the
federal banking laws, (ii) an institution duly organized, validly existing and
in good standing under the applicable banking laws of any state, (iii) a
national banking association duly organized, validly existing and in good
standing under the federal banking laws, (iv) a principal subsidiary of a bank
holding company, or (v) approved in writing by the Note Insurer, Moody's and
Standard & Poor's and, in each case acting or designated by the Master Servicer
as the depository institution for the Principal and Interest Account; provided,
however, that any such institution or association shall have combined capital,
surplus and undivided profits of at least $100,000,000. Notwithstanding the
foregoing, an Account may be held by an institution otherwise meeting the
preceding requirements except that the only applicable rating requirement shall
be that the unsecured and uncollateralized debt obligations thereof shall be
rated Baa3 or better by Moody's or BBB or better by Standard & Poor's if such
institution has trust powers and the Principal and Interest Account is held by
such institution in its corporate trust department.
"Determination Date": As to each Payment Date, the third
Business Day next preceding such Payment Date or such earlier day as shall be
agreed to by the Note Insurer and Indenture Trustee.
"Direct Participant" or "DTC Participant": Any broker-dealer,
bank or other financial institution for which the Depository holds the Notes
from time to time as a securities depository.
"Disqualified Organization": "Disqualified Organization" shall
have the meaning set forth from time to time in the definition thereof at
Section 860E(e)(5) of the Code (or any successor statute thereto) and applicable
to the Trust.
"Eligible Investments": Those investments so designated
pursuant to Section 8.9 hereof.
"ERISA" means Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default": As defined in Section 12.1.
"Excess Overcollateralization Amount": With respect to any
Payment Date, the amount by which (x) the Overcollateralization Amount after
taking into account the payment of
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the Principal Distribution Amount on such Payment Date exceeds (y) the Specified
Overcollateralization Amount for such Payment Date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fannie Mae": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"FDIC": The Federal Deposit Insurance Corporation, or any
successor thereto.
"Final Scheduled Payment Date": The Payment Date in _____
whereby the Noteholders will be entitled to receive a payment of principal in an
amount equal to the outstanding Note Principal Balance.
"First Mortgage Loan": A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Mortgaged Property.
"FNMA": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"Freddie Mac": The Federal Home Loan Mortgage Corporation, a
corporate instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970, as amended, or any successor thereof.
"Full Deficiency Amount": As defined in Section 8.5(b) herein.
"Grant" means mortgage, pledge, bargain, sell, warrant,
alienate, remise, release, convey, assign, transfer, create, grant a lien upon
and a security interest in and right of set-off against, deposit, set over and
confirm pursuant to this Indenture. A Grant of the Collateral or of any other
agreement or instrument shall include all rights, powers and options (but none
of the obligations) of the Granting party thereunder, including the immediate
and continuing right to claim for, collect, receive and give receipt for
principal and interest payments in respect of the Collateral and all other
monies 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.
"Indebtedness" means, with respect to any Person at any time,
(a) indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, Notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b)
obligations of such Person as lessee under leases which should have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases; (c) current liabilities of such Person in respect of unfunded
vested benefits under plans covered by Title IV of ERISA; (d) obligations issued
for or liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities;
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<PAGE> 13
(f) obligations of such Person under any guarantees, endorsements (other than
for collection or deposit in the ordinary course of business) and other
contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person or otherwise to assure a creditor against loss;
(g) obligations of such Person secured by any lien on property or assets of such
Person, whether or not the obligations have been assumed by such Person; or (h)
obligations of such Person under any interest rate or currency exchange
agreement.
"Indemnification Agreement": The Indemnification Agreement
dated as of [DATE] between the Note Insurer and the Underwriter.
"Indenture" means this Indenture as amended and supplemented
from time to time.
"Indenture Trustee Issuer Secured Obligations" means all
amounts and obligations which the Trust may at any time owe to the Indenture
Trustee for the benefit of the Noteholders under this Indenture or the Notes.
"Indenture Trustee": [INDENTURE TRUSTEE], located on the date
of execution of this Agreement at [ADDRESS], not in its individual capacity but
solely as Indenture Trustee under this Agreement, and any successor hereunder.
"Indenture Trustee's Fees": With respect to any Payment Date,
the product of (x) one-twelfth of ____% and (y) the aggregate Loan Balance of
the Mortgage Loan as of the beginning of the related Remittance Period.
"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 11.1, prepared
by an Independent appraiser or other expert appointed pursuant to 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.
"Independent" means, when used with respect to any specified
Person, that the person (a) is in fact independent of the Trust, any other
obligor upon the Notes, the Sponsor 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 Trust, any such other obligor, the Sponsor or
any Affiliate of any of the foregoing Persons and (c) is not connected with the
Trust, any such other obligor, the Sponsor or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, Indenture
Trustee, partner, director or Person performing similar functions.
"Indirect Participant" shall mean any financial institution
for whom any Direct Participant holds an interest in the Notes.
"Initial Cut-Off Date": With respect to the Initial Mortgage
Loans, the opening of business on [DATE].
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"Initial Mortgage Loans": Mortgage Loans delivered to the
Trust on the Closing Date.
"Initial Redemption Date": The first date on which the Master
Servicer, acting directly or through one or more affiliates, the
Certificateholder or the Note Insurer are eligible to exercise its right of
optional redemption of the Notes pursuant to Section 10.1(b) herein.
"Insurance Agreement": The Insurance and Indemnity Agreement
dated as of [DATE] among the Sponsor, the Master Servicer, the Trust, the
Indenture Trustee and the Note Insurer, as it may be amended from time to time.
"Insurance Policy": Any hazard, title or primary mortgage
insurance policy relating to a Mortgage Loan.
"Insurance Proceeds": Proceeds paid by any insurer (other than
the Note Insurer) pursuant to any Insurance Policy covering a Mortgage Loan, or
amounts required to be paid by the Master Servicer pursuant to the last sentence
of the first paragraph of Section 4.11(b) of the Sale and Servicing Agreement,
or the penultimate sentence of Section 4.11(c) of the Sale and Servicing
Agreement, net of any component thereof (i) covering any expenses incurred by or
on behalf of the Master Servicer in connection with obtaining such proceeds,
(ii) that is applied to the restoration or repair of the related Mortgaged
Property, (iii) released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures, or (iv) required to be paid to any
holder of a mortgage senior to such Mortgage Loan.
"Insured Payment": As of any Payment Date, (i) any Deficiency
Amount and (ii) any Preference Amount.
"Interest Accrual Period": With respect to any Payment Date,
the period commencing on the immediately preceding Payment Date (or the Closing
Date in the case of the first Payment Date) to and including the day prior to
the current Payment Date. All calculations of interest on the Notes will be made
on the basis of [the actual number of days elapsed in the related Interest
Accrual Period in a year of 360 days/ a year of 360 days consisting of twelve
30-day months].
"Interest Carry-Forward Amount": With respect to any Payment
Date, the amount, if any, by which (x) the Interest Distribution Amount as of
the immediately preceding Payment Date exceeded (y) the amount of the actual
distribution made to the Noteholders on such immediately preceding Payment Date
on account of the Interest Distribution Amount.
"Interest Determination Date": With respect to any Interest
Accrual Period for the Notes, the second London Business Day preceding the first
day of such Interest Accrual Period.
"Interest Distribution Amount": With respect to any Payment
Date, the sum of (i) the product of (x) the Note Interest Rate applicable to
such Payment Date and (y) the Principal Balance immediately prior to such
Payment Date and (z) [the actual number of days elapsed during the related
Interest Accrual Period divided by 360/1/12], provided that such amount will be
reduced by any Relief Act Shortfalls relating to the Trust during the related
Remittance Period and (ii) the Interest Carry Forward Amount.
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"Interest Remittance Amount": As of any Remittance Date, the
sum, without duplication, of (i) all interest accrued and collected (or
advanced) by the Master Servicer during the related Remittance Period with
respect to the Mortgage Loans (net of the Servicing Fee), except that with
respect to Prepaid Installments, interest shall be remitted in the related
Remittance Period and (ii) all Net Liquidation Proceeds actually collected by
the Master Servicer with respect to the Mortgage Loans during the related
Remittance Period (to the extent such Net Liquidation Proceeds relate to
interest).
"Issuer" means the party named as such in this Indenture until
a successor replaces it and, thereafter, means the successor and, for purposes
of any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or
request signed in the name of the Trust by any one of its Authorized Officers
and delivered to the Indenture Trustee.
"Issuer Secured Obligations" means the Note Insurer Issuer
Secured Obligations and the Indenture Trustee Issuer Secured Obligations.
"Issuer Secured Parties" means each of the Indenture Trustee
in respect of the Indenture Trustee Issuer Secured Obligations and the Note
Insurer in respect of the Note Insurer Issuer Secured Obligations.
"Junior Mortgage Loan": A Mortgage Loan which constitutes a
subordinate priority mortgage lien with respect to the related Mortgaged
Property.
"Late Payment Rate": For any Payment Date, means the lesser of
(a) the greater of (x) the per annum rate of interest publicly announced from
time to time by Citibank, N.A. as its prime or base lending rate (any change in
such rate of interest to be effective on the date such change is announced by
Citibank), plus 2% per annum and (y) the then applicable highest rate of
interest on the Notes and (b) the maximum rate permissible under applicable
usury or similar laws limiting interest rates. The Late Payment Rate shall be
computed on the basis of [the actual number of days elapsed over a year of 360
days/a year of 360 days consisting of twelve 30-day months].
"LIBOR": With respect to any Interest Accrual Period for the
Notes, the rate determined by the Indenture Trustee on the related Interest
Determination Date on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on Telerate Screen Page
3750 (or any successor service thereto), as of 11:00 a.m. (London time) on such
Interest Determination Date. On each Interest Determination Date, LIBOR for the
related Interest Accrual Period will be established by the Indenture Trustee as
follows:
(i) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations, LIBOR for the related
Interest Accrual Period shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple
of 1/16%.
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, LIBOR for the related
Interest Accrual Period shall be
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the higher of (i) LIBOR as determined on the previous Interest
Determination Date and (ii) the Reserve Interest Rate.
"Liquidated Mortgage Loan": As defined in the Sale and
Servicing Agreement.
"Liquidation Expenses": Expenses which are incurred by the
Master Servicer or any Sub-Servicer in connection with the liquidation of any
defaulted Mortgage Loan, such expenses, including, without limitation, legal
fees and expenses, and any unreimbursed Servicing Advances expended by the
Master Servicer or any Sub-Servicer pursuant to Section 4.9 of the Sale and
Servicing Agreement with respect to the related Mortgage Loan.
"Liquidation Proceeds": With respect to any Liquidated
Mortgage Loan, any amounts (including the proceeds of any Insurance Policy but
excluding any amounts drawn on the Note Policy) recovered by the Master Servicer
in connection with such Liquidated Mortgage Loan, whether through Indenture
Trustee's sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Mortgage Loan, the
outstanding principal balance thereof as of the Cut-Off Date or Subsequent
Cut-Off-Date, as the case may be, less any related Principal Remittance Amounts
relating to such Mortgage Loan included in previous related Monthly Remittance
Amounts that were transferred by the Master Servicer or any Sub-servicer to the
Indenture Trustee for deposit in the related Note Account; provided, however,
(x) that the Loan Balance for any Mortgage Loan which has become a Liquidated
Loan shall be zero as of the first day of the Remittance Period following the
Remittance Period in which such Mortgage Loan becomes a Liquidated Loan, and at
all times thereafter and (y) the Loan Balance "as of the Cut-Off Date" for any
Mortgage Loan originated during the period from the Cut-Off Date to the Closing
Date shall be the original Loan Balance thereof.
"London Business Day": A day on which banks are open for
dealing in foreign currency, and exchange in London and New York City.
"Master Servicer": Advanta Mortgage Corp. USA, a Delaware
corporation, and its permitted successors and assigns.
"Master Servicer Affiliate": A Person (i) controlling,
controlled by or under common control with the Master Servicer and (ii) which is
qualified to service residential mortgage loans.
"Master Transfer Agreement": Any one of the Master Loan
Transfer Agreements among the Sponsor and/or the Conduit Acquisition Trust, the
Indenture Trustee and one or more Originators together with any related
Conveyance Agreements (as defined therein).
"Minimum Monthly Payment": With respect to any Mortgage Loan
and any month, the minimum amount required to be paid by the related Mortgagor
in that month.
"Monthly Remittance Amounts": With respect to any Remittance
Date, the sum of (i) the Interest Remittance Amount with respect to such
Remittance Date and (ii) the Principal Remittance Amount with respect to such
Remittance Date.
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"Moody's": Moody's Investors Service, Inc.
"Mortgage Files": As defined in the Sale and Servicing
Agreement.
"Mortgage Loans": As defined in the Sale and Servicing
Agreement.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first or subordinate lien on an estate in fee simple interest in real
property securing a Note.
"Net Liquidation Proceeds": As to any Liquidated Loan,
Liquidation Proceeds net of, without duplication, Liquidation Expenses and
unreimbursed Servicing Advances, unreimbursed Delinquency Advances and accrued
and unpaid Servicing Fees through the date of liquidation relating to such
Liquidated Loan. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Loan be less than zero.
"Note": As defined in the recitals hereto.
"Note Account": The Note Account established in accordance
with Section 8.3 hereof and maintained by the Indenture Trustee.
"Note Formula Capped Rate": With respect to any Payment Date,
the lesser of (i) the Note Formula Rate for such Payment Date and (ii) ____%.
"Note Formula Rate": With respect to the first Interest
Accrual Period, LIBOR plus ____%. For any subsequent Interest Accrual Period,
(x) with respect to any Interest Accrual Period which occurs on or prior to the
Initial Redemption Date, LIBOR plus ____% per annum and (y) for any Interest
Accrual Period thereafter, LIBOR plus _____% per annum.
"Note Insurer Default": Any one of the following events shall
have occurred and be continuing:
(a) The Note Insurer shall have failed to make a payment
required under the Note Policy;
(b) The Note Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the
United States Bankruptcy Code or any other similar Federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its
creditors, or (iii) had an order for relief entered against it under
the United States Bankruptcy Code or any other similar Federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) A court of competent jurisdiction, the New York Department
of Insurance, or other competent regulatory authority shall have
entered a final and nonappealable order, judgment or decree (i)
appointing a custodian, Indenture Trustee, agent or receiver for the
Note Insurer or for all or any material portion of its property or (ii)
authorizing the taking of possession by a custodian, Indenture Trustee,
agent or receiver of the Note
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Insurer (or the taking of possession of all or any material portion of
the property of the Note Insurer).
"Note Insurer Issuer Secured Obligations": All amounts and
obligations which the Trust may at any time owe to or on behalf of the Note
Insurer under this Indenture, the Insurance Agreement or any other Operative
Document.
"Note Insurer": ______________________ or any successor
thereto, as issuer of the Note Policy.
"Note Interest Rate": As to any Payment Date, the lesser of
(i) the Note Formula Rate and (ii) the Available Funds Cap Rate.
"Noteholder": The Person in whose name a Note is registered on
the Note Register.
"Note Owner": With respect to a Book-Entry Note, the person
who is the owner of such Book-Entry Note or following the issuance of definitive
Notes, the registered owner of the Notes.
"Note Paying Agent": The Indenture Trustee or any other Person
that meets the eligibility standards for the Indenture Trustee specified in
Section 6.11 and is authorized by the Trust to make payments to and
distributions from the Note Account, including payment of principal of or
interest on the Notes on behalf of the Trust.
"Note Policy": The financial guaranty insurance policy dated
[DATE], issued by the Note Insurer to the Indenture Trustee for the benefit of
the Noteholders.
"Note Principal Balance": As defined in the Sale and Servicing
Agreement.
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 2.3.
"Note": The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
"Officer's Certificate" means a certificate signed by any
Authorized Officer of the Trust, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1 and TIA
ss. 314, and delivered to the Indenture Trustee.
"Operative Documents": The Indenture, the Trust Agreement, the
Sale and Servicing Agreement, the Subsequent Transfer Agreements, the Note
Policy, the Notes, the Indemnification Agreement and the Insurance Agreement.
"Opinion of Counsel": One or more opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Trust and, if addressed to the Note Insurer, satisfactory to the
Note Insurer, and which shall comply with any
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<PAGE> 19
applicable requirements of Section 11.1, and if addressed to the Note Insurer,
satisfactory to the Note Insurer.
"Original Note Principal Balance": $___________.
"Original Pre-Funded Amount": The amount deposited in the
Pre-Funding Account on the Closing Date, from the proceeds of the sale of the
Notes, which amount is $____________.
"Original Principal Amount": With respect to each Note, the
principal amount of such Note relating to a Senior Lien on the date of
origination thereof.
"Originator": Any entity from which the Sponsor has purchased
(or, in the case of Subsequent Mortgage Loans, will purchase) Mortgage Loans, or
Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage
Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of
New Jersey, Advanta Mortgage Corp. Northeast, Advanta National Bank, Advanta
Bank Corp. and Advanta Finance Corp.
"Outstanding": With respect to all Notes, as of any date of
determination, all such Notes theretofore executed and delivered hereunder
except:
(i) Notes theretofore cancelled by the Indenture
Trustee or delivered to the Indenture Trustee for cancellation;
(ii) Notes or portions thereof for which full and
final payment money in the necessary amount has been theretofore
deposited with the Indenture Trustee in trust for the Noteholders;
(iii) Notes in exchange for or in lieu of which other
Notes have been executed and delivered pursuant to this Agreement,
unless proof satisfactory to the Indenture Trustee is presented that
any such Notes are held by a bona fide purchaser; and
(iv) Notes alleged to have been destroyed, lost or
stolen for which replacement Notes have been issued as provided for in
Section 2.4 hereof.
"Overcollateralization Amount": With respect to any Payment
Date, the excess, if any, of (x) the Pool Principal Balance as of such Payment
Date over (y) the Note Principal Balance as of such Payment Date (after taking
into account reductions therein on such Payment Date).
"Overcollateralization Deficiency Amount": With respect to any
Payment Date, the difference, if any, between (i) the Specified
Overcollateralization Amount applicable to such Payment Date and (ii) the
Overcollateralization Amount applicable to such Payment Date.
"Overcollateralization Deficit": With respect to any Payment
Date, the amount, if any, by which (i) the aggregate Note Principal Balance,
after taking into account the payment to the Noteholders of all principal from
sources other than the Note Policy on such Payment Date,
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<PAGE> 20
exceeds (ii) the sum of (x) the Pool Principal Balance as of the end of the
applicable Remittance Period and (y) the amounts of deposit in the Pre-Funding
Account.
"Overcollateralization Increase Amount": With respect to any
Payment Date, the lesser of (i) the Overcollateralization Deficiency Amount as
of such Payment Date (after taking into account the payment of the Principal
Distribution Amount on such Payment Date (except for any Overcollateralization
Increase Amount) and (ii) the amount of Total Available Funds remaining to be
allocated for such purpose pursuant to Section 8.7(b)(ix) hereof on such Payment
Date.
"Overcollateralization Reduction Amount": With respect to any
Payment Date, the lesser of (x) the Excess Overcollateralization Amount for such
Payment Date and (y) the Principal Remittance Amount for the prior Remittance
Period.
"Owner Trustee": [OWNER TRUSTEE], not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, its successors
in interest or any successor Owner Trustee under the Trust Agreement.
"Owner Trustee's Fee": A fee which is separately agreed to in
writing between the Sponsor and the Owner Trustee.
"Payment Date": Any date on which the Indenture Trustee is
required to make distributions to the Noteholders, which shall be the 25th day
of each month, commencing in the month following the Closing Date or, if such
day is not a Business Day, then on the succeeding Business Day.
"Percentage Interest": As to any Note that percentage,
expressed as a fraction, the numerator of which is the Note Principal Balance of
such Note as of the related Cut-Off Date and the denominator of which is the
Original Note Principal Balance of all Notes; and as to any Certificate, that
Percentage Interest set forth on such Certificate.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pool Cumulative Realized Losses": With respect to any period,
the sum of all Realized Losses with respect to the Mortgage Loans experienced
during such period.
"Pool Delinquency Rate": With respect to any Remittance
Period, the fraction, expressed as a percentage, equal to (x) the aggregate Loan
Balances of all Mortgage Loans 90 or more days Delinquent (including all
foreclosures and REO Properties) as of the close of business on the last day of
such Remittance Period over (y) the Pool Principal Balance as of the close of
business on the last day of such Remittance Period.
"Pool Factor": A seven-digit decimal which the Indenture
Trustee shall compute monthly expressing the Note Principal Balance as of each
Payment Date (after giving effect to any distribution of principal on such
Payment Date) as a proportion of the Original Note Principal Balance. On the
Closing Date, the Pool Factor will be 1.0000000. Thereafter, the Pool
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<PAGE> 21
Factor shall decline to reflect reductions in the related Principal Balance
resulting from distributions of principal to the Notes.
"Pool Principal Balance": The aggregate Loan Balances of all
Mortgage Loans.
"Predecessor Note": With respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.4 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Preference Amount": Any amount previously distributed to
Noteholder that is recoverable and sought to be recovered as a voidable
preference by a Indenture Trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
"Preference Amount": As defined in the Note Policy.
"Pre-Funded Amount": As defined in the Sale and Servicing
Agreement.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 8.3 hereof and maintained by the Indenture Trustee.
"Pre-Funding Earnings": As defined in the Sale and Servicing
Agreement.
"Pre-Funding Period": As defined in the Sale and Servicing
Agreement.
"Premium Amount": As to any Payment Date, the product of (x)
one-twelfth of the Premium Percentage and (y) the Note Principal Balance on such
Payment Date (before taking into account any distributions of the Scheduled
Principal Distribution Amount to be made on such Payment Date).
"Premium Percentage": As defined in the Insurance Agreement.
"Prepaid Installment": With respect to any Mortgage Loan, any
installment of principal thereof and interest thereon received prior to the
scheduled due date for such installment, intended by the Mortgagor as an early
payment thereof and not as a Prepayment with respect to such Mortgage Loan.
"Prepayment": Any payment of principal of a Mortgage Loan in
full which is received by the Master Servicer in advance of the scheduled due
date for the payment of such principal (other than the principal portion of any
Prepaid Installment), and the proceeds of any Insurance Policy which are to be
applied as a payment of principal on the related Mortgage Loan shall be deemed
to be Prepayments for all purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Master
Servicer or any Sub-servicer in connection with a foreclosed Mortgage Loan prior
to the liquidation thereof,
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including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation.
"Principal and Interest Account": Collectively, each principal
and interest account created by the Master Servicer or any Sub-Servicer pursuant
to Section 4.8(a) of the Sale and Servicing Agreement.
"Principal Distribution Amount": With respect to the Notes for
any Payment Date, the lesser of:
(i) the excess of (a) the sum, as of such Payment Date, of (x)
the Total Available Funds and (y) any Insured Payment over (b) the
Interest Distribution Amount; and
(ii) the sum, without duplication, of:
(a) the principal actually collected by the Master Servicer
with respect to the Mortgage Loans in the Trust during the related Remittance
Period,
(b) the Loan Balance of each Mortgage Loan in the Trust that
either was repurchased by an Originator or by the Sponsor or purchased by the
Master Servicer or any Sub-Servicer on the related Remittance Date, to the
extent such Loan Balance is actually received by the Indenture Trustee,
(c) any Substitution Amounts delivered by the Sponsor or an
Originator on the related Remittance Date in connection with a substitution of a
Mortgage Loan, to the extent such Substitution Amounts are actually received by
the Indenture Trustee,
(d) all Net Liquidation Proceeds actually collected by the
Master Servicer with respect to the Mortgage Loans during the related Remittance
Period (to the extent such Net Liquidation Proceeds relate to principal),
(e) the proceeds received by the Indenture Trustee of any
termination of the Trust (to the extent such proceeds relate to principal),
minus
(f) the amount of any Overcollateralization Reduction Amount
for such Payment Date.
"Principal Remittance Amount": As of any Remittance Date, the
sum, without duplication, of (i) the principal actually collected by the Master
Servicer with respect to Mortgage Loans in the Trust during the related
Remittance Period, (ii) the Loan Balance of each such Mortgage Loan that either
was repurchased by an Originator or by the Sponsor or purchased by the Master
Servicer or any Sub-Servicer on such Remittance Date, to the extent such Loan
Balance was actually deposited in the Principal and Interest Account, (iii) any
Substitution Amounts delivered by the Sponsor or an Originator in connection
with a substitution of a Mortgage Loan, to the extent such Substitution Amounts
were actually deposited in the
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Principal and Interest Account on such Remittance Date, (iv) all Net Liquidation
Proceeds actually collected by the Master Servicer with respect to such Mortgage
Loans during the related Remittance Period (to the extent such Liquidation
Proceeds related to principal) net of amounts allowed to be retained pursuant to
Section 4.8(c) of the Sale and Servicing Agreement, (v) the proceeds of any
liquidation of the Trust Estate (to the extent such proceeds relate to
principal).
"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
"Property": The underlying property securing a Mortgage Loan.
"Prospectus": That certain Prospectus dated [DATE] naming
Advanta Conduit Receivables, Inc. as registrant and describing certain mortgage
loan asset-backed securities to be issued from time to time as described in
related Prospectus Supplements.
"Prospectus Supplement": That certain Prospectus Supplement
dated [DATE], describing the Notes issued by the Trust.
"Rating Agency": Moody's and Standard & Poor's. If such agency
or a successor is no longer in existence, "Rating Agency" shall be such
statistical credit rating agency, or other comparable Person, designated by the
Sponsor and the Note Insurer, notice of which designation shall be given to the
Indenture Trustee. References herein to the highest short term unsecured rating
category of a Rating Agency shall means A-1 or better in the case of Standard &
Poor's and P-1 or better in the case of Moody's, and in the case of any other
Rating Agency shall mean the ratings such other Rating Agency deems equivalent
to the foregoing ratings. References herein to the highest long-term rating
category of a Rating Agency shall mean "AAA" in the case of Standard & Poor's
and "Aaa" in the case of Moody's, and in the case of any other Rating Agency,
the rating such other Rating Agency deems equivalent to the foregoing ratings.
"Realized Loss": As to any Liquidated Mortgage Loan, the
amount, if any, by which the Loan Balance thereof as of the date of liquidation
is in excess of Net Liquidation Proceeds realized thereon.
"Record Date": With respect to each Payment Date, [the
business day immediately preceding the Payment Date occurs/ the last Business
Day of the calendar month immediately preceding the calendar month in which such
payment date occurs]; provided, that if the Notes revert to Definitive Notes,
the Record Date with respect to each Payment Date thereafter shall be the last
Business Day of the calendar month immediately preceding the calendar month in
which such payment date occurs.
"Redemption Date": In the case of a redemption of the Notes
pursuant to Section 10.1, the Payment Date specified by the Master Servicer or
the Trust pursuant to Section 10.2(a).
"Redemption Price": In the case of a redemption of the Notes
pursuant to Section 10.1, an amount equal to the unpaid principal amount of the
then outstanding principal amount of each class of Notes being redeemed plus
accrued and unpaid interest thereon to but excluding the Redemption Date.
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"Reference Banks": Chase Manhattan Bank, Deutsche Morgan
Grenfell, Fuji Bank, Merita Bank, Lloyds, Sumitomo Bank, Barclay's Bank PLC,
National Westminster Bank PLC, Abbey, Westpac, Hambros, Commerzbank AG,
Citibank, United Bank of Switzerland AG, BTM, and Royal Bank of Scotland;
provided that if any of the foregoing banks are not suitable to serve as a
Reference Bank, then any leading banks selected by the Indenture Trustee which
are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Sponsor
or any affiliate thereof, (iii) whose quotations appear on the Telerate Screen
Page 3750 on the relevant Interest Determination Date and (iv) which have been
designated as such by the Indenture Trustee.
"Registration Statement": The Registration Statement filed by
the Sponsor with the Securities and Exchange Commission, including all
amendments thereto and including the Prospectus and the Prospectus Supplement
relating to the Notes constituting a part thereof.
"Reimbursement Amount": As of any Payment Date, the sum of
(x)(i) all payments made pursuant to the Note Policy previously received by the
Indenture Trustee and all Preference Amounts previously paid to the Indenture
Trustee by the Note Insurer and in each case not previously repaid to the Note
Insurer pursuant to Section 8.7(b)(viii) hereof plus (ii) interest accrued on
each such payment made pursuant to the Note Policy not previously repaid
calculated at the Late Payment Rate from the date the Indenture Trustee received
the related payment made pursuant to the Note Policy and (y)(i) any amounts then
due and owing to the Note Insurer under the Insurance Agreement plus (ii)
interest on such amounts at the Late Payment Rate. The Note Insurer shall notify
the Indenture Trustee and the Sponsor of the amount of any Reimbursement Amount.
"Relief Act Shortfall": With respect to any Remittance Period,
for any Mortgage Loan as to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended Remittance Period as a
result of the application of the Civil Relief Act, the amount, if any, by which
(i) interest collectible on such Mortgage Loan during the most recently ended
calendar month is less than (ii) the sum of (a) one month's interest on the Loan
Balance of such Mortgage Loan at the rate equal to the sum of the Note Interest
Rate, the rate at which the Indenture Trustee's Fee is calculated and the
Premium Percentage, plus (b) the aggregate Servicing Fee for such Mortgage Loan
payable to the Master Servicer in such calendar month.
"Remittance Date": Any date on which the Master Servicer is
required to remit monies on deposit in the Principal and Interest Account to the
Indenture Trustee, which shall be the 18th day or, if such day is not a Business
Day, the next succeeding Business Day, of each month, commencing in the month
following the month in which the Closing Date occurs.
"Remittance Period": As to any Payment Date, the calendar
month preceding the month of such Payment Date.
"REO Property": A Mortgaged Property acquired by the Master
Servicer or any Sub-Servicer on behalf of the Trust through foreclosure or
deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan.
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"Replacement Cut-Off Date": With respect to any Qualified
Replacement Mortgage, the first day of the calendar month in which such
Qualified Replacement Mortgage is conveyed to the Trust.
"Representation Letter": Letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Notes
registered in the Register under the nominee name of the Depository.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the one-month U.S. dollar lending rates which three
New York City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest one-month U.S. dollar
lending rate which three New York City banks selected by the Indenture Trustee
are quoting on such Interest Determination Date to leading European banks.
"Sale and Servicing Agreement": The Sale and Servicing
Agreement dated as of [DATE], among the Trust, the Sponsor, the Master Servicer
and the Indenture Trustee, as the same may be amended or supplemented from time
to time.
"Scheduled Principal Distribution Amount": With respect to the
Notes for any Payment Date, an amount equal to the lesser of (x) the Principal
Distribution Amount as of such Payment Date and (y) the Note Principal Balance
as of such Payment Date.
"Schedules of Mortgage Loans": The Schedules of Mortgage
Loans, attached hereto as Schedule I as they may be further supplemented in
connection with Subsequent Transfers. Such Schedules shall also contain one of
the following codes for each Mortgage Loan or Subsequent Mortgage Loan: "C" if
such Mortgage Loan is an Unaffiliated Originator Loan or "A" for all other
Mortgage Loans. The information contained on each Mortgage Loan Schedule shall
be delivered to the Indenture Trustee on a computer readable magnetic tape or
disk.
"Securities Act": The Securities Act of 1933, as amended.
"Senior Lien": With respect to any Junior Mortgage Loan, the
mortgage loan relating to the corresponding Property having a senior priority
lien.
"Servicing Advance": As defined in the Sale and Servicing
Agreement.
"Servicing Fee": As defined in the Sale and Servicing
Agreement.
"Specified Overcollateralization Amount": As defined in the
Insurance Agreement.
"Sponsor": Advanta Conduit Receivables, Inc., a Nevada
corporation.
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"Standard & Poor's": Standard & Poor's Rating Group, a
division of The McGraw Hill Companies.
"Subsequent Cut-Off Date": With respect to any Subsequent
Mortgage Loan, the opening of business on the first day of the calendar month in
which the related Subsequent Transfer Date occurs.
"Subsequent Mortgage Loans" As defined in the Sale and
Servicing Agreement.
"Subsequent Transfer Agreement": Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Indenture
Trustee and the Sponsor substantially in the form of Exhibit L of the Sale and
Servicing Agreement, by which Subsequent Mortgage Loans are assigned to the
Trust.
"Subsequent Transfer Date": The date specified in each
Subsequent Transfer Agreement, which must, with respect to any Payment Date, be
a date occurring during the calendar month in which such Payment Date occurs, at
least five Business Days prior to the Remittance Date occurring in such month.
"Sub-Servicer": Any Person with whom the Master Servicer has
entered into a Sub-Servicing Agreement and who satisfies any requirements set
forth in Section 8.3 hereof in respect of the qualification of a Sub-Servicer.
"Substitution Amount": In connection with the delivery of any
Qualified Replacement Mortgage, if the outstanding principal amount of such
Qualified Replacement Mortgage as of the applicable Replacement Cut-Off Date is
less than the Loan Balance of the Mortgage Loan being replaced as of such
Replacement Cut-Off Date, an amount equal to such difference together with
accrued and unpaid interest on such amount calculated at the Coupon Rate net of
the Servicing Fee of the Mortgage Loan being replaced.
"Telerate Screen Page 3750": The display designated on page
3750 on the Telerate Service (or such other page as may replace page 3750 on
that service for the purpose of displaying London interbank offered rates of
major banks)
"Termination Date" means the latest of (i) the termination of
the Note Policy and the return of the Note Policy to the Note Insurer for
cancellation, (ii) the date on which the Note Insurer shall have received
payment and performance of all Note Insurer Issuer Secured Obligations and (iii)
the date on which the Indenture Trustee shall have received payment and
performance of all Indenture Trustee Issuer Secured Obligations.
"Total Available Funds": As defined in Section 8.7(a) hereof.
"Trust Agreement": The Trust Agreement dated as of [DATE]
between the Trust and the Sponsor.
"Trust Estate": Collectively, all money, instruments and other
property, to the extent such money, instruments and other property are subject
or intended to be held in trust, and in the subtrusts, for the benefit of the
Noteholders and the Note Insurer, including all proceeds
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thereof including, without limitation, (i) the Initial Mortgage Loans, Qualified
Replacement Mortgages and Subsequent Mortgage Loans, (ii) such amounts,
including Eligible Investments, as from time to time may be held in all Accounts
(except as otherwise provided herein and excluding any premium recapture), (iii)
any Mortgaged Property, the Noteholdership of which has been effected on behalf
of the Trust as a result of foreclosure or acceptance by the Master Servicer or
any Sub-Servicer of a deed in lieu of foreclosure and that has not been
withdrawn from the Trust, (iv) any Insurance Policies relating to the Mortgage
Loans and any rights of the Trust and the Originators under any Insurance
Policies (except for any non-mortgage or credit-life insurance policies), (v)
Net Liquidation Proceeds with respect to any Liquidated Mortgage Loan, (vi) the
Insurance Policies, (vii) such amounts held in the Capitalized Interest Account,
and (viii) such amounts held in the Pre-Funding Account, the Principal and
Interest Account and the Note Account.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939, as amended and as in force on the date hereof, unless otherwise
specifically provided.
"Trust": Advanta Mortgage Loan Trust ____-_.
"UCC": Unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
"Unaffiliated Originator Loan": Any Mortgage Loan purchased by
the Sponsor from an Unaffiliated Originator and sold to the Trust by the
Sponsor.
"Unaffiliated Originators": Any Originator who is not
affiliated with the Sponsor.
"Underwriter": Morgan Stanley & Co. Incorporated.
Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Sale and Servicing Agreement or
the Trust Agreement.
SECTION 1.2. Incorporation by Reference of the Trust Indenture
Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"Indenture Trustee" or "institutional Indenture Trustee" means
the Indenture Trustee.
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"obligor" on the indenture securities means the Trust.
All other TIA terms used in this Indenture that are defined by
the TIA, or defined by Commission rule have the meaning assigned to them by such
definitions.
SECTION 1.3. Rules of Construction.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
SECTION 1.4. Action by or Consent of Noteholders.
Whenever any provision of this Agreement refers to action to be taken, or
consented to, by Noteholders, such provision shall be deemed to refer to the
Noteholder of record as of the Record Date immediately preceding the date on
which such action is to be taken, or consent given, by Noteholders. Solely for
the purposes of any action to be taken, or consented to, by Noteholders, any
Note registered in the name of Advanta Conduit Receivables, Inc. or any
Affiliate thereof shall be deemed not to be outstanding; provided, however,
that, solely for the purpose of determining whether the Indenture Trustee or the
Owner Trustee is entitled to rely upon any such action or consent, only Notes
which the Owner Trustee or the Indenture Trustee, respectively, knows to be so
owned shall be so disregarded.
SECTION 1.5. Conflict with TIA.
If any provision hereof limits, qualifies or conflicts with a provision of
the TIA that is required under the TIA to be part of and govern this Indenture,
the latter provision shall control and all provisions required by the TIA are
hereby incorporated by reference. If any provision of this Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
latter provisions shall be deemed to apply to this Indenture as so modified or
to be excluded, as the case may be.
ARTICLE II.
THE NOTES
SECTION 2.1. Form.
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The Notes, together with the Indenture Trustee's certificate of
authentication, shall be in substantially the form set forth in Exhibit A, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may, consistently herewith, be determined by the officers executing such
Notes, as evidenced by their execution of the Notes. Any portion of the text of
any Note may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Note.
Each Note shall be dated the date of its authentication. The
terms of the Note set forth in Exhibit A are part of the terms of this
Indenture.
SECTION 2.2. Execution, Authentication and Delivery.
The Notes shall be executed on behalf of the Trust by any of its Authorized
Officers. The signature of any such Authorized Officer on the Notes may be
original or facsimile.
Notes bearing the original or facsimile signature of
individuals who were at any time Authorized Officers of the Trust shall bind the
Trust, notwithstanding that such individuals or any of them have ceased to hold
such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
The Indenture Trustee, upon receipt of a written Delivery
Order from the Trust, shall authenticate and deliver Notes for original issue in
an aggregate principal amount of $__________. The Notes outstanding at any time
may not exceed such amounts except as provided in Section 2.6.
Each Note shall be dated the date of its authentication. The
Notes shall be issuable as registered Notes in the minimum denomination of $1000
and in integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears attached to 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 attached to any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder. Subject to Section 2.11, the Notes shall
be Book-Entry Notes.
SECTION 2.3. Registration; Registration of Transfer and
Exchange.
The Trust shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Trust shall
provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee shall be "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Trust shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
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If a Person other than the Indenture Trustee is appointed by
the Trust as Note Registrar, the Trust will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof. The Indenture Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by an Authorized Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
Upon surrender for registration or transfer of any Note at the
office or agency of the Trust to be maintained as provided in Section 3.2, and
if the requirements of Section 8-401(1) of the UCC are met, the Trust shall
execute or cause the Indenture Trustee to authenticate one or more new Notes, in
any authorized denominations, of the same class and a like aggregate principal
amount. A Noteholder may also obtain from the Indenture Trustee, in the name of
the designated transferee or transferees one or more new Notes, in any
authorized denominations, of the same class and a like aggregate principal
amount. Such requirements shall not be deemed to create a duty in the Indenture
Trustee to monitor the compliance by the Trust with Section 8-401 of the UCC.
At the option of the Holder, Notes may be exchanged for other
Notes in any authorized denominations, of the same class and a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, and if the
requirements of Section 8-401(1) of the UCC are met, the Trust shall execute and
upon its request the Indenture Trustee shall authenticate the Notes which the
Noteholder making the exchange is entitled to receive. Such requirements shall
not be deemed to create a duty in the Indenture Trustee to monitor the
compliance by the Trust with Section 8-401 of the UCC.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Trust, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or exchange shall be (i) duly endorsed by, or be accompanied by a
written instrument of transfer in the form attached to Exhibit A, 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 all in accordance with the Exchange Act, and
(ii) accompanied by such other documents as the Note Registrar may require.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Notes, but the Note Registrar may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 2.4 or 9.6 not
involving any transfer.
The Note Registrar shall not register the transfer of any Note
(other than the transfer of a Note to the nominee of the Depository) unless the
transferee has executed and delivered to the Indenture Trustee a certification
to the effect that either (i) the transferee is not
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(A) an employee benefit plan (as defined in Section 3(3) of ERISA) that is
subject to the provisions of Title I of ERISA or (B) a plan (as defined in
Section 4975(e)(1) of the Code) that is subject to Section 4975 of the Code
(each of the foregoing, a "Benefit Plan"), and is not acting on behalf of or
investing the assets of a Benefit Plan, or (ii) that the transferee's
acquisition and continued holding of the Note will be covered by a U.S.
Department of Labor Prohibited Transaction Class Exemption. Each transferee of a
beneficial interest in a Book-Entry Note shall be deemed to make one of the
foregoing representations.
SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes.
If (i) any mutilated Note is surrendered to the Note Registrar, or the Note
Registrar 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
Note Insurer such security or indemnity as may be required by it to hold the
Trust, the Indenture Trustee and the Note Insurer harmless, then, in the absence
of notice to the Trust, the Note Registrar or the Indenture Trustee that such
Note has been acquired by a bona fide purchaser, and provided that the
requirements of Section 8-405 of the UCC are met, the Indenture Trustee shall
execute and authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note (such requirement
shall not be deemed to create a duty in the Indenture Trustee to monitor the
compliance by the Trust with Section 8-405); 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, the Indenture Trustee may, instead of issuing a replacement Note 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 Trust, the Indenture Trustee and the Note Insurer shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Trust or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section,
the Trust 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.
Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Trust, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
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SECTION 2.5. Persons Deemed Owners.
Prior to due presentment for registration of transfer of any Note, the
Trust, the Indenture Trustee and the Note Insurer and any agent of the Trust,
the Indenture Trustee and the Note Insurer may treat the Person in whose name
any Note is registered (as of the related Record Date) as the owner of such Note
for the purpose of receiving payments of principal of and interest, if any on
such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and none of the Trust, the Note Insurer, the Indenture Trustee nor any
agent of the Trust, the Note Insurer or the Indenture Trustee shall be affected
by notice to the contrary.
SECTION 2.6. Payment of Principal and Interest; Defaulted
Interest.
(a) The Notes shall accrue interest as provided herein, and
such amount shall be due and payable on each Payment Date as specified herein.
Any installment of interest or principal, if any, payable on any Note which is
punctually paid or duly provided for by the Trust on the applicable Payment Date
shall be paid to the Person in whose name such Note (or one or more Predecessor
Notes) is registered on the Record Date, by check mailed first-class, postage
prepaid, to such Person's address as it appears on the Note Register on such
Record Date, except that, unless Notes have been issued pursuant to Section
2.11, 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 Final
Scheduled Payment Date (and except for the Redemption Price for any Note called
for redemption pursuant to Section 10.1(a)) which shall be payable as provided
below. The funds represented by any such checks returned undelivered shall be
held in accordance with Section 3.3.
(b) Upon written notice from the Trust, the Indenture Trustee
shall notify the Person in whose name a Note is registered at the close of
business on the Record Date preceding the Payment Date on which the Trust
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. Notices in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.2.
(c) If the Trust defaults in a payment of interest on the
Notes, the Trust shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) at the Late Payment Rate to the extent lawful.
The Trust may pay such defaulted interest to the Persons who are Noteholders on
a subsequent special record date, which date shall be at least five Business
Days prior to the payment date. The Trust shall fix or cause to be fixed any
such special record date and payment date, and, at least 15 days before any such
special record date, the Trust shall mail to each Noteholder and the Indenture
Trustee a notice that states the special record date, the payment date and the
amount of defaulted interest to be paid.
(d) 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
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Indenture Trustee shall, upon written notice from the Master Servicer of the
amounts, if any, that the Note Insurer has paid in respect of the Notes under
the Note Policy or otherwise which has not been reimbursed to it, deliver such
surrendered Notes to the Note Insurer to the extent not previously cancelled or
destroyed.
SECTION 2.7. Cancellation.
Subject to Section 2.6(d), all Notes surrendered for payment, registration
of transfer, exchange or redemption shall, if surrendered to any Person other
than the Indenture Trustee, be delivered to the Indenture Trustee and shall be
promptly canceled by the Indenture Trustee. Subject to Section 2.6(d), the Trust
may at any time deliver to the Indenture Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Trust may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or
in exchange for any Notes canceled as provided in this Section, except as
expressly permitted by this Indenture. Subject to Section 2.6(d), 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 Trust
shall direct by an Issuer Order that they be destroyed or returned to it;
provided that such Issuer Order is timely and the Notes have not been previously
disposed of by the Indenture Trustee.
SECTION 2.8. Release of Collateral.
The Indenture Trustee shall, on or after the Termination Date, release any
remaining portion of the Trust Estate from the lien created by this Indenture
and deposit in the Note Account any funds then on deposit in any other Account.
Except as otherwise set forth in the Sale and Servicing Agreement, the Indenture
Trustee shall release property from the lien created by this Indenture pursuant
to this Section 2.8 only upon receipt of an Issuer Request by it accompanied by
an Officer's Certificate, an Opinion of Counsel and (if required by the TIA)
Independent Certificates in accordance with TIA ss.ss. 314(c) and 314(d)(1)
meeting the applicable requirements of Section 11.1 or as provided in Section
4.14 of the Sale and Servicing Agreement.
SECTION 2.9. Book-Entry Notes.
The Notes, upon original issuance, will be issued in the form of
typewritten Notes representing the Book-Entry Notes, to be delivered to The
Depository Trust Company or its custodian, the initial Clearing Agency, by, or
on behalf of, the Trust. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Note Owner will receive a Definitive Note representing such Note Owner's
interest in such Note, except as provided in Section 2.11. Unless and until
definitive, fully registered Notes have been issued to Note Owners pursuant to
Section 2.11:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole Holder of the Notes, and shall have no obligation to the Note
Owners;
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(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency and/or
the Clearing Agency Participants. Unless and until Notes are issued
pursuant to Section 2.11, 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;
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such percentage
only to the extent that it has received instructions to such effect
from Note Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee; and
(vi) Note Owners may receive copies of any reports sent to
Noteholders pursuant to this Indenture, upon written request, together
with a certification that they are Note Owners and payment of
reproduction and postage expenses associated with the distribution of
such reports, from the Indenture Trustee at the Corporate Trust Office.
SECTION 2.10. Notices to Clearing Agency.
Whenever a notice or other communication to the Noteholders is required
under this Indenture, unless and until Notes shall have been issued to Note
Owners pursuant to Section 2.11, 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 the Note Owners.
SECTION 2.11. Definitive Notes.
If (i) the Sponsor advises the Indenture Trustee in writing that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Notes, and the Sponsor is unable to locate
a qualified successor, (ii) the Sponsor 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 a Event of Default, Note Owners
representing beneficial interests aggregating at least a majority of the
Outstanding Amount of the Notes advise the Indenture Trustee through the
Clearing Agency in writing that the continuation of a book entry system through
the Clearing Agency is no longer in the best interests of the Note Owners, then
the Clearing Agency shall notify all Note Owners and the Indenture Trustee of
the occurrence of any such event and of the availability of Definitive Notes to
Note Owners requesting the same. Upon surrender to the Indenture Trustee of the
typewritten Note or Notes representing the Book-Entry Notes by the Clearing
Agency, accompanied by registration instructions, the Trust shall execute and
the Indenture Trustee shall authenticate the Definitive Notes in accordance with
the instructions of the Clearing Agency. None of the Trust, the Note Registrar
or the Indenture Trustee shall be liable for any delay in delivery of such
instructions
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and may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Notes, the Indenture Trustee shall
recognize the holders of the Notes as Noteholders.
ARTICLE III.
COVENANTS
SECTION 3.1. Payment of Principal and Interest.
The Trust will duly and punctually pay the principal of and interest on the
Notes in accordance with the terms of the Notes and this Indenture. Without
limiting the foregoing, the Trust will cause to be distributed all amounts on
deposit in the Note Account on a Payment Date deposited therein pursuant to the
Sale and Servicing Agreement for the benefit of the Notes, to Noteholders.
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 Trust to such Noteholder for all purposes of this Indenture.
SECTION 3.2. Maintenance of Office or Agency.
The Trust will maintain an office or agency where Notes may be surrendered
for registration, transfer or exchange of the Notes, and where notices and
demands to or upon the Trust in respect of the Notes and this Indenture may be
served. The Trust hereby initially appoints the Indenture Trustee to serve as
its agent for the foregoing purposes. The Trust will give prompt written notice
to the Indenture Trustee of the location, and of any change in the location, of
any such office or agency. If at any time the Trust 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 Indenture Trustee's offices maintained at 123 Washington Street, NY, NY
10006 and the Trust hereby appoints the Indenture Trustee as its agent to
receive all such surrenders, notices and demands.
SECTION 3.3. Money for Payments to be Held in Trust.
The Trust will cause each Note Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee and the Note Insurer an
instrument in which such Note Paying Agent shall agree with the Indenture
Trustee (and if the Indenture Trustee acts as Note Paying Agent, it hereby so
agrees), subject to the provisions of this Section, that such Note Paying Agent
will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee written notice of any default
by the Trust (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;
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(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 Note Paying Agent;
(iv) immediately resign as a Note 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 Note Paying Agent at the time of its
appointment; and
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Trust 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 Note Paying Agent to pay to the Indenture Trustee all sums held
in trust by such Note 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 Note
Paying Agent; and upon such a payment by any Note Paying Agent to the Indenture
Trustee, such Note Paying Agent shall be released from all further liability
with respect to such money.
Subject to applicable laws with respect to the escheat of
funds, any money held by the Indenture Trustee or any Note Paying Agent in trust
for the payment of any amount due with respect to any Note and remaining
unclaimed for two years after such amount has become due and payable shall be
discharged from such trust and be paid to the Trust on Issuer Request, and shall
be deposited by the Indenture Trustee in the Note Account; and the Holder of
such Note shall thereafter, as an unsecured general creditor, look only to the
Trust for payment thereof (but only to the extent of the amounts so paid to the
Trust), and all liability of the Indenture Trustee or such Note Paying Agent
with respect to such trust money shall thereupon cease.
SECTION 3.4. Existence.
Except as otherwise permitted by the provisions of Section 3.10, the Trust
will keep in full effect its existence, rights and franchises as a business
trust under the laws of the State of Delaware (unless it becomes, or any
successor Issuer hereunder is or becomes, organized under the laws of any other
state or of the United States of America, in which case the Trust 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 Trust Estate, the
Notes, and each other instrument or agreement included in the Trust Estate.
SECTION 3.5. Protection of Trust Estate.
The Trust intends the security interest granted pursuant to this Indenture
in favor of the Trust Secured Parties to be prior to all other liens in respect
of the Trust Estate, and the Trust shall take all actions necessary to obtain
and maintain, in favor of the Indenture Trustee, for the benefit of the Trust
Secured Parties, a first lien on and a first priority, perfected security
interest in the
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Trust Estate. The Trust will from time to time prepare (or shall cause to be
prepared), execute and deliver all such supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate;
(ii) maintain or preserve the lien and security interest (and
the priority thereof) in favor of the Indenture Trustee for the benefit
of the Trust Secured Parties created by 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 of the Collateral;
(v) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee in such Trust Estate against the claims
of all persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the
Trust Estate when due.
The Trust hereby designates the Indenture Trustee its agent and attorney-in-fact
to execute any financing statement, continuation statement or other instrument
required by the Indenture Trustee pursuant to this Section; provided that, such
designation shall not be deemed to create a duty in the Indenture Trustee or the
Indenture Trustee to monitor the compliance of the Trust with respect to its
duties under this Section 3.5 or the adequacy of any financing statement,
continuation statement or other instrument prepared by the Trust.
SECTION 3.6. Opinions as to Trust Estate.
(a) On the Closing Date, the Trust shall furnish to the
Indenture Trustee and the Note Insurer an Opinion of Counsel stating that, in
the opinion of such counsel, such actions have been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the first priority lien and security interest in
favor of the Indenture Trustee, for the benefit of the Trust Secured Parties,
created by this Indenture.
(b) Within 90 days after the beginning of each calendar year,
beginning with the first calendar year beginning more than six months after the
Closing Date, the Trust shall furnish to the Indenture Trustee and the Note
Insurer, an Opinion of Counsel either stating that, in the opinion of such
counsel, such actions have been taken with respect to the recording, filing,
re-recording and refiling of this Indenture, any indentures supplemental hereto
and any other requisite documents and with respect to the execution and filing
of any financing statements and continuation statements as are necessary to
maintain the lien and security interest created by this Indenture and reciting
the details of such action or stating that in the opinion of such counsel, no
such action is necessary to maintain such lien and security interest. Such
Opinion of Counsel
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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.
SECTION 3.7. Performance of Obligations; Servicing of Mortgage
Loans.
(a) The Trust will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Trust Estate or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except as
ordered by any bankruptcy or other court or as expressly provided in this
Indenture, the Operative Documents or such other instrument or agreement.
(b) The Trust may contract with other Persons acceptable to
the Note Insurer to assist it in performing its duties under this Indenture, and
any performance of such duties by a Person identified to the Indenture Trustee
and the Note Insurer in an Officer's Certificate of the Trust shall be deemed to
be action taken by the Trust. Initially, the Trust has contracted with the
Master Servicer to assist the Trust in performing its duties under this
Indenture.
(c) The Trust will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Operative Documents
and in the instruments and agreements included in the Trust Estate, including,
but not limited, to preparing (or causing to be prepared) and filing (or causing
to be filed) all UCC financing statements and continuation statements required
to be filed by the terms of this Indenture and the Sale and Servicing Agreement
in accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Trust shall not waive,
amend, modify, supplement or terminate any Operative Document or any provision
thereof without the consent of the Indenture Trustee, the Note Insurer or the
Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If an Authorized Officer of the Owner Trustee shall have
actual knowledge of the occurrence of an Event of Servicer Termination under the
Sale and Servicing Agreement, the Trust shall promptly notify the Indenture
Trustee, the Note Insurer and the Rating Agencies thereof in accordance with
Section 11.4, and shall specify in such notice the action, if any, the Trust is
taking in respect of such default. If an Event of Servicer Termination shall
arise from the failure of the Master Servicer to perform any of its duties or
obligations under the Sale and Servicing Agreement with respect to the Mortgage
Loans, the Trust shall take all reasonable steps available to it to remedy such
failure.
(e) The Trust agrees that it will not waive timely performance
or observance by the Master Servicer or the Sponsor of their respective duties
under the Operative Documents (x) without the prior consent of the Note Insurer
or (y) if the effect thereof would adversely affect the Holders of the Notes.
SECTION 3.8. Negative Covenants.
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So long as any Notes are Outstanding, the Trust shall not:
(i) except as expressly permitted by this Indenture or the
Operative Documents, sell, transfer, exchange or otherwise dispose of
any of the properties or assets of the Trust, including those included
in the Trust Estate, without the consent of the Note Insurer (which
consent may not be unreasonably withheld; provided, that if an Note
Insurer Default has occurred and is continuing, the Noteholders
representing 51% of the Noteholders may direct the Indenture Trustee to
sell or dispose of the Trust Estate if the Indenture Trustee receives
the Redemption Price, as described in Section 10.1.
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien in favor of the Indenture
Trustee created by this Indenture to be amended, hypothecated,
subordinated, terminated or discharged, or permit any Person to be
released from any covenants or obligations with respect to the Notes
under this Indenture except as may be expressly permitted hereby, (B)
permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture) to be created
on or extend to or otherwise arise upon or burden the Trust Estate or
any part thereof or any interest therein or the proceeds thereof (other
than tax liens, mechanics' liens and other liens that arise by
operation of law, in each case on a Mortgaged Property and arising
solely as a result of an action or omission of the related Mortgagor),
(C) permit the lien of this Indenture not to constitute a valid first
priority (other than with respect to any such tax, mechanics' or other
lien) security interest in the Trust Estate or (D) amend, modify or
fail to comply with the provisions of the Operative Documents without
the prior written consent of the Note Insurer, which consent may not be
unreasonably withheld.
SECTION 3.9. Annual Statement as to Compliance.
The Trust will deliver to the Indenture Trustee and the Note Insurer,
within 90 days after the end of each fiscal year of the Trust (commencing with
the fiscal year ended December 31, ____), and otherwise in compliance with the
requirements of TIA Section 314(a)(4) an Officer's Certificate stating, as to
the Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Trust during such year
and of performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Trust has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
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SECTION 3.10. The Trust Shall Not Consolidate or Transfer
Assets.
(a) The Trust shall not consolidate or merge with or into any
other Person.
(b) Except as otherwise provided in the Sale and Servicing
Agreement, the Trust shall not convey or transfer all or substantially all of
its properties or assets, including those included in the Trust Estate, to any
Person.
SECTION 3.11. No Other Business.
The Trust shall not engage in any business other than purchasing, owning,
selling and managing the Mortgage Loans and other assets in the manner
contemplated by this Indenture and the Operative Documents and activities
incidental thereto.
SECTION 3.12. No Borrowing.
The Trust shall not issue, incur, assume, guarantee or otherwise become
liable, directly or indirectly, for any Indebtedness except for (i) the Notes,
(ii) obligations owing from time to time to the Note Insurer under the Insurance
Agreement and (iii) any other Indebtedness permitted by or arising under the
Operative Documents. The proceeds of the Notes shall be used exclusively to fund
the Trust's purchase of the Mortgage Loans and the other assets specified in the
Sale and Servicing Agreement, to fund the Pre-Funding Account and the
Capitalized Interest Account and to pay the Trust's organizational,
transactional and start-up expenses.
SECTION 3.13. Guarantees, Loans, Advances and Other
Liabilities.
Except as contemplated by the Sale and Servicing Agreement or this
Indenture, the Trust shall not make any loan or advance or credit to, or
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance on any obligation or capability of so
doing or otherwise), endorse or otherwise become contingently liable, directly
or indirectly, in connection with the obligations, stocks or dividends of, or
own, purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.14. Capital Expenditures.
The Trust shall not make any expenditure (by long-term or operating lease
or otherwise) for capital assets (either realty or personalty).
SECTION 3.15. Compliance with Laws.
The Trust shall comply with the requirements of all applicable laws, the
non-compliance with which would, individually or in the aggregate, materially
and adversely affect the ability of the Trust to perform its obligations under
the Notes, this Indenture or any Operative Document.
SECTION 3.16. Restricted Payments.
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The Trust shall not, directly or indirectly, (i) pay any dividend or make
any distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a combination thereof, to the Owner Trustee or any owner
of a beneficial interest in the Trust or otherwise with respect to any ownership
or equity interest or security in or of the Trust or to the 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 Trust may make, or
cause to be made, distributions to the Master Servicer, the Owner Trustee, the
Indenture Trustee and the Certificateholders as permitted by, and to the extent
funds are available for such purpose under, the Sale and Servicing Agreement,
this Indenture, or Trust Agreement. The Trust will not, directly or indirectly,
make payments to or distributions from the Note Account except in accordance
with this Indenture and the Operative Documents.
SECTION 3.17. Notice of Event of Defaults and Events of
Servicing Termination.
Upon a Responsible Officer of the Owner Trustee having actual knowledge
thereof, the Trust agrees to give the Indenture Trustee, the Note Insurer and
the Rating Agencies prompt written notice of each Event of Default hereunder or
Event of Servicer Termination under the Sale and Servicing Agreement.
SECTION 3.18. Further Instruments and Acts.
Upon request of the Indenture Trustee or the Note Insurer, the Trust will
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purpose of this
Indenture.
SECTION 3.19. Amendments of Sale and Servicing Agreement and
Trust Agreement.
The Trust shall not agree to any amendment to Section 9.01 of the Sale and
Servicing Agreement or Section 11.1 of the Trust Agreement to eliminate the
requirements thereunder that the Indenture Trustee, the Note Insurer or the
Holders of the Notes consent to amendments thereto as provided therein.
SECTION 3.20. Income Tax Characterization.
For purposes of federal income, state and local income and franchise and
any other income taxes, the Trust will treat the Notes as indebtedness of the
Sponsor and hereby instructs the Indenture Trustee to treat the Notes as
indebtedness of the Sponsor for federal and state tax reporting purposes.
ARTICLE IV.
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
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Upon payment in full of the Notes, this Indenture shall cease to be of
further effect with respect to the Notes except as to (i) rights of registration
of transfer and exchange, (ii) substitution of mutilated, destroyed, lost or
stolen Notes, (iii) rights of Noteholders to receive payments of principal
thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8, 3.10, 3.12, and
3.19, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.7 and
the obligations of the Indenture Trustee under Section 4.2) and (vi) the rights
of 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 written demand in the form of an Issuer Order and at the expense of
the Trust, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 2.4 and (ii) Notes for
which payment money has theretofore been deposited in trust or
segregated and held in trust by the Trust and thereafter repaid to the
Trust or discharged from such trust, as provided in Section 3.3) have
been delivered to the Indenture Trustee for cancellation and the Note
Policy has terminated and been returned to the Note Insurer for
cancellation and all amounts owing to the Note Insurer have been paid
in full; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
(i) have become due and payable,
(ii) will become due and payable at their Final
Scheduled Payment Date within one year, or
(iii) 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 Trust,
and in the case of (i), (ii) or (iii) above, the Trust, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
not theretofore delivered to the Indenture Trustee for cancellation
when due on the Final Scheduled Payment Date or Redemption Date (if the
Notes shall have been called for redemption pursuant to Section 10.1(a)
or (b)), as the case may be;
(B) the Trust has paid or caused to be paid all Note Insurer
Issuer Secured Obligations and all Indenture Trustee Issuer Secured Obligations;
and
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(C) the Trust has delivered to the Indenture Trustee and the
Note Insurer an Officer's Certificate, an Opinion of Counsel and if required by
the TIA, the Indenture Trustee or the Note Insurer an Independent Certificate
from a firm of certified public accountants, each meeting the applicable
requirements of Section 11.1(a) and each stating that all conditions precedent
herein provided relating to the satisfaction and discharge of this Indenture
have been complied with.
SECTION 4.2. Application of Trust Money.
All monies deposited with the Indenture Trustee pursuant to Section 4.1
hereof shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or
through any Note Paying Agent, as the Indenture Trustee may determine, to the
Holders of the particular Notes for the payment or redemption of which such
monies have been deposited with the Indenture Trustee, of all sums due and to
become due thereon for principal and interest.
SECTION 4.3. Repayment of Monies Held by Note Paying Agent.
In connection with the satisfaction and discharge of this Indenture with
respect to the Notes, all monies then held by any Note Paying Agent other than
the Indenture Trustee under the provisions of this Indenture with respect to
such Notes shall, upon demand of the Trust, be paid to the Indenture Trustee to
be held and applied according to Section 3.3 and thereupon such Note Paying
Agent shall be released from all further liability with respect to such monies.
ARTICLE V.
REMEDIES
SECTION 5.1. Rights Upon an Event of Default.
If an Event of Default as described in Article XII shall have occurred and
be continuing, but with the consent of the Note Insurer in the absence of a Note
Insurer Default, the Indenture Trustee may, and on request of the Note Insurer
or the Holders of Notes representing not less than 51% of the Outstanding Amount
of the Notes (with the consent of the Note Insurer), shall, declare all the
Notes to be immediately due and payable by a notice in writing to the Trust (and
to the Indenture Trustee if given by Noteholders), and upon any such declaration
such Notes, in an amount equal to the Outstanding Amount of the Notes, together
with accrued and unpaid interest thereon to the date of such acceleration, shall
become immediately due and payable, all subject to the prior written consent of
the Note Insurer in the absence of a Note Insurer Default.
At any time after such a declaration of acceleration of
maturity of the Notes has been made and before a judgment or decree for payment
of the money due has been obtained by the Indenture Trustee as hereinafter in
this Article; provided the Note Insurer or the Holders of Notes representing
more than 50% of the Outstanding Amount of the Notes, with the prior written
consent of the Note Insurer, by written notice to the Trust and the Indenture
Trustee, may rescind and annul such declaration and its consequences if:
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(1) the Trust has paid or deposited with the Indenture Trustee
a sum sufficient to pay:
(A) all payments of principal of, and interest on,
all Notes and all other amounts that would then be due hereunder or
upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and
counsel; and
(2) all Events of Default with respect to the Notes, other
than the nonpayment of the principal of Notes that have become due solely by
such acceleration, have been cured or waived as provided in Section 5.19.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 5.2. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee.
Subject to the following sentence, if an Event of Default with respect to
the Notes occurs and is continuing, the Indenture Trustee may, with the prior
written consent of the Note Insurer and shall, at the direction of the Note
Insurer, proceed to protect and enforce its rights and the rights of the
Noteholders and the Note Insurer by any Proceedings the Indenture Trustee deems
appropriate 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 enforce any other proper remedy. Any
proceedings brought by the Indenture Trustee on behalf of the Noteholders and
the Note Insurer or any Noteholder against the Trust shall be limited to the
preservation, enforcement and foreclosure of the liens, assignments, rights and
security interests under the Indenture and no attachment, execution or other
unit or process shall be sought, issued or levied upon any assets, properties or
funds of the Trust, other than the Trust Estate relative to the Notes in respect
of which such Event of Default has occurred. If there is a foreclosure of any
such liens, assignments, rights and security interests under this Indenture, by
private power of sale or otherwise, no judgment for any deficiency upon the
indebtedness represented by the Notes may be sought or obtained by the Indenture
Trustee or any Noteholder against the Trust. The Indenture Trustee shall be
entitled to recover the costs and expenses expended by it pursuant to this
Article V including reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee, its agents and counsel.
SECTION 5.3. Remedies.
(a) If an Event of Default with respect to the Notes shall have occurred
and be continuing and the Notes have been declared due and payable and such
declaration and its consequences have not been rescinded and annulled, the
Indenture Trustee, at the direction of the Note Insurer may, for the benefit of
the Noteholders and the Note Insurer, do one or more of the following:
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(i) institute Proceedings for the collection of all amounts
then payable on the Notes, or under this Indenture, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Trust moneys adjudged due, subject in all cases to the
provisions of Sections 3.1 and 5.3;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
(iii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Trust
Estate;
(iv) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Indenture Trustee or
the Holders of the Notes and the Note Insurer hereunder; and
(v) refrain from selling the Trust Estate and apply all
related Monthly Remittance Amounts pursuant to Section 5.6.
SECTION 5.4. Indenture Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
Proceeding relative to the Trust or any other obligor upon any of the Notes or
the property of the Trust or of such other obligor or their creditors, the
Indenture Trustee (irrespective of whether the 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 on the Trust for the
payment of any overdue principal or interest) shall, at the direction of the
Note Insurer, be entitled and empowered, by intervention in such Proceeding or
otherwise to:
(i) file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Notes and 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 the
reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee, its agents and counsel) and of the Noteholders and
the Note Insurer allowed in such Proceeding, and
(ii) collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same; and any
receiver, assignee, Indenture Trustee, liquidator, or sequestrator (or
other similar official) in any such Proceeding is hereby authorized by
each Noteholder and the Note Insurer to make such payments to the
Indenture Trustee and, in the event that the Indenture Trustee shall
consent to the making of such payments directly to the Noteholders and
the Note Insurer, to pay to the Indenture Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances
of the Indenture Trustee, its agents and counsel.
Nothing herein contained shall be deemed to authorize the Indenture Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder or the
Note Insurer any plan of reorganization, arrangement, adjustment or composition
affecting any of the Notes or the rights
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of any Holder thereof, or the Note Insurer, or to authorize the Indenture
Trustee to vote in respect of the claim of any Noteholder or the Note Insurer in
any such Proceeding. Any plan of reorganization, arrangement, adjustment or
composition relative to the Trust or any other obligor upon any of the Notes or
the property of the Trust or of such obligor or their creditors and affecting
the Notes or the rights of the Note Insurer under this Indenture or the
Insurance Agreement must be acceptable to the Note Insurer and, as long as no
Note Insurer Default exists and is continuing, the Note Insurer shall be
entitled to exercise the voting rights of the Holders of the Notes regarding
such plan, reorganization, arrangement, adjustment or composition.
SECTION 5.5. Indenture Trustee May Enforce Claims Without
Possession of Notes.
All rights of action and claims under this Indenture or any of the Notes
may be prosecuted and enforced by the Indenture Trustee without the possession
of any of the Notes or the production thereof in any Proceeding relating
thereto, and any such Proceeding instituted by the Indenture Trustee, at the
direction of the Note Insurer, shall be brought in its own name as Indenture
Trustee of an express trust, and any recovery of judgment shall be for the
ratable benefit of the Holders of the Notes and the Note Insurer in respect of
which such judgment has been recovered after payment of amounts required to be
paid pursuant to clause (i) Section 5.6.
SECTION 5.6. Application of Money Collected.
If the Notes have been declared due and payable following an Event of
Default with respect to the Notes and such declaration and its consequences have
not been rescinded and annulled, any money collected by the Indenture Trustee
with respect to the Notes pursuant to this Article or otherwise and any other
monies that may then be held or thereafter received by the Indenture Trustee as
security for the Notes shall be applied in the following order, at the date or
dates fixed by the Indenture Trustee and, in case of the payment of the entire
amount due on account of principal of, and interest on, the Notes, upon
presentation and surrender thereof:
(i) first, to the Indenture Trustee any unpaid Indenture
Trustee's Fees related to the Notes then due and any other amounts
payable and due to the Indenture Trustee under this Indenture,
including any costs or expenses incurred by it in connection with the
enforcement of the remedies provided for in this Article;
(ii) second, to the Servicer, any amounts required to pay the
Servicer for any unpaid Servicing Fees related to the Mortgage Loans
then due and, upon the final liquidation of the related Mortgage Loan
or the final liquidation of the Trust Estate related to the Mortgage
Loans, Servicing Advances and Delinquency Advances, including
Nonrecoverable Advances related to the Mortgage Loans previously made
by, and not previously reimbursed or retained by, the Servicer;
(iii) third, to the payment of the Interest Distribution
Amount then due and unpaid upon the Outstanding Amount of the Notes
through the day preceding the date on which such payment is made;
(iv) fourth, to the payment of the Note Principal Balance then
due and unpaid upon the Outstanding Amount of the Notes;
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(v) fifth, to the payment of the Note Insurer, all amounts due
pursuant to the Insurance Agreement; and
(vi) sixth, to the Certificateholders, any amount remaining on
deposit in the Note Account.
SECTION 5.7. 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 in bankruptcy, or for any other remedy hereunder, unless:
(i) the Holders of not less than 25% of the Outstanding Amount
of the related 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;
(ii) such Holder or Holders have offered to the Indenture
Trustee indemnity reasonably satisfactory to it against the costs,
expenses and liabilities to be incurred in complying with such request;
(iii) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such proceedings;
(iv) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Holders of a majority of the Outstanding Amount of the related Notes;
and
(v) an Note Insurer Default shall have occurred and be
continuing;
it being understood and intended that no Holders of Notes shall have any right
in any manner whatsoever 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 related Notes, each
representing less than a majority of the Outstanding Amount of the related
Notes, the Indenture Trustee in its sole discretion may determine what action,
if any, shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.8. Unconditional Rights of Noteholders to Receive
Principal and Interest.
Notwithstanding any other provisions in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Redemption Date) and to institute suit
for
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the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Control Party 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, then and in every such case the Trust,
the Note Insurer, the Indenture Trustee and the Noteholders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Indenture Trustee, the Note Insurer and the Noteholders shall continue as though
no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Control Party
or to the related 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 5.11. Delay or Omission Not a Waiver.
No delay or omission of the Indenture Trustee, Control Party or any Holder
of any Note to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article V or by law to the Indenture Trustee, the Note Insurer or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Indenture Trustee, the Note Insurer or by the Noteholders, as
the case may be.
SECTION 5.12. Control by Noteholders.
If the Indenture Trustee is the Control Party, the Holders of a majority of
the Outstanding Amount of the related Notes, with the consent of the Note
Insurer, shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Indenture Trustee pursuant to
Section 12.1 with respect to the related Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
provided, however, that, subject to Section 6.1, 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 related Noteholders not consenting
to such action.
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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, (b) any suit instituted by the Note
Insurer, any Noteholder, or group of Noteholders with the prior written consent
of the Note Insurer, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14. Waiver of Stay or Extension Laws.
The Trust 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 Trust (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Indenture Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.15. Action on Notes.
The Indenture Trustee's right to seek and recover judgment on the Notes or
under this Indenture shall not be affected by the seeking, obtaining or
application of any other relief under or with respect to this Indenture. Neither
the lien of this Indenture nor any rights or remedies of the Indenture Trustee,
the Note Insurer or the Noteholders shall be impaired by the recovery of any
judgment by the Indenture Trustee or the Note Insurer against the Trust or by
the levy of any execution under such judgment upon any portion of the Trust
Estate or upon any of the assets of the Trust.
SECTION 5.16. Performance and Enforcement of Certain
Obligations.
(a) Promptly following a request from the Indenture Trustee
(at the direction of the Note Insurer) to do so and at the Master Servicer's
expense, the Trust agrees to take all such lawful action as the Indenture
Trustee may request to compel or secure the performance and observance by the
Sponsor and the Master Servicer, as applicable, of each of their obligations to
the Trust under or in connection with the Sale and Servicing
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Agreement in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Trust under or
in connection with the Sale and Servicing 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 Sponsor or the Master Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Sponsor or the Master Servicer of each of their
obligations under the Sale and Servicing Agreement.
(b) If the Indenture Trustee is a Control Party and if an
Event of Default has occurred and is continuing, the Indenture Trustee may, and,
at the written direction of the Holders of 66-2/3% of the Outstanding Amount of
the related Class of Notes shall, exercise all rights, remedies, powers,
privileges and claims of the Trust against the Sponsor or the Master Servicer
under or in connection with the Sale and Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Sponsor or the Master Servicer of each of their obligations to the Trust
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale and Servicing Agreement, and any right of the
Trust to take such action shall be suspended.
SECTION 5.17. Subrogation.
The Indenture Trustee shall receive as attorney-in-fact of each Noteholder
any Insured Payment from the Note Insurer pursuant to the Note Policy. Any and
all Insured Payments disbursed by the Indenture Trustee from claims made under
the Note Policy shall not be considered payment by the Trust, and shall not
discharge the obligations of the Trust with respect thereto. The Note Insurer
shall, to the extent it makes any payment with respect to any Notes, become
subrogated to the rights of the recipient of such payments to the extent of such
payments. Subject to and conditioned upon any payment with respect to any Notes
by or on behalf of the Note Insurer, the Indenture Trustee shall assign to the
Note Insurer all rights to the payment of interest or principal with respect to
such Class of Notes which are then due for payment to the extent of all payments
made by the Note Insurer. In addition to the rights of the Note Insurer set
forth in Section 11.20 hereof, the Note Insurer may exercise any option, vote,
right, power or the like with respect to such Class of Notes to the extent that
it has made payment pursuant to the related Note Policy.
SECTION 5.18. Preference Claims.
(a) In the event that the Indenture Trustee has received a
certified copy of an order of the appropriate court that any payment on a Note
has been avoided in whole or in part as a preference payment under applicable
bankruptcy law, the Indenture Trustee shall so notify the Note Insurer, shall
comply with the provisions of the related Policy to obtain payment by the Note
Insurer of such avoided payment, and shall, at the time it provides notice to
the Note Insurer, notify Holders of the Notes by mail that, in the event that
any Noteholder's payment is so recoverable, such Noteholder will be entitled to
payment pursuant to the terms of the related Policy. The Indenture Trustee shall
furnish to the Note Insurer at its written request, the requested records it
holds in its possession evidencing the payments of principal of and interest on
Notes, if any, which have been made by the Indenture Trustee and subsequently
recovered from Noteholders, and the dates on which such payments were made.
Pursuant to the terms of
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the related Policy, the Note Insurer will make such payment on behalf of the
Noteholder to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Final Order (as defined in the related Policy) and not
to the Indenture Trustee or any Noteholder directly.
(b) The Indenture Trustee shall promptly notify the Note
Insurer of any proceeding or the institution of any action (of which the
Indenture Trustee has actual knowledge) seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership, rehabilitation
or similar law (a "Preference Claim") of any distribution made with respect to
the Notes. Each Holder, by its purchase of Notes, and the Indenture Trustee
hereby agree that so long as an Note Insurer Default shall not have occurred and
be continuing, the Note Insurer may at any time during the continuation of any
proceeding relating to a Preference Claim direct all matters relating to such
Preference Claim including, without limitation, (i) the direction of any appeal
of any order relating to any Preference Claim and (ii) the posting of any
surety, supersedes or performance bond pending any such appeal at the expense of
the Note Insurer, but subject to reimbursement as provided in the Insurance
Agreement. In addition, and without limitation of the foregoing, as set forth in
Section 5.18, the Note Insurer shall be subrogated to, and each Noteholder and
the Indenture Trustee hereby delegate and assign, to the fullest extent
permitted by law, the rights of the Indenture Trustee and each Noteholder in the
conduct of any proceeding with respect to a Preference Claim, including, without
limitation, all rights of any party to an adversary proceeding action with
respect to any court order issued in connection with any such Preference Claim.
SECTION 5.19. Waiver of Past Defaults.
The Note Insurer or the Holders of Notes representing more than 50% of the
aggregate Principal Balance of the Outstanding Notes on the applicable Record
Date may on behalf of the Holders of all the Notes, and with the consent of the
Note Insurer, waive any past default hereunder and its consequences, except a
default in the payment of principal or any installment of interest on any Note.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture, but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
ARTICLE VI.
THE INDENTURE TRUSTEE
SECTION 6.1. Duties of Indenture Trustee.
(a) If a Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and the Operative Documents and use the same degree of care and skill
in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs; provided, however,
that if the Indenture Trustee is acting as Master Servicer, it shall use the
same degree of care and skill as is required of the Master Servicer under the
Sale and Servicing Agreement.
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(b) Except during the continuance of a Event of Default:
(i) The Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform on their face 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;
(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;
(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; and
(iv) the Indenture Trustee shall not be charged with knowledge
of any failure by the Master Servicer to comply with the obligations of
the Master Servicer referred to in clauses (i) and (ii) of Section 5.1
of the Sale and Servicing Agreement unless a Responsible Officer of the
Indenture Trustee at the Corporate Trust Office obtains actual
knowledge of such failure or occurrence or the Indenture Trustee
receives written notice of such failure or occurrence from the Master
Servicer, the Note Insurer or the Holders of Notes evidencing Voting
Rights aggregating not less than 51%.
(d) 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 Trust.
(e) 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 indemnity reasonably satisfactory to it against such
risk or liability is not reasonably assured to it.
(f) 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 and to the provisions of the
TIA.
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(g) The Indenture Trustee shall, upon two Business Days' prior
written notice to the Indenture Trustee, permit any representative of the Note
Insurer, during the Indenture Trustee's normal business hours, to examine all
books of account, records, reports and other papers of the Indenture Trustee
relating to the Notes, to make copies and extracts therefrom and to discuss the
Indenture Trustee's affairs and actions, as such affairs and actions relate to
the Indenture Trustee's duties with respect to the Notes, with the Indenture
Trustee's officers and employees responsible for carrying out the Indenture
Trustee's duties with respect to the Notes.
(h) The Indenture Trustee shall, and hereby agrees that it
will, perform all of the obligations and duties required of it under the Sale
and Servicing Agreement.
(i) The Indenture Trustee shall, and hereby agrees that it
will, hold the Note Policy in trust, and will hold any proceeds of any claim on
the Note Policy in trust solely for the use and benefit of the Noteholders.
(j) In no event shall [INDENTURE TRUSTEE], in any of its
capacities hereunder, be deemed to have assumed any duties of the Owner Trustee
under the Delaware Business Trust Statute, common law, or the Trust Agreement
except making payments to the Certificateholders.
SECTION 6.2. Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document reasonably
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 the 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.
(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 the Indenture Trustee's
conduct does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) The Indenture Trustee shall be under no obligation to
institute, conduct or defend any litigation under this Indenture or in relation
to this Indenture, at the request, order or
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direction of any of the Holders of Notes or the Control Party, pursuant to the
provisions of this Indenture, unless such Holders of Notes or the Control Party
shall have offered to the Indenture Trustee reasonable security or indemnity
against the costs, expenses and liabilities that may be incurred therein or
thereby; provided, however, that the Indenture Trustee shall, upon the
occurrence of a Event of Default or Event of Servicer Termination as defined in
the Sale and Servicing Agreement (that has not been cured or waived), exercise
the rights and powers vested in it by this Indenture or the Sale and Servicing
Agreement with reasonable care and skill.
(g) The Indenture Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
approval, bond or other paper or document, unless requested in writing to do so
by the Note Insurer or by the Holders of Notes evidencing not less than 25% of
the Outstanding Amount thereof; provided, however, that if the payment within a
reasonable time to the Indenture Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Indenture Trustee, not reasonably assured to the Indenture
Trustee by the security afforded to it by the terms of this Indenture or the
Sale and Servicing Agreement, the Indenture Trustee may require indemnity
reasonably satisfactory to it against such cost, expense or liability as a
condition to so proceeding; the reasonable expense of every such examination
shall be paid by the Person making such request, or, if paid by the Indenture
Trustee shall be reimbursed by the Person making such request upon demand.
(h) The Indenture Trustee shall not be accountable, shall have
no liability and makes no representation as to any acts or omissions hereunder
of the Master Servicer until such time as, and only to the extent that, the
Indenture Trustee may be required to act as Master Servicer.
SECTION 6.3. Individual Rights of Indenture Trustee.
The Indenture Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Trust or its
Affiliates with the same rights it would have if it were not Indenture Trustee.
Any Note Paying Agent, Note Registrar, co-registrar or co-paying agent may do
the same with like rights. However, the Indenture Trustee must comply with
Sections 6.11 and 6.12.
SECTION 6.4. Indenture Trustee's Disclaimer.
The Indenture Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Trust
Estate or the Notes, it shall not be accountable for the Trust's use of the
proceeds from the Notes, and it shall not be responsible for any statement of
the Trust 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 6.5. Notice of Defaults.
If an Event of Default or an Event of Servicer Termination occurs and is
continuing and if it is either known by, or written notice of the existence
thereof has been delivered to, a Responsible Officer of the Indenture Trustee,
the Indenture Trustee shall mail to each Noteholder and to the Note Insurer of
such event within 10 days after such knowledge or notice occurs. Except in the
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case of an Event of Default in payment of principal of or interest on any Note,
the Indenture Trustee may withhold the notice if and so long as a committee of
its Responsible Officers in good faith determines that withholding the notice is
in the interests of Noteholders.
SECTION 6.6. Reports by Indenture Trustee to Holders.
Upon written request, the Note Paying Agent or the Master Servicer shall on
behalf of the Trust deliver to each Noteholder such information as may be
reasonably required to enable such Holder to prepare its Federal and state
income tax returns required by law.
SECTION 6.7. Compensation and Indemnity.
(a) The Indenture Trustee shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Indenture Trustee herein. Neither the Indenture Trustee nor
any of the directors, officers, employees or agents of the Indenture Trustee
shall be under any liability on any Note or otherwise to any Account, the
Sponsor, the Trust, the Master Servicer or any Securityholder for any action
taken or for refraining from the taking of any action in good faith pursuant to
this Indenture, or for errors in judgment; provided, however, that this
provision shall not protect the Indenture Trustee or any such Person against any
liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or bad faith in the performance of duties or by reason
of reckless disregard of obligations and duties hereunder. Subject to the
foregoing sentence, the Indenture Trustee shall not be liable for losses on
investments of amounts in any Account (except for any losses on obligations on
which the bank serving as Indenture Trustee is the obligor. The indemnification
provided in this Section 6.7 shall survive the termination of this Indenture or
the resignation or removal of the Indenture Trustee hereunder. The Indenture
Trustee and any director, officer, employee or agent of the Indenture Trustee
may rely and shall be protected in acting or refraining from acting in good
faith on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the Authorized Officer of any Person
respecting any matters arising hereunder.
(b) The Trust's obligations to the Indenture Trustee pursuant
to this Section shall survive the discharge of this Indenture. Notwithstanding
anything else set forth in this Indenture or the Operative Documents, the
Indenture Trustee agrees that the obligations of the Trust (but not the Master
Servicer) to the Indenture Trustee hereunder and under the Operative Documents
shall be recourse to the Trust Estate only and specifically shall not be
recourse to the assets of the Trust or any Securityholder. In addition, the
Indenture Trustee agrees that its recourse to the Trust, the Trust Estate, the
Sponsor and amounts held in the Accounts shall be limited to the right to
receive the distributions referred to herein.
SECTION 6.8. Replacement of Indenture Trustee.
The Indenture Trustee may resign at any time by so notifying the Trust and
the Note Insurer by written notice. Upon receiving such notice of resignation,
the Trust shall promptly appoint a successor Indenture Trustee (approved in
writing by the Note Insurer, so long as such approval is not unreasonably
withheld) by written instrument, in duplicate, one copy of such instrument shall
be delivered to the resigning Indenture Trustee (who shall deliver a copy to the
Master Servicer)
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and one copy to the successor Indenture Trustee; provided, however, that any
such successor Indenture Trustee shall be subject to the prior written approval
of the Master Servicer, which approval shall not be unreasonably withheld. The
Trust may and, at the request of the Note Insurer shall, remove the Indenture
Trustee, if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect of
the Indenture Trustee in an involuntary case or proceeding under
federal or state banking or bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, shall have entered a decree or order
granting relief or appointing a receiver, liquidator, assignee,
custodian, Indenture Trustee, conservator, sequestrator (or similar
official) for the Indenture Trustee or for any substantial part of the
Indenture Trustee's property, or ordering the winding-up or liquidation
of the Indenture Trustee's affairs;
(iii) an involuntary case under the federal bankruptcy laws,
as now or hereafter in effect, or another present or future federal or
state bankruptcy, insolvency or similar law is commenced with respect
to the Indenture Trustee and such case is not dismissed within 60 days;
(iv) the Indenture Trustee commences a voluntary case under
any federal or state banking or bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian,
Indenture Trustee, conservator, sequestrator (or other similar
official) for the Indenture Trustee or for any substantial part of the
Indenture Trustee's property, or makes any assignment for the benefit
of creditors or fails generally to pay its debts as such debts become
due or takes any corporate action in furtherance of any of the
foregoing; or
(v) 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
Trust shall promptly appoint a successor Indenture Trustee acceptable to the
Note Insurer. If the Trust fails to appoint such a successor Indenture Trustee,
the Note Insurer may appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee, to the Note
Insurer and to the Trust. 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 retiring 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
30 days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Trust or the
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Holders of a majority in Outstanding Amount of the Notes may petition any court
of competent jurisdiction for the appointment of a successor Indenture Trustee
acceptable to the Note Insurer.
If the Indenture Trustee fails to comply with Section 6.11,
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 Note Insurer.
Any resignation or removal of the Indenture Trustee and
appointment of a successor Indenture Trustee pursuant to any of the provisions
of this Section shall not become effective until acceptance of appointment by
the successor Indenture Trustee pursuant to Section 6.8 and payment of all fees
and expenses owed to the outgoing Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee
pursuant to this Section, the Trust's and the Master Servicer's indemnity
obligations under Section 6.7 shall continue for the benefit of the retiring
Indenture Trustee and the Master Servicer shall pay any amounts owing to the
Indenture Trustee.
SECTION 6.9. Successor Indenture Trustee by Merger.
If the Indenture Trustee consolidates with, merges or converts into, or
transfers all or substantially all its corporate trust business or assets to,
another corporation or banking association, the resulting, surviving or
transferee corporation without any further act shall be the successor Indenture
Trustee.
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 Indenture 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 Trust may at the time be located, the Indenture Trustee
with the consent of the Note Insurer shall have the power and may execute and
deliver all instruments to appoint one or more Persons to act as a co-Indenture
Trustee or co-Indenture Trustees, or separate Indenture Trustee or separate
Indenture Trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity and for the benefit of the Noteholders, such title
to the Trust, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee may consider necessary or desirable. No co-Indenture Trustee or separate
Indenture Trustee hereunder shall be required to meet the terms of eligibility
as a successor Indenture Trustee under Section 6.11 and no notice to Noteholders
of the appointment
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of any co-Indenture Trustee or separate Indenture Trustee shall be required
under Section 6.8 hereof.
(b) Every separate Indenture Trustee and co-Indenture Trustee
shall, to the extent permitted by law, be appointed and act subject to the
following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
Indenture Trustee or co-Indenture Trustee jointly (it being understood
that such separate Indenture Trustee or co-Indenture 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 Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate Indenture Trustee or co-Indenture Trustee, but solely at the
direction of the Indenture Trustee;
(ii) no Indenture Trustee hereunder shall be personally liable
by reason of any act or omission of any other Indenture Trustee
hereunder, including acts or omissions of predecessor or successor
Indenture Trustees; and
(iii) the Indenture Trustee and the Master Servicer acting
jointly may at any time accept the resignation of or remove any
separate Indenture Trustee or co-Indenture Trustee except that
following the occurrence of an Event of Servicer Termination, the
Indenture Trustee acting alone may accept the resignation of or remove
any separate Indenture Trustee or co-Indenture 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 Indenture Trustees and co-Indenture Trustees, as effectively as if
given to each of them. Every instrument appointing any separate Indenture
Trustee or co-Indenture Trustee shall refer to this Agreement and the conditions
of this Article VI. Each separate Indenture Trustee and co-Indenture Trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, 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 Indenture Trustee or co-Indenture 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 Indenture Trustee or co-Indenture Trustee shall die, dissolve, become
insolvent, 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 Indenture Trustee.
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(e) The Master Servicer shall be responsible for the fees of
any co-Indenture Trustee or separate Indenture Trustee appointed hereunder.
SECTION 6.11. Eligibility: Disqualification.
The Indenture Trustee shall at all times satisfy the requirements of TIA
Section 310(a). The Indenture Trustee shall have a combined capital and surplus
of at least $50,000,000 as set forth in its most recent published annual report
of condition. The Indenture Trustee shall provide copies of such reports to the
Note Insurer upon request. 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 Trust are outstanding if the requirements for such exclusion
set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against the
Trust.
The Indenture Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). An Indenture Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
SECTION 6.13. Appointment and Powers.
Subject to the terms and conditions hereof, each of the Trust Secured
Parties hereby appoints [INDENTURE TRUSTEE] as the Indenture Trustee with
respect to the Collateral, and [INDENTURE TRUSTEE] hereby accepts such
appointment and agrees to act as Indenture Trustee with respect to the Trust
Estate for the Trust Secured Parties, to maintain custody and possession of such
Trust Estate (except as otherwise provided hereunder) and to perform the other
duties of the Indenture Trustee in accordance with the provisions of this
Indenture and the other Operative Documents. Each Issuer Secured Party hereby
authorizes the Indenture Trustee to take such action on its behalf, and to
exercise such rights, remedies, powers and privileges hereunder, as the Control
Party may direct and as are specifically authorized to be exercised by the
Indenture Trustee by the terms hereof, together with such actions, rights,
remedies, powers and privileges as are reasonably incidental thereto. The
Indenture Trustee shall act upon and in compliance with the written instructions
of the Control Party delivered pursuant to this Indenture promptly following
receipt of such written instructions; provided that the Indenture Trustee shall
not act in accordance with any instructions (i) which are not authorized by, or
in violation of the provisions of, this Indenture or (ii) for which the
Indenture Trustee has not received reasonable indemnity. Receipt of such
instructions shall not be a condition to the exercise by the Indenture Trustee
of its express duties hereunder, except where this Indenture provides that the
Indenture Trustee is permitted to act only following and in accordance with such
instructions.
SECTION 6.14. Performance of Duties.
The Indenture Trustee shall have no duties or responsibilities except those
expressly set forth in this Indenture and the other Operative Documents to which
the Indenture Trustee is a party or as directed by the Control Party in
accordance with this Indenture. The Indenture Trustee shall not be required to
take any discretionary actions hereunder except at the written direction and
with the indemnification of the Control Party. The Indenture Trustee shall, and
hereby agrees
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that it will, perform all of the duties and obligations required of it under the
Sale and Servicing Agreement.
SECTION 6.15. Limitation on Liability.
Neither the Indenture Trustee nor any of its directors, officers, employees
and agents shall be liable for any action taken or omitted to be taken by it or
them hereunder, or in connection herewith, except that the Indenture Trustee
shall be liable for its negligence, bad faith or willful misconduct; nor shall
the Indenture Trustee be responsible for the validity, effectiveness, value,
sufficiency or enforceability against the Trust of this Indenture or any of the
Trust Estate (or any part thereof).
SECTION 6.16. Reliance Upon Documents.
In the absence of negligence, bad faith or willful misconduct on its part,
the Indenture Trustee shall be entitled to rely on any communication,
instrument, paper or other document reasonably believed by it to be genuine and
correct and to have been signed or sent by the proper Person or Persons and
shall have no liability in acting, or omitting to act, where such action or
omission to act is in reasonable reliance upon any statement or opinion
contained in any such document or instrument.
SECTION 6.17. Representations and Warranties of the Indenture
Trustee.
The Indenture Trustee represents and warrants to the Trust and to each
Issuer Secured Party as follows:
(a) Due Organization. The Indenture Trustee is a national
banking association, duly organized, validly existing and in good standing under
the laws of the United States and is duly authorized and licensed under
applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Indenture Trustee has all requisite
right, power and authority to execute and deliver this Indenture and to perform
all of its duties as the Indenture Trustee hereunder.
(c) Due Authorization. The execution and delivery by the
Indenture Trustee of this Indenture and the other Operative Documents to which
it is a party, and the performance by the Indenture Trustee of its duties
hereunder and thereunder, have been duly authorized by all necessary corporate
proceedings, are required for the valid execution and delivery by the Indenture
Trustee, or the performance by the Indenture Trustee, of this Indenture and such
other Operative Documents.
(d) Valid and Binding Indenture. The Indenture Trustee has
duly executed and delivered this Indenture and each other Operative Document to
which it is a party, and each of this Indenture and each such other Operative
Document constitutes the legal, valid and binding obligation of the Indenture
Trustee, enforceable against the Indenture Trustee in accordance with its terms,
except as (i) such enforceability may be limited by bankruptcy, insolvency,
reorganization and similar laws relating to or affecting the enforcement of
creditors'
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rights generally and (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability.
SECTION 6.18. Waiver of Setoffs.
The Indenture Trustee hereby expressly waives any and all rights of setoff
that the Indenture Trustee may otherwise at any time have under applicable law
with respect to any Account and agrees that amounts in the Accounts shall at all
times be held and applied solely in accordance with the provisions hereof.
SECTION 6.19. Control by the Control Party.
The Indenture Trustee shall comply with notices and instructions given by
the Trust only if accompanied by the written consent of the Control Party.
SECTION 6.20. Indenture Trustee May Enforce Claims Without
Possession of Notes.
All rights of action and claims under this Agreement or the Notes may be
prosecuted and enforced by the Indenture Trustee without the possession of any
of the Notes or the production thereof in any proceeding relating thereto, and
such proceeding instituted by the Indenture Trustee shall be brought in its own
name or in its capacity as Indenture Trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursement and advances of the Indenture Trustee, its agents and counsel, be
for the ratable benefit of the Noteholders in respect of which such judgment has
been recovered.
SECTION 6.21. Suits for Enforcement.
In case an Event of Servicer Termination or other default by the Master
Servicer or the Sponsor hereunder shall occur and be continuing, the Indenture
Trustee, if the Control Party (and if not the Control Party, with the consent of
the Note Insurer), may proceed to protect and enforce its rights and the rights
of the Noteholders under this Agreement by a suit, action or proceeding in
equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution of
any power granted in this Agreement or for the enforcement of any other legal,
equitable or other remedy, as the Indenture Trustee, being advised by counsel,
shall deem most effectual to protect and enforce any of the rights of the
Indenture Trustee and the Noteholders.
SECTION 6.22. Mortgagor Claims.
In connection with any offset defenses, or affirmative claim for recovery,
asserted in legal actions brought by Mortgagors under one or more Mortgage Loans
based upon provisions therein or upon other rights or remedies arising from any
requirements of law applicable to the Mortgage Loans:
(a) The Indenture Trustee is the holder of the Mortgage Loans
only as Indenture Trustee on behalf of the holders of the Notes, and not as a
principal or in any individual or personal capacity.
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(b) The Indenture Trustee shall not be personally liable for,
or obligated to pay Mortgagors, any affirmative claims asserted thereby, or
responsible to holders of the Notes for any offset defense amounts applied
against Mortgage Loan payments, pursuant to such legal actions.
(c) The Indenture Trustee will pay, solely from available
Trust money, affirmative claims for recovery by Mortgagors only pursuant to
final judicial orders or judgments, or judicially-approved settlement
agreements, resulting from such legal actions.
(d) The Indenture Trustee will comply with judicial orders and
judgments which require its actions or cooperation in connection with
Mortgagors' legal actions to recover affirmative claims against holders of the
Notes.
(e) The Indenture Trustee will cooperate with and assist the
Master Servicer, the Sponsor, or holders of the Notes in their defense of legal
actions by Mortgagors to recover affirmative claims if such cooperation and
assistance is not contrary to the interests of the Indenture Trustee as a party
to such legal actions and if the Indenture Trustee is satisfactorily indemnified
for all liability, costs and expenses arising therefrom.
(f) The Trust hereby agrees to cause the Master Servicer to
indemnify, hold harmless and defend the Indenture Trustee from and against any
and all liability, loss, costs and expenses of the Indenture Trustee resulting
from any affirmative claims for recovery asserted or collected by Mortgagors
under the Mortgage Loans.
ARTICLE VII.
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1. The Trust to Furnish to Indenture Trustee Names
and Addresses of Noteholders.
The Trust 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 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 Trust 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 Registrar,
the Trust shall furnish to the Note Insurer or the Trust in writing upon their
written request and at such other times as the Note Insurer or the Trust may
request a copy of the list.
SECTION 7.2. 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 contained
in the most recent list furnished to the Indenture Trustee as provided in
Section 7.1 and the names and addresses of Holders
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received by the Indenture Trustee in its capacity as Note Registrar. The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.1 upon receipt of a new list so furnished.
(b) 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 Trust, the Indenture Trustee and the Note Registrar
shall have the protection of TIA Section 312(c).
SECTION 7.3. Reports by the Trust.
(a) The Trust shall:
(i) file with the Indenture Trustee, within 15 days after the
Trust is required to file the same with the Commission, copies of the
annual reports and copies of the information, documents and other
reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe)
which the Trust 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 and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Trust 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 Trust pursuant to clauses (i) and
(ii) of this Section 7.3(a) as may be required by rules and regulations
prescribed from time to time by the Commission.
(b) Unless the Trust otherwise determines, the fiscal year of
the Trust shall end on December 31 of each year.
SECTION 7.4. Reports by Indenture Trustee.
If required by TIA Section 313(a), within 60 days after each December 31,
beginning with December 31, ____, the Indenture Trustee shall mail to each
Noteholder as required by TIA Section 313(c) a brief report dated as of such
date that complies with TIA Section 313(a). The 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
stock exchange, if any, on which the Notes are listed. The Trust shall notify
the Indenture Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII.
PAYMENTS AND STATEMENTS TO
NOTEHOLDERS AND CERTIFICATEHOLDERS;
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1. Collection of Money.
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 and the Sale and Servicing Agreement including (a)
all payments due on the Mortgage Loans and required to be paid over to the
Indenture Trustee by the Master Servicer or by any Sub-Servicer and (b) Insured
Payments. The Indenture Trustee shall apply all such money received by it as
provided in this Indenture and the Sale and Servicing Agreement. Except as
otherwise expressly provided in this Indenture or in the Sale and Servicing
Agreement, if any default occurs in the making of any payment or performance
under any agreement or instrument that is part of the Trust Estate, the
Indenture Trustee may take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
proceedings.
SECTION 8.2. Release of Trust Estate.
(a) Subject to Section 8.12 and the payment of its fees and
expenses pursuant to Section 6.7, the Indenture Trustee may, and when required
by the Trust and the provisions of this Indenture shall, execute instruments to
release property from the lien of this Indenture, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture or
the Sale and Servicing Agreement. No party relying upon an instrument executed
by the Indenture Trustee as provided in this Article VIII shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as there are no
Notes outstanding and all sums due the Indenture Trustee pursuant to Section 6.7
and to the Note Insurer pursuant to the Insurance Agreement have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture and release to the Trust or any other Person entitled
thereto any funds then on deposit in the Accounts. The Indenture Trustee shall
release property from the lien of this Indenture pursuant to this Section 8.2(b)
only upon receipt of an Issuer Request accompanied by an Officer's Certificate,
an Opinion of Counsel and (if required by the TIA) Independent Certificates in
accordance with TIA Sections 314(c) and 314(d)(1) meeting the applicable
requirements of Section 11.1.
SECTION 8.3. Establishment of Accounts.
The Trust shall cause to be established, and the Indenture Trustee shall
maintain, at the corporate trust office of the Indenture Trustee, a Note
Account, a Pre-Funding Account and a
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Capitalized Interest Account, each to be held by the Indenture Trustee in the
name of the Trust for the benefit of the Noteholders and the Note Insurer, as
their interests may appear.
SECTION 8.4. The Note Policy.
(a) On or before each Determination Date the Indenture Trustee
shall determine with respect to the immediately following Payment Date, the
Deficiency Amount, if any.
(b) If the Indenture Trustee determines pursuant to paragraph
(a) above that a Deficiency Amount would exist, the Indenture Trustee shall
complete a Notice in the form of Exhibit A to the Note Policy and submit such
notice to the Note Insurer no later than 12:00 p.m., New York City time on the
third Business Day preceding such Payment Date as a claim for a payment in an
amount equal to the Deficiency Amount.
(c) Upon receipt of payments made pursuant to the Note Policy
from the Note Insurer on behalf of Noteholders, the Indenture Trustee shall
deposit such payments in the Note Account and shall distribute such payments, or
the proceeds thereof, in accordance with Section 8.7(b) hereof to the
Noteholders.
(d) The Indenture Trustee shall (i) receive payments made
pursuant to the Note Policy as attorney-in-fact of each Noteholder receiving any
Insured Payment from the Note Insurer and (ii) disburse such Insured Payment to
the Noteholders as set forth in Section 8.7(b) hereof. The Note Insurer shall be
entitled to receive the related Reimbursement Amount pursuant to Section
8.7(b)(viii) hereof with respect to each Insured Payment made by the Note
Insurer. The Indenture Trustee hereby agrees on behalf of each Noteholder and
the Trust for the benefit of the Note Insurer that it recognizes that to the
extent the Note Insurer makes payments pursuant to the Note Policy, either
directly or indirectly (as by paying through the Indenture Trustee), to the
Noteholders, the Note Insurer will be entitled to receive such related
Reimbursement Amount.
SECTION 8.5. Reserved.
SECTION 8.6. Pre-Funding Account and Capitalized Interest
Account.
(a) On the Closing Date, the Indenture Trustee will deposit
from the proceeds of the sale of the Notes, on behalf of the Noteholders and the
Note Insurer, in the Pre-Funding Account, the Original Pre-Funded Amount and in
the Capitalized Interest Account, the Capitalized Interest Account Deposit.
(b) On each Subsequent Transfer Date, the Sponsor shall
instruct the Indenture Trustee to withdraw from the Pre-Funding Account an
amount equal to 100% of the aggregate Loan Balances of the Subsequent Mortgage
Loans transferred to the Trust on such Subsequent Transfer Date and pay such
amount to or upon the order of the Sponsor upon satisfaction of the conditions
set forth in Section 2.4 of the Sale and Servicing Agreement with respect to
such transfer.
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(c) On the Payment Dates occurring in __________ and ________,
the Indenture Trustee shall transfer from the Pre-Funding Account to the Note
Account, the Pre-Funding Earnings needed to pay interest on the portion of the
Notes collateralized by amounts in the Pre-Funding Account, if any, applicable
to each such Payment Date. On the Payment Dates occurring in __________ and
________, the Indenture Trustee shall distribute directly to the holders of the
Certificates the Pre-Funding Earnings not used to pay interest on the portion of
the Notes collateralized by amounts in the Pre-Funding Account, if any,
applicable to such Payment Date.
(d) [Reserved].
(e) On each Payment Date occurring in __________ and ________,
the Indenture Trustee shall transfer from the Capitalized Interest Account to
the Note Account the Capitalized Interest Requirement, if any, for such Payment
Dates.
(f) On the Payment Date occurring in ________, any amounts
remaining in the Capitalized Interest Account after taking into account the
transfers on such Payment Date described in clause (d) above shall be paid to
the holders of the Certificates, and the Capitalized Interest Account shall be
closed.
(g) If (x) the Pre-Funded Amount has not been reduced to zero
by the Payment Date occurring in ________ or (y) the Pre-Funded Amount has been
reduced to $100,000 or less on any Remittance Date occurring during the
Pre-Funding Period, in either case after giving effect to any reductions in the
Pre-Funded Amount on or before the related such Remittance Date, the Sponsor
shall instruct the Indenture Trustee to withdraw from the Pre-Funding Account on
such Remittance Date and deposit to the Note Account the difference, if any,
between (A) the Original Pre-Funded Amount and (B) all amounts theretofore
withdrawn from the Pre-Funding Account with respect to Subsequent Mortgage
Loans.
SECTION 8.7. Flow of Funds.
(a) The Indenture Trustee shall deposit to the Note Account,
without duplication, upon receipt, (i) any payments made pursuant to the Note
Policy relating to the Trust, (ii) the proceeds of any liquidation of the assets
of the Trust, (iii) the Monthly Remittance Amount remitted by the Master
Servicer or any Sub-Servicer, together with any Substitution Amounts, and any
Loan Purchase Price amounts received by the Indenture Trustee, (iv) on the
Payment Dates occurring in ________ or ________, the Pre-Funding Earnings
transferred by the Indenture Trustee pursuant to Section 8.6(c) hereof, (v) the
Capitalized Interest Requirement to be transferred on such Payment Dates from
the Capitalized Interest Account, pursuant to Section 8.6(e) hereof and (vi) the
portion of the amount, if any, to be transferred on such Payment Date from the
Pre-Funding Account, pursuant to Section 8.6(g) hereof (collectively, the "Total
Available Funds").
(b) Subject to any superseding provisions of clause (d) below,
on each Payment Date, the Indenture Trustee shall make the following
allocations, disbursements and transfers from amounts then on deposit in the
Note Account in the following order of priority,
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and each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) first, to the Indenture Trustee, the Indenture Trustee's
Fee then due and to the Owner Trustee, the Owner Trustee's Fee then
due;
(ii) second, to the Note Insurer, the Premium Amount then due
to the Note Insurer for such Payment Date.
(iii) third, to the Master Servicer, an amount equal to any
previously unreimbursed Servicing Fees then due to it on account of the
Unaffiliated Originator Loans not theretofore received by the Master
Servicer pursuant to Section 4.8(c)(i) of the Sale and Servicing
Agreement, as reported by the Master Servicer to the Indenture Trustee.
(iv) fourth, to the Noteholders, the Interest Distribution
Amount for such Payment Date;
(v) fifth, to the Noteholders, as a distribution of principal,
the Scheduled Principal Distribution Amount for such Payment Date;
(vi) sixth, to the Noteholders, as a distribution of
principal, the related Overcollateralization Deficit for such Payment
Date;
(vii) seventh, if such Payment Date is the last Payment Date
in the Pre-Funding Period, to the Noteholders, as a distribution of
principal, any amount remaining in the Pre-Funding Account (after
taking into account all transfers of Subsequent Mortgage Loans on or
prior to such Payment Date);
(viii) eighth, to the Note Insurer, the Reimbursement Amount,
if any, then due to it;
(ix) ninth, to the Noteholders, as a distribution of
principal, up to an amount equal to the Accelerated Principal Payment;
(x) tenth, to the Noteholders, to fund the amount of any
Available Funds Cap Current Amount for such Payment Date;
(xi) eleventh, to the Noteholders, to fund the amount of any
Available Funds Cap Carry Forward Amount for such Payment Date;
(xii) twelfth, to the Master Servicer, to the extent of any
unreimbursed Delinquency Advances, unreimbursed Servicing Advances,
including Nonrecoverable Delinquency Advances and Nonrecoverable
Servicing Advances and accrued and unpaid Servicing Fees as of such
Payment Date;
(xiii) thirteenth, to the Indenture Trustee and the Owner
Trustee, to the extent of any unreimbursed expenses owed to each of
them with respect to the Trust;
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(xiv) fourteenth, to the Certificateholders, any
Overcollateralization Reduction Amount; and
(xv) fifteenth, to the Certificateholders, any amount
remaining on deposit in the Note Account.
(c) Reserved.
(d) On any Payment Date during the continuance of any Note
Insurer Default described in clause (b) or (c) of the definition thereof:
No Premium Amount shall be paid to the Note Insurer (unless
the Note Insurer or its custodian, Indenture Trustee, agent, receiver,
custodian, or similar official continues to make payments required under the
Note Policy) and any amounts otherwise payable to the Note Insurer as Premium
Amounts shall be retained in the Note Account as Total Available Funds. On any
Payment Date wherein such Note Insurer Default has been cured, the Premium
Amounts shall be paid to the Note Insurer.
SECTION 8.8. Investment of Accounts.
(a) So long as no event described in Section 5.1(a) or (b) of
the Sale and Servicing Agreement shall have occurred and be continuing, and
consistent with any requirements of the Code, all or a portion of the Accounts
held by the Indenture Trustee (other than each Principal and Interest Account
shall be invested and reinvested by the Indenture Trustee in the name of the
Indenture Trustee for the benefit of the Noteholders and the Note Insurer, as
directed in writing by the Master Servicer, in one or more Eligible Investments
bearing interest or sold at a discount. During the continuance of an event
described in Section 5.1(a) or (b) of the Sale and Servicing Agreement and
following any removal of the Master Servicer, the Note Insurer shall direct such
investments. All investment income shall be held in the Accounts for the benefit
of the Master Servicer. No investment in any Account shall mature later than the
Business Day immediately preceding the next Payment Date.
(b) If any amounts are needed for disbursement from any
Account held by the Indenture Trustee and sufficient uninvested funds are not
available to make such disbursement, the Indenture Trustee shall cause to be
sold or otherwise converted to cash a sufficient amount of the investments in
such Account. No investments will be liquidated prior to maturity unless the
proceeds thereof are needed for disbursement.
(c) The Indenture Trustee shall not in any way be held liable
by reason of any insufficiency in any Account held by the Indenture Trustee
resulting from any loss on any Eligible Investment included therein.
(d) The Indenture Trustee shall hold funds in the Accounts
held by the Indenture Trustee uninvested upon the occurrence of either of the
following events:
(i) the Master Servicer or the Note Insurer, as the case may
be, shall have failed to give investment directions to the Indenture
Trustee; or
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(ii) the Master Servicer or the Note Insurer, as the case may
be, shall have failed to give investment directions to the Indenture
Trustee by 11:15 a.m. New York time (or such other time as may be
agreed by the Master Servicer or the Note Insurer, as the case may be,
and the Indenture Trustee) on any Business Day (any such investment by
the Indenture Trustee pursuant to this clause (ii) to mature on the
next Business Day after the date of such investment).
SECTION 8.9. Eligible Investments.
The following are Eligible Investments:
(a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.
(b) Federal Housing Administration debentures and rated Aa2 or
higher by Moody's and AA or better by Standard & Poor's if applicable.
(c) Freddie Mac senior debt obligations and rated Aa2 or
higher by Moody's and AA or better by Standard & Poor's, if applicable .
(d) Federal Home Loan Banks' consolidated senior debt
obligations and rated Aa2 or higher by Moody's and AA or better by Standard &
Poor's if applicable.
(e) FNMA senior debt obligations and rated Aa2 or higher by
Moody's and AA or better by Standard & Poor's, if applicable.
(f) Federal funds, certificates of deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by Standard & Poor's and P-1 by Moody's.
(g) Investment agreements approved by the Note Insurer
provided:
1. The agreement is with a bank or insurance company
which has an unsecured, uninsured and unguaranteed obligation
(or claims-paying ability) rated Aa2 or better by Moody's and
AA or better by Standard & Poor's and
2. Monies invested thereunder may be withdrawn
without any penalty, premium or charge upon not more than one
day's notice (provided such notice may be amended or canceled
at any time prior to the withdrawal date), and
3. The agreement is not subordinated to any other
obligations of such insurance company or bank, and
4. The same guaranteed interest rate will be paid on
any future deposits made pursuant to such agreement, and
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5. The Indenture Trustee and the Note Insurer receive
an opinion of counsel that such agreement is an enforceable
obligation of such insurance company or bank.
(h) Commercial paper (having original maturities of not more
than 365 days) rated A-1 or better by Standard & Poor's and P-1 or better by
Moody's.
(i) Investments in money market funds rated AAAm or AAAm-G by
Standard & Poor's and Aaa or P-1 by Moody's.
(j) Investments approved in writing by the Certificate Insurer
and acceptable to Moody's and Standard & Poor's;
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity.
SECTION 8.10. Reports by Indenture Trustee.
(a) On each Payment Date, to the extent that the related
report described in Section 4.8(d)(ii) of the Sale and Servicing Agreement has
been received by the Indenture Trustee, the Indenture Trustee shall provide to
each Noteholder, to the Master Servicer, to the Note Insurer, to the
Underwriter, to the Sponsor, to Standard & Poor's and to Moody's a written
report in substantially the form set forth as Exhibit B hereto, as such form may
be revised by the Indenture Trustee, the Master Servicer, Moody's and Standard &
Poor's from time to time, but in every case setting forth the information
requested on Exhibit B hereto and the following information:
(i) the Scheduled Principal Distribution Amount;
(ii) the amount of such distributions allocable to principal
separately identifying the aggregate amount of any Prepayments or other
unscheduled recoveries of principal included therein;
(iii) the amount of such distributions allocable to interest;
(iv) the amount of any Interest Carry Forward Amount;
(v) the amount of any Insured Payment included in the amounts
distributed to the Notes on such Payment Date;
(vi) information furnished by the Sponsor pursuant to Section
6049(d)(7)(C) of the Code and the regulations promulgated thereunder to
assist the Noteholders in computing their market discount;
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(vii) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution;
(viii) for Payment Dates during the Pre-Funding Period, the
remaining Pre-Funded Amount;
(ix) for the final Subsequent Transfer Date, the amount of any
remaining Pre-Funded Amount that has not been used to fund the purchase
of Subsequent Mortgage Loans and that will be distributed to the
Noteholders as principal, if any, on the immediately following Payment
Date;
(x) the amounts, if any, of any Realized Losses for the
related Remittance Period; and
(xi) the Pool Cumulative Realized Losses (x) as a percentage
of the average Pool Principal Balance as of the close of business on
the last day of each of the twelve preceding Remittance Periods and (y)
as a percentage of the Original Aggregate Loan Balance; and
(xii) the Note Principal Balance and the Pool Factor, each
after giving effect to such distribution of principal on such Payment
Date;
(xiii) the aggregate Loan Balances of all Mortgage Loans after
giving effect to any payment of principal on such Payment Date both in
the aggregate and in each Trust.
(xiv) the weighted average Coupon Rate of the Mortgage Loans
with respect to the Trust;
(xv) the amount of any Available Funds Cap Current Amount and
Available Funds Cap Carry Forward Amount;
(xvi) the Overcollateralization Deficit; and
(xvii) the amount of the Accelerated Principal Payment, if
any, for the related Payment Date.
(xviii) the amount by aggregate principal balance of Mortgage
Loans repurchased for the previous period and the cumulative number of
Mortgage Loans repurchased to date pursuant to Section 3.3(b) of the
Sale and Servicing Agreement.
Items (i) through (iii) above shall, with respect to each
Note, be presented on the basis of a Note having a $1,000 denomination. In
addition, by January 31 of each calendar year following any year during which
the Notes are outstanding, the Indenture Trustee shall furnish a report to each
holder of record at any time during each calendar year as to the aggregate of
amounts reported pursuant to (i), (ii) and (iii) with respect to the Notes for
such calendar year.
(b) In addition, on each Payment Date the Indenture Trustee
will distribute to each Noteholder, to the Note Insurer, to the Underwriter, to
the Master Servicer, to the Sponsor,
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to Standard & Poor's and to Moody's, together with the information described in
Subsection (a) preceding, the following information as of the close of business
on the last Business Day of the prior calendar month, which is hereby required
to be prepared by the Master Servicer and furnished to the Indenture Trustee for
such purpose on or prior to the related Remittance Date:
(i) the total number of Mortgage Loans and the Loan Balances
thereof in the Trust, together with the number, aggregate Loan Balances
of such Mortgage Loans and the percentage (based on the aggregate Loan
Balance of the Mortgage Loans) of the aggregate Loan Balance of such
Mortgage Loans to the aggregate Loan Balance of all Mortgage Loans (a)
30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90 or more
days Delinquent;
(ii) the number, aggregate Loan Balances of all Mortgage Loans
and percentage (based on the aggregate Loan Balance of the Mortgage
Loans) of the aggregate Loan Balance of such Mortgage Loans to the
aggregate Loan Balance of all Mortgage Loans in foreclosure proceedings
(and whether any such Mortgage Loans are also included in any of the
statistics described in the foregoing clause (i));
(iii) the number, aggregate Loan Balances of all Mortgage
Loans and percentage (based on the aggregate Loan Balance of the
Mortgage Loans) of the aggregate Loan Balance of such Mortgage Loans to
the aggregate Loan Balance of all Mortgage Loans relating to Mortgagors
in bankruptcy proceedings (and whether any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause
(i));
(iv) the number, aggregate Loan Balances of all Mortgage Loans
and percentage (based on the aggregate Loan Balance of the Mortgage
Loans) of the aggregate Loan Balance of such Mortgage Loans to the
aggregate Loan Balance of all Mortgage Loans relating to REO Properties
(and whether any such Mortgage Loans are also included in any of the
statistics described in the foregoing clause (i)); and
(v) the loan number of the related Mortgage Loan and the book
value of any REO Property.
(c) The foregoing reports shall be sent be to a Noteholder
only insofar as such holder possesses a Note.
(d) The Sponsor and the Master Servicer, on behalf of
Noteholders and the Trust (the "Trust Parties") hereby authorize the Indenture
Trustee to include the loan level information with respect to the Mortgage
Loans, excluding any information relating to the fees or amounts due to the Note
Insurer, contained in reports provided to the Note Insurer or the Indenture
Trustee by the Master Servicer hereunder and, if so directed by an Authorized
Officer of the Sponsor in writing to the Indenture Trustee, the monthly report
in the Form of Exhibit F to the Noteholders prepared by the Indenture Trustee
(the "Information") on The Bloomberg, an on-line computer based information
network maintained by Bloomberg L.P. ("Bloomberg") or on any other on-line
computer based information network or service ("Information Network"), or in
other electronic or print information services deemed acceptable by the Sponsor
or the Master
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Servicer as designated in writing to the Indenture Trustee by an Authorized
Officer of the Master Servicer. The Trust Parties agree not to commence any
actions or proceedings, or otherwise assert any claims, against the Indenture
Trustee or its affiliates or any of the Indenture Trustee's or its affiliates'
respective agents, representatives, directors, officers or employees
(collectively, the "Designated Parties"), arising out of, or related to or in
connection with the dissemination and/or use of any Information by the Indenture
Trustee, including, but not limited to, claims based on allegations of
inaccurate or incomplete information by the Indenture Trustee to Bloomberg or to
any Information Network or otherwise (other than in connection with the
Indenture Trustee's negligence or willful misconduct). The Trust Parties waive
their rights to assert any such claims against the Designated Parties and fully
and finally release the Designated Parties from any and all such claims,
demands, obligations, actions and liabilities (other than in connection with
such Designated Parties' negligence or willful misconduct). The Indenture
Trustee makes no representations or warranties, expressed or implied, of any
kind whatsoever with respect to the accuracy, adequacy, timeliness,
completeness, merchantability or fitness for any particular purpose of any
Information in any form or manner. The authorizations, covenants and obligations
of the Trust Parties under this section shall be irrevocable and shall survive
the termination of this Agreement.
SECTION 8.11. Additional Reports by Indenture Trustee.
(a) The Indenture Trustee shall report to the Sponsor, the
Master Servicer and the Note Insurer with respect to the amount then held in
each Account (including investment earnings accrued or scheduled to accrue) held
by the Indenture Trustee and the identity of the investments included therein,
as the Sponsor, the Master Servicer or the Note Insurer may from time to time
request. Without limiting the generality of the foregoing, the Indenture Trustee
shall, at the request of the Sponsor, the Master Servicer or the Note Insurer,
transmit promptly to the Sponsor, the Master Servicer and the Note Insurer
copies of all accounting of aggregate receipts in respect of the Mortgage Loans
furnished to it by the Master Servicer pursuant to Section 4.8(d)(ii) of the
Sale and Servicing Agreement and shall notify the Sponsor, the Master Servicer
and the Note Insurer if any such receipts have not been received by the
Indenture Trustee.
(b) From time to time, at the request of the Note Insurer, the
Indenture Trustee shall report to the Note Insurer with respect to its actual
knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
Section 3.3(a) of the Sale and Servicing Agreement. On the date that is eighteen
months after the Closing Date, the Indenture Trustee shall provide the Note
Insurer with a written report of all of such inaccuracies to such date of which
it has actual knowledge, without independent investigation, and of the action
taken by the Sponsor under Section 3.4(b) of the Sale and Servicing Agreement
with respect thereto.
SECTION 8.12. Opinion of Counsel.
The Indenture Trustee shall receive at least seven days' notice when
requested by the Trust to take any action pursuant to Section 8.2(a),
accompanied by copies of any instruments involved, and the Indenture Trustee
shall also require as a condition to such action, an Opinion of Counsel, stating
the legal effect of any such action, outlining the steps required to complete
the same, and
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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 or the Note Insurer in
contravention of the provisions of this Indenture; provided, however, that such
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Trust Estate. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Indenture Trustee in connection with any such
action.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent of
Noteholders.
(a) Without the consent of the Holders of any Notes but with
the consent of the Note Insurer, as evidenced to the Indenture Trustee, the
Trust and the Indenture Trustee, when authorized by an Issuer Order, at any time
and from time to time, may enter into one or more indentures supplemental hereto
(which shall conform to the provisions of the Trust Indenture Act as in force at
the date of the execution thereof), in form satisfactory to the Indenture
Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Trust, and the
assumption by any such successor of the covenants of the Trust herein
and in the Notes contained;
(iii) to add to the covenants of the Trust, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Trust;
(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 which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not adversely affect the
interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor Indenture 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 Indenture Trustee, pursuant to the
requirements of Article VI; or
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(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 Trust and the Indenture Trustee, when authorized by an
Issuer Order, may, also without the consent of any of the Holders of the Notes
but with the prior written consent of the Note Insurer and with prior notice to
the Rating Agencies by the Trust, as evidenced to 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 such action
shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Noteholder.
SECTION 9.2. Supplemental Indentures with Consent of
Noteholders.
The Trust and the Indenture Trustee, when authorized by an Issuer Order,
also may, with prior notice to the Rating Agencies, with the consent of the Note
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 Trust 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, subject to the express rights of the Note Insurer under the
Operative Documents, no such supplemental indenture shall, without the consent
of the Holder of each Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof, the
interest rate thereon or the Redemption Price with respect thereto,
change the provision of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Trust Estate to
payment of principal of or interest on the Notes, or change any place
of payment where, or the coin or currency in which, any Note or the
interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of
the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption
Date);
(iii) reduce the percentage of the Outstanding 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;
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(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(v) reduce the percentage of the Outstanding Notes required to
direct the Indenture Trustee to direct the Trust to sell or liquidate
the Trust Estate pursuant to Section 12.1;
(vi) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the Operative Documents cannot be
modified or waived without the consent of the Holder of each
Outstanding Note affected thereby;
(vii) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(viii) permit the creation of any lien ranking prior to or on
a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein or in any of the Operative Documents, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the
Holder of any Note of the security provided by the lien of this
Indenture.
The Indenture Trustee may determine whether or not any Notes
would be adversely affected by any supplemental indenture upon receipt of an
Opinion of Counsel to that effect 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.
It shall not be necessary for any Act of Noteholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
Promptly after the execution by the Trust and the Indenture
Trustee of any supplemental indenture pursuant to this Section, 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. Any failure of the Indenture Trustee
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
SECTION 9.3. Execution of Supplemental Indentures.
In executing, or permitting the additional trusts created by, any
supplemental indenture permitted by this Article IX or the modifications thereby
of the trusts created by this Indenture, the Indenture Trustee shall be entitled
to receive, and subject to Sections 6.1 and 6.2, shall be fully protected in
relying upon, an Opinion of Counsel (and, if requested, an Officer's
Certificate) 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
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supplemental indenture that affects the Indenture Trustee's own rights, duties,
liabilities or immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indenture.
Upon the execution of any supplemental indenture pursuant to the provisions
hereof, this Indenture shall be and be deemed to be modified and amended in
accordance therewith with respect to the Notes affected thereby, and the
respective rights, limitations of rights, obligations, duties, liabilities and
immunities under this Indenture of the Indenture Trustee, the Trust 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 9.5. Conformity With Trust Indenture Act.
Every amendment of this Indenture and every supplemental indenture executed
pursuant to this Article IX shall conform to the requirements of the Trust
Indenture Act as then in effect so long as this Indenture shall then be
qualified under the Trust Indenture Act.
SECTION 9.6. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and if required by the Indenture
Trustee shall, bear a notation in form approved by the Indenture Trustee as to
any matter provided for in such supplemental indenture. If the Trust or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the Indenture Trustee and the Trust, to any such supplemental
indenture may be prepared and executed by the Trust and authenticated and
delivered by the Indenture Trustee in exchange for Outstanding Notes.
SECTION 9.7. Amendment.
(a) The Indenture Trustee, the Sponsor, the Trust and the
Master Servicer, may at any time and from time to time, with the prior written
consent of the Note Insurer but without the giving of notice to or the receipt
of the consent of the Noteholders, amend this Agreement, and the Indenture
Trustee shall consent to such amendment, for the purpose of curing any
ambiguity, or correcting or supplementing any provision hereof which may be
inconsistent with any other provision hereof; or to add provisions hereto which
are not inconsistent with the provisions hereof; provided, however, that any
such action shall not, as evidenced by an opinion of counsel delivered to the
Indenture Trustee, materially and adversely affect the interests of any Owner
(without its written consent).
(b) The Indenture Trustee, the Sponsor, the Trust and the
Master Servicer may, at any time and from time to time, with the prior written
consent of the Note Insurer but without the giving of notice to or the receipt
of the consent of the Noteholders, amend this Agreement, and the Indenture
Trustee shall consent to such amendment, for the purpose of changing the
definitions of "Specified Overcollateralization Amount"; provided, however, that
no such change shall affect the weighted average life of the Notes (assuming an
appropriate
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prepayment speed as determined by the Underwriter with respect to the Notes by
more than five percent, as determined by the Underwriter).
(c) This Agreement may also be amended by the Indenture
Trustee, the Sponsor, the Trust and the Master Servicer at any time and from
time to time, with the prior written approval of the Note Insurer and not less
than a majority of the Percentage Interest represented by the Notes then
Outstanding, for the purpose of adding any provisions 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 hereunder; provided, however, that no such
amendment shall (a) change in any manner the amount of, or change the timing of,
payments which are required to be distributed to any Noteholders without the
consent of the Noteholders, (b) reduce the aforesaid percentages of Percentage
Interests which are required to consent to any such amendments or (c) result in
a down-rating or withdrawal of any ratings then assigned to the Notes, without
the consent of all Noteholders then Outstanding.
ARTICLE X.
REDEMPTION OF NOTES
SECTION 10.1. Redemption.
(a) The Notes are subject to redemption following the later of
(A) the Payment Date following payment in full of all amounts owing to the Note
Insurer and (B) the earliest of (i) the transfer, under the conditions specified
in Section 10.1(b), to the Master Servicer of the Noteholders' interest in each
Mortgage Loan and all property acquired in respect of any Mortgage Loan
remaining in the Trust for an amount equal to the sum of (a) the Note Principal
Balance and (b) the sum of accrued and unpaid Interest Distribution Amount
through the day preceding the final Payment Date, (ii) the day following the
Payment Date on which the distribution made to Noteholders has reduced the Note
Principal Balance to zero and no other amounts are owed to the Noteholders,
(iii) the final payment or other liquidation of the last Mortgage Loan remaining
in the Trust (including, without limitation, the disposition of the Mortgage
Loan pursuant to Section 12.1 hereof) or the disposition of all property
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan
and (iv) the Payment Date in _________; provided, however, that in no event
shall the trust created hereby continue beyond the expiration of 21 years from
the date of death of the last surviving descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James, living on the
date hereof. Upon termination in accordance with clause (B)(i) of this Section
10.1(a), the Indenture Trustee shall execute such documents and instruments of
transfer presented by the Sponsor, in each case without recourse, representation
or warranty, and take such other actions as the Sponsor may reasonably request
to effect the transfer of the Mortgage Loan to the Sponsor.
(b) The Notes shall be subject to optional redemption by the
Master Servicer, acting directly or through one or more affiliates, or the
Certificateholder, or, in the event that the Master Servicer or the
Certificateholder do not exercise such option, the Note Insurer, on any Payment
Date after the Note Principal Balance has been reduced to an amount less than or
equal to $___________ (10% of the Original Note Principal Balance) and all
amounts due and owing to the Note Insurer pursuant to the Insurance Agreement
have been paid. Such transfer shall
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only be permitted if the Master Servicer, acting directly or through one or more
of affiliates, the Certificateholder or the Note Insurer delivers to the
Indenture Trustee an amount equal to the sum of the outstanding Note Principal
Balance and accrued and unpaid interest thereon at the Note Interest Rate
through the day preceding the final Payment Date plus all Reimbursement Amounts.
In connection with such purchase, the Master Servicer shall remit to the
Indenture Trustee all amounts then on deposit in the Principal and Interest
Account for deposit to the Note Account, which deposit shall be deemed to have
occurred immediately preceding such purchase.
(c) Promptly following any such purchase, the Indenture
Trustee will release the Files to the Master Servicer, or otherwise upon their
order, in a manner similar to that described in Section 4.14 of the Sale and
Servicing Agreement.
(d) Advanta National Bank may not participate in any purchase
described in this Section 10.1(b), or fund any portion of the purchase price,
unless the then-outstanding Principal Balances of the Mortgage Loans in the
Trust Estate is less than or equal to five percent of the sum of the aggregate
Loan Balances of all Mortgage Loans in the Trust Estate as of the Initial
Cut-Off Date and the Original Pre-Funded Amount.
(e) If the Notes are to be redeemed pursuant to this Section
10.1(a), the Master Servicer or the Trust shall furnish notice of such election
to the Indenture Trustee not later than 45 days prior to the Redemption Date and
the Trust shall deposit with the Indenture Trustee in the Note Account the
Redemption Price of the Notes not less than five Business Days prior to the
Redemption Date whereupon all such Notes shall be due and payable on the
Redemption Date upon the furnishing of a notice complying with Section 10.2.
SECTION 10.2. Surrender of Notes.
(a) Notice of any termination, specifying the Payment Date
(which shall be a date that would otherwise be a Payment Date) upon which the
Noteholders may surrender their Notes to the Indenture Trustee for payment of
the final distribution and cancellation, shall be given promptly by the
Indenture Trustee (upon receipt of written directions from the Sponsor, if the
Sponsor is exercising its right to transfer of the Mortgage Loans, given not
later than the first day of the month preceding the month of such final
distribution) to the Note Insurer and to the Master Servicer and by letter to
Noteholders mailed not earlier than the 15th day and not later than the 25th day
of the month next preceding the month of such final distribution specifying (i)
the Payment Date upon which final distribution of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the Indenture
Trustee therein designated, (ii) the amount of any such final distribution and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, distributions being made only upon presentation and surrender of the
Notes at the office or agency of the Indenture Trustee therein specified.
(b) Any money held by the Indenture Trustee in trust for the
payment of any amount due with respect to any Note and remaining unclaimed by
the related Noteholder for the period then specified in the escheat laws of the
State of New York after such amount has become due and payable shall be
discharged from such trust and be paid first, to the Note Insurer on account of
any Reimbursement Amounts, and second, to the Certificateholders; and such
Noteholder shall thereafter, as an unsecured general creditor, look only to the
Note Insurer or the
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Certificateholders for payment thereof (but only to the extent of the amounts so
paid to the Note Insurer or the Certificateholders), and all liability of the
Indenture Trustee with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee, before being required to make any
such payment, shall at the expense of the Trust cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed and that, after a date specified therein, which shall be not fewer
than 30 days from the date of such publication, any unclaimed balance of such
money then remaining will be paid to the Note Insurer or the Certificateholders.
The Indenture Trustee shall, at the direction of the Sponsor, also adopt and
employ, at the expense of the Trust, any other reasonable means of notification
of such payment (including, but not limited to, mailing notice of such payment
to Noteholders whose right to or interest in monies due and payable but not
claimed is determinable from the Note Register at the last address of record for
each such Noteholder).
SECTION 10.3. Form of Redemption Notice.
Notice of redemption supplied to the Indenture Trustee by the Master
Servicer under Section 10.1(a) shall be given by the Indenture Trustee by
facsimile or by first-class mail, postage prepaid, transmitted or mailed prior
to the applicable Redemption Date to each Holder of Notes of record, as of the
close of business on the date which is not less than 5 days prior to the
applicable Redemption Date, at such Holder's address appearing in the Note
Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments shall be made only
upon presentation and surrender of such Notes at the place where such
Notes are to be surrendered for payment of the Redemption Price (which
shall be the office or agency of the Trust to be maintained as provided
in Section 3.2); and
(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the
Indenture Trustee in the name and at the expense of the Trust. Failure to give
notice of redemption, or any defect therein, to any Holder of any Note shall not
impair or affect the validity of the redemption of any other Note.
SECTION 10.4. Notes Payable on Redemption Date.
The Notes to be redeemed shall, following notice of redemption as required
by Section 10.2, on the Redemption Date become due and payable at the Redemption
Price and (unless the Trust shall default in the payment of the Redemption
Price) no interest shall accrue on the Redemption Price for any period after the
date to which accrued interest is calculated for purposes of calculating the
Redemption Price.
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ARTICLE XI.
MISCELLANEOUS
SECTION 11.1. Compliance Certificates and Opinions, etc.
Upon any application or request by the Trust to the Indenture Trustee to
take any action under any provision of this Indenture, the Trust shall furnish
to the Indenture Trustee and to the Note Insurer if the application or request
is made to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
SECTION 11.2. Form of Documents Delivered to Indenture
Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the
Trust 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
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certificate or opinion or representations with respect to the matters upon which
his or her certificate or opinion is based are erroneous. Any such certificate
of an Authorized Officer or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Master Servicer, the Sponsor or the Trust,
stating that the information with respect to such factual matters is in the
possession of the Master Servicer, the Sponsor or the Trust, 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 Trust
shall deliver any document as a condition of the granting of such application,
or as evidence of the Trust'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 Trust 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 conclusively rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Article VI.
SECTION 11.3. Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly required,
to the Trust. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.1) conclusive in
favor of the Indenture Trustee and the Trust, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any customary manner of the
Indenture Trustee.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the Holder
of every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done,
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omitted or suffered to be done by the Indenture Trustee or the Trust in reliance
thereon, whether or not notation of such action is made upon such Note.
SECTION 11.4. Notices, etc. to Indenture Trustee, the Trust
and Rating Agencies.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Noteholders or other documents provided or permitted by this Indenture to
be made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder or by the Trust
shall be sufficient for every purpose hereunder if personally delivered,
delivered by overnight courier or mailed first-class and shall be deemed to have
been duly given upon receipt to the Indenture Trustee at its Corporate Trust
Office and any notice delivered by facsimile shall be addressed to the Corporate
Trust Office, telecopy number [TELECOPIER NUMBER], or
(b) The Trust by the Indenture Trustee or by any Noteholder
shall be in writing and shall be sufficient for every purpose hereunder if
personally delivered, delivered by facsimile or overnight courier or mailed
first class, and shall deemed to have been duly given upon receipt to the Trust
addressed to: Advanta Mortgage Loan Trust ____-_, in care of [OWNER TRUSTEE],
[ADDRESS], or at any other address previously furnished in writing to the
Indenture Trustee by the Trust. The Trust shall promptly transmit any notice
received by it from the Noteholders to the Indenture Trustee.
(c) The Sponsor or the Master Servicer by the Indenture
Trustee shall be in writing and shall be sufficient for every purpose hereunder
if personally delivered, delivered by facsimile or overnight courier or mailed
first class and shall be deemed to have been duly given upon receipt to the
Sponsor or the Master Service addressed to:
Advanta Conduit Receivables, Inc.
10790 Rancho Bernardo Road
San Diego, CA 92127
Advanta Mortgage Corp. USA
10790 Rancho Bernardo Road
San Diego, CA 92127
or such other address previously furnished in writing to the Indenture Trustee
by Sponsor or Master Services.
(d) The Note Insurer by the Trust or the Indenture Trustee
shall be sufficient for any purpose hereunder if in writing and mailed by
first-class mail, personally delivered, or telecopied to the recipient as
follows:
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To the Note Insurer:
[ADDRESS]
Notices required to be given to the Rating Agencies by the
Trust, the Indenture Trustee or the Owner Trustee shall be in writing,
personally delivered, delivered by overnight courier or first class or via
facsimile to (i) in the case of Moody's, at the following address: Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10004, Fax No:
(212) 533-0355 and (ii) in the case of Standard & Poor's, at the following
address: Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York,
New York 10004, Attention: Asset Backed Surveillance Department, Fax No: (212)
412-0224; or as to each of the foregoing, at such other address as shall be
designated by written notice to the other parties.
SECTION 11.5. Notices to Noteholders; Waiver.
Where this Indenture provides for notice to Noteholders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class, postage prepaid to each Noteholder
affected by such event, at his address as it appears on the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Noteholders is given
by mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Noteholder shall affect the sufficiency of such notice
with respect to other Noteholders, and any notice that is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by 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 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.
SECTION 11.6. Alternate Payment and Notice Provisions.
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Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Trust may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Indenture Trustee or any
Note Paying Agent to such Holder, that is different from the methods provided
for in this Indenture for such payments or notices, provided that such methods
are reasonable and consented to by the Indenture Trustee (which consent shall
not be unreasonably withheld). The Trust will furnish to the Indenture Trustee a
copy of each such agreement and the Indenture Trustee will cause payments to be
made and notices to be given in accordance with such agreements.
SECTION 11.7. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof that is required to be included in this indenture by any of the
provisions of the Trust Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose
duties on any person (including the provisions automatically deemed included
herein unless expressly excluded by this Indenture) are a part of and govern
this Indenture, whether or not physically contained herein.
SECTION 11.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.9. Successors and Assigns.
All covenants and agreements in this Indenture and the Notes by the Trust
shall bind its successors and assigns, whether so expressed or not. All
agreements of the Indenture Trustee in this Indenture shall bind its successors.
SECTION 11.10. Separability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.11. Benefits of Indenture.
The Note Insurer and its successors and assigns shall be a third-party
beneficiary to the provisions of this Indenture, and shall be entitled to rely
upon and directly to enforce such provisions of this 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 Note Insurer and the
Noteholders, and any other party secured hereunder, and any other person with an
ownership interest in any part of the Trust Estate, any benefit or any legal or
equitable right, remedy or claim under this Indenture. The Note Insurer may
disclaim any of its rights and powers under this Indenture (in which case the
Indenture Trustee may exercise such right or
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power hereunder), but not its duties and obligations under the Note Policy, upon
delivery of a written notice to the Indenture Trustee.
SECTION 11.12. Legal Holidays.
In any case where the date on which any payment is due shall not be a
Business Day, then (except as otherwise provided by 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 11.13. GOVERNING LAW.
THIS INDENTURE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. Counterparts.
This Indenture may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.15. Recording of Indenture.
If this Indenture is subject to recording in any appropriate public
recording offices, such recording is to be effected by the Trust and at its
expense accompanied by an Opinion of Counsel (which may be counsel to the Trust
or any other counsel reasonably acceptable to the Indenture Trustee and the Note
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 11.16. Trust Obligation.
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Trust, the Sponsor, any Originator, the Master Servicer, the
Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or
any certificate or other writing delivered in connection herewith or therewith,
against (i) the Sponsor, any Originator, the Master Servicer, the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Trust or (iii) any partner, owner, beneficiary,
agent, officer, director, employee or agent of the Sponsor, any Originator, the
Master Servicer, the Indenture Trustee or the Owner Trustee in its individual
capacity, any holder of a beneficial interest in the Trust, the Sponsor, any
Originator, the Master Servicer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Sponsor, any Originator, the Master Servicer,
the Indenture Trustee or the Owner Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such owner or beneficiary shall be
fully liable, to the
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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 Trust hereunder, the Owner Trustee shall be subject
to, and entitled to the benefits of, the terms and provisions of Articles VI,
VII and VIII of the Trust Agreement.
SECTION 11.17. 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 Sponsor, or the Trust, or join in any institution
against the Sponsor, or the Trust of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, this Indenture or any of the Operative
Documents.
SECTION 11.18. Inspection.
The Trust agrees that, on reasonable prior notice, it will permit any
representative of the Indenture Trustee or of the Note Insurer, during the
Trust's normal business hours, to examine all the books of account, records,
reports, and other papers of the Trust, to make copies and extracts therefrom,
to cause such books to be audited by independent certified public accountants,
and to discuss the Trust's affairs, finances and accounts with the Trust's
officers, employees, and independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its Obligations hereunder.
SECTION 11.19. Limitation of Liability.
It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by [OWNER TRUSTEE], not individually or
personally but solely as Owner Trustee of the Trust under the Trust Agreement,
in the exercise of the powers and authority conferred and vested in it, (b) each
of the representations, undertakings and agreements herein made on the part of
the Trust is made and intended not as personal representations, undertakings and
agreements by [OWNER TRUSTEE] but is made and intended for the purpose for
binding only the Trust, (c) nothing herein contained shall be construed as
creating any liability on [OWNER TRUSTEE] individually or personally, to perform
any covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties to this Agreement and by any
person claiming by, through or under them and (d) under no circumstances shall
[OWNER TRUSTEE] be personally liable for the payment of any indebtedness or
expenses of the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaking by the Trust under this
Agreement or any related documents.
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ARTICLE XII.
EVENTS OF DEFAULT
SECTION 12.1. Events of Default.
The following shall constitute Events of Default:
(a) failure on the part of the Trust (i) to make a payment or
deposit required under the Sale and Servicing Agreement within five Business
Days after the date such payment or deposit is required to be made or (ii) to
observe or perform in any material respect any other covenants or agreements of
the Trust set forth in the Sale and Servicing Agreement, which failure continues
unremedied for a period of 60 days after written notice;
(b) any representation or warranty made by the Sponsor in the
Sale and Servicing Agreement proves to have been incorrect in any material
respect when made and continues to be incorrect in any material respect for a
period of 60 days after written notice and as a result of which the interests of
the Holders or the Note Insurer are materially and adversely affected; provided,
however, that a Event of Default shall not be deemed to occur if the Sponsor has
purchased or made a substitution for the related Mortgage Loan or Mortgage Loans
if applicable during such period (or within an additional 60 days with the
consent of the Indenture Trustee and the Note Insurer) in accordance with the
provisions of the related Sale and Servicing Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency
or receivership relating to the Sponsor or the Master Servicer;
(d) the Trust becomes subject to regulation by the Securities
and Exchange Commission as an investment company within the meaning of the
Investment Company Act of 1940, as amended;
(e) the occurrence of an Event of Servicer Termination;
(f) default in the payment of any interest, principal or any
installment of principal on any Note when the same becomes due and payable, and
such default continues for a period of five days; and
(g) on any Payment Date, the failure to pay interest at the
Note Formula Capped Rate.
In the case of any event described in clause (a), (b), (e) or
(g), an Event of Default will be deemed to have occurred only if, after the
applicable grace period, if any, described herein or in the related Indenture or
Sale and Servicing Agreement either (i) the Indenture Trustee or Holders holding
Notes evidencing at least 50% of the aggregate principal amount of the Notes
with the consent of the Note Insurer (so long as there is no continuing default
by the Note Insurer in the performance of its obligations under the Note Policy)
or the Note Insurer (so long as there is no continuing default by the Note
Insurer in the performance of its obligations under the Note Policy), by written
notice to the Note Insurer, the Sponsor, the Rating Agencies, and the Master
Servicer
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(and to the Indenture Trustee, if given by the Holders or the Note Insurer)
declare that an Event of Default has occurred as of the date of such notice. In
the case of any event described in clause (c), (d) or (f), an Event of Default
will be deemed to have occurred without any notice or other action on the part
of the Indenture Trustee, the Noteholders or the Note Insurer immediately upon
the occurrence of such event.
In addition to the consequences of an Event of Default
discussed above, unless otherwise instructed within 60 days by the Noteholders
representing undivided interests aggregating more than 50% of the aggregate
principal amount of the Notes, the Indenture Trustee will sell, dispose of or
otherwise liquidate the Trust Estate in a commercially reasonable manner and on
commercially reasonable terms. Any such sale, disposal or liquidation and such
sale, disposal or liquidation will be "servicing retained" by the Master
Servicer. The net proceeds of such sale will first (if a Note Insurer Default
shall not have occurred and be continuing) be paid to the Note Insurer to the
extent of unreimbursed draws under the Note Policy and other amounts owing to
the Note Insurer. The amount required to reduce the Note Principal Balance,
together with all accrued and unpaid interest due thereon, to zero will be
distributed to the Holders of the Notes; the Note Policy will guarantee and pay
in full any amount by which such remaining net proceeds are insufficient to pay
the Note Principal Balance in full.
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IN WITNESS WHEREOF, the Trust and the Indenture Trustee have
caused this Indenture to be duly executed by their respective officers, hereunto
duly authorized, all as of the day and year first above written.
ADVANTA MORTGAGE LOAN TRUST ____-_
By: [OWNER TRUSTEE], not in its individual capacity
but solely as Owner Trustee,
By:____________________________________________
Name:
Title:
[INDENTURE TRUSTEE], not in its individual capacity
but solely as Indenture Trustee,
By:____________________________________________
Name:
Title:
<PAGE> 91
EXHIBIT A
[Form of Note]
REGISTERED $________
No. A
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. _________
Unless this Note is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange or payment, and any Note issued
is registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET
FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY
TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
ADVANTA MORTGAGE LOAN TRUST ____-_
MORTGAGE BACKED NOTES
Advanta Mortgage Loan Trust ____-_, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of ($___________), such amount payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $___________ and the denominator of which is
$___________ by (ii) the aggregate amount, if any, payable from the Note Account
in respect of principal on the Notes pursuant to Section 8.7 of the Indenture;
provided, however, that the entire unpaid principal amount of this Note shall be
due and payable on the __________, Payment Date (the "Final Scheduled Payment
Date"). The Trust will pay interest on this Note at the rate per annum provided
in the Indenture on each Payment Date until the principal of this Note is paid
or made available for payment, on the principal amount of this Note outstanding
on the preceding Payment Date (after giving effect to all payments of principal
made on the preceding Payment Date). Interest on this Note will accrue for each
Payment Date from the most recent Payment Date on which interest has been paid
to but excluding such Payment Date or, if no interest has yet been paid, from
[DATE]. Interest will be computed on
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the basis of the actual number of days elapsed in a 360-day year. Such principal
of and interest on this Note shall be paid in the manner specified on the
reverse hereof.
The principal of and interest on this Note are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. All payments made by the
Trust 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.
The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by _________________ (the "Note
Insurer"), pursuant to which the Note Insurer has unconditionally guaranteed
payments of the Insured Payments on each Payment Date, all as more fully set
forth in the Indenture.
For purposes of federal income, state and local income and
franchise and any other income taxes, the Trust will treat the Notes as
indebtedness of the Trust and hereby instructs the Indenture Trustee to treat
the Notes as indebtedness of the Trust for federal and state tax reporting
purposes.
Each Noteholder or Note Owner, by acceptance of this Note or,
in the case of a Note Owner, a beneficial interest in a Note, covenants and
agrees that no recourse may be taken, directly or indirectly, with respect to
the obligations of the Trust, 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 Sponsor, any Originator, the Master
Servicer, the Indenture Trustee, or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Trust or (iii) any
owner, beneficiary, agent, officer, director or employee of the Sponsor, any
Originator, the Master Servicer, the Indenture Trustee, or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Trust, the
Sponsor, any Originator, the Master Servicer, the Owner Trustee or the Indenture
Trustee or of any successor or assign of the Sponsor, any Originator, the Master
Servicer, the Indenture Trustee, or the Owner Trustee in its individual
capacity, except as any such Person may have expressly agreed (it being
understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such 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.
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.
Each Note Owner, by acceptance of a beneficial interest in a
Note, shall be deemed to represent either (i) that it is not (A) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is
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subject to the provisions of Title I of ERISA or (B) a plan (as defined in
Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the
"Code")) that is subject to Section 4975 of the Code (each of the foregoing, a
"Benefit Plan"), and is not acting on behalf of or investing the assets of a
Benefit Plan, or (ii) that its acquisition and continued holding of a beneficial
interest in the Note will be covered by a U.S. Department of Labor Prohibited
Transaction Class Exemption.
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<PAGE> 94
IN WITNESS WHEREOF, the Trust has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: [DATE] ADVANTA MORTGAGE LOAN TRUST ____-_
By: [OWNER TRUSTEE], not in its individual capacity
but solely as Owner Trustee under the Trust
Agreement
By:____________________________________________
Name:
Title:
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<PAGE> 95
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in
the within-mentioned Indenture.
Date: [DATE] [INDENTURE TRUSTEE], not in its individual capacity
but solely as Indenture Trustee
By:________________________________________________
Authorized Signatory
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<PAGE> 96
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the
Trust, designated as its Mortgage Backed Notes (herein called the "Notes"), all
issued under an Indenture dated as of [DATE] (such indenture, as supplemented or
amended, is herein called the "Indenture"), between the Trust and [INDENTURE
TRUSTEE], as Indenture Trustee (the "Indenture Trustee", which term includes any
successor Indenture Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights and obligations thereunder of the Trust, the Indenture Trustee
and the Holders of the Notes. The Notes are subject to all terms of the
Indenture. All terms used in this Note that are defined in the Indenture, as
supplemented or amended, shall have the meanings assigned to them in or pursuant
to the Indenture, as so supplemented or amended.
The Notes are and 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 twenty-fifth
day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing __________. The term "Payment Date," shall
be deemed to include the Final Scheduled Payment Date.
As described above, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the Final Scheduled Payment Date
and the Redemption Date, if any, pursuant to Section 10.1(a) of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable if the Sponsor or Master Servicer voluntarily files a
bankruptcy petition or goes into liquidation or any person is appointed a
receiver or bankruptcy trustee of the Sponsor or Master Servicer and the
Indenture Trustee or the Holders of the Notes representing at least 50% of the
Outstanding Amount of the Notes shall have the right to direct the Indenture
Trustee to sell or liquidate the Trust Estate as provided in Section 5.1 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
Noteholders 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 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
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<PAGE> 97
unpaid principal amount of this Note on a Payment Date, then the Indenture
Trustee, in the name of and on behalf of the Trust, will notify the Person who
was the Holder hereof as of the Record Date preceding such Payment Date by
notice mailed prior to such Payment Date and the amount then due and payable
shall be payable only upon presentation and surrender of this Note at the
Indenture Trustee's principal Corporate Trust Office or at the office of the
Indenture Trustee's agent appointed for such purposes located in The City of New
York.
The Trust shall pay interest on overdue installments of
interest at the Note Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed
pursuant to Section 10.1(b) of the Indenture at the option of the
Certificateholders, on any Payment Date on or after the date on which the Note
Principal Balance is less than or equal to 10% of the Original Note 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 Trust pursuant to the Indenture, (i) 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 his
attorney duly authorized in writing, with such signature guaranteed by an
"eligible guarantor institution" meeting the requirements of the Note Registrar
which requirements include membership or participation in Securities Transfer
Agents Medallion Program ("Stamp") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, Stamp, all in accordance with the Exchange Act, and (ii) accompanied by
such other documents as the Indenture Trustee may require, and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or exchange of this
Note, but the transferor may be required to pay a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
registration of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in
the case of a Note Owner, a beneficial interest in a Note covenants and agrees
that no recourse may be taken, directly or indirectly, with respect to the
obligations of the Trust, 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 Sponsor, any Originator, the Master
Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity,
(ii) any owner of a beneficial interest in the Trust or (iii) any owner,
beneficiary, agent, officer, director or employee of the Sponsor, any
Originator, the Master Servicer, the Indenture Trustee or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Trust, the
Sponsor, any Originator, the Master Servicer, the Owner Trustee or the Indenture
Trustee or of any successor or assign of the Sponsor, any Originator, the Master
Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such owner or beneficiary shall be
fully liable, to the
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<PAGE> 98
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
that by accepting the benefits of the Indenture that such Noteholder will not at
any time institute against the Sponsor, or the Trust or join in any institution
against the Sponsor, or the Trust of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Operative Documents.
Prior to the due presentment for registration of transfer of
this Note, the Trust, the Indenture Trustee and the Note Insurer and any agent
of the Trust, the Indenture Trustee or the Note Insurer may treat the Person in
whose name this Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Trust, the
Indenture Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Trust and the rights of the Holders of the Notes under the
Indenture at any time by the Trust with the consent of the Note Insurer and of
the Holders of Notes representing a majority of the Outstanding Amount of all
Notes at the time Outstanding. Any such consent or waiver by the Holder of this
Note (or any one of more Predecessor Notes) shall be conclusive and binding upon
such Holder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder but with the consent of the Note Insurer.
The term "Issuer" as used in this Note includes any successor
to the Trust 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 Trust,
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 Indenture or the Operative Documents, neither [OWNER
TRUSTEE] in its individual
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<PAGE> 99
capacity, any owner of a beneficial interest in the Trust, nor any of their
respective beneficiaries, agents, officers, directors, employees or successors
or assigns shall be personally liable for, nor shall recourse be had to any of
them for, the payment of principal of or interest on, or performance of, or
omission to perform, any of the covenants, obligations or indemnifications
contained in this Note or the Indenture, it being expressly understood that said
covenants, obligations and indemnifications have been made by the Trust for the
sole purposes of binding the interests of the Trust in the assets of the Trust.
The Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Indenture or the Operative 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 Trust for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
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<PAGE> 100
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.
(1)
Dated:______________________________ ______________________________
Signature Guaranteed:
____________________________________ ______________________________
- --------
(1) NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
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<PAGE> 1
EXHIBIT 4.6
- -------------------------------------------------------------------------------
MASTER LOAN TRANSFER AGREEMENT
Dated as of [_____________, _____]
by and among
ADVANTA MORTGAGE CORP. USA
ADVANTA MORTGAGE CORP. MIDATLANTIC
ADVANTA MORTGAGE CORP. MIDATLANTIC II
ADVANTA MORTGAGE CORP. MIDWEST
ADVANTA MORTGAGE CORP. OF NEW JERSEY
ADVANTA MORTGAGE CORP. NORTHEAST
ADVANTA NATIONAL BANK
ADVANTA BANK CORP.
ADVANTA FINANCE CORP.,
as Affiliated Originators
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
as an Affiliate
[TRUSTEE],
as Trustee
and
ADVANTA CONDUIT RECEIVABLES, INC.,
as Sponsor
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions..........................................................................1
Section 2. Interest Calculations................................................................4
Section 3. Transfers of Mortgage Loans..........................................................4
Section 4. Representations, Warranties and Covenants Regarding the Affiliated
Originators and the Sponsor..........................................................4
Section 5. Representations and Warranties of the Affiliated Originators
Regarding the Mortgage Loans.........................................................8
Section 6. Authorized Representatives..........................................................14
Section 7. Notices.............................................................................14
Section 8. Governing Law.......................................................................15
Section 9. Assignment..........................................................................15
Section 10. Counterparts........................................................................15
Section 11. Amendment...........................................................................15
Section 12. Severability of Provisions..........................................................15
Section 13. No Agency; No Partnership or Joint Venture..........................................15
Section 14. Further Assurances..................................................................15
Section 15. The Certificate Insurer.............................................................15
Section 16. Maintenance of Records..............................................................16
</TABLE>
<PAGE> 3
THIS MASTER LOAN TRANSFER AGREEMENT, dated as of [____________, _____],
between Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta
Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage
Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta Mortgage Conduit
Services, Inc., Advanta Finance Corp., Advanta Bank Corp. and Advanta National
Bank, each a seller (each an "Affiliated Originator" and collectively, the
"Affiliated Originators"), Advanta Mortgage Conduit Services, Inc. (the
"Affiliate"), [Trustee], as trustee ("Trustee") and Advanta Conduit Receivables,
Inc., as sponsor ("Sponsor");
I. BACKGROUND
A. Each Affiliated Originator is an originator or purchaser of mortgage
loans which such Affiliated Originator may, from time to time, convey to a
Warehouse Trust;
B. The Affiliated Originators and the Sponsor expect, from time to
time, to cause such mortgage loans to be conveyed to an Advanta Trust in
connection with a securitization transaction sponsored by the Sponsor.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto hereby agree as follows:
Section 1. Definitions.
Whenever used in this Agreement or in any Conveyance Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Section; provided, however, that any capitalized
terms used herein or in any conveyance Agreement and not defined herein shall
have their respective meanings as set forth in the related Advanta Pooling
Agreement.
Advanta Pooling Agreement: Any Pooling and Servicing Agreement entered
into by Advanta Conduit Receivables, Inc. as Sponsor, Advanta Mortgage Corp.
USA, as Master Servicer and a trustee or any Sale and Servicing Agreement
entered into by Advanta Conduit Receivables, Inc., as Sponsor, Advanta Mortgage
Corp. USA, as Master Servicer, an Advanta Trust and an indenture trustee, as
either may be amended and supplemented from time to time by the parties thereto
Advanta Trust: A securitization trust created by the Sponsor into which
Mortgage Loans described in this Agreement and the Conveyance Agreements are
deposited, including the Conduit Acquisition Trust.
Agreement: This Master Loan Transfer Agreement as it may be amended
from time to time, including the exhibits and supplements hereto.
<PAGE> 4
Bulk Acquisition Loan: Any Mortgage Loan purchased by an Affiliated
Originator from another Originator (other than any other Affiliated Originator)
as part of a bulk portfolio acquisition.
Conduit Acquisition P&S: The Pooling and Servicing Agreement dated as
of May 1, 1997, as amended, by and between Advanta Mortgage Conduit Services
Inc. and the Trustee relating to the Conduit Acquisition Trust.
Conduit Acquisition Trust: The trust created pursuant to the Conduit
Acquisition P&S.
Conveyance Agreement: Any conveyance agreement relating to a Pool, in
substantially the form set forth as Exhibit A hereto.
Coupon Rate: The rate of interest borne by each Note.
Cut-Off Date: With respect to any Pool, as defined in the related
Conveyance Agreement.
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
File: The documents delivered to the Trustee pursuant to the document
delivery provisions of the Conduit Acquisition P&S pertaining to a particular
Mortgage Loan, together with any additional documents required to be added to
the File pursuant to the Conduit Acquisition P&S.
First Mortgage Loan: A Mortgage Loan which constitutes a first priority
mortgage lien with respect to any Property.
FNMA: The Federal National Mortgage Association, a federally-chartered
and privately-owned corporation existing under the Federal National Mortgage
Association Charter Act, as amended, or any successor thereof.
Junior Mortgage Loan: A Mortgage Loan which constitutes a junior
priority mortgage lien with respect to the related Property.
Junior Lien: With respect to any Junior Mortgage Loan, the mortgage
loan relating to the corresponding Property having a senior priority lien.
Loan Balance: With respect to each Mortgage Loan, the outstanding
principal balance thereof on the related Cut-Off Date, less any related
Principal Remittance Amounts relating to such Mortgage Loan included in previous
related
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<PAGE> 5
Monthly Remittance Amounts that were transferred by the Master Servicer or any
Sub-Servicer to the Trustee for deposit in the related Certificate Account.
Master Servicer: Advanta Mortgage Corp. USA, a Delaware corporation,
and its permitted successors and assigns.
Mortgage Loans: Each of the mortgage loans subject hereto, together
with any Qualified Replacement Mortgages substituted therefor in accordance with
the related Advanta Pooling Agreement.
Note: The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Mortgage Loan.
Offered Certificates: Any securities issued by an Advanta Trust which
are not retained by the Sponsor, any affiliate of the Sponsor or any Originator.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool: Any group of Mortgage Loans transferred to the Sponsor and/or to
an Advanta Trust pursuant to a specific Conveyance Agreement.
Property: The underlying property securing a Mortgage Loan.
Qualified Mortgage: "Qualified Mortgage" shall have the meaning set
forth from time to time in the definition thereof at Section 860G(a)(3) of the
Code (or any successor statute thereto) and applicable to the related Advanta
Trust.
Schedules of Mortgage Loans: The Schedules of Mortgage Loans required
to be delivered pursuant to the related Advanta Pooling Agreement.
Trustee: [Trustee], located on the date of execution of this Agreement
at [Address], a [Type of Organization], not in its individual capacity but
solely as Trustee, and any successor hereunder.
Unaffiliated Originator Loan: Any Mortgage Loan purchased by an
Affiliated Originator from an Unaffiliated Originator.
Unaffiliated Originators: Any Originator not affiliated with the
Sponsor.
Warehouse Trust: Any trust established by an affiliate of the Sponsor
to finance the origination of mortgage loans, including, without limitation, the
Conduit Acquisition Trust.
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<PAGE> 6
Section 2. Interest Calculations.
Calculations of interest hereunder, including, without limitation,
calculations of interest at the Coupon Rate, which are made in respect of the
Loan Balance of a Mortgage Loan shall be made on a daily basis using any of the
following (i) a 360-day year comprised of twelve 30-day months, (ii) a 360-day
year and the actual number of days elapsed in the applicable interest period, or
(iii) a 365-day year and the actual number of days elapsed in the applicable
interest period, as required by the related Note.
Section 3. Transfers of Mortgage Loans.
From time to time in connection with the establishment of Advanta
Trusts, the Affiliated Originators and the Sponsor, intend to transfer Mortgage
Loans to the Sponsor and/or to the related Advanta Trust. Each such transfer
will be evidenced by a Conveyance Agreement in substantially the form of Exhibit
A hereto.
Section 4. Representations, Warranties and Covenants Regarding the
Affiliated Originators and the Sponsor.
(a) Each Affiliated Originator hereby represents and warrants to the
Sponsor, the Trustee and their respective successors and assigns that, as of the
date hereof;
(i) Such Affiliated Originator is a corporation (or, in the
case of Advanta National Bank USA, a national banking association, and,
in the case of Advanta Bank Corp., a Utah industrial loan corporation)
duly organized, validly existing and in good standing under the laws
governing its creation and existence and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business, or the properties owned or leased by it make such
qualification necessary. Such Affiliated Originator has all requisite
corporate power and authority to own and operate its properties, to
carry out its business as presently conducted and as proposed to be
conducted, to enter into and discharge its obligations under this
Agreement and the Conveyance Agreements.
(ii) The execution and delivery of this Agreement by such
Affiliated Originator and its performance and compliance with the terms
of this Agreement and the Conveyance Agreements to which it is a party
have been duly authorized by all necessary corporate action on the part
of such Affiliated Originator and will not violate such Affiliated
Originator's Articles of Incorporation, Articles of Association or
Bylaws or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or result in a
breach of, any material contract, agreement or other instrument to
which such Affiliated Originator or its properties is a party or by
which such Affiliated Originator is bound or violate any statute or any
order, rule or regulation of any court, governmental agency or body or
other tribunal having jurisdiction over such Affiliated Originator or
any of its properties.
(iii) This Agreement and the Conveyance Agreements to which
such Affiliated Originator is a party, assuming due authorization,
execution and
4
<PAGE> 7
delivery by the other parties hereto and thereto, each constitutes a
valid, legal and binding obligation of such Affiliated Originator,
enforceable against it in accordance with the terms hereof, except as
the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(iv) Such Affiliated Originator is not in default with respect
to any order or decree of any court or any order, regulation or demand
of any federal, state, municipal or governmental agency, which might
have consequences that would materially and adversely affect the
condition (financial or other) or operations of such Affiliated
Originator or its properties, or might have consequences that would
materially and adversely affect its performance hereunder and under the
other Conveyance Agreements to which such Affiliated Originator is a
party, or which would draw into question the validity of this Agreement
or the Mortgage Loans taken as a whole or of any action taken or to be
taken in connection with the obligations of the Affiliated Originator
contemplated herein.
(v) No litigation is pending or, to the best of such
Affiliated Originator's knowledge, threatened against such Affiliated
Originator which litigation might have consequences that would prohibit
its entering into this Agreement or any Conveyance Agreements to which
it is a party or might have consequences that would materially and
adversely affect its performance hereunder and under the Conveyance
Agreements to which such Affiliated Originator is a party.
(vi) Neither this Agreement nor any certificate of an officer,
statement furnished in writing or report delivered pursuant to the
terms hereof by such Affiliated Originator contains any untrue
statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(vii) Upon the receipt of each Mortgage Loan and other items
of the Mortgage by the Trustee under this Agreement, the related
Advanta Trust will have good and marketable title to such Mortgage Loan
and such other items of the related Trust Estate free and clear of any
lien (other than liens which will be simultaneously released).
(viii) Neither such Affiliated Originator nor any affiliate
thereof will report on any financial statement any part of the
Servicing Fee as an adjustment to the sales price of the Mortgage
Loans.
(ix) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or agency
(other than any such actions, approvals,
5
<PAGE> 8
etc., under any state securities laws, real estate syndication or "Blue
Sky" statutes, as to which such Affiliated Originator makes no such
representation or warranty), that are necessary or advisable in
connection with the sale of the Mortgage Loans and the execution and
delivery by such Affiliated Originator of this Agreement and the
Conveyance Agreements to which it is a party, have been duly taken,
given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within
which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the Conveyance
Agreements on the part of such Affiliated Originator and the
performance by such Affiliated Originator of its obligations under this
Agreement and such of the Conveyance Agreements to which it is a party.
(x) The origination practices used by such Affiliated
Originator with respect to the Mortgage Loans originated by such
Affiliated Originator have been, (i) in all material respects, legal,
proper, prudent and customary in the mortgage loan lending business and
(ii) in compliance with the Master Servicer's underwriting criteria as
described in the Prospectus.
(xi) The transactions contemplated by this Agreement are in
the ordinary course of business of such Affiliated Originator. The
transfer, assignment and conveyance of the Mortgage Notes and the
Mortgages by the Master Servicer pursuant to this Agreement are not
subject to the bulk transfer laws or any similar statutory provisions
in effect in any applicable jurisdiction.
(xii) Such Affiliated Originator received fair consideration
and reasonably equivalent value in exchange for the sale of the
interests in the Mortgage Loans.
(xiii) Such Affiliated Originator did not sell any interest in
any Mortgage Loan with any intent to hinder, delay or defraud any of
its respective creditors.
(xiv) Such Affiliated Originator is solvent, and such
Affiliated Originator will not be rendered insolvent as a result of the
sale of the Mortgage Loans to the related Advanta Trust.
The representations and warranties set forth in this paragraph (a) shall survive
the sale and assignment of the Mortgage Loans to the Sponsor.
In addition, each Affiliated Originator hereby covenants to perform the
obligations, if any, imposed upon it by the related Advanta Pooling Agreement.
6
<PAGE> 9
(b) The Sponsor hereby represents and warrants to each Affiliated
Originator and the Trustee that, as of the date hereof:
(i) The Sponsor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has all licenses and qualifications necessary to carry on its
business as now being conducted and to perform its obligations
hereunder; the Sponsor has the power and authority to execute and
deliver this Agreement and to perform its obligations in accordance
herewith; the execution, delivery and performance of this Agreement
(including any Conveyance Agreement and any other instruments of
transfer to be delivered pursuant to this Agreement) by the Sponsor and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and do not
violate the organization documents of the Sponsor, contravene or
violate any law, regulation, rule, order, judgement or decree to which
the Sponsor or its properties are subject or contravene, violate or
result in any breach of any provision of, or constitute a default
under, or result in the imposition of any lien on any assets of the
Sponsor pursuant to the provisions of, any mortgage, indenture,
contract, agreement or other undertaking to which the Sponsor is a
party or which purports to be binding upon Sponsor or any of Sponsor's
assets; this Agreement evidences the valid and binding obligation of
the Sponsor enforceable against the Sponsor in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditor's
rights generally or the application of equitable principles in any
proceeding, whether at law or in equity;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or
agency, that are necessary in connection with the execution and
delivery by the Sponsor of this Agreement, have been duly taken, given
or obtained, as the case may be, are in full force and effect, are not
subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review
thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this
Agreement on the part of the Sponsor and the performance by the Sponsor
of its obligations under this Agreement;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the Sponsor's knowledge, threatened against
the Sponsor which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations,
financial condition, properties or assets of the Sponsor or in any
material impairment of the right or ability of the Sponsor to carry on
its business substantially as now conducted, or in any material
liability on the part of the Sponsor or which would draw into question
the validity of this Agreement or of any action taken or to be taken in
connection with the obligations
7
<PAGE> 10
of the Sponsor contemplated herein, or which would be likely to impair
the ability of the Sponsor to perform under the terms of this
Agreement; and
(iv) The Sponsor has the right to cause or request the
transfer of the Mortgage Loans subject to a Warehouse Trust to an
Advanta Trust or to direct or request an Advanta Trust to acquire such
Mortgage Loans.
The representations and warranties set forth in this paragraph (b) shall survive
the sale and assignment of the Mortgage Loans to the Sponsor. Upon discovery of
a breach of any of the foregoing representations and warranties which materially
and adversely affects the interests of the Affiliated Originator, the Affiliated
Originator shall give prompt written notice to the Sponsor. Within 30 days of
its receipt of notice of breach, the Sponsor shall cure such breach in all
material respects.
Section 5. Representations and Warranties of the Affiliated Originators
Regarding the Mortgage Loans.
(a) Set forth in paragraph (b) below is a listing of representations and
warranties which will be deemed to have been made by each Affiliated Originator
in connection with each conveyance of a Pool to the Sponsor and/or the related
Advanta Trust. In addition, a Conveyance Agreement may, with respect to the
Mortgage Loans in the related Pool, delete or modify any of such representations
and warranties, or may add additional representations and warranties
("Additional Representations and Warranties"). The representations and
warranties listed in paragraph (b) below, together with any Additional
Representations and Warranties, are the "Representations and Warranties".
Reference to the Cut-Off Date are as of the Cut-Off Date set forth in the
related Conveyance Agreement with respect to a Mortgage Loan.
(b) With respect to each Mortgage Loan, each Affiliated Originator hereby
represents, warrants and covenants to the Sponsor and the Trustee, as of the
related Cut-Off Date, as follows, on which representations, warranties and
covenants the Trustee relies in accepting the Mortgage Loans:
(i) The information with respect to each Mortgage Loan set
forth in the Schedules of Mortgage Loans is true and correct as of the
Cut-Off Date;
(ii) All of the original or certified documentation required
to be delivered to the Trustee pursuant to the related Advanta Pooling
Agreement (including all material documents related thereto) with
respect to each Mortgage Loan has been or will be delivered to the
Trustee in accordance with the terms of such Advanta Pooling Agreement.
Each of the documents and instruments specified to be included therein
has been duly executed and in due and proper form, and each such
document or instrument is in a form generally acceptable to prudent
mortgage lenders that regularly originate or purchase mortgage loans
comparable to the Mortgage Loans for sale to prudent investors in the
secondary market that invest in mortgage loans such as the Mortgage
Loans.
8
<PAGE> 11
(iii) Each Mortgage Loan being transferred to the Sponsor is a
Qualified Mortgage and is a Mortgage;
(iv) Each Property is improved by a single (one-to-four)
family residential dwelling, which may include manufactured homes which
qualify as eligible for inclusion in a REMIC, condominiums and
townhouses but shall not include cooperatives; provided, however, that
no more than 5.0% by aggregate principal balance of the Mortgage Loans
as of the Initial Cut-Off Date were leasehold mortgages.;
(v) No Mortgage Loan had a Combined Loan-to-Value Ratio in
excess of 100%;
(vi) Each Mortgage is either a valid and subsisting first,
second or third lien of record on the Property (subject in the case of
any Junior Mortgage Loan only to a Senior Lien on such Property) and
subject in all cases to the exceptions to title set forth in the title
insurance policy, with respect to the related Mortgage Loan, which
exceptions are generally acceptable to banking institutions in
connection with their regular mortgage lending activities, and such
other exceptions to which similar properties are commonly subject and
which do not individually, or in the aggregate, materially and
adversely affect the benefits of the security intended to be provided
by such Mortgage;
(vii) Immediately prior to the transfer and assignment herein
contemplated, each Affiliated Originator and each Warehouse Trust held
good and indefeasible title to, and was the sole owner of, each
Mortgage Loan conveyed by such Affiliated Originator or such Warehouse
Trust, as applicable, subject to no liens, charges, mortgages,
encumbrances or rights of others except liens which will be released
simultaneously with such transfer and assignment; and immediately upon
the transfer and assignment herein contemplated, the Trustee will hold
good and indefeasible title to, and be the sole owner of, each Mortgage
Loan subject to no liens, charges, mortgages, encumbrances or rights of
others except liens which will be released simultaneously with such
transfer and assignment;
(viii) As of the related Cut-Off Date, no Mortgage Loan is 30
or more days Delinquent, except for any portion of the Mortgage Loans
which the related Advanta Pooling Agreement permits to be more than 30
days Delinquent;
(ix) There is no delinquent tax or assessment lien or
mechanic's lien on any Property, and each Property is free of
substantial damage and is in good repair;
(x) There is no valid and enforceable right of rescission
offset, defense or counterclaim to any Note or Mortgage, including the
obligation of the related Mortgagor to pay the unpaid principal of or
interest on such Note or the defense of usury, nor will the operation
of any of the terms of the Mortgage Note
9
<PAGE> 12
or the Mortgage, or the exercise of any right thereunder, render either
the Mortgage Note or the Mortgage unenforceable in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect
thereto;
(xi) There is no mechanics' lien or claim for work, labor or
material affecting any Property which is or may be a lien prior to, or
equal with, the lien of the related Mortgage except those which are
insured against by any title insurance policy referred to in paragraph
(xiii) below;
(xii) Each Mortgage Loan at the time it was made complied in
all material respects with all applicable state and federal laws and
regulations, including, without limitation, the federal
Truth-in-Lending Act and other consumer protection laws, real estate
settlement procedure, usury, equal credit opportunity, disclosure and
recording laws;
(xiii) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard California Land Title Association
form or American Land Title Association form, or other form acceptable
in a particular jurisdiction by a title insurance company authorized to
transact business in the state in which the related Property is
situated, in an amount at least equal to the Original Principal Amount
of such Mortgage Loan insuring the mortgagee's interest under the
related Mortgage Loan as the holder of a valid first, second or third
mortgage lien of record on the real property described in the related
Mortgage, as the case may be, subject only to exceptions of the
character referred to in paragraph (vi) above, was effective on the
date of the origination of such Mortgage Loan, and, as of the Cut-Off
Date such policy will be valid and thereafter such policy shall
continue in full force and effect;
(xiv) The improvements upon each Property are covered by a
valid and existing hazard insurance policy (which may be a blanket
policy of the type described in the related Advanta Pooling Agreement)
with a generally acceptable carrier that provides for fire and extended
coverage representing coverage not less than the least of (A) the
outstanding principal balance of the related Mortgage Loan (together,
in the case of a Junior Mortgage Loan, with the outstanding principal
balance of the Senior Lien), (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (C) the
full insurable value of the Property;
(xv) If the Mortgage Loan at the time of origination relates
to a Property in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards,
(which may be a blanket policy of the type described in the related
Advanta Pooling Agreement) a flood insurance policy in a form meeting
the requirements of the current guidelines of the Federal Insurance
Administration with a generally acceptable carrier is in effect with
respect to such Property in an amount representing coverage, and
10
<PAGE> 13
which provides for a recovery by the Master Servicer of insurance
proceeds relating to such Mortgage Loan of not less than the least of
(i) the outstanding principal balance of the Mortgage Loan, (ii) the
minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the maximum amount of insurance that
is available under the Flood Disaster Protection Act of 1973;
(xvi) Each Mortgage and Note is the legal, valid and binding
obligation of the maker thereof and is enforceable in accordance with
its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether considered in a proceeding or
action in equity or at law), and all parties to each Mortgage Loan had
full legal capacity to execute all documents relating to such Mortgage
Loan and convey the estate therein purported to be conveyed;
(xvii) Each Affiliated Originator has caused and will cause to
be performed any and all acts required to be performed to preserve the
rights and remedies of the servicer in any Insurance Policies
applicable to any Mortgage Loans delivered by such Affiliated
Originator or Warehouse Trust including, to the extent such Mortgage
Loan is not covered by a blanket policy described in the Advanta
Pooling Agreement, 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 servicer;
(xviii) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been recorded in the appropriate jurisdictions
wherein such recordation is necessary to perfect the lien thereof for
the benefit of the applicable Affiliated Originator, subject to the
provisions of Section [____] of the Advanta Pooling Agreement, (or are
in the process of being recorded);
(xix) The terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the
interest of the owners and which has been delivered to the Trustee. The
substance of any such alteration or modification is reflected on the
related Schedule of Mortgage Loans and has been approved by the primary
mortgage guaranty insurer, if any;
(xx) The proceeds of each Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder. Any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making or closing or recording
such Mortgage Loans were paid;
11
<PAGE> 14
(xxi) Except as otherwise required by law or pursuant to the
statute under which the related Mortgage Loan was made, the related
Note is not and has not been secured by any collateral, pledged account
or other security except the lien of the corresponding Mortgage;
(xxii) No Mortgage Loan was originated under a buydown plan;
(xxiii) No Mortgage Loan provides for negative amortization,
has a shared appreciation feature, or other contingent interest
feature;
(xxiv) Each Property is located in the state identified in the
Schedule of Mortgage Loans and consists of one or more parcels of real
property with a residential dwelling erected thereon;
(xxv) Each Mortgage contains a provision for the acceleration
of the payment of the unpaid principal balance of the related Mortgage
Loan in the event the related Property is sold without the prior
consent of the mortgagee thereunder, except as may be otherwise
provided in the Advanta Pooling Agreement;
(xxvi) Any advances made after the date of origination of a
Mortgage Loan but prior to the Cut-Off Date, have been consolidated
with the outstanding principal amount secured by the related Mortgage,
and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the Schedule of
Mortgage Loans. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No Note permits
or obligates the Master Servicer, the Sub-Servicer or the Sponsor to
make future advances to the related Mortgagor at the option of the
Mortgagor;
(xxvii) There is no proceeding pending or threatened for the
total or partial condemnation of any Property, nor is such a proceeding
currently occurring, and each Property is undamaged by waste, fire,
earthquake or earth movement, flood, tornado or other casualty, so as
to affect adversely the value of the Property as security for the
Mortgage Loan or the use for which the premises were intended;
(xxviii) All of the improvements which were included for the
purposes of determining the Appraised Value of any Property lie wholly
within the boundaries and building restriction lines of such Property,
and no improvements on adjoining properties encroach upon such
Property, and, if a title insurance policy exists with respect to such
Property, are stated in such title insurance policy and affirmatively
insured;
(xxix) No improvement located on or being part of any Property
is in violation of any applicable zoning law or regulation. All
inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of each Property and, with
respect to the use and occupancy of the same, including but not limited
to certificates of occupancy and fire underwriting certificates, have
12
<PAGE> 15
been made or obtained from the appropriate authorities and such
Property is lawfully occupied under the applicable law;
(xxx) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in
such Mortgage, and no fees or expenses are or will become payable by
the Sponsor or the related Trust to the trustee under the deed of
trust, except in connection with a trustee's sale after default by the
related Mortgagor;
(xxxi) With respect to each Junior Mortgage Loan, either (A)
no consent for such Mortgage Loan was required by the holder of the
related Senior Lien prior to the making of such Mortgage Loan or (B)
such consent has been obtained and is contained in the related File;
(xxxii) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the related Property of the
benefits of the security, including (A) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (B) otherwise by
judicial foreclosure. There is no homestead or other exemption
available which materially interferes with the right to sell the
related Property at a trustee's sale or the right to foreclose the
related Mortgage;
(xxxiii) Except as provided by clause (viii) of this Section,
there is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Note and no event which,
with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event
of acceleration; and the applicable Affiliated Originator has not
waived any default, breach, violation or event of acceleration;
(xxxiv) Except for any Bulk Acquisition Loan, no instrument of
release or waiver has been executed in connection with any Mortgage
Loan, and no Mortgagor has been released, in whole or in part, except
in connection with an assumption agreement which has been approved by
the primary mortgage guaranty insurer, if any, and which has been
delivered to the Trustee;
(xxxv) Except for any Bulk Acquisition Loan, the maturity date
of each Mortgage Loan which is a Junior Mortgage Loan is at least
twelve months prior to the maturity date of the related first mortgage
loan if such first mortgage loan provides for a balloon payment;
(xxxvi) The credit underwriting guidelines applicable to each
Mortgage Loan conform in all material respects to the Sponsor's
underwriting guidelines;
(xxxvii) All parties to the Note and the Mortgage had legal
capacity to execute the Note and the Mortgage and each Note and
Mortgage have been duly and properly executed by such parties; and
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<PAGE> 16
(xxxviii)The related Affiliated Originator has no actual
knowledge that there exist on any Property any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act,
the Resource Conservation and Recovery Act of 1976, or other federal,
state or local environmental legislation.
(c) No Originator Payment Obligations. There is no obligation on the part of the
Servicer or any other party to make payments in addition to those made by the
Mortgagor except for delinquency.
The Representations and Warranties shall survive the transfer and
assignment of the Mortgage Loans to the related Advanta Trust. Upon discovery by
the Affiliated Originator or the Sponsor of a breach of any of the
Representations and Warranties, without regard to any limitation set forth in
such Representation or Warranty concerning the knowledge of the Affiliated
Originator as to the facts stated therein, which breach, in the opinion of the
Sponsor, materially and adversely affects the interests of the Sponsor, the
Owners or of the Certificate Insurer in the related Mortgage Loan or Mortgage
Loans, the party discovering such breach shall give prompt written notice to the
other party, and the related Affiliated Originator shall be required to take the
remedial actions required by the related Advanta Pooling Agreement within the
time periods required thereto. Each Affiliated Originator hereby acknowledges
that a breach of any of the Representations and Warranties listed in clauses
(iii), (x), (xvi) and (xxxviii) above a priori materially and adversely affects
the interests of the related Advanta Trust, the related Owners and the
Certificate Insurer.
Section 6. Authorized Representatives.
The names of the officers of the Affiliated Originators and of the Sponsor who
are authorized to give and receive notices, requests and instructions and to
deliver certificates and documents in connection with this Agreement on behalf
of the Affiliated Originator and of the Sponsor ("Authorized Representatives")
are set forth on Exhibit B. From time to time, the Affiliated Originator and the
Sponsor may, by delivering to the Trustee a revised exhibit, change the
information previously given, but the Trustee shall be entitled to rely
conclusively on the last exhibit until receipt of a superseding exhibit.
Section 7. Notices.
All demands, notices and communications relating to this Agreement shall be in
writing and shall be deemed to have been duly given when received by the other
party or parties at the address shown below, or such other address as may
hereafter be furnished to the other party or parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee.
If to the Trustee:
[Trustee]
[Trustee's Address]
14
<PAGE> 17
Telecopy: [(___) ___-____]
Telephone: [(___) ___-____]
If to the Affiliated Originators or the Sponsor:
Advanta Mortgage Corp. USA
10790 Rancho Bernardo Road
San Diego, California 92127
Attention: Mortgage Structured Finance
Telecopy: (619) 674-3592
Telephone: (619) 674-3317
Section 8. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York, without regard to conflict of laws rules applied in
the State of New York.
Section 9. Assignment.
No party to this Agreement may assign its rights or delegate its obligations
under this Agreement without the express written consent of the other parties,
except as otherwise set forth in this Agreement.
Section 10. Counterparts.
For the purpose of facilitating the execution of this Agreement and for other
purposes, this Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed to be an original, and together
shall constitute and be one and the same instrument.
Section 11. Amendment.
This Agreement may be amended from time to time by the Affiliated Originators,
the Sponsor and the Trustee only by a written instrument executed by such
parties and with the prior written consent of the Certificate Insurer.
Section 12. 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.
15
<PAGE> 18
Section 13. No Agency; No Partnership or Joint Venture.
Neither the Affiliated Originators nor the Sponsor is the agent or
representative of the other, and nothing in this Agreement shall be construed to
make either the Affiliated Originator nor the Sponsor liable to any third party
for services performed by it or for debts or claims accruing to it against the
other party. Nothing contained herein nor the acts of the parties hereto shall
be construed to create a partnership or joint venture between the Sponsor and
the Affiliated Originator.
Section 14. Further Assurances.
The Affiliated Originators and Sponsor agree to cooperate reasonably and in good
faith with one another in the performance of this Agreement.
Section 15. The Certificate Insurer.
The Certificate Insurer is a third-party beneficiary of this Agreement. Any
right conferred to the Certificate Insurer shall be suspended during any period
in which the Certificate Insurer is in default in its payment obligation's under
the related Certificate Insurance Policies. During any period of suspension, the
Certificate Insurer's rights hereunder shall vest in the Owners of the related
Offered Certificates and shall be exercisable by the Owners of at least a
majority in Percentage Interest of the related Offered Certificates then
outstanding. At such time as the related Offered Certificates are no longer
Outstanding under the related Advanta Pooling Agreement and the Certificate
Insurer has been reimbursed for all Insured Payments to which it is entitled
under the related Advanta Pooling Agreement, the Certificate Insurer's rights
hereunder shall terminate.
Section 16. Maintenance of Records.
Each Affiliated Originator shall each continuously keep an original executed
counterpart of this Agreement in its official records.
16
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year first
above written.
ADVANTA MORTGAGE CORP. USA
ADVANTA MORTGAGE CORP. MIDATLANTIC
ADVANTA MORTGAGE CORP. MIDATLANTIC II
ADVANTA MORTGAGE CORP. MIDWEST
ADVANTA MORTGAGE CORP. OF NEW JERSEY
ADVANTA MORTGAGE CORP. NORTHEAST
ADVANTA NATIONAL BANK
as Sellers and
ADVANTA CONDUIT RECEIVABLES, INC.
as Sponsor
By:
----------------------------------------
Name: Michael Coco
Title: Vice President
ADVANTA BANK CORP.
as Seller
By:
----------------------------------------
Name:
Title
[TRUSTEE],
as Trustee and not in its individual capacity
By:
----------------------------------------
Name:
Title:
[MASTER LOAN TRANSFER AGREEMENT]
17
<PAGE> 20
ADVANTA MORTGAGE CONDUIT SERVICES,
INC. an Affiliate
By:
----------------------------------------
Name: Michael Coco
Title: Vice President
ADVANTA FINANCE CORP.
By:
----------------------------------------
Name: Michael Coco
Title: Vice President
[MASTER LOAN TRANSFER AGREEMENT]
18
<PAGE> 21
EXHIBIT A
CONVEYANCE AGREEMENT
Advanta Mortgage Corp. USA, Advanta Mortgage Corp. Midatlantic, Advanta
Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage
Corp. of New Jersey, Advanta Mortgage Corp. Northeast, Advanta Finance Corp.,
Advanta Bank Corp. and Advanta National Bank, (each, an "Affiliated
Originator"), Advanta Conduit Receivables, Inc., as Sponsor, and Advanta
Mortgage Conduit Services, Inc., as an Affiliate, pursuant to the Master Loan
Transfer Agreement dated as of [_____________, _____] among themselves and
[Trustee], as Trustee (the "Master Transfer Agreement"), hereby confirm their
understanding with respect to the conveyance by each Affiliated Originator, the
Warehouse Trusts the Affiliate and the Sponsor of those Mortgage Loans listed on
the attached Schedule of Mortgage Loans (the "Transferred Mortgage Loans") to
the Sponsor and /or the Advanta Mortgage Loan Trust _____-__.
Conveyance of Transferred Mortgage Loans.
Each Affiliated Originator, the Affiliate and the Sponsor, concurrently with the
execution and delivery of this Conveyance Agreement, does hereby irrevocably
transfer, assign, set over and otherwise convey, and does direct the Trustee to
convey to the Sponsor and/or the Advanta Mortgage Loan Trust - , without
recourse (except as otherwise explicitly provided for herein) all of its right,
title and interest in and to the Transferred Mortgage Loans being conveyed by
it, including specifically, without limitation, the Mortgages (as such term is
defined in the "related Advanta Pooling Agreement"), the Files and all other
documents, materials and properties appurtenant thereto and the Notes, including
all accrued interest and principal received by such Affiliated Originator on or
with respect to such Transferred Mortgage Loans on or after the related Cut-off
Date, together with all of its right, title and interest in and to the proceeds
received on or after the related Cut-off Date of any related mortgage insurance
policies (excluding any non-mortgage related or credit life insurance policies).
If an Affiliated Originator cannot deliver the original Mortgage or
mortgage assignment with evidence of recording thereon concurrently with the
execution and delivery of this Conveyance Agreement solely because of a delay
caused by the public recording office where such original Mortgage or mortgage
assignment has been delivered for recordation, such Affiliated Originator shall
promptly deliver to the Trustee such original Mortgage or mortgage assignment
with evidence of recording indicated thereon upon receipt thereof from the
public recording official.
The costs relating to the delivery of the documents specified in this
Conveyance Agreement shall be borne by each Affiliated Originator.
A-1
<PAGE> 22
The Affiliated Originators hereby make the Representations and
Warranties set forth in Section 5(b) of the Master Transfer Agreement with
respect to the Transferred Mortgage Loans.
The "Cut-Off Date" with respect to such Transferred Mortgage Loans
shall be ________,______.
All terms and conditions of the Master Transfer Agreement are hereby
incorporated herein, provided that in the event of any conflict the provisions
of this Conveyance Agreement shall control over the conflicting provisions of
the Master Transfer Agreement.
For purposes of this Conveyance Agreement, the "related Advanta Pooling
Agreement" is the Pooling and Servicing Agreement dated as of _________,_____
relating to Advanta Mortgage Loan Trust ______-__.
A-2
<PAGE> 23
Terms capitalized herein and not defined herein shall have their
respective meanings as set forth in the Master Transfer Agreement.
ADVANTA MORTGAGE CORP. USA
ADVANTA MORTGAGE CORP. MIDATLANTIC
ADVANTA MORTGAGE CORP. MIDATLANTIC II
ADVANTA MORTGAGE CORP. MIDWEST
ADVANTA MORTGAGE CORP. OF NEW JERSEY
ADVANTA MORTGAGE CORP. NORTHEAST
ADVANTA NATIONAL BANK.
as Affiliated Originators
and
ADVANTA CONDUIT RECEIVABLES, INC.
as Sponsor
By:
----------------------------------------
Michael Coco, Vice President
ADVANTA BANK CORP.
as an Affiliated Originator
By:
----------------------------------------
ADVANTA MORTGAGE CONDUIT SERVICES,
INC., as an Affiliate
By:
----------------------------------------
Michael Coco, Vice President
[TRUSTEE], as Trustee
By:
----------------------------------------
Name:
Title:
ADVANTA FINANCE CORP.
By:
----------------------------------------
Name:
Title:
Dated:
A-3
<PAGE> 24
EXHIBIT B
AUTHORIZED REPRESENTATIVES
Reference is hereby made to the Master Loan Transfer Agreement, dated
as of [_______________, _____] (the "Agreement"), among Advanta Mortgage Corp.
USA, Advanta Mortgage Corp. Midatlantic, Advanta Mortgage Corp. Midatlantic II,
Advanta Mortgage Corp. Midwest, Advanta Mortgage Corp. of New Jersey, Advanta
Mortgage Corp. Northeast, Advanta Finance Corp., Advanta Bank Corp. and Advanta
National Bank, as Affiliated Originators, Advanta Conduit Receivables, Inc., as
Sponsor, Advanta Mortgage Conduit Services, Inc., as an Affiliate and [Trustee],
as Trustee:
The following are the Affiliated Originators' Authorized
Representatives for purposes of the Agreement:
Name Title
---- -----
[Michael Coco] [Vice President]
[Susan McVeigh] [Vice President]
The following are the Sponsor's Authorized Representatives for purposes
of the Agreement:
Name Title
---- -----
[Michael Coco] [Vice President]
[Susan McVeigh] [Vice President]
B-1
<PAGE> 1
EXHIBIT 5.1
March __, 1999
Advanta Conduit Receivables, Inc.
10790 Rancho Bernardo Road
San Diego, CA 92127
Re: Advanta Conduit Receivables, Inc., Mortgage Loan Asset-
Backed Securities
-----------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Advanta Conduit Receivables, Inc. (the
"Sponsor" or the "Registrant") in connection with the preparation and filing of
the registration statement on Form S-3 (such registration statement, the
"Registration Statement") being filed today with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in
respect of Mortgage Loan Asset-Backed Securities ("Securities") which the
Registrant plans to offer in series, each series to be issued under a separate
pooling and servicing agreement (a "Pooling and Servicing Agreement") or
indenture (an "Indenture"), in substantially one of the forms incorporated by
reference as Exhibits to the Registration Statement, among the Registrant,
Advanta Mortgage Corp. USA as master servicer (the "Master Servicer") and a
trustee to be identified in the prospectus supplement for such series of
Securities (the "Trustee" for such series).
We have made investigations of law and have examined and relied on the
originals or copies certified or otherwise identified to our satisfaction of all
such documents and records of each of the Registrants and such other instruments
and other certificates of public officials, officers and representatives of
the Registrant and such other persons, as we have deemed appropriate as a
basis for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
We are admitted to the Bar of the State of New York and we express no
opinion as to the laws of any other jurisdiction except as to matters that are
governed by Federal law or the laws of the State of New York. All opinions
expressed herein are based on laws, regulations and policy guidelines currently
in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
When, in respect of a series of Securities, a Pooling and Servicing
Agreement or Indenture has been duly authorized by all necessary action and duly
executed and delivered by all necessary parties for such series, such Pooling
and Servicing Agreement or Indenture will be a valid and legally binding
obligation of each of the Registrants; and
When a Pooling and Servicing Agreement or Indenture for a series of
Securities has been duly authorized by all necessary action and duly executed
and delivered by all necessary parties for such series, and when the Securities
of such series have been duly executed and authenticated in accordance with the
provisions of the Pooling and Servicing Agreement or Indenture, as applicable,
and issued and sold as contemplated in the Registration
<PAGE> 2
Statement and the prospectus, as amended or supplemented and delivered pursuant
to Section 5 of the Act in connection therewith, such Securities will be legally
and validly issued, fully paid and nonassessable, and the holders of such
Securities will be entitled to the benefits of such Pooling and Servicing
Agreement or Indenture, as applicable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to Dewey Ballantine LLP in the
Registration Statement and the related prospectus under the heading "Legal
Matters."
This opinion is furnished by us as counsel to the Registrant and is
solely for the benefit of the addressees hereof. It may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
/s/ DEWEY BALLANTINE LLP
------------------------
<PAGE> 1
EXHIBIT 8.1
[---------------, -----]
To the Addressees listed
on Schedule I hereto
Re: Advanta Mortgage Loan Trust [Trust] Mortgage Loan Asset-Backed
Certificates, Series [Series]
--------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel in connection with the
issuance and delivery of certain mortgage loan asset-backed certificates
denominated Advanta Mortgage Loan Trust [Trust], Mortgage Loan Asset-Backed
Certificates, Series [Series] (collectively, the "Certificates"), pursuant to a
Pooling and Servicing Agreement dated as of [_____________, _____] (the "Pooling
and Servicing Agreement") among Advanta Conduit Receivables, Inc. ("Advanta"),
Advanta Mortgage Corp. USA, as Master Servicer (the "Master Servicer") and
[Trustee], as trustee (the "Trustee").
As special tax counsel, we have examined such documents as we
deemed appropriate for the purposes of rendering the opinions set forth below,
including the following: (a) Prospectus dated [_____________, _____] (the
"Prospectus") and a Prospectus Supplement dated [_____________, _____] (the
"Prospectus Supplement") with respect to the Class [A] Certificates, and (b) an
executed copy of the Pooling and Servicing Agreement and the exhibits attached
thereto.
Terms capitalized herein and not otherwise defined herein
shall have their respective meanings as set forth in the Pooling and Servicing
Agreement.
Based upon the foregoing and upon the assumptions set forth
below, we are of the opinion, under the laws of the United States, New York
State, New York City and California in effect as of the date hereof, that:
1. Assuming that (a) the Trust created under the Pooling and
Servicing Agreement elects, as it has covenanted to do in the Pooling and
Servicing Agreement, to be treated as a "real estate mortgage investment
conduit" ("REMIC"), as such term is defined in the Internal Revenue Code of
1986, as amended (the "Code") and (b) the parties to the Pooling and Servicing
Agreement comply with the terms thereof, the Trust will be treated as a REMIC.
Subject to the above, (i) each Class of Class [A] Certificates issued pursuant
to the Pooling and Servicing Agreement will be treated as one or more "regular
interests" in the REMIC and (ii) the [Residual Class] Certificates will be
treated as the sole "residual interest" in the REMIC.
<PAGE> 2
March 9, 1999
Page 2
2. The statements under the caption "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" in the Prospectus and the Prospectus Supplement and "STATE
TAXES" in the Prospectus Supplement are accurate and complete in all material
respects.
3. As a consequence of the qualification of the Trust as a
REMIC, the Class [A] Certificates will be treated as "regular . . . interest(s)
in a REMIC" under Section 7701(a)(19)(C) of the Code and "real estate assets"
under Section 856(c) of the Code in the same proportion that the assets in the
Trust consist of qualifying assets under such Sections. In addition, as a
consequence of the qualification of the Trust as a REMIC, interest on the Class
[A] Certificates will be treated as "interest on obligations secured by
mortgages on real property" under Section 856(c) of the Code to the extent that
such Class [A] Certificates are treated as "real estate assets" under Section
856(c) of the Code.
4. The Trust will not be subject to tax upon its income or
assets by the taxing authority of New York State or New York City.
5. The Trust will not be subject to the California state
income tax. While REMICs are subject to the California state minimum franchise
tax imposed under Article 2, Section 23153 of the California Revenue and
Taxation Code, no opinion is expressed as to whether the Trust is subject to
such tax.
6. Neither the Trust nor any portion thereof, including,
without limitation, the Supplemental Interest Account, will be treated as an
association taxable as a corporation for federal income tax purposes.
Very truly yours,
/s/ Dewey Ballantine LLP
<PAGE> 3
SCHEDULE I
[Addressees]
<PAGE> 1
EXHIBIT 8.2
[---------------, -----]
To the Addressees listed
on Schedule I hereto
Re: Advanta Mortgage Loan Trust [Trust] Mortgage Backed Notes
---------------------------------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel in connection with the issuance
and delivery of certain notes denominated as Advanta Mortgage Loan Trust [Trust]
Class [A] Mortgage Backed Notes (the "Notes"). The Notes will be issued pursuant
to an Indenture, dated as of [______________, _____] (the "Indenture") between
the Trust and the Indenture Trustee. Capitalized terms used herein but not
defined herein shall have the meanings ascribed thereto in the Indenture.
As special tax counsel, we have examined such documents as we
have deemed appropriate for the purposes of rendering the opinions set forth
below, including the following: (a) an executed copy of the Indenture and the
exhibits attached thereto and (b) the Prospectus, dated [_____________, _____]
and the Prospectus Supplement, dated [______________, _____] (the Prospectus and
the Prospectus Supplement, collectively, the "Prospectus").
In our examination we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents.
We have examined the question of the proper treatment of the
Notes for federal income tax purposes. Our analysis is based on the provisions
of the Internal Revenue Code of 1986, as amended, and the Treasury regulations
promulgated thereunder as in effect on the date hereof and on existing judicial
and administrative interpretations thereof. These authorities are subject to
change and to differing interpretations, all of which could apply retroactively.
The opinion of special tax counsel is not binding on the courts or on the
Internal Revenue Service (the "IRS").
Based on the foregoing and such legal and factual
investigations as we have deemed appropriate, while no transaction closely
comparable to that contemplated
<PAGE> 2
has been the subject of any Treasury regulation, revenue ruling or judicial
decision, and therefore the matter is subject to interpretation, we are of the
opinion that:
(1) The portion of the Notes consisting of the right to
receive payments of interest at the Note Formula Capped Rate for each Class will
properly be treated as indebtedness for federal income tax purposes;
(2) The portion of the Notes consisting of the right to
receive interest in excess of the Note Formula Capped Rate and up to the Note
Interest Rate for each Class (the "Available Funds Amount") will be treated as a
notional principal contract as defined in Treasury regulations under section 446
of the Internal Revenue Code;
(3) The Trust will not be constitute an association (or a
publicly traded partnership) taxable as a corporation or a taxable mortgage pool
for federal income tax purposes; and
(4) The statements contained in the Prospectus and the
Prospectus Supplement under the caption "Certain Federal Income Tax
Consequences" insofar as they constitute matters of law or legal conclusions
with respect thereto, have been prepared by us and are correct in all material
respects.
We express no opinion on any matter not discussed in this
letter. This opinion is rendered as of the Closing Date, for the sole benefit of
the addressees hereof and it may not be relied on by any other party or quoted
without our express consent in writing.
Very truly yours,
/s/ Dewey Ballantine LLP
2
<PAGE> 3
SCHEDULE I
[Addressees]
3
<PAGE> 1
EXHIBIT 99.1
------------
Prospectus supplement to prospectus dated ____________, ____
ADVANTA MORTGAGE LOAN TRUST ____-_
Issuer
$ -------------
(APPROXIMATE)
MORTGAGE BACKED NOTES, SERIES ____-_
[ADVANTA LOGO] [ADVANTA LOGO]
ADVANTA CONDUIT RECEIVABLES, INC. ADVANTA MORTGAGE CORP. USA
Sponsor Master Servicer
THE TRUST WILL ISSUE THE FOLLOWING NOTES:
Initial Final Scheduled
Principal Balance Interest Rate Payment Date
----------------- ------------- ------------
__________ is acting as underwriter for the issuance of the notes.
Interest and principal on the notes is scheduled to be paid monthly on the 25th
day of the month, or the next business day. The first scheduled payment date is
___________, ____.
The property of the trust consists of a pool of fixed rate or adjustable rate
(as applicable), first or second lien residential mortgage loans and cash to
purchase additional residential mortgage loans on or before _____________.
The Notes will have the benefit of an insurance policy from [NOTE INSURER] which
will guarantee certain payments with respect to the mortgage loans and the
notes.
[NOTE INSURER LOGO]
The offering of the notes is subject to certain conditions, which are discussed
in the "Underwriting" section of this prospectus supplement. Delivery of the
notes is expected in book-entry form through The Depository Trust Company,
Cedelbank and the Euroclear System on or about _________________.
The notes will be offered by the underwriter from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of the related sale. Proceeds to the sponsor are anticipated to be
approximately $_____________ from the sale of the notes before deducting
expenses payable by the sponsor, estimated to be $_______. The underwriter has
agreed to reimburse the sponsor for a portion of such expenses.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.
[UNDERWRITER]
The date of this prospectus supplement is __________, ____
- --------------------------------------------------------------------------------
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" STARTING ON PAGE S-__ OF
THIS PROSPECTUS SUPPLEMENT AND PAGE __ OF THE PROSPECTUS AND CONSIDER THESE
FACTORS BEFORE MAKING A DECISION TO INVEST IN THE NOTES.
The notes represent non-recourse obligations of the trust only and are not
interests in or obligations of any other person or duty.
Neither the notes nor the underlying loans will be insured or guaranteed by any
governmental agency or instrumentally.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
- --------------------------------------------------------------------------------
<PAGE> 2
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents
that progressively provide more detail: (1) the accompanying prospectus, which
provides general information, some of which may not apply to your notes; and (2)
this prospectus supplement, which describes the specific terms of your notes and
may be different from the information in the prospectus.
This prospectus supplement does not contain complete information about
the offering of the notes. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the notes to you unless you have received
both this prospectus supplement and the prospectus.
IF THE TERMS OF YOUR NOTES AND ANY OTHER INFORMATION CONTAINED HEREIN
VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU
SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
The Sponsor has filed with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act of 1933, as
amended, with respect to the notes offered pursuant to this prospectus
supplement. This prospectus supplement and the prospectus, which form a part of
the registration statement, omit certain information contained in such
registration statement pursuant to the rules and regulations of the Commission.
You may inspect the registration statement at the Public Reference Room at the
Commission at 450 Fifth Street, N.W., Washington, D.C. and the Commission's
regional offices at Seven World Trade Center, 13th Floor, New York, New York,
10048 and the Citibank Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can obtain copies of such materials at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a site on the
World Wide Web at http://www.sec.gov containing reports, proxy materials,
information statements and other items.
The Securities and Exchange Commission allows us to "incorporate by
reference" certain information already on file with it. This means that we can
disclose important information to you by referring you to those documents. Such
information is considered part of this prospectus supplement, and later
information that is filed will automatically update and supersede this
information.
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. You should
not assume that the information in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
cover page of this prospectus supplement or the accompanying prospectus. You can
obtain from the Sponsor, free of charge, a copy of the financial information
incorporated by reference by making an oral or written request to Advanta
Conduit Receivables, Inc., Attention: General Counsel, Welsh & McKean Roads,
Spring House, Pennsylvania 19477, (215) 657-4000.
<PAGE> 3
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
The Sponsor's principal offices are located at 10790 Rancho Bernardo
Road, San Diego, California 92127, and its telephone number is (619) 674-1800.
S-3
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY.......................................S-5 Calculation of LIBOR......................S-55
Principal Distributions...................S-55
TERMS OF THE NOTES AND THE MORTGAGE LOANS.....S-7 Flow of Funds.............................S-56
Optional Redemption of the Notes..........S-57
RISK FACTORS.................................S-13 Mandatory Redemption of the Notes.........S-57
Payments to the Certificateholders........S-58
THE PORTFOLIOS OF MORTGAGE LOANS.............S-16 Events of Default Under Indenture.........S-58
Delinquencies.............................S-16
THE INSURER..................................S-58
THE MORTGAGE LOANS...........................S-19
General...................................S-19 THE INSURANCE POLICY.........................S-60
The Statistic Calculation Pools...........S-19
The Mortgage Loans........................S-19 THE SALE AND SERVICING AGREEMENT.............S-62
Fixed Rate Mortgage Loan Pool.............S-20 Delinquency Advances,
Conveyance of Subsequent Mortgage Loans...S-27 Compensating Interest and
Adjustable Rate Mortgage Loan Pool........S-27 Servicing Advances.....................S-62
Servicing Compensation....................S-63
PREPAYMENT AND YIELD CONSIDERATIONS..........S-36 Governing Law.............................S-63
Projected Prepayments and Yields for
Notes..................................S-36 CERTAIN FEDERAL INCOME TAX CONSEQUENCES......S-63
General...................................S-63
USE OF PROCEEDS..............................S-42 Characterization of the Notes as
Indebtedness...........................S-64
THE SPONSOR AND THE MASTER SERVICER..........S-42 Taxation of Interest Income of Holders....S-65
General...................................S-42 Sale or Redemption of Notes...............S-66
The Sponsor and the Master Servicer.......S-42 Taxation of Certain Foreign Investors.....S-66
Backup Withholding........................S-66
THE TRUST....................................S-43 Possible Classification of the Trust as
General...................................S-43 a Partnership or Association
Certain Activities........................S-44 Taxable as a Corporation...............S-67
The Owner Trustee.........................S-44
The Indenture Trustee.....................S-45 STATE TAXES..................................S-67
Transfer of Mortgage Loans................S-45
Conveyance of the Subsequent ERISA CONSIDERATIONS.........................S-67
Mortgage Loans.........................S-45
Pre-Funding Account Feature...............S-46 RATINGS......................................S-68
Capitalized Interest Accounts.............S-46
Termination...............................S-46 LEGAL INVESTMENT CONSIDERATIONS..............S-69
DESCRIPTION OF THE NOTES.....................S-47 UNDERWRITING.................................S-69
General...................................S-47
Book Entry Registration of the Notes......S-47 EXPERTS......................................S-70
Payments on Mortgage Loans;
Deposits to Principal and Interest CERTAIN LEGAL MATTERS........................S-70
Account................................S-51
Distributions on the Notes................S-52 INDEX OF PRINCIPAL DEFINED TERMS.............S-71
Overcollateralization Provisions..........S-52
Overcollateralization and the ANNEX I......................................S-74
Insurance Policy.......................S-53 GLOBAL CLEARANCE,
Interest Distributions....................S-53 SETTLEMENT AND TAX
DOCUMENTATION
PROCEDURES.............................S-74
</TABLE>
<PAGE> 5
SUMMARY
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to consider
in making your investment decision. To understand all of the terms of the
offering of the notes, read carefully this entire prospectus supplement and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
-------------------------------
<TABLE>
<S> <C> <C> <C>
TITLE OF SERIES: Advanta Mortgage Loan INSURER: [NOTE INSURER]
Trust ____-_
NOTES: [Fixed/Floating] Rate Notes PAYMENT DATES: The 25th day of each month,
beginning on ___________, ____.
If the 25th day is not a business day,
then the payment date will be the
next business day.
NON-OFFERED Trust Certificate CLOSING DATE: On or about ___________, ____.
CERTIFICATES:
SPONSOR: Advanta Conduit INITIAL CUT-OFF The opening of business on
Receivables, Inc. DATE: __________, ____.
MASTER SERVICER: Advanta Mortgage Corp. USA ORIGINATORS: Originators affiliated with the
sponsor or from one or more
unaffiliated originators.
INDENTURE TRUSTEE: [Indenture Trustee], OWNER TRUSTEE: [OWNER TRUSTEE]
a national banking
association
</TABLE>
<PAGE> 6
The Trust. The sponsor is forming a trust to hold a pool of mortgage loans and
to hold cash on deposit in an account to be used to purchase additional mortgage
loans if certain conditions are met. All of the mortgage loans will be
originated by affiliates of the sponsor or by one or more unaffiliated
originators.
Guarantor. The trust will own an insurance policy issued to it by [NOTE INSURER]
guaranteeing payment of certain amounts due to the holders of the notes.
The Notes. The notes will be issued pursuant to an indenture between [Indenture
Trustee], as indenture trustee and the trust, as issuer. The notes will be
secured by a pledge of a pool of mortgage loans.
Principal Distributions. The trust will distribute principal monthly to the
holders of the notes.
Interest Distributions. The trust will distribute interest monthly to the
holders of the notes based on each note's respective interest rate and principal
balance.
No Other Obligors. The notes do not represent the obligation of any entity other
than the issuing trust.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Principal Defined
Terms" beginning on page S-__ in this prospectus supplement and under the
caption "Index of Principal Defined Terms" beginning on page ___ in the
accompanying prospectus.
This summary provides a very broad overview of the notes; it does not, however,
contain the specific information you will need to consider in making a decision
whether to invest in the notes. If you are considering an investment in the
notes, you should next review the sections "Terms of the Notes and the Mortgage
Loans" and "Risk Factors." Before making a final investment decision, you should
review:
o this prospectus supplement -- for more detailed information on these
notes.
o the prospectus -- for general information, some of which may not apply
to these notes.
<PAGE> 7
TERMS OF THE NOTES AND THE MORTGAGE LOANS
This term sheet provides an overview. It does not contain all the
information that you need to consider in making your investment decision. To
understand the terms of the notes and the characteristics of the underlying
mortgage loans, read carefully the entire prospectus supplement and the
accompanying prospectus. Capitalized terms used and not defined herein have the
meanings set forth in the accompanying prospectus.
NOTES
The notes, which are offered hereby, will have the note principal
balance, interest rates and other features set forth on the cover page of this
prospectus supplement and described within this prospectus supplement. The notes
represents an obligation of the trust, and is not an obligation of any other
entity.
The assets of the trust are a pool of either fixed rate or adjustable
rate, first or second lien residential mortgage loans and cash on deposit in
certain accounts to be used to purchase additional mortgage loans if certain
conditions are met.
The Indenture Trustee will make distributions on the 25th day of each
month, or if that day is not a business day, the next business day, commencing
on __________, __________.
INTEREST RATE
The interest rate for the notes is a [fixed/floating] rate determined
by a formula based on LIBOR, subject to an interest rate cap.
NOTE INTEREST RATE. Interest will accrue on the Notes for the interest
period relating to the __________, ___________ payment date at an annual rate of
interest equal to one-month LIBOR plus .____%. For each subsequent interest
period, interest will accrue on the Notes at an annual rate of interest equal to
the lesser of
o one-month LIBOR plus .____% (for each interest period ending on or prior to
the date on which the master servicer, acting directly or through one or
more affiliates of the certificateholder could exercise its option to
redeem the Notes) or one-month LIBOR plus _____% (for each interest period
ending after such date),
and
o an interest rate cap, the calculation for which is set forth in detail in
this prospectus supplement.
If, on any payment date, the interest rate cap for the notes is less
than the alternative calculation of the interest rate set forth above, the
amount of any such shortfall will be paid from excess cash on such payment date
and, if not paid, will be carried forward and be due and payable on the
following payment dates and shall accrue interest at the applicable note
interest rate until paid. These shortfall payments will not be guaranteed by the
Insurer. If the Master Servicer, acting directly as though one is more
affiliates, or the certificateholder exercises its right to terminate the trust,
it is possible that some or all of the accrued but unpaid shortfall amounts due
to a noteholder may not be paid.
INTEREST DISTRIBUTIONS
Interest will be paid on each note at the applicable interest rate,
plus any accrued but unpaid interest from prior payment dates. The interest due
on any payment date will be the interest which has accrued thereon at the
respective interest rate from
S-7
<PAGE> 8
the preceding payment date (or from __________, __________ in the case of the
first payment date) to and including the day prior to the current payment date.
PRINCIPAL DISTRIBUTIONS
Principal will be paid on each note on each payment date in reduction
of the outstanding principal balance of such note. The amount of principal
payable with respect to a note will be the principal received by the trust from
the underlying pool of mortgage loans. During certain periods, all or a
disproportionately large percentage of principal payments collected from the
underlying mortgage loans will be distributed to the holders of notes to
maintain the required levels of overcollateralization. You should review the
priority of principal payments described under "Description of The Notes --
Principal Distributions" in this prospectus supplement.
CREDIT ENHANCEMENT
Credit enhancement reduces the harm caused to holders of notes from
shortfalls in payments received from and losses incurred on the underlying pool
of mortgage loans. The credit enhancement provided for the benefit of the notes
consists of the following:
o Subordination. The is also issuing a certificate representing the entire
beneficial ownership interest in the underlying pool of mortgage loans.
Payments on the trust certificate are subordinated to payments due on the
notes. Subordination of the trust certificate provides credit enhancement
to the notes. On each payment date, the certificates will not receive
payments until the notes have been paid. If there is not enough money on a
payment date to pay both the notes and the certificates, the certificates
are the first to forego payment.
o Overcollateralization. Additional credit enhancement will result from the
fact that, at any time, the size of each pool of mortgage loans and any
cash on deposit used to purchase additional mortgage loans is expected to
be greater than the principal balance of the notes. Such
overcollateralization is intended to result in interest amounts received on
the underlying pool of mortgage loans being greater than the amount
necessary to pay interest on the notes. In addition, the subordination and
cash flow provisions of the trust result in limited acceleration of
payments on the notes relative to the amortization of the underlying
mortgage loans. This acceleration feature creates overcollateralization
which equals the excess of the sum of the total principal balance of the
mortgage loans and any cash on deposit used to purchase additional mortgage
loans over the total principal balance of the notes. Once the required
level of overcollateralization is reached, the acceleration feature will
cease, unless necessary to maintain the required level of
overcollateralization. The actual level of overcollateralization may
increase or decrease over time. See "Description of the
Notes--Overcollateralization Provisions" in this prospectus supplement.
o Application of Excess Interest. Generally, because more interest is paid by
the borrowers than is necessary to pay the interest earned on the notes,
there will be excess interest each month. Some of the excess interest will
be used to pay interest on notes that was previously accrued but not paid
and some of the excess interest will be used to reimburse holders of the
notes for losses that they experienced previously. In addition, the trust
may apply excess interest as principal payments on the notes to create
overcollateralization until the specified overcollateralization amount has
been reached. See "Description of the Notes" in this prospectus supplement.
S-8
<PAGE> 9
o The Insurance Policy. The sponsor will obtain a noncancelable note guaranty
insurance policy, in favor of the indenture trustee on behalf of the
noteholders. On each payment date, the insurer will be required to make
available to the indenture trustee the amount, if any, by which the
payments due to the notes with respect to interest and
overcollateralization deficiencies exceeds available funds received from
the pool of mortgage loans. See "The Insurance Policies" and "The Insurer"
in this prospectus supplement and "Description of Credit Enhancement" in
the prospectus.
MANDATORY REDEMPTION
The Notes will be redeemed in part at the end of the pre-funding period
to the extent of any cash remaining on each such payment date after the purchase
by the trust of additional mortgage loans, if any. See "Description of the Notes
- -- Mandatory Redemption of the Notes" in this prospectus supplement.
DENOMINATIONS
The Trust will issue the Notes in book-entry form in integral multiples
of $1,000.
INDENTURE TRUSTEE
[INDENTURE TRUSTEE], a national banking association.
OWNER TRUSTEE
[OWNER TRUSTEE], a Delaware banking corporation.
MORTGAGE LOANS
THE SPONSOR
Advanta Conduit Receivables, Inc. acquired all of the mortgage loans
from either affiliated originators or unaffiliated originators. See "The
Portfolios of Mortgage Loans" in this prospectus supplement.
MASTER SERVICER
Advanta Mortgage Corp. USA will act as the Master Servicer for the
mortgage loans. The Master Servicer is entitled to retain an annual servicing
fee, payable monthly, of 0.50% of the total principal balance of the mortgage
loans underlying the trust. The Master Servicer must advance delinquent payments
of interest on the mortgage loans, subject to certain limitations. See "The Sale
and Servicing Agreements -- Delinquency Advances, Compensating Interest and
Servicing Advances" and "-- Servicing Compensation" in this prospectus
supplement. Advanta Mortgage Corp. USA may use a subservicer, which may be an
affiliate, to carry out its obligations as Master Servicer.
MORTGAGE LOAN DATA
The mortgage loans securing the notes will be conveyed by or at the
request of the Sponsor to the trust and pledged by such trust to the indenture
trustee under an indenture. See "The Trust" in this prospectus supplement.
The mortgage loans are fixed rate, first or second lien residential
mortgage loans or adjustable rate, first or second lien residential mortgage
loans.
The statistical information presented in this prospectus supplement
concerning the mortgage loans in the trust is given as of _________. The actual
pools as of the closing date on or about __________ will represent approximately
$__________ in mortgage loans. It is anticipated that as of the end of the
pre-funding period, there will be approximately $________ in mortgage loans in
the trust The additional mortgage loans reflected as of the end of the
pre-funding period represent subsequent mortgage loans which will be assigned to
the trust in exchange for funds in the pre-funding account.
S-9
<PAGE> 10
Some mortgage loans included in the statistical information presented
here may prepay in full, or may be determined not to meet the eligibility
requirements for the final pool and as a result may not be included in the final
pool. In addition, some amortization of the mortgage loans in such pools will
occur. As a result of the foregoing, the statistical distribution of mortgage
loan characteristics of the trust as of the closing date will vary somewhat from
those presented in this prospectus supplement, although such variance will not
be material.
As of ____________, the fixed rate mortgage loans had the following
characteristics:
Number of Mortgage
Loans
Aggregate Principal
Balance
Average Principal
Balance
Range of Principal
Balances
Weighted Average
Mortgage Interest
Rate
Range of Mortgage
Interest Rates
Weighted Average
Original Term
(months)
Weighted Average
Remaining Term
(months)
As of _________________, the adjustable rate mortgage loans had the
following characteristics:
Number of Mortgage
Loans
Aggregate Principal
Balance
Average Principal
Balance
Range of Principal
Balances
Weighted Average
Mortgage Interest
Rate
Range of Maximum
Mortgage Interest
Rates
Weighted Average
Minimum Mortgage
Interest Rate
Range of Minimum
Mortgage Interest
Rates
Weighted Average
Original Term
(months)
Weighted Average
Remaining Term
(months)
See "The Mortgage Loans" in this prospectus supplement.
PRE-FUNDING ACCOUNTS
The trust may purchase additional mortgage loans on or before
_________________________, subject to certain conditions described herein. On
the closing date, the sponsor will deposit up to $__________ to the trust, to
ensure that the trust has sufficient cash to purchase the additional mortgage
loans. In addition, the sponsor will also be required to fund certain other
accounts relating to the payment of interest during the pre-funding period. See
"The Trust--Pre-Funding Account Feature" in this prospectus supplement.
CAPITALIZED INTEREST ACCOUNTS
The trust will establish a capitalized interest account, which will be
funded on the closing date from the proceeds of the notes. The amounts deposited
therein will be used by the indenture trustee during the pre-funding period to
make up for any shortfalls that may arise in the event that interest collections
on the underlying mortgage
S-10
<PAGE> 11
loans are insufficient to pay all of the interest due to the noteholders and
certain other expenses during such period. Any unused amounts remaining in such
accounts will be paid directly to the certificateholder of the trust. See "The
Trust--Capitalized Interest Accounts" in this prospectus supplement.
THE INSURER AND THE INSURANCE POLICIES
[NOTE INSURER] will issue a financial guaranty insurance policy in
favor of the indenture trustee for the benefit of the noteholders. On each
payment date, the insurer will be required to make available to the indenture
trustee the amount by which the payments due with respect to the notes exceeds
available funds received from the underlying mortgage loans. The insurance
policy does not insure shortfalls resulting from the application of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended, or due to principal
prepayments on the mortgage loans. See "The Insurer" and "The Insurance
Policies" in this prospectus supplement.
OPTIONAL REDEMPTION
At its option, the Master Servicer, acting directly or through one ore
more affiliates or the certificateholder may effect an early retirement of the
notes. Such option could occur on any payment date on which the total principal
balance of the notes is equal to or less than 10% of the sum of the total
principal balance of the notes as of the closing date. In the event the Master
Servicer or the certificateholder of the trust exercises such option, the
redemption price of the notes will be as described in this prospectus supplement
under "Description of the Notes--Optional Redemption of the Notes."
BOOK-ENTRY REGISTRATION
The trust will initially issue the notes in book-entry form. You may
elect to hold your interest in the notes through The Depository Trust Company in
the United States, or Cedelbank, or the Euroclear System in Europe, or
indirectly through participants in such systems.
You will not be entitled to receive a definitive note representing your
interest unless definitive notes are issued.
See "Description of the Notes--Book-Entry Registration of the Notes" in
this prospectus supplement.
RATINGS AND RATING AGENCIES
It is a condition to the issuance of the notes that the notes will be
rated "Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies or a similar rating
from a nationally recognized statistical rating agency.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
rating agency. The ratings do not represent any assessment of the likelihood or
rate of principal prepayments or the likelihood that certain interest shortfall
amounts will be paid. See "Ratings" in this prospectus supplement.
FEDERAL INCOME TAX ASPECTS
Subject to the qualifications set forth in the "Certain Federal Income
Tax Consequences" section of the prospectus supplement, Dewey Ballantine LLP,
special tax counsel to the sponsor, is of the opinion that, for federal income
tax purposes, the notes will be characterized as being composed of a debt
instrument and a notional principal contract, and the trust will not be treated
as an association or a publicly traded partnership taxable as a corporation or a
taxable mortgage pool. The trust will not initially elect to be treated as
REMICs but may elect to do so in the future. See the "Certain Federal Income Tax
Consequences" sections in the prospectus supplement and in the prospectus for
additional information concerning the application of federal income tax laws.
S-11
<PAGE> 12
LEGAL INVESTMENT CONSIDERATIONS
The notes will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984. See "Legal
Investment Considerations" in this prospectus supplement.
ERISA CONSIDERATIONS
Subject to the conditions and considerations discussed under "ERISA
Considerations" in this prospectus supplement, the notes will be eligible for
purchase by pension, profit-sharing and other employee benefit plans and
retirement arrangements subject to the Employee Retirement Income Security Act
of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986. A
fiduciary of any such plan or arrangement should consult with counsel regarding
the potential application of such laws to an investment in the notes. See "ERISA
Considerations" in the prospectus supplement and in the accompanying prospectus.
S-12
<PAGE> 13
RISK FACTORS
Prospective investors in the notes should consider the following
factors (as well as the factors set forth under the caption "Risk Factors" in
the prospectus) in connection with the purchase of the notes.
HIGH DEFAULT _____% of the mortgage loans as of ____________ by
RATES FOR aggregate principal balance are "balloon loans,"
MORTGAGE LOANS which have an amortization schedule extending beyond
WITH BALLOON such mortgage loan's maturity date, resulting in a
PAYMENTS relatively late unamortized principal balance due in
a single payment at maturity. See " -- Risk of Losses
Associated with Balloon Loans" in the prospectus.
JUNIOR LIEN Because certain of the mortgage loans are secured by
MORTGAGE LOANS junior liens subordinate to the rights of the
mortgagee or beneficiary under the related senior
mortgage(s) or deed(s) of trust, the proceeds from
any liquidation, insurance or condemnation
proceedings will be available to satisfy the
outstanding balance of such junior mortgage loan only
to the extent that the claims of such senior
mortgagee(s) or beneficiary(ies) have been satisfied
in full, including any related foreclosure costs. In
addition, a junior mortgagee may not foreclose on the
property securing a junior mortgage unless it
forecloses subject to the senior mortgage(s), in
which case it must either pay the entire amount due
on the senior mortgage(s) to the senior mortgagee(s)
at or prior to the foreclosure sale or undertake the
obligation to make payments on the senior mortgage(s)
in the event the mortgagor is in default thereunder.
In servicing junior mortgages in its portfolio, it is
generally Advanta Mortgage Corp. USA's practice to
satisfy the senior mortgage(s) at or prior to the
foreclosure sale. Advanta Mortgage Corp. USA may also
advance funds to keep the senior mortgage(s) current
until such time as it satisfies the senior
mortgage(s). The trust will have no source of funds
to satisfy the senior mortgage(s) or make payments
due to the senior mortgagee(s).
Information is provided under "The Mortgage Loans --
General" in this prospectus supplement with respect
to the loan-to-value ratios of the mortgage loans as
of _____________. As discussed in the prospectus
under "Risk Factors," the value of the mortgaged
properties underlying such loans could be adversely
affected by a number of factors. As a result, despite
the amortization of the junior and senior mortgage
loans on such mortgaged properties, there can be no
assurance that the combined loan-to-value ratios of
such loans, determined as of a date subsequent to the
origination date, will be the same or lower than the
combined loan-to-value ratios for such loans,
determined as of the origination date.
DELAYS UPON LIQUIDATION Even assuming that the mortgaged properties provided
adequate security for the mortgage loans, substantial
delay could be encountered in connection with the
liquidation of defaulted mortgage loans and
corresponding delays in the receipt of such proceeds
by the trust could occur. Further, Advanta Mortgage
Corp. USA will be entitled to deduct from liquidation
proceeds received in respect of a fully liquidated
mortgage loan all expenses incurred in attempting to
recover amounts due on such mortgage loan and not yet
repaid, including payments to senior mortgagees,
legal fees, real estate taxes, and maintenance and
preservation expenses, thereby reducing collections
available to the trust.
S-13
<PAGE> 14
LIQUIDATION EXPENSES Liquidation expenses with respect to defaulted
mortgage loans do not vary directly with the
outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer took
the same steps in realizing upon a defaulted mortgage
loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having
a larger principal balance, the amount realized after
expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of
the smaller mortgage loan than would be the case with
a larger loan. Because the average outstanding
principal balances of the mortgage loans are small
relative to the size of the loans in a typical pool
of purchase-money first mortgages, realizations net
of liquidation expenses on defaulted mortgage loans
may also be smaller as a percentage of the principal
amount of the mortgage loans than would such net
realizations in the case of a typical pool of
purchase-money first mortgage loans.
NON-OWNER OCCUPIED As of ___________ , non-owner occupied properties
PROPERTIES represent _____% of the mortgage loans in the trust
(by aggregate principal balance). It is possible that
the rate of delinquencies, foreclosures and losses on
mortgage loans secured by non-owner occupied
properties could be higher than for loans secured by
the primary residence of the borrower.
MANDATORY REDEMPTION You should be aware that in the event that the
sponsor does not have enough subsequent mortgage
loans to sell to the trust, you will receive a
prepayment of principal. Although no assurance can be
given, the sponsor expects that the principal amount
of subsequent mortgage loans sold to the trust will
require substantially all cash on deposit in each
pre-funding account and that there will be no
material principal prepayment to the holders of the
notes.
ELIGIBILITY OF Each subsequent mortgage loan must satisfy certain
SUBSEQUENT MORTGAGE eligibility criteria at the time of its addition to
LOANS the trust. However, subsequent mortgage loans may
have been originated or purchased using credit
criteria different from those which were applied to
the mortgage loans conveyed on the closing date and
may be of a different credit quality. Therefore,
following the transfer of subsequent mortgage loans,
the aggregate characteristics of the pool of mortgage
loans then held in the trust may vary from the pool
conveyed on the closing date. See "The Mortgage
Loans" in this prospectus supplement.
EFFECT OF SOCIAL, The ability of the trust to purchase subsequent
ECONOMIC AND OTHER mortgage loans depends upon whether the mortgagors
FACTORS ON THE ABILITY thereunder perform their obligations required by such
TO PURCHASE subsequent mortgage loans in order that such
SUBSEQUENT subsequent mortgage loans meet the eligibility
MORTGAGE LOANS requirements. The performance by such mortgagors may
be affected as a result of a variety of social and
economic factors including interest rates,
unemployment levels, the rate of inflation and
consumers' general perception of economic conditions.
However, the originator is unable to determine and
has no basis to predict whether or to what extent
economic or social factors will affect the
performance by such mortgagors and the availability
of subsequent mortgage loans.
S-14
<PAGE> 15
YEAR 2000 ISSUE Many existing computer programs use only two digits
to identify a year in the date field. These programs
were designed and developed without considering the
impact of the upcoming change in the century. If not
corrected, many computer applications could fail or
create erroneous results on or after January 1, 2000.
In connection with this issue Advanta Corp., the
parent company of the affiliated originators and
Advanta Mortgage Corp. USA, has completed the
evaluation of its systems, applications and vendor
lists, and is implementing project plans to modify
existing computer programs, convert to new programs
or replace systems, to the extent necessary to
address the upcoming change in the century. Advanta
Corp. has identified its significant business
relationships, including, without limitation,
vendors, customers, asset management counterparties
and pre-funding counterparties. Advanta Corp. has
initiated communications with these third parties to
determine the extent to which Advanta Corp. is
vulnerable to such third parties' failure to
remediate their own year 2000 issues. In the event
that Advanta Corp.'s project plans are not timely or
successfully completed, there can be no assurance
that the upcoming change in the century will not have
a material adverse effect on the operations of the
affiliated originators and Advanta Mortgage Corp.
USA, including a shut-down of operations for a period
of time, which may, in turn, have a material adverse
effect on the notes. In addition, there can be no
assurance that the systems used by outside service
providers, including sub-servicers providing services
to Advanta Mortgage Corp. USA, or other third parties
upon which the affiliated originators' and Advanta
Mortgage Corp. USA's systems rely, will be converted
on a timely basis. Further, there can be no assurance
that a failure to convert by another company, or a
conversion that is incompatible with the affiliated
originators' and Advanta Mortgage Corp. USA's
systems, would not have a material adverse effect on
their operations, which may, in turn, have a material
adverse effect on the notes. In the event that the
systems or programs of the indenture trustee, the
owner trustee and the insurer are not year 2000
compliant, there can be no assurance that there would
not be a material adverse effect on the operations of
the indenture trustee or the insurer, respectively,
which may, in turn, have a material adverse effect on
the notes.
DTC AND THE With respect to Year 2000 issues, the Depository
YEAR 2000 ISSUE Trust Company ("DTC") has informed members of the
financial community that it has developed and is
implementing a program so that its systems, as the
same relate to the timely payment of distributions
(including principal and income payments) to
securityholders, book-entry deliveries, and
settlement of trades within DTC continue to function
appropriately on and after January 1, 2000. This
program includes a technical assessment and a
remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase,
which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its
services is also dependent upon other parties,
including but not limited to, its participating
organizations (through which noteholders will hold
their offered notes), as well as the computer systems
of third party service providers. DTC has informed
the financial community that it is contacting (and
will continue to contact) third party vendors from
whom DTC acquires services to: (i) impress upon them
the importance of such services being Year 2000
compliant and (ii) determine the extent of their
efforts for year 2000 remediation (and, as
appropriate, testing) of their services. In addition,
DTC has stated that it is in the process of
developing such contingency plans as it deems
appropriate.
S-15
<PAGE> 16
If problems associated with the Year 2000 issue were
to occur with respect to DTC and the services
described above, distributions to noteholders could
be delayed or otherwise adversely affected.
INTEREST SHORTFALLS Generally speaking, the note interest rate will be
ARE NOT COVERED based upon the level of one-month LIBOR. This bears
BY THE INSURANCE no relationship to the methods of calculating the
POLICY interest rates on the fixed rate mortgage loans, the
interest rates of which do not change or the
adjustable rate mortgage loans, the interest rates of
which are generally based on six-month LIBOR. It is
possible, for instance, that the level of one-month
LIBOR may move in one direction against fixed rate
loans and during periods in which the level of the
index related to the adjustable rate loans is stable
or moving in the opposite direction. It is also
possible that, even if the levels of both one-month
LIBOR and the index used to calculate the interest
rate on the adjustable rate mortgage loans move in
the same direction during any period, the extent of
the change in the level of one-month LIBOR may be
greater or less than that of such index during the
same period.
These factors may cause the note interest rate to be
greater than the amount of available interest on the
mortgage loans. You should be aware that any
resulting shortfall in interest will adversely affect
the yield to maturity on the notes and that the
insurance policy will not cover the interest
shortfall resulting from the fact that the applicable
interest rate cap is less than the alternative
calculation of the interest rate set forth above
under the heading "Notes -- Interest Rate" in the
summary.
THE PORTFOLIOS OF MORTGAGE LOANS
The pool of mortgage loans (the "Mortgage Loans") conveyed to the trust
(each, a "Mortgage Loan Pool") includes loans which were either originated
directly by certain affiliated originators (the "Affiliated Originators") or
purchased by the Affiliated Originators from others on a loan-by-loan basis and
in either case acquired by Advanta Mortgage Credit Services, Inc. (the
"Sponsor"). The Sponsor also acquires loans from unaffiliated originators (the
"Unaffiliated Originators"). Such loans are originated by Unaffiliated
Originators either directly or purchased by the Unaffiliated Originators from
others on a loan-by-loan basis (with an Affiliated Originator and an
Unaffiliated Originator each being referred to herein as an "Originator").
The Affiliated Originators are Advanta Mortgage Corp. USA, Advanta
National Bank, Advanta Bank Corp., Advanta Mortgage Corp. Midatlantic, Advanta
Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage
Corp. of New Jersey, Advanta Mortgage Corp. Northeast and Advanta Finance Corp.
DELINQUENCIES
Owned and Managed Servicing Portfolio. The following tables set forth
information relating to the delinquency, loan loss and foreclosure experience of
the Advanta Mortgage Corp. USA (the "Master Servicer") for its servicing
portfolio, excluding certain loans serviced by the Master Servicer that were not
originated or purchased and reunderwritten by the Sponsor or its Affiliated
Originators (the "Owned and Managed Servicing Portfolio"), of fixed and
adjustable rate mortgage loans as of __________________, and for each of the
four prior years ended December 31. The Owned and Managed Servicing Portfolio
S-16
<PAGE> 17
includes, but is not limited to, the Mortgage Loans acquired on or prior to
__________________, which are contained in the Statistic Calculation Pools. In
addition to the Owned and Managed Servicing Portfolio, the Master Servicer
serviced, as of __________________, approximately _______ mortgage loans with an
aggregate principal balance as of such date of approximately $___ billion; such
loans were not originated by the Sponsor or its Affiliated Originators and are
being serviced for third parties on a contract servicing basis (the "Third-Party
Servicing Portfolio"). No loans in the Third-Party Servicing Portfolio are
included in the tables set forth below.
S-17
<PAGE> 18
<TABLE>
<CAPTION>
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE
MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
____ MONTHS ENDING YEAR ENDING DECEMBER 31,
----------------------- --------------------------------------------------------------------------------------
----------------------- --------------------------------------------------------------------------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT
LOANS (000) LOANS (000) LOANS (000) LOANS (000) LOANS (000)
---------- ------------ --------- ----------- -------- ----------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio
Delinquency
percentage(1)
30-59 days
60-89 days
90 days or more
Total
Foreclosure
rate(2)
REO
properties(3)
- ----------------------
</TABLE>
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period exclude
loans in foreclosure.
(2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of
mortgage loans in foreclosure as a percentage of the total number of
mortgage loans or the dollar amount of mortgage loans, as the case may be,
as of the date indicated.
(3) REO Properties (i.e., "real estate owned" properties -- properties relating
to mortgages foreclosed or for which deeds in lieu of foreclosure have been
accepted, and held by the Master Servicer pending disposition) percentages
are calculated using the number of loans, not the dollar amount.
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE
OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
____ MONTHS ENDING YEAR ENDING DECEMBER 31,
------------------ --------------------------------------------------------------------------
------------------ ---------------- ---------------- ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average amount outstanding(1)
Gross losses(2)
Recoveries(3)
Net losses(4)
Net losses as a percentage of
average amount outstanding(5)
- --------------------
</TABLE>
(1) "Average Amount Outstanding" during the period is the arithmetic average of
the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are amounts which have been determined to be uncollectible
relating to mortgage loans for each respective period.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
(5) ____________ percentage has been based on annualized net losses.
S-18
<PAGE> 19
THE MORTGAGE LOANS
GENERAL
The Mortgage Loans will be conveyed to Advanta Mortgage Loan Trust
____-_ (the "Trust"), on or before _____________ (the "Closing Date") and prior
to the end of the pre-funding period, and simultaneously pledged to the
Indenture Trustee. The Mortgage Loans will be predominantly used (x) to
refinance an existing mortgage loan on more favorable terms, (y) to consolidate
debt, or (z) to obtain cash proceeds by borrowing against the Mortgagor's equity
in the related Mortgaged Property.
THE STATISTIC CALCULATION POOLS
The statistical information presented in this prospectus supplement
concerning the Mortgage Loans in the Trust is given as of __________ (the
"Initial Cut-Off Date"). The aggregate principal balances of the Initial
Mortgage Loans for the Trust as of the Initial Cut-Off Date (as of such date,
the "Statistic Calculation Pool") is $____________. The Sponsor expects that the
actual amount of Mortgage Loans in the Trust as of the Closing Date will be
approximately $_________ . It is anticipated that as of the close of the
Pre-Funding Period (as defined herein), the Trust will contain approximately
$____________ in Mortgage Loans. The additional Mortgage Loans reflected as of
the Closing Date will represent Mortgage Loans acquired or to be acquired prior
to the Closing Date. The additional Mortgage Loans reflected as of the
Pre-Funding Period Termination Date represent subsequent Mortgage Loans which
will be conveyed to the Trust by the Sponsor in exchange for funds in the
Pre-Funding Account and subsequently pledged to the Indenture Trustee.
In addition, with respect to the Statistic Calculation Pool as to which
statistical information is presented herein, some amortization of the Mortgage
Loans will occur prior to the Closing Date. Certain loans included in the
Statistic Calculation Pool may prepay in full, or may be determined not to meet
the eligibility requirements for the final pools and as a result may not be
included in the final pool. As a result of the foregoing, the statistical
distribution of such characteristics as of the Closing Date in the Mortgage Loan
pool will vary somewhat from the statistical distribution of such
characteristics in the Statistic Calculation Pool as presented in this
prospectus supplement, although such variance will not be material. In the event
that the Sponsor does not, as of the Closing Date, have the full amount of
Mortgage Loans which the Sponsor expects to convey to the Trust or request the
Trust to acquire on such date, the Sponsor will reduce the size of the offering.
The Sponsor does not expect that the original principal amount of the notes will
increase or decrease by more than 5% as a result of such non-delivery. Even if
the full expected amount of Mortgage Loans is delivered, certain adjustments
(plus or minus 5%) may occur.
THE MORTGAGE LOANS
The Statistic Calculation Pool contained ____ Mortgage Loans to be sold
to the Trust evidenced by promissory notes (the "Mortgage Notes") secured by
Mortgages on the Mortgaged Properties, which are located in ___states and the
District of Columbia. The Mortgaged Properties securing the Mortgage Loans
consist primarily of single-family residences (which may be detached, part of a
two-to four-family dwelling, a condominium unit or a unit in a planned unit
development). The Mortgaged Properties may be owner-occupied (which includes
second and vacation homes) and non-owner occupied investment properties.
The Mortgage Loans will be required to satisfy the following criteria
as of the Initial Cut-Off Date: have remaining terms to maturity of no greater
than 30 years; will not be 30 or more days delinquent (except that certain
Mortgage Loans, representing in the aggregate not in excess of ______%
S-19
<PAGE> 20
of the aggregate principal balance of all Mortgage Loans as of the Initial
Cut-Off Date, may be 30-59 days delinquent). Neither the Sponsor nor the Master
Servicer have reason to believe that the delinquency and loss experience of the
Mortgage Loans will differ in any material respect from that of the Master
Servicer's total servicing portfolio, although there can be no assurance that
this will be the case.
Less than ____% of the Mortgage Loans (as a percentage of the aggregate
principal balance of all Mortgage Loans contained in the Statistic Calculation
Pools) are "simple interest" or "date of payment" loans, with the remainder
"actuarial" or "pre-computed" loans. A "simple interest" loan provides that
interest which has accrued to date is paid first and the remaining payment is
applied to reduce the unpaid principal balance. An "actuarial" loan provides for
amortization of the loan over a series of fixed level monthly installments.
____% of the Mortgage Loans are secured by first lien mortgages on the related
Mortgaged Properties and ____% of the Mortgage Loans are secured by junior liens
on the related Mortgaged Properties.
Each of the Mortgage Loans contained in the Trust will be either (A)
fixed rate Mortgage Loans and will (a) be secured by a Mortgage having either a
first or junior lien position with respect to the related Mortgaged Property and
will have a maximum remaining term to maturity of 30 years or (B) will be
adjustable rate Mortgage Loans and will be secured by a Mortgage having first or
second position with respect to the related Mortgaged Property and will have a
maximum remaining term to maturity of 30 years.
The CLTVs and LTVs described herein were calculated based upon the
appraised values of the related Mortgaged Properties at the time of origination
(the "Appraised Values"). In general, for purchase money loans, the CLTVs and
LTVs were calculated using the lower of the purchase price or appraised values
of the related Mortgaged Properties at the time of origination. No assurance can
be given that such appraised values of the Mortgaged Properties have remained or
will remain at their levels on the dates of origination of the related Mortgage
Loans. If property values decline such that the outstanding balances of the
Mortgage Loans, together with the outstanding balances of any Senior Liens,
rises as a percentage of the value of the Mortgaged Properties, the actual rates
of delinquencies, foreclosures and losses could be higher than those heretofore
experienced by the Master Servicer, as set forth above under "The Portfolio of
Mortgage Loans," and in the mortgage lending industry.
FIXED RATE MORTGAGE LOAN POOL
The fixed rate Mortgage Loans in the Statistic Calculation Pool consist
of ________ Mortgage Loans under which the related Mortgaged Properties are
located in ___ states and the District of Columbia, as set forth herein. The
Trust had an aggregate principal balance of $_______ and the minimum principal
balance of any of the Mortgage Loans in the Statistic Calculation Pool was
$____, the maximum principal balance thereof was $_____ and the average
principal balance of such Mortgage Loans was approximately $________ . The
Mortgage Rates on the fixed rate Mortgage Loans ranged from ____% to _____% per
annum, and the weighted average Mortgage Rate of such Mortgage Loans was _____%
per annum. The original term to stated maturity of the fixed rate Mortgage Loans
ranged from ___ months to 360 months, the remaining term to stated maturity
ranged from 2 months to 360 months, the weighted average original term to stated
maturity was ___ months, the weighted average remaining term to stated maturity
was ____ months and the weighted average seasoning was ___ months. No fixed rate
Mortgage Loan had a stated maturity later than _________. ________% of the fixed
rate Mortgage Loans in by aggregate principal balance require monthly payments
of principal that will fully amortize such Mortgage Loans by their respective
maturity dates, and 15.00% of such Mortgage Loans by aggregate principal balance
are Balloon Loans.
S-20
<PAGE> 21
The weighted average CLTV of the fixed rate Mortgage Loans included in
_______ was _____% and the weighted average LTV was _______%. The weighted
average Junior Lien Ratio (as defined below) of the Mortgage Loans was ______%.
Approximately _____% of the fixed rate Mortgage Loans by aggregate principal
balance were secured by first mortgages and approximately 2.43% by junior
mortgages.
The "Junior Lien Ratio" of a Mortgage Loan which is in a junior lien
position is equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the principal balance at the time of
origination of the Mortgage Loan of any Senior Liens (computed at the time of
origination of such Mortgage Loan).
The following tables describe the fixed rate Mortgage Loans and the
related Mortgaged Properties based upon the Statistic Calculation Pool as
calculated at the opening of business on the Initial Cut-Off Date.
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama.....................
Alaska......................
Arizona.....................
Arkansas....................
California..................
Colorado....................
Connecticut.................
Delaware....................
District of Columbia........
Florida.....................
Georgia.....................
Hawaii......................
Idaho.......................
Illinois....................
Indiana.....................
Iowa........................
Kansas......................
Kentucky....................
Louisiana...................
Maine.......................
Maryland....................
Massachusetts...............
Michigan....................
Minnesota...................
Mississippi.................
Missouri....................
Montana.....................
Nebraska....................
Nevada......................
New Hampshire...............
New Jersey..................
New Mexico..................
New York....................
North Carolina..............
North Dakota................
Ohio........................
Oklahoma....................
Oregon......................
Pennsylvania................
Rhode Island................
South Carolina..............
South Dakota................
Tennessee...................
Texas.......................
Utah........................
Vermont.....................
Virginia....................
Washington..................
West Virginia...............
Wisconsin...................
Wyoming.....................
TOTAL....................
</TABLE>
S-21
<PAGE> 22
DISTRIBUTION OF CLTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
90.01 - 95.00%.................
85.01 - 90.00..................
80.01 - 85.00..................
75.01 - 80.00..................
70.01 - 75.00..................
65.01 - 70.00..................
60.01 - 65.00..................
55.01 - 60.00..................
50.01 - 55.00..................
00.01 - 50.00..................
TOTAL.......................
</TABLE>
DISTRIBUTION OF LTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
90.01 - 95.00%.................
85.01 - 90.00..................
80.01 - 85.00..................
75.01 - 80.00..................
70.01 - 75.00..................
65.01 - 70.00..................
60.01 - 65.00..................
55.01 - 60.00..................
50.01 - 55.00..................
00.01 - 50.00..................
TOTAL.......................
</TABLE>
DISTRIBUTION OF JUNIOR LIEN RATIOS
(JUNIOR LIENS ONLY)
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
JUNIOR LIEN RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0.001 - 10.000%.................
10.001 - 20.000..................
20.001 - 30.000..................
30.001 - 40.000..................
40.001 - 50.000..................
50.001 - 60.000..................
60.001 - 70.000..................
70.001 - 80.000..................
80.001 - 90.000..................
90.001 -100.000..................
TOTAL........................
</TABLE>
S-22
<PAGE> 23
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY DISTRIBUTION
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------ -------------- ----------------- -----------------
<S> <C> <C> <C>
1 - 12..........................
13 - 24..........................
25 - 36..........................
37 - 48..........................
49 - 60..........................
61 - 72..........................
73 - 84..........................
85 - 96..........................
97 - 108.........................
109 - 120.........................
121 - 132.........................
133 - 144.........................
145 - 156.........................
157 - 168.........................
169 - 180.........................
181 - 192.........................
193 - 204.........................
205 - 216.........................
217 - 228.........................
229 - 240.........................
253 - 264.........................
265 - 276.........................
289 - 300.........................
301 - 312.........................
313 - 324.........................
325 - 336.........................
337 - 348.........................
349 - 360.........................
TOTAL.........................
</TABLE>
S-23
<PAGE> 24
<TABLE>
<CAPTION>
DISTRIBUTION OF PRINCIPAL BALANCES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0 - 5,000.................
5,001 - 10,000.................
10,001 - 15,000.................
15,001 - 20,000.................
20,001 - 25,000.................
25,001 - 30,000.................
30,001 - 35,000.................
35,001 - 40,000.................
40,001 - 45,000.................
45,001 - 50,000.................
50,001 - 55,000.................
55,001 - 60,000.................
60,001 - 65,000.................
65,001 - 70,000.................
70,001 - 75,000.................
75,001 - 80,000.................
80,001 - 85,000.................
85,001 - 90,000.................
90,001 - 95,000.................
95,001 - 100,000.................
100,001 - 150,000.................
150,001 - 200,000.................
200,001 - 250,000.................
250,001 - 300,000.................
300,001 - 350,000.................
TOTAL..........................
<CAPTION>
DISTRIBUTION OF MORTGAGE RATES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
6.001 -7.000%...................
7.001 -8.000....................
8.001 -9.000....................
9.001 -10.000...................
10.001 -11.000...................
11.001 -12.000...................
12.001 -13.000...................
13.001 -14.000...................
14.001 -15.000...................
15.001 -16.000...................
16.001 -17.000...................
17.001 -18.000...................
TOTAL.........................
</TABLE>
S-24
<PAGE> 25
<TABLE>
<CAPTION>
DISTRIBUTION OF PROPERTY TYPES
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
SF Detached/De Minimis PUD.............
SF Row House/Townhouse/ Condo..........
Two to Four Family Homes...............
Prefabricated Single Family............
TOTAL..............................
<CAPTION>
DISTRIBUTION OF OCCUPANCY STATUS
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner occupied*......................
Non-owner occupied...................
TOTAL............................
- -------------------
<CAPTION>
DISTRIBUTION OF SEASONING
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE
SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0 - 6...........................
7 - 12..........................
13 - 24..........................
49 - 60..........................
73 - 84..........................
85 - 96..........................
97 - 108..........................
109 - 120..........................
121 - 132..........................
133 - 144..........................
145 - 156..........................
TOTAL............................
</TABLE>
S-25
<PAGE> 26
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
During the Pre-Funding Period, the Sale and Servicing Agreement permits
the Trust to acquire up to approximately $_______ aggregate principal balance of
Subsequent Mortgage Loans for assignment to the Trust. Accordingly, the
statistical characteristics of the Trust will vary as of any Subsequent Cut-Off
Date upon the acquisition of the Subsequent Mortgage Loans which are assigned to
the Trust.
ADJUSTABLE RATE MORTGAGE LOAN POOL
The adjustable rate Mortgage Loans in the Statistic Calculation Pool
consist of ___ loans under which the related Mortgaged Properties are located in
____ states, as set forth herein. The adjustable rate Mortgage Loans in had an
aggregate principal balance of $___________, the minimum principal balance of
any of such Mortgage Loans was $______ , the maximum principal balance thereof
was $__________ and the average principal balance of such Mortgage Loans was
approximately $_______ . The weighted average current Mortgage Rate of the
adjustable rate Mortgage Loans was _____% and the weighted average margin was
____ %.
The adjustable rate Mortgage Loans have original terms to stated
maturity from ____ months to 360 months, remaining terms to stated maturity from
____ months to 360 months, a weighted average remaining term to stated maturity
of ____ months, a weighted average original term to stated maturity of ____
months and a weighted average seasoning of 1 month. No adjustable rate Mortgage
Loan had a stated maturity later than ___________. All of the adjustable rate
Mortgage Loans require monthly payments of principal that will fully amortize
such Mortgage Loans by their respective maturity dates.
The weighted average loan-to-value ratio of the adjustable rate
Mortgage Loans included was _______%. All of the adjustable rate Mortgage Loans
were secured by first mortgages.
_____% of the Mortgage Loans bear interest (in some instances,
following an initial fixed-rate period) at a six-month LIBOR rate, plus a
margin. _____% are indexed on the average of the six-month LIBOR rates based on
quotations at five major banks as set forth in the "Money Rates" section of The
Wall Street Journal, Western Edition, on the first business day of the month;
_____% are indexed on the average of the six-month LIBOR rates based on
quotations of major banks, as published by the Federal National Mortgage
Association ("FNMA"), on the first business day of the month; ____% are indexed
on the average of the six-month LIBOR rates based on quotations at five major
banks as set forth in the "Money Rates" section of the Wall Street Journal,
Western Edition, on the most recent daily quote available; _____% are indexed on
the average of the six-month LIBOR rates based on quotations at five major banks
as set forth in the "Money Rates" section of The Wall Street Journal, Western
Edition, on the last business day of the month; ______% are indexed on other
six-month LIBOR rates; and ______ are indexed on the weekly average of the
one-year constant maturity treasury.
With respect to the adjustable rate Mortgage Loans _____, ____% of such
Mortgage Loans bear interest at a fixed rate of interest for a two-year period
following origination, ____% of such Mortgage Loans bear interest at a fixed
rate of interest for a three-year period following origination, ____% of such
Mortgage Loans bear interest at a fixed rate of interest for a five-year period
following origination. After such initial periods, such Mortgage Loans bear
interest at adjustable rates, as described above.
____% of the adjustable rate loans have semi-annual interest rate and
semi-annual payment adjustment frequencies. _____% of the loans in the Trust
have annual interest rate and annual payment adjustment frequencies. The margins
for the adjustable rate Mortgage Loans range from ____ to _____. ________% of
the adjustable rate Mortgage Loans have a periodic rate adjustment cap of 1.00%;
______ of such Mortgage Loans have a periodic rate adjustment cap of 1.50%;
_____% of the adjustable rate
S-26
<PAGE> 27
Mortgage Loans have a periodic rate adjustment cap of 2.00%; ____% have a
periodic rate adjustment cap of 3.00%; and ____% have other periodic rate
adjustment caps. _____ of the adjustable rate Mortgage Loans have a lifetime cap
of 7.00%; ______% have a lifetime cap of 6.50%; _____% have a lifetime cap of
6.00% and _____% have other lifetime caps. The weighted average number of months
until the next reset date is approximately ____ months. The weighted average
maximum Mortgage Rate was approximately _____ , with maximum Mortgage Rates that
range from _____ to ____ . The weighted average minimum Mortgage Rate was
approximately _____, with minimum Mortgage Rates that range from _____ to
______.
The following tables describe the adjustable rate Mortgage Loans and
the related Mortgaged Properties based upon the adjustable Statistic Calculation
Pool as of the opening of business on the Initial Cut-Off Date.
S-27
<PAGE> 28
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
S-28
<PAGE> 29
<TABLE>
<CAPTION>
DISTRIBUTION OF CLTVS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL....................
<CAPTION>
DISTRIBUTION OF LTVS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
<CAPTION>
DISTRIBUTION OF CURRENT MORTGAGE RATES
RANGE OF CURRENT NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL.....................
</TABLE>
S-29
<PAGE> 30
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY DISTRIBUTION
REMAINING TERM NUMBER OF AGGREGATE % OF AGGREGATE
TO MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL.....................
<CAPTION>
DISTRIBUTION OF PRINCIPAL BALANCES
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL....................
</TABLE>
S-30
<PAGE> 31
<TABLE>
<CAPTION>
DISTRIBUTION OF PROPERTY TYPES
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
SF Detached/De Minimis PUD..........
SF Row House/Townhouse/Condo........
Two to Four Family Homes............
Prefabricated Single Family.........
TOTAL..........................
<CAPTION>
DISTRIBUTION OF OCCUPANCY STATUS
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner occupied*.....................
Non-owner occupied..................
TOTAL..........................
- -----------------------
* Includes vacation and second homes.
<CAPTION>
DISTRIBUTION OF SEASONING
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE
SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL......................
</TABLE>
S-31
<PAGE> 32
<TABLE>
<CAPTION>
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
RANGE OF MAXIMUM NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL..................
</TABLE>
S-32
<PAGE> 33
<TABLE>
<CAPTION>
DISTRIBUTION OF MINIMUM MORTGAGE RATES
RANGE OF MINIMUM NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL...................
<CAPTION>
DISTRIBUTION OF MARGINS
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL...................
</TABLE>
S-33
<PAGE> 34
<TABLE>
<CAPTION>
NEXT INTEREST ADJUSTMENT DATE DISTRIBUTION
NEXT INTEREST NUMBER OF AGGREGATE % OF AGGREGATE
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL.....................
</TABLE>
S-34
<PAGE> 35
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on a Note will be directly related to the rate of payment of
principal of the Mortgage Loans in the Trust, including for this purpose
voluntary payment in whole or in part of Mortgage Loans in the Trust prior to
stated maturity (a "Prepayment"), liquidations due to defaults, casualties and
condemnations, and repurchases of Mortgage Loans in the Trust by the Sponsor,
the Originators or the Master Servicer. The actual rate of principal prepayments
on pools of mortgage loans is influenced by a variety of economic, tax,
geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among mortgage loans at any time because of specific factors relating to
the mortgage loans in the pool, including, among other things, the age of the
mortgage loans, the geographic locations of the properties securing the loans
and the extent of the mortgagors' equity in such properties, and changes in the
mortgagors' housing needs, job transfers and unemployment.
The timing of changes in the rate of prepayments may significantly
affect the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's yield
of prepayments occurring at a rate higher (or lower) than the rate anticipated
by the investor during the period immediately following the issuance of the
Notes will not be offset by a subsequent like reduction (or increase) in the
rate of principal prepayments. Investors must make their own decisions as to the
appropriate prepayment assumptions to be used in deciding whether to purchase
any of the Notes. The Sponsor makes no representations or warranties as to the
rate of prepayment or the factors to be considered in connection with such
determination.
PROJECTED PREPAYMENTS AND YIELDS FOR NOTES
If purchased at other than par, the yield to maturity on a Note will be
affected by the rate of the payment of principal of the Mortgage Loans in the
Trust. If the actual rate of payments on the Mortgage Loans in the Trust is
slower than the rate anticipated by an investor who purchases a Note at a
discount, the actual yield to such investor will be lower than such investor's
anticipated yield. If the actual rate of payments on the Mortgage Loans is
faster than the rate anticipated by an investor who purchases a Note at a
premium, the actual yield to such investor will be lower than such investor's
anticipated yield.
Some of the Mortgage Loans are adjustable rate mortgage loans. As is
the case with conventional fixed rate mortgage loans, adjustable rate mortgage
loans may be subject to a greater rate of principal prepayments in a declining
interest rate environment. For example, if prevailing interest rates fall
significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed-rate mortgage loans at competitive interest rates may
encourage mortgagors to refinance their adjustable rate mortgage loans to "lock
in" a lower fixed interest rate. However, no assurance can be given as to the
level of prepayments that the Mortgage Loans will experience. _____% of the
Mortgage Loans in the Statistic Calculation Pool by aggregate principal balance
had prepayment penalties.
Some of the Mortgage Loans are fixed-rate mortgage loans. The rate of
prepayments with respect to conventional fixed rate mortgage loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates fall significantly below the interest rates on fixed rate mortgage loans,
such mortgage loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rate on such mortgage loans.
However, the monthly payment on mortgage loans
S-35
<PAGE> 36
similar to the Mortgage Loans is often smaller than the monthly payment on a
purchase-money first mortgage loan. Consequently, a decrease in the interest
rate payable as a result of a refinancing would result in a relatively small
reduction in the amount of the Mortgagor's monthly payment, as a result of the
relatively small loan balance. Conversely, if prevailing interest rates rise
appreciably above the interest rates on fixed rate mortgage loans, such mortgage
loans are likely to experience a lower prepayment rate than if prevailing rates
remain at or below the interest rates on such mortgage loans. ____% and ____% of
the Mortgage Loans in the Statistic Calculation Pool, by aggregate principal
balance had prepayment penalties.
The Final Scheduled Payment Dates for the Notes have been calculated
assuming that the Mortgage Loan in the Trust having the latest maturity
amortizes according to its terms. [NOTE INSURER] will guarantee payment by
__________ (the "Final Scheduled Payment Date").
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Notes will be influenced by the rate at which principal payments on the Mortgage
Loans in the Mortgage Loan Pool are paid, which may be in the form of scheduled
amortization, accelerated amortization or prepayments (for this purpose, the
term "prepayment" includes Prepayments and liquidations due to default) or as a
result of an early termination of the Trust.
The model used in this prospectus supplement is a prepayment assumption
(the "Prepayment Assumption") which represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such mortgage loans. The "100% Prepayment
Assumption" assumes a conditional prepayment rate of 3% per annum of the then
outstanding principal balance of the Mortgage Loans in the first month of the
life of the Mortgage Loans and an additional 1.55% (precisely, 17/11%) per annum
in each month thereafter until the twelfth month. Beginning in the twelfth month
and in each month thereafter during the life of the Mortgage Loans, the 100%
Prepayment Assumption assumes a conditional prepayment rate of 20% per annum
each month. As used in the table below, 0% Prepayment Assumption assumes
prepayment rates equal to 0% of the Prepayment Assumption, i.e., no prepayments
on the synthetic mortgage loans having the characteristics described below.
Correspondingly, 100% Prepayment Assumption assumes prepayment rates equal to
100% of the Prepayment Assumption, and so forth. The Prepayment Assumption does
not purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. The Sponsor believes that no existing statistics
of which it is aware provide a reliable basis for Holders of Notes to predict
the amount or the timing of receipt of prepayments on the Mortgage Loans.
The tables below were prepared on the basis of the assumptions in the
following paragraph and there are discrepancies between the characteristics of
the actual Mortgage Loans and the characteristics of the Mortgage Loans assumed
in preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Note Principal Balances outstanding and the weighted average
lives of the Notes set forth in the tables. In addition, since the actual
Mortgage Loans in the Trust have characteristics which differ from those assumed
in preparing the tables set forth below, the distributions of principal on the
Notes may be made earlier or later than as indicated in the tables.
For the purpose of the tables below, it is assumed that:
(i) THE MORTGAGE LOANS CONSIST OF MORTGAGE LOANS HAVING
THE CHARACTERISTICS SET FORTH BELOW,
(ii) THE CLOSING DATE IS ______________,
S-36
<PAGE> 37
(iii) DISTRIBUTIONS ON THE NOTES ARE MADE ON THE 25TH DAY
OF EACH MONTH REGARDLESS OF THE DAY ON WHICH THE
PAYMENT ACTUALLY OCCURS, COMMENCING ON ______________
IN ACCORDANCE WITH THE PRIORITIES DESCRIBED HEREIN,
(iv) ALL PREPAYMENTS ARE PREPAYMENTS IN FULL AND INCLUDE
30 DAYS' INTEREST THEREON,
(v) NO EARLY TERMINATION OF THE TRUST OCCURS, UNLESS
OTHERWISE SPECIFIED,
(vi) NO MORTGAGE LOAN IS EVER DELINQUENT,
(vii) THE ASSUMED LEVELS OF ONE-MONTH LIBOR, SIX-MONTH
LIBOR, AND 1 YEAR CMT ARE ______ , _______ AND
________, RESPECTIVELY,
(viii) NOTES HAVE THE RESPECTIVE PASS-THROUGH RATES AND
ORIGINAL PRINCIPAL BALANCES AS SET FORTH HEREIN, AND
(ix) ALL OF THE SUBSEQUENT MORTGAGE LOANS ARE DELIVERED TO
THE TRUST APPROXIMATELY ONE MONTH AFTER THE CLOSING
DATE.
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI Scenario VII
---------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Pool(1)...........
Adjustable Rate Pool (2) ....
</TABLE>
- ------------------------
(1) As a percentage of the Prepayment Assumption.
(2) As a conditional prepayment rate (CPR) percentage.
S-37
<PAGE> 38
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL REMAINING ORIGINAL
GROSS TERM TO TERM TO AMORTIZATION
COUPON MATURITY MATURITY TERM AMORTIZATION
PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) (MONTHS) METHOD
----------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL REMAINING ORIGINAL
GROSS TERM TO TERM TO AMORTIZATION
COUPON MATURITY MATURITY TERM AMORTIZATION
PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) (MONTHS) METHOD
----------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
S-38
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ADJUSTABLE RATE TRUST
<TABLE>
<CAPTION>
NEXT RATE
ADJUSTMENT PERIODIC ORIGINAL REMAINING
GROSS DATE CAP PERIODIC CAP TERM TO TERM TO
PRINCIPAL COUPON (NUMBER OF (FIRST RESET (SUBSEQUENT LIFE LIFE MATURITY MATURITY RESET
BALANCE RATE MONTHS) MARGIN DATE) RESET DATES) CAP FLOOR (MONTHS) (MONTHS) INDEX FREQUENCY
--------- ------ ---------- ------ ------------ ------------ ------ ----- -------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
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The following tables set forth the percentages of the initial principal
amount of the Notes that would be outstanding after each of the dates shown,
based on prepayment scenarios described in the table entitled "Prepayment
Scenarios". The percentages have been rounded to the nearest 1%.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the tables set forth above,
which only demonstrate how the Mortgage Loans may behave under varying
prepayment scenarios. It is unlikely that the Mortgage Loans will prepay at the
same levels of CPR or in accordance with the Prepayment Assumptions. Moreover,
the varying remaining terms to maturity of the Mortgage Loans could produce
slower or faster principal payments than indicated in the foregoing tables.
PERCENTAGE OF INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
Dates Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years) (1)
Weighted Average
Life (years) (2)
</TABLE>
(1) To Maturity
(2) To 10% Call
The weighted average life of the Notes has been determined by (i)
multiplying the amount of each principal payment by the number of years from the
date of issuance to the related Payment Date, (ii) adding the results and (iii)
dividing the sum of the initial respective Note Principal Balance for the Notes
as of the Closing Date.
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USE OF PROCEEDS
Concurrently with the sale of the Notes, the Sponsor will cause or
direct the Trust to acquire the Mortgage Loans (other than the Subsequent
Mortgage Loans) and to pledge such Mortgage Loans to the Indenture Trustee. The
Pre-Funding Account and the Capitalized Interest Account will be funded from a
portion of the proceeds of the sale of the Notes. The net proceeds from the sale
of the Notes will be paid over to the Originators in consideration of the
transfer of the Mortgage Loans. Such amount will be determined as a result of
the pricing of the Notes through the offering described in this prospectus
supplement. The net proceeds to be received from the sale of the Mortgage Loans
will be added to the Originators' general funds and will be available for
general corporate purposes, including the repayment of debt, including
"warehouse" debt secured by the Mortgage Loans (prior to their sale to the
Trust) and the purchase of new mortgage loans. The Underwriter (or its
affiliates) may have acted as a "warehouse lender" to the Sponsor or one or more
of its affiliates and may receive a portion of such proceeds as a repayment of
such "warehouse" debt.
A portion of the Notes may be delivered to Advanta National Bank and/or
Advanta Bank Corp. in consideration for the transfer of its Mortgage Loans. This
prospectus supplement and the accompanying prospectus also cover the resale of
such Notes from time to time by Advanta National Bank Advanta Bank Corp. or
their respective affiliates.
THE SPONSOR AND THE MASTER SERVICER
GENERAL
Advanta Mortgage Corp., USA (the "Master Servicer") will service the
Mortgage Loans in accordance with the terms set forth in the Sale and Servicing
Agreement. The Master Servicer may perform any of its obligations under the Sale
and Servicing Agreement through one or more subservicers, which may be an
affiliate of the Master Servicer. Notwithstanding any such subservicing
arrangement, the Master Servicer will remain liable for its servicing duties and
obligations under the Sale and Servicing Agreement as if the Master Servicer
alone were servicing the Mortgage Loans.
THE SPONSOR AND THE MASTER SERVICER
Advanta Conduit Receivables, Inc. (the "Sponsor"), is a subsidiary of
Advanta Mortgage Corp. USA, the Master Servicer, and is an indirect subsidiary
of Advanta Corp., a Delaware corporation ("Advanta Parent"), a publicly-traded
company with its principal executive offices located in Spring House,
Pennsylvania with assets as of __________________ in excess of $___ billion.
Advanta Parent, through its subsidiaries (including the Master Servicer),
managed assets (including mortgage loans) in excess of $____ billion as of
__________________. See "The Sponsor and the Transferor" and "The Master
Servicer" in the prospectus.
As of __________________, the Master Servicer and its subsidiaries were
servicing approximately _______ mortgage loans in the Owned and Managed
Servicing Portfolio, representing an aggregate outstanding principal balance of
approximately $___ billion, and approximately _______ mortgage loans in the
Third-Party Servicing Portfolio representing an aggregate outstanding principal
balance of approximately $___ billion. See "The Master Servicer" in the
prospectus.
As of __________________, the Sponsor or its affiliates have issued __
issues of mortgage backed securities with an original balance of approximately
$____ billion.
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The Master Servicer understands the implications of the Year 2000 Issue
with respect to internal operations as well as external interactions with other
third-party business entities. The Master Servicer has assessed the impact of
the Year 2000 Issue, and is implementing project plans to modify existing
computer programs, convert to new programs or replace systems, to the extent
necessary to address the Year 2000 Issue. The Master Servicer's review includes
all IT and non-IT systems, applications and vendor lists. See "Risk Factors --
Year 2000 Issue" herein.
The Indenture Trustee and the Insurer may remove the Master Servicer,
and the Master Servicer may resign, only in accordance with the terms of the
Sale and Servicing Agreement. No removal or resignation shall become effective
until the Indenture Trustee or a successor Master Servicer acceptable to the
Insurer (or the Indenture Trustee, if a default with respect to the Insurer has
occurred and is continuing) shall have assumed the Master Servicer's
responsibilities and obligations in accordance therewith. See "The Pooling and
Servicing Agreement -- Removal and Resignation of the Master Servicer" in the
prospectus.
The Master Servicer may not assign its obligations under the Sale and
Servicing Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Indenture Trustee and the Insurer, which consent
shall not be unreasonably withheld; provided, that any assignee must meet the
eligibility requirements for a successor Master Servicer set forth in the Sale
and Servicing Agreement. See "The Pooling and Servicing Agreement -- Removal and
Resignation of the Master Servicer" in the prospectus.
The Master Servicer may enter into Sub-Servicing Agreements with
qualified Sub-Servicers with respect to the servicing of all or any portion of
the Mortgage Loans in the Trust. The Sale and Servicing Agreement will provide
that affiliates of the Master Servicer which are qualified to service mortgage
loans are qualified Sub-Servicers. No Sub-Servicing Agreement discharges the
Master Servicer from its servicing obligations. See "Mortgage Loan Program --
Sub-Servicers" in the prospectus.
Upon removal or resignation of the Master Servicer, the Indenture
Trustee may solicit bids for a successor Master Servicer and, pending the
appointment of a successor Master Servicer, the Indenture Trustee will be
required to serve as Master Servicer. If the Indenture Trustee is unable to
obtain a qualifying bid and is prevented by law from acting as Master Servicer,
the Indenture Trustee will be required to appoint, or petition a court of
competent jurisdiction to appoint, an eligible successor. Any successor is
required to be acceptable to the Insurer, unless the Insurer has defaulted, in
which case the Indenture Trustee's decision shall control.
The Notes will not represent an interest in or obligation of, nor are
the Mortgage Loans guaranteed by, either the Sponsor, the Master Servicer, the
Owner Trustee, the Indenture Trustee or any of their affiliates, nor will they
be insured or guaranteed by the Federal Deposit Insurance Corporation (the
"FDIC") or any other governmental agency or instrumentality.
The Master Servicer will be obligated to advance certain amounts to
make up for shortfalls in payments from the underlying mortgagors. See "The Sale
and Servicing Agreement -- Delinquency Advances, Compensating Interest and
Services Advances" in this prospectus supplement.
THE TRUST
GENERAL
Advanta Mortgage Loan Trust ____-_ (the "Trust") is a trust formed
under the laws of the State of Delaware pursuant to a Trust Agreement (the
"Trust Agreement"), dated as of ________________
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<PAGE> 43
between Advanta Conduit Receivables, Inc., in its capacity as the Sponsor of
the Trust and [OWNER TRUSTEE], as Owner Trustee (the "Owner Trustee"). The Trust
will issue notes (the "Notes") in the original aggregate principal amount of
$_________. The Trust will also issue certain certificates which represent the
ownership interest in the Trust Property (the "Certificates"). The Certificates
are not offered hereby but will initially be retained by an affiliate of the
Sponsor.
Prior to its formation, the Trust will have no assets or obligations or
any operating history. The Trust will not engage in any business other than (i)
acquiring, holding and managing the Mortgage Loans, the other assets of such
Trust and any proceeds therefrom, (ii) issuing the Notes and the Certificates,
(iii) making payments on the Notes and the Certificates and (iv) engaging in
other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto.
The property of the Trust (the "Trust Property") shall include all
money, instruments and other property to the extent such money, instruments and
other property are subject or intended to be held in trust for the benefit of
the related Holders and the Insurer, and all proceeds thereof, including,
without limitation, (i) the Mortgage Loans owned by the Trust, (ii) such
amounts, including principal collections in respect of the related Mortgage
Loans received and interest accrued on or after the Initial Cut-Off Date and
each Subsequent Cut-Off Date, as applicable, including eligible investments as
from time to time may be held by the Indenture Trustee in the Note Account and
by the Master Servicer in the Principal and Interest Account for the Trust
(except as otherwise provided in the Sale and Servicing Agreement) but excluding
any premium recapture, each to be created pursuant to the Sale and Servicing
Agreement, (iii) any Mortgaged Property, the ownership of which has been
effected on behalf of the Trust as a result of foreclosure or acceptance by the
Master Servicer of a deed in lieu of foreclosure and that has not been withdrawn
from the Trust, (iv) any insurance policies relating to the Mortgage Loans in
the Trust and any rights of the Sponsor or the Affiliated Originators under any
insurance policies, (v) Net Liquidation Proceeds with respect to any Liquidated
Loan in the Trust.
The Trust will not acquire any assets other than the Trust Property,
and it is not anticipated that the Trust will have any need for additional
capital resources. Because the Trust will have no operating history upon their
establishment and will not engage in any business other than the duties
discussed above, no historical or pro forma financial statements or ratios of
earnings to fixed charges with respect to the Trust have been included herein.
CERTAIN ACTIVITIES
The Trust will not, except as expressly provided in the Trust Agreement
and Indenture, (i) borrow money (other than through the issuance of the Notes);
(ii) make loans; (iii) invest in securities for the purpose of exercising
control; (iv) underwrite securities; (v) engage in the purchase and sale (or
turnover) of investments; (vi) offer securities in exchange for property; or
(vii) repurchase or otherwise reacquire its securities.
THE OWNER TRUSTEE
[OWNER TRUSTEE], the Owner Trustee under the Trust Agreement, is a
Delaware banking corporation and its principal offices are located at [ADDRESS],
Attention: Corporate Trust Administration. The Owner Trustee will perform
limited administrative functions under the Trust Agreement. The Owner Trustee's
duties in connection with the issuance and sale of the Notes and the
Certificates are limited solely to the express obligations of the Owner Trustee
set forth in the Trust Agreement, the Indenture and the Sale and Servicing
Agreement.
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THE INDENTURE TRUSTEE
[INDENTURE TRUSTEE] is the Indenture Trustee under the Indenture.
[INDENTURE TRUSTEE]. is a national banking association with principal offices as
of the Closing Date located at [ADDRESS]. The Indenture Trustee's duties in
connection with the Notes are limited solely to its express obligations under
the Indenture and the Sale and Servicing Agreement.
TRANSFER OF MORTGAGE LOANS
Not later than the Closing Date, the Sponsor will cause the related
Originators to transfer the related Mortgage Loans to be conveyed on such date
(the "Initial Mortgage Loans") pursuant to one or more Master Mortgage Loan
Transfer Agreements between such Originators and the Sponsor (the "Master
Transfer Agreements"). In the Master Transfer Agreements each of the Originators
will make certain representations and warranties; the Sponsor will assign its
rights to enforce such representations and warranties to the Trust.
Pursuant to the Sale and Servicing Agreement, on the Closing Date the
Sponsor will cause or direct the Trust to acquire all right, title and interest
of the Originators in each Mortgage Loan listed on the related schedule
delivered to the Owner Trustee on the Closing Date (the "Schedule of Mortgage
Loans") and all their right, title and interest in all principal collected and
all interest due on each such Mortgage Loan (excluding any premium recapture) on
or after the Initial Cut-Off Date.
In connection with the sale of Mortgage Loans to the Trust on the
Closing Date, the related Originators will be required to deliver to the
Indenture Trustee a file (a "Mortgage Loan File") consisting of, among other
things, (i) the original Mortgage Notes or certified copies thereof, endorsed by
the Originator thereof in blank or to the order of the holder, (ii) originals of
all intervening assignments, showing a complete chain of title from origination
to the applicable Originators, if any, including warehousing assignments, with
evidence of recording thereon, (iii) originals of all assumption and
modification agreements if any, and, unless such Mortgage Loan is covered by a
counsel's opinion as described in the next paragraph, (iv) either: (a) the
original Mortgage, with evidence of recording thereon, (b) a true and accurate
copy of the Mortgage where the original has been transmitted for recording,
until such time as the original is returned by the public recording office or
(c) a copy of the Mortgage certified by the public recording office in those
instances where the original recorded Mortgage has been lost. The Indenture
Trustee will agree, for the benefit of the Holders, to review each such file
within 90 days after the Closing Date to ascertain that all required documents
(or certified copies of documents) have been executed and received.
The Sale and Servicing Agreement generally requires that there be
prepared and recorded, within 75 business days of the Closing Date (or, if
original recording information is unavailable, within such later period as is
permitted by the Sale and Servicing Agreement) assignments of the Mortgages from
the Originators to the Trust, in the appropriate jurisdictions in which such
recordation is necessary to perfect the lien thereof as against creditors of or
purchasers from the Originators; provided, however, that such requirements may
be waived by the Insurer under certain circumstances set forth in the Sale and
Servicing Agreement.
CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS
In addition to the Initial Mortgage Loans, certain additional Mortgage
Loans (the "Subsequent Mortgage Loans") will be assigned to the Trust from time
to time on or prior to the end of the Pre-Funding Period. Subject to certain
conditions, the Sponsor may, on certain dates (the "Subsequent Transfer Dates")
specified in certain transfer agreements entered into after the Closing Date
(the
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<PAGE> 45
"Subsequent Transfer Agreements"), or request to be delivered, additional
mortgage loans eligible to become Subsequent Mortgage Loans on the next Payment
Date in exchange for monies released to the Sponsor from the Pre-Funding
Account. The cut-off date for each Subsequent Mortgage Loan will be the opening
of business on the first day of the calendar month in which the related
Subsequent Transfer Date occurs (the "Subsequent Cut-Off Date").
Upon assignment of any Mortgage Loan to the Trust during the
Pre-Funding Period, the Indenture Trustee shall release to the Sponsor an amount
equal to the Principal Balance thereof as of the related Subsequent Cut-Off Date
from amounts then on deposit in the Pre-Funding Account.
PRE-FUNDING ACCOUNT FEATURE
On the Closing Date, up to approximately $_____ (the "Original
Pre-Funded Amount") will be deposited in the Pre-Funding Account (the "
Pre-Funding Account") in the name of the Indenture Trustee on behalf of the
Trust, for the benefit of the Insurer and the Holders of the Notes, from the
proceeds of the sale of the Notes. During the period (the "Pre-Funding Period")
from the Closing Date until the earlier of (i) the date on which the amount on
deposit in the Pre-Funding Account is less than $100,000 or (ii) ________ (the
"Pre-Funding Period Termination Date"), the Sponsor may deliver Subsequent
Mortgage Loans to the Indenture Trustee for assignment to the Trust in exchange
for a corresponding release of money from the Pre-Funding Account in an amount
equal to the Principal Balance of such Subsequent Mortgage Loans as of the
related Subsequent Transfer Date. Each of the Subsequent Mortgage Loans must
meet the criteria set forth in the Sale and Servicing Agreement and must be
reasonably acceptable to the Insurer. The Sponsor expects that the Original
Pre-Funded Amount will be reduced to less than $100,000 by _________. Any amount
remaining in the Pre-Funding Account on the Payment Date at the end of the
Pre-Funding Period will be used to redeem the Notes.
CAPITALIZED INTEREST ACCOUNTS
On the Closing Date, the Indenture Trustee will be required to deposit
a portion of the sale proceeds of the Notes in an account (the "Capitalized
Interest Account") to be used, as necessary, by the Indenture Trustee during the
Pre-Funding Period to make up for any shortfalls that may arise in the event
that interest collected on the underlying mortgage loans is insufficient to pay
all of the interest due to the Noteholders and certain expenses during such
period. Any amounts remaining in the Capitalized Interest Account on a Payment
Date which were not used for such purposes are required to be paid directly to
the Certificateholders on such Payment Date. TERMINATION
The Indenture will provide that the trust created under the Indenture
will terminate upon the disposition of all property in the Trust Estate, or, if
earlier, upon the payment to the Holders of all Notes issued under the Indenture
of all amounts required to be paid such Holders and to the Insurer of all
amounts required to be paid to the Insurer as reimbursement for any prior
drawings on the Insurance Policy.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to an Indenture (each, an
"Indenture") dated as of ________ between the Trust and [Indenture Trustee] (the
"Indenture Trustee"). The summaries of certain provisions of the Indenture set
forth below, while complete in material respects, do not purport to be
exhaustive. For more details regarding the terms of the Indentures, prospective
investors in the Notes are advised to review the Indenture.
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GENERAL
The Notes will be secured by the assets of the Trust Estate, as set
forth below, created pursuant to the Indenture. The Notes represent non-recourse
obligations of the issuing Trust. The only sources of payments on a the Notes
will be proceeds of the assets in the Trust Estate and payments under the
Insurance Policy. The Notes will not represent an interest in or obligation of
the Sponsor, the Master Servicer, the Indenture Trustee, the Owner Trustee, the
Underwriter, the Insurer, any of their respective affiliates or any other
entity, and will not represent an interest in or recourse obligation of, the
issuing Trust.
[NOTE INSURER] the "Insurer") will issue note guaranty insurance policy
with respect to the Notes (each, an "Insurance Policy". Certain distributions on
the Notes will be unconditionally and irrevocably guaranteed as to the payment
on each Payment Date pursuant to the Insurance Policy.
The assets to be pledged by the issuing Trust to secure the Notes will
consist of (i) the Trust Property; (ii) such amounts, including eligible
investments as from time to time may be held by the Indenture Trustee in the
Note Account for the Trust (except as otherwise provided in the Indenture);
(iii) the issuing Trust's rights under the Sale and Servicing Agreement; (iv)
the amounts on deposit in the Pre-Funding Account and the Capitalized Interest
Account (as applicable); (v) the Insurance Policy; (vi) rights to receive
certain monies on deposit in certain reserve accounts; and (vii) certain other
property (collectively, a "Trust Estate").
Persons in whose name a Note is registered in the Register maintained
by the Indenture Trustee are the "Holders" of the Notes or the "Noteholders".
For so long as the Notes are in book-entry form with DTC, the only Holder of the
Notes as the term "Holder" is used in the Sale and Servicing Agreement and in
the Indenture will be Cede. No person acquiring a beneficial interest in a Note
(a "Beneficial Owner") will be entitled to receive a note in definitive form (a
"Definitive Note") representing such person's interest in the Trust, except in
the event that Physical Notes are issued under limited circumstances set forth
in each Sale and Servicing Agreement and in each Indenture. All references
herein to the Holders of Notes or Noteholders shall mean and include the rights
of Beneficial Owners, as such rights may be exercised through DTC and its
participating organizations, except as otherwise specified in each Sale and
Servicing Agreement and in each Indenture. See "Description of the Securities --
Form of Securities" in the prospectus.
The Notes will be issued in denominations of not less than $1,000
principal amount and in integral dollar multiples thereof, with the exception of
one Note which may be issued in a lesser amount.
BOOK ENTRY REGISTRATION OF THE NOTES
The Notes will be book-entry Notes (the "Book-Entry Notes"). The
Beneficial Owners may elect to hold their Notes through DTC in the United
States, or CEDEL or Euroclear in Europe if they are participants of such systems
("Participants"), or indirectly through organizations which are Participants in
such systems. The Book-Entry Notes will be issued in one or more Notes which in
the aggregate equal the principal balance of such Notes and will initially be
registered in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear
will hold omnibus positions on behalf of their Participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank
will act as depositary for CEDEL and Morgan will act as depositary for Euroclear
(in such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Notes in minimum denominations representing principal amounts of
$1,000 and in integral multiples in excess
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thereof. Except as described below, no Beneficial Owner will be entitled to
receive a Definitive Note. Unless and until Definitive Notes are issued, it is
anticipated that the only "Holder" of such Notes will be Cede & Co., as nominee
of DTC. Beneficial Owners will not be Holders as that term is used in the Sale
and Servicing Agreement. Beneficial Owners are only permitted to exercise their
rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's Ownership of such Book-Entry Note will be recorded on the records
of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of CEDEL or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Notes from the Indenture Trustee through DTC and DTC
Participants. While such Notes are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
such Notes and is required to receive and transmit distributions of principal
of, and interest on, such Notes. Participants and indirect participants with
whom Beneficial Owners have accounts with respect to Notes are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess certificates, the Rules provide a
mechanism by which Beneficial Owners will receive distributions and will be able
to transfer their interest.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Notes, except under
the limited circumstances described below. Unless and until Definitive Notes are
issued, Beneficial Owners who are not Participants may transfer ownership of
Notes only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer such Notes, by book-entry
transfer, through DTC for the account of the purchasers of such Notes, which
account is maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of such Notes
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and indirect
participants will make debits or credits, as the case may be, on their records
on behalf of the selling and purchasing Beneficial Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Notes, see "Certain Federal Income Tax
Consequences -- Foreign Investors" and " -- Backup Withholding" in the
prospectus and "Global Clearance, Settlement and Tax Documentation Procedures --
Certain U.S. Federal Income Tax Documentation Requirements" in Annex I to the
prospectus.
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Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Notes, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of Book-Entry Notes will be
subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of Notes. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing. CEDEL
interfaces with domestic markets in several countries. As a professional
depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute.
CEDEL Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
Notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 27 currencies, including United States
dollars. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to
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<PAGE> 49
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific Notes to specific securities clearance accounts. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Notes will be made on each Payment Date
by the Indenture Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Notes that it represents and to each Financial Intermediary for which
it acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Owners of the Book-Entry Notes that it
represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Notes
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Indenture Trustee to Cede. Distributions with respect to
Notes held through CEDEL or Euroclear will be credited to the cash accounts of
CEDEL Participants or Euroclear Participants in accordance with the relevant
system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Beneficial Owner to
pledge Book-Entry Notes, to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Notes, may be limited due to the lack of physical Notes for such Book-Entry
Notes. In addition, issuance of the Book-Entry Notes in book-entry form may
reduce the liquidity of such Notes in the secondary market since certain
potential investors may be unwilling to purchase Notes for which they cannot
obtain physical Notes.
Monthly and annual reports on the Trust provided by the Indenture
Trustee to Cede, as nominee of DTC, may be made available to Beneficial Owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Notes of such Beneficial Owners are credited.
DTC has advised the Indenture Trustee that, unless and until Definitive
Notes are issued, DTC will take any action permitted to be taken by the holders
of the Book-Entry Notes under the Sale and Servicing Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Notes are credited, to the extent that such actions are taken on
behalf of Financial Intermediaries whose holdings include such Book-Entry Notes.
CEDEL or the Euroclear Operator, as the case may be, will take any action
permitted to be taken by an Owner under the Sale and Servicing Agreement on
behalf of a CEDEL Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such
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actions on its behalf through DTC. DTC may take actions, at the direction of the
related Participants, with respect to some Notes which conflict with actions
taken with respect to other Notes.
Definitive Notes will be issued to Beneficial Owners of the Book-Entry
Notes, or their nominees, rather than to DTC, only if (a) DTC or the Sponsor
advises the Indenture Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book-Entry Notes and the Sponsor or the Indenture
Trustee is unable to locate a qualified successor, (b) the Sponsor, at its sole
option, elects to terminate a book-entry system through DTC or (c) DTC, at the
direction of the Beneficial Owners representing a majority of the outstanding
Percentage Interests of the Notes, advises the Indenture Trustee in writing that
the continuation of a book-entry system through DTC (or a successor thereto) is
no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all
Beneficial Owners of the occurrence of such event and the availability through
DTC of Definitive Notes. Upon surrender by DTC of the global Note or Notes
representing the Book-Entry Notes and instructions for re-registration, the
Indenture Trustee will issue Definitive Notes, at the Sponsor's expense and
thereafter the Indenture Trustee will recognize the holders of such Definitive
Notes as holders under the Indenture.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among Participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Sponsor, the Master Servicer, the Insurer nor the Indenture
Trustee will have any liability for any actions taken by DTC or its nominee,
Euroclear, or CEDEL, including, without limitation, actions for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Notes held by Euroclear, CEDEL or Cede & Co., as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO PRINCIPAL AND INTEREST ACCOUNT
All collections on the Mortgage Loans will generally be allocated
between amounts collected in respect of interest and amounts collected in
respect of principal, as required under the related Mortgage Notes. As to any
Payment Date, "Interest Collections" are amounts of interest collected net of
the servicing fee and certain reimbursable amounts and expenses with respect to
the Mortgage Loans in the Trust during the related Remittance Period and
"Principal Collections" are amounts of principal collected with respect to the
Mortgage Loans in the Trust during the related Remittance Period. As to any
Payment Date, the related "Remittance Period" is the calendar month preceding
the month in which such Payment Date occurs.
The Master Servicer will deposit Interest Collections and Principal
Collections in respect of the Mortgage Loans in the Trust in a segregated
account (the "Principal and Interest Account") generally within two Business
Days of receipt. On each monthly Remittance Date, the Master Servicer will remit
these amounts, net of the servicing fee and certain reimbursable amounts, to the
Indenture Trustee for deposit into the Note Account. The "Remittance Date" for
the Trust is the eighteenth day of each month, or if such day is not a Business
Day, the immediately succeeding Business Day.
With respect to any date, the "Trust Balance" of the Trust will be
equal to the aggregate of the Principal Balances of all Mortgage Loans in the
Trust plus amounts on deposit in the Pre-Funding Account and amounts on deposit
in the Reserve Account as of such date. The "Principal Balance" of a
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Mortgage Loan (other than a Liquidated Mortgage Loan) on any date is equal to
its Principal Balance as of the Cut-Off Date, minus all collections credited
against the Principal Balance of such Mortgage Loan in accordance with the
related underlying Mortgage Note prior to such day. The "Principal Balance" of a
Liquidated Mortgage Loan is zero.
DISTRIBUTIONS ON THE NOTES
Beginning with the first Payment Date, distributions on the Notes will
be made by the Indenture Trustee or the Paying Agent on each Payment Date to the
persons in whose names such Notes are registered at the close of business on the
Record Date. The "Record Date" with respect to the Notes will be (i) so long as
the Notes are registered in book-entry form, the business day immediately
preceding the related Payment Date and (ii) with respect to Definitive Notes,
the last business day of the month immediately preceding the related Payment
Date. The term "Payment Date" means the twenty-fifth day of each month or, if
such day is not a Business Day, then the next succeeding Business Day.
Distributions will be made by electronic funds transfer to the account of the
person entitled thereto (which, in the case of Book-Entry Securities, will be
DTC or its nominee) as it appears on the register of Holders of Notes (the "Note
Register") maintained by the Registrar on the Record Date in amounts calculated
as described below. For purposes hereof, a "Business Day" is any day other than
(i) a Saturday or Sunday or (ii) a day on which banking institutions in the
State of New York or in the city in which the principal corporate trust office
of the Indenture Trustee is located, are authorized or obligated by law or
executive order to be closed.
OVERCOLLATERALIZATION PROVISIONS
The "Overcollateralization Amount" is the amount, if any, by which the
Trust Balance exceeds the Note Principal Balance. The Insurer will require,
based upon the terms and conditions hereinafter described, that the
Overcollateralization Amount be maintained at a certain level, the "Specified
Overcollateralization Amount."
The Overcollateralization Amount as of the Closing Date will be less
than the Specified Overcollateralization Amount, thus requiring an increase in
such Overcollateralization Amount on future Payment Dates until such
Overcollateralization Amount equals the Specified Overcollateralization Amount.
Certain cashflow (the "Excess Cashflow"), generally consisting of the
sum of (i) excess interest (i.e., the excess of Interest Collections on the
Mortgage Loans in the Trust over the sum of interest payable for the Notes plus
losses incurred on liquidated mortgage loans, certain fees and reimbursements),
plus (ii) related Principal Collections not required to be applied to principal
amortization for the Notes or to Reimbursement Amounts, will be applied as a
payment of principal on the Notes on each Payment Date to maintain the
Overcollateralization Amount at, or to increase it to, the Specified
Overcollateralization Amount for such Payment Date. The amount of such Excess
Cashflow with respect to the Notes so applied as a payment of principal on a
Payment Date is an "Accelerated Principal Payment." The requirement to maintain
the Overcollateralization Amount at the Specified Overcollateralization Amount,
or to increase it to the Specified Overcollateralization Amount, is not an
obligation of the Sponsor, the Originators, the Master Servicer, the Indenture
Trustee, the Owner Trustee or any other person, including the Insurer.
Because the Overcollateralization Amount is equal to the difference
between the Trust Balance for the Trust and the outstanding Note Principal
Balance of the Notes, the Overcollateralization Amount may be increased to the
Specified Overcollateralization Amount by accelerating the amortization of such
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outstanding Note Principal Balance with Accelerated Principal Payments relative
to the amortization of the Mortgage Loans.
The Insurer may permit the Specified Overcollateralization Amount to
decrease or "step down" over time, subject to certain floors and triggers. The
dollar amount of any decrease in a Specified Overcollateralization Amount is an
"Overcollateralization Reduction Amount," which may result in a release of cash
from the lien of the Indenture in an amount equal to the Overcollateralization
Reduction Amount (net of any Reimbursement Amounts due to the Insurer). The
dollar amount of any Overcollateralization Reduction Amount on any Payment Date
will reduce the principal payment on that Payment Date.
OVERCOLLATERALIZATION AND THE INSURANCE POLICY
The Indenture will require the Indenture Trustee to file a claim for an
Insured Payment under the Insurance Policy not later than 12:00 noon (New York
City time) on the second Business Day prior to any Payment Date as to which the
Indenture Trustee has determined that a shortfall in the Interest Distribution
Amount or an Overcollateralization Deficit (as defined below) with respect to
the Notes will occur for the purpose of applying the proceeds of such Insured
Payment as a payment of principal to the Noteholders on such Payment Date. With
respect to any Payment Date, an "Overcollateralization Deficit" will mean the
amount, if any, by which (x) the Note Principal Balance, after taking into
account all payments to be made on such Payment Date in reduction thereof,
including any Excess Cashflow payments and any Available Crossover Amounts (as
defined below) applied as principal, exceeds (y) the Trust Balance as of the end
of the applicable Remittance Period.
The effect of both the overcollateralization provisions and the
Insurance Policies is to provide for the ultimate payment of the full amount of
the Note Principal Balance. Investors in the Notes should realize that, under
certain loss or delinquency scenarios, they may temporarily receive no payments
in reduction of the Note Principal Balance.
INTEREST DISTRIBUTIONS
Interest on the Notes will be payable monthly on each Payment Date at
the Note Interest Rate for the related Interest Accrual Period.
INTEREST DISTRIBUTION AMOUNT; INTEREST ACCRUAL PERIODS.
Interest on the Notes in respect of any Payment Date will accrue from
the preceding Payment Date (or in the case of the first Payment Date, from the
Closing Date) through the day preceding such Payment Date (the "Interest Accrual
Period") on the basis of the actual number of days in the Interest Accrual
Period and a 360-day year. For any Payment Date, the interest then due on the
Notes (calculated using the Note Interest Rate and exclusive of any Available
Funds Cap Current Amount or Available Funds Cap Carry-Forward Amount) plus any
interest carry-forward amounts from prior Payment Dates (which interest
carry-forward amounts could only arise upon the failure of the Insurer to pay
the interest then due calculated using the Note Interest Rate in the amounts
required under the Insurance Policy) is the "Interest Distribution Amount" for
such Payment Date.
NOTES
The "Note Interest Rate" for the initial Interest Accrual Period will
equal a per annum rate of interest equal to One-Month LIBOR plus ____%. The Note
Interest Rate for each subsequent Interest Period will equal a per annum rate of
interest equal to the lesser of (i) for each Interest Accrual Period
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ending on or prior to the Initial Redemption Date, a per annum rate of interest
equal to One-Month LIBOR plus .____%, and for each Interest Period thereafter, a
per annum rate of interest equal to One-Month LIBOR plus ___% and (ii) the
Available Funds Cap Rate.
The "Fixed Rate Available Funds Cap Rate," as of any Payment Date,
equals an amount, expressed as a per annum rate, equal to (a)(i) the aggregate
amount of interest due and collected (or advanced) on all of the Mortgage Loans
for the related Remittance Period minus (ii) the aggregate of the Servicing Fee,
the Indenture Trustee's Fee, the Owner Trustee's Fee and the premiums due to the
Insurer, on such Payment Date, minus (iii) commencing on the seventh Payment
Date following the Closing Date, an amount equal to 0.75% per annum times the
aggregate Principal Balance of the Mortgage Loans as of the beginning of such
related Remittance Period, divided by (b) the aggregate Principal Balance of the
Mortgage Loans in the Trust as of the beginning of such related Remittance
Period calculated on the basis of a 360 day year and the actual number of days
elapsed.
The "Note Formula Rate" for any Payment Date shall be equal to a per
annum rate of interest described in clause (i) of the definition of Note
Interest Rate.
The "Note Formula Capped Rate" for any Payment Date shall be equal to
the lesser of (i) the Note Formula Rate for such Payment Date and (ii) ____%.
CARRY-FORWARD FEATURE FOR AVAILABLE FUNDS CAP SHORTFALLS.
In the event that, on any Payment Date, the Available Funds Cap Rate
limits the Note Interest Rate (i.e., the rate set by the Available Funds Cap
Rate is less than the Note Formula Rate), the excess of the amount of interest
due based on the Note Formula Rate over the interest due based on the Available
Funds Cap Rate (the "Available Funds Cap Current Amount") will be paid on such
Payment Date from Excess Cashflow or Available Crossover Amounts, if any. The
Available Funds Cap Current Amount not paid from the Excess Cashflow or
Available Crossover Amounts, together with interest thereon at the
then-applicable Note Formula Rate, will be carried-forward (the "Available Funds
Cap Carry-Forward Amount") and due on future Payment Dates. The Insurer does not
guarantee the payment of, nor do the ratings assigned to the Notes address the
likelihood of payment of, any Available Funds Cap Current Amount or any
Available Funds Cap Carry-Forward Amount and the payment of such amount may only
be funded from the Excess Cashflow, to the extent described herein. If the
Master Servicer, acting directly or through one or more affiliates, or the
Certificateholder exercises its right to an Optional Redemption, then none of
the Available Funds Cap Current Amount or the Available Funds Cap Carry-Forward
Amount then owing may be paid in full.
CALCULATION OF LIBOR
On the second business day preceding each Payment Date or, in the case
of the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"), the Indenture Trustee will
determine the London interbank offered rate for one-month U.S. dollar deposits
("LIBOR") for the next Interest Accrual Period for the Notes on the basis of the
offered rates of the Reference Banks for one-month U.S. dollar deposits, as such
rates appear on the Telerate Screen 3750, as of 11:00 a.m. (London time) on such
Interest Determination Date. As used in this section, "business day" means a day
on which banks are open for dealing in foreign currency and exchange in London
and New York City; and "Reference Banks", means leading banks selected by the
Indenture Trustee and engaged in transactions in Eurodollar deposits in the
international Eurocurency market (i) with an established place of business in
London, (ii) whose quotations appear on the Telerate Screen 3750 on the Interest
Determination Date in question, (iii) which have been designated as such by the
Indenture Trustee and (iv) not controlling, controlled by, or be under common
control with, the Sponsor.
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On each Interest Determination Date, LIBOR for the related Interest
Accrual Period for the Notes will be established by the Indenture Trustee as
follows:
(a) If on such Interest Determination Date two or more Reference Banks
provides such offered quotations, LIBOR for the related Interest Accrual Period
for the Note shall be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 1/16%).
(b) If on such Interest Determination Date two Reference Banks provide
such offered quotations, LIBOR for the related Interest Accrual Period for the
Notes shall be the higher of (x) LIBOR as determined on the previous Interest
Determination Date and (y) the Reserve Interest Rate. The "Reserve Interest
Rate" shall be the rate per annum that the Indenture Trustee determines to be
either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the on-month U.S. dollar lending rates which New
York City banks selected by the Indenture Trustee are quoting on the relevant
Interest Determination Date to the principal London offices of leading banks in
the London interbank market or, in the event that the Indenture Trustee can
determine no such arithmetic mean, (ii) the lowest one-month U.S. dollar lending
rate which New York City banks selected by the Indenture Trustee are quoting on
such Interest Determination Date to leading European banks.
The establishment of LIBOR on each Interest Determination Date by the
Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Notes for the related Interest Accrual Period shall
(in the absence of manifest error) be final and binding. Each such rate of
interest may be obtained by telephoning the Indenture Trustee at 1-800-735-7777.
PRINCIPAL DISTRIBUTIONS
SCHEDULED PRINCIPAL. On each Payment Date, the Noteholders will be
entitled to payments of the Scheduled Principal Distribution Amount in reduction
of the Note Balance. The "Scheduled Principal Distribution Amount" on any
Payment Date will consist of the excess of (i) the sum of Principal Collections
with respect to the Trust plus the outstanding Principal Balances of all
Mortgage Loans in the Trust which became Defaulted Mortgage Loans (as defined
below) during the prior Remittance Period over (ii) the Overcollateralization
Reduction Amount, if any, with respect to such Payment Date.
A "Defaulted Mortgage Loan" is a Mortgage Loan which is more than 180
days delinquent (irrespective of grace periods) or which has become a Liquidated
Mortgage Loan.
ACCELERATED PRINCIPAL. In addition, on any Payment Date with respect to
which there exists Excess Cashflow with respect to the Trust, such amount will
be distributed in reduction of the Principal Balance of the Notes to the extent
required to increase the related Overcollateralization Amount to the Specified
Overcollateralization Amount applicable on such Payment Date.
FLOW OF FUNDS
The Indenture Trustee shall deposit to a certain account (the "Note
Account"), without duplication, upon receipt (i) any Insured Payments received
with respect to the Notes, (ii) the proceeds of any liquidation of the assets of
the Trust, to the extent that such proceeds relate to the Trust, the Principal
Collections, the Interest Collections and certain other amounts remitted by the
Master Servicer or any sub-servicer, together with certain other specified
amounts (the amounts specified in clause (ii), being "Available Funds" for the
related Payment Date).
On the Payment Dates occurring in ____________________________ with
respect to the Notes, the Indenture Trustee shall deposit into the Note Account,
as additional Available Funds, amounts
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withdrawn from the Pre-Funding Account and amounts withdrawn from the
Capitalized Interest Account for such Payment Dates.
With respect to the Note Account on each Payment Date, and to the
extent of Available Funds, the Indenture Trustee shall make the following
allocations, disbursements and transfers from amounts then on deposit in the
Note Account in the following order of priority, and each such allocation,
transfer and disbursement shall be treated as having occurred only after all
preceding allocations, transfers and disbursements have occurred:
(i) first, certain fees due to the Indenture Trustee and the Owner
Trustee;
(ii) second, provided no Insurer Default has occurred and is
continuing, the Premium Amount payable to the Insurer;
(iii) third, to the Holders of the Notes, the related Interest
Distribution Amount for such Payment Date;
(iv) fourth, to the Holders of the Notes as a distribution of
principal, the Scheduled Principal Distribution Amount for
such Payment Date;
(v) fifth, to the Holders of the Notes, as a distribution of
principal, the related Overcollateralization Deficit for such
Payment Date;
(vi) sixth, to the Insurer, the Reimbursement Amount, if any, then
due to it;
(vii) seventh, to the Holders of the Notes, the Accelerated
Principal Payment, if any;
(viii) eighth, to the Holders of the Notes, the amount of any
Available Funds Cap Current Amount for such Payment Date;
(ix) ninth, to the Holders of the Notes, the amount of any
Available Funds Cap Carry-Forward Amount then due;
(x) tenth, to the Master Servicer, reimbursement for Servicing
Advances to the extent not previously reimbursed and
reimbursement for Nonrecoverable Servicing Advances to the
extent not previously reimbursed;
(xi) eleventh, certain expenses due to the Indenture Trustee to the
extent not previously reimbursed and the Owner Trustee; and
(xii) twelfth, to the Certificateholders, any amount remaining on
deposit in the Note Account.
On each Determination Date the Indenture Trustee shall determine, with
respect to the immediately following Payment Date, whether a draw is required to
be made under the respective Policy for the purpose of pre-funding a Deficiency
Amount (as defined below under "The Insurance Policy"). With respect to each
Payment Date, the "Determination Date" is the fourth Business Day next preceding
such Payment Date or such earlier day as shall be agreed to by the Insurer and
the Indenture Trustee.
OPTIONAL REDEMPTION OF THE NOTES
The Notes will be subject to redemption, in whole but not in part, at
the option of the Master Servicer, acting directly or through one or more
affiliates, the Certificateholder or the Insurer on or after
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the first Payment Date (such date, the "Initial Redemption Date") on which the
outstanding aggregate Note Principal Balance of the Notes had declined to 10% or
less of the Note Principal Balance of the Notes as of the Closing Date (the date
on which the Notes are to be redeemed, the "Redemption Date").
The Notes will be redeemed at a redemption price of 100% of the then
outstanding Note Balance, plus accrued but unpaid interest thereon through the
end of the Interest Accrual Period immediately preceding the related Payment
Date; provided, however, that no redemption may take place unless, in connection
with such redemption, any amounts due and owing to the Insurer under the
Insurance Agreement are paid in full to the Insurer. There will be no prepayment
premium in connection with such a redemption. Notice of an optional redemption
of the Notes must be mailed by the Indenture Trustee to the Noteholders and the
Insurer at least ten days prior to the Payment Date set for such redemption.
The payment on the final Payment Date in connection with the redemption
of the Notes shall be in lieu of the payment otherwise required to be made on
such Payment Date in respect of the Notes.
MANDATORY REDEMPTION OF THE NOTES
The Notes will be redeemed in part on the payment date occurring
following the end of the Pre-Funding Period, to the extent of any cash remaining
in the Pre-Funding Account on such payment date after the purchase by the trust
of additional mortgage loans, if any.
PAYMENTS TO THE CERTIFICATEHOLDERS
With respect to the Trust, on each Payment Date, any portion of
Available Funds remaining after making payments of interest and principal due on
the Notes and other distributions required on such Payment Date will be released
to the holder(s) of the Certificates of the Trust, free of the lien of the
Indenture. Such amounts will not be available to make payments on the Notes or
payments to the Insurer on any subsequent Payment Date.
EVENTS OF DEFAULT UNDER INDENTURE
The following constitute Events of Default under each Indenture: (i)
the failure on any Payment Date, after taking into account all payments made in
respect of the Notes on such Payment Date, to pay interest on the Notes at the
Note Formula Capped Rate; (ii) the occurrence of certain events of bankruptcy,
insolvency or receivership relating to the issuing Trust; (iii) default by the
issuing Trust in the observation of certain events specified in the Indenture
relating to the sale or other disposition of certain assets of the Trust Estate;
a claim against, or deduction by the issuing Trust from, the principal or
interest on the Notes; the priority, validity or effectiveness of the lien of
the Indenture is permitted by the issuing Trust to be impaired; (iv) default by
the issuing Trust in the observation of covenants not otherwise specified and
such default shall continue for 30 days after notice; (v) any representation or
warranty of the issuing Trust shall have been incorrect in any material respect
when made and the circumstances or condition in respect of which such
representation or warranty was incorrect shall not have been eliminated or
otherwise cured; or (vi) the failure to pay in full the principal of the Notes
on the Final Scheduled Payment Date. The Indenture Trustee shall, at the
direction of the Insurer, or with the consent of the Insurer (so long as a
default by the Insurer shall not have occurred and be continuing), at the
direction of Holders of the Notes evidencing at least 50% of the Note Principal
Balance, declare an Event of Default upon the occurrence of any such event. Upon
such declaration of an Event of Default, the Indenture Trustee will publish a
notice of the occurrence of such event. If so directed by the Insurer or, with
the consent of the Insurer (so long as a default by the Insurer shall not have
occurred and be continuing), the Holders of the Notes evidencing at least 50% of
the Note Principal Balance, the Indenture Trustee will sell, dispose of or
otherwise liquidate the Mortgage Loans in the Trust in a commercially
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reasonable manner and on commercially reasonable terms. If no Event of Servicing
Termination (as defined in the Sale and Servicing Agreement) has occurred with
respect to such Trust and if the Insurer consents, any such sale, disposal or
liquidation and such sale, disposal or liquidation will be "servicing retained"
by the Master Servicer. The net proceeds of such sale will first be paid to the
Insurer to the extent of unreimbursed draws under the Policy and other amounts
owing to the Insurer, and then the amount required to reduce the Note Principal
Balance of the Notes, together with all accrued and unpaid interest due thereon,
to zero will be distributed to the Holders of the Notes. If such sale,
disposition or liquidation has been directed by or approved by the Insurer, the
Policy will cover any amount by which such remaining net proceeds are
insufficient to pay such amounts. All remaining net proceeds will be distributed
to the Certificateholders.
THE INSURER
The following information has been supplied by [NOTE INSURER] (the
"Insurer") for inclusion in this prospectus supplement. No representation is
made by the Sponsor, the Master Servicer, the Underwriter or any of their
affiliates as to the accuracy or completeness of such information
The consolidated financial statements of [NOTE INSURER] and its
subsidiaries as of December 31, ____ and December 31, ____ and for the three
years ended December 31, ____, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of [NOTE
INSURER] (which was filed with the Commission on ______________, Commission File
No. _______) and the consolidated financial statements of [NOTE INSURER] and its
subsidiaries as of __________________ for the periods ending __________________
and __________________ included in the Quarterly Report on Form 10-Q of [NOTE
INSURER] for the period ended __________________ (which was filed with the
Commission on _________________) are hereby incorporated by reference into this
prospectus supplement and shall be deemed to be a part hereof. Any statement
contained in a document incorporated herein by reference shall be modified or
superseded for the purposes of this prospectus supplement to the extent that a
statement contained herein by reference herein also modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus
supplement.
All financial statements of [NOTE INSURER] and its subsidiaries
included in documents filed by [NOTE INSURER] with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this prospectus supplement and prior to the
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this prospectus supplement and to be a part hereof from the
respective dates of filing such documents.
The following table sets forth the capitalization of [NOTE INSURER] as
of December 31, _____, December 31, ____, December 31, ____ and
__________________, respectively, in conformity with generally accepted
accounting principles.
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[NOTE INSURER]
CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
Unearned premiums..............
Other liabilities..............
Total liabilities..............
Stockholder's equity: (1)
Common stock.................
Additional paid-in capital...
Accumulated other
comprehensive income........
Retained earnings............
Total stockholder's equity.....
Total liabilities and
stockholder's
equity.......................
</TABLE>
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance with
the Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" adopted by [NOTE INSURER] effective January 1, 1998. As this new
standard only requires additional information in the financial statements, it
does not affect [NOTE INSURER]'s financial position or results of operations.
For additional financial information concerning [NOTE INSURER], see the
audited and unaudited financial statements of [NOTE INSURER] incorporated by
reference herein. Copies of the financial statements of [NOTE INSURER]
incorporated herein by reference and copies of [NOTE INSURER]'s annual statement
for the year ended December 31, ____ prepared in accordance with statutory
accounting standards are available, without charge from [NOTE INSURER]. The
address of [NOTE INSURER]'s administrative offices and its telephone number are
[ADDRESS].
[NOTE INSURER] makes no representation regarding the Notes or the
advisability of investing in the Notes and makes no representation regarding,
nor has it participated in the preparation of, this prospectus supplement other
than the information supplied by [NOTE INSURER] and presented under the headings
"The Insurance Policies" and "The Insurer" and in the financial statements
incorporated herein by reference.
THE INSURANCE POLICY
The Insurer, in consideration of the payment of the premium and subject
to the terms of the Insurance Policy, agrees unconditionally and irrevocably to
pay to the Indenture Trustee for the benefit of the Holders of the Insured
Obligations, that portion of the Insured Amounts which shall become Due for
Payment but shall be unpaid by reason of Nonpayment.
The Insurer will make such payments to the Indenture Trustee from its
own funds on the later of (a) two Business Days following delivery of the Notice
to the Insurer of Nonpayment or (b) the Business
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Day on which the Insured Amounts are Due for Payment. The Insurer shall be
subrogated to all the Holders' rights to payment on the Insured Obligations to
the extent of the insurance disbursements so made. Once payments of the Insured
Amounts have been made to the Indenture Trustee, the Insurer shall have no
further obligation in respect of such Insured Amounts. Payment of Insured
Amounts shall be made only at the time set forth in the Insurance Policy and no
accelerated payment of Insured Amounts shall be made regardless of any
acceleration of any of the Notes, unless such acceleration is at the sole option
of the Insurer.
Notwithstanding the foregoing paragraph, the Insurance Policies do not
cover shortfalls, if any, attributable to the liability of the Trust or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability), any prepayment penalty or other accelerated
payment which at any time may become due on or with respect to any Insured
Obligation, other than at the sole option of the Insurer, nor against any risk
other than Nonpayment, including failure of the Indenture Trustee to make any
payment due the Holders of the Insured Obligations. The Insurance Policy does do
not cover, and Insured Amounts do not include, any shortfalls due to the
application of the Relief Act, Compensating Interest, any Available Funds Cap
Current Amounts and Available Funds Cap Carry-Forward Amounts.
The Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day of a certified copy of the
order requiring the return of a preference payment, and such other documentation
as is reasonably required by the Insurer, such documentation being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day.
Insured Payments due under each Insurance Policy unless otherwise
stated therein will be disbursed by the Insurer to the Indenture Trustee on
behalf of the Holders by wire transfer of immediately available funds in the
amount of the Insured Payment.
As used herein, the following terms shall have the following meanings:
"Deficiency Amount" means the excess, if any, of Required Payments over
the Net Available Distribution Amount for such Payment Date.
"Due for Payment" shall mean with respect to an Insured Amount, the
Payment Date on which Insured Amounts are due or, with respect to an Insured
Payment which is a Preference Amount, the Business Day on which the required
documentation referred to above has been received by the Insurer.
"Holder" shall mean any person who is the registered owner or
beneficial owner of any Insured Obligation.
"Insured Amounts" shall mean, with respect to any Payment Date, the
Deficiency Amount (including any amounts paid in respect of an Insufficiency
Amount) for such Payment Date.
"Insured Obligations" shall mean the Notes.
"Insured Payments" shall mean, the aggregate amount actually paid by
the Insurer to the Trustee in respect of (i) Insured Amounts for a Payment Date
and (ii) Preference Amounts for any given Business Day.
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"Net Available Distribution Amount" means, with respect to the Trust
and any Payment Date, the sum of (i) the amount on deposit in the Note Account
on such Payment Date, minus the Indenture Trustee's Fee and the Owner Trustee's
Fee and minus the premium then due to the Insurer, plus (ii) any Available
Crossover Amounts available from the Trust.
"Nonpayment" shall mean, with respect to any Payment Date, a Deficiency
Amount owing in respect of such Distribution Date.
"Notice" means the notice sent in writing by telecopy, substantially in
the form of Exhibit A attached to each Insurance Policy, from the Indenture
Trustee specifying the Insured Amount which shall be due and owing on the
applicable Payment Date.
"Preference Amount" means any payment of principal or interest on an
Insured Obligation which has become Due for Payment and which is made to a
Holder by or on behalf of the Indenture Trustee which has been deemed a
preferential transfer and theretofore recovered from its Holder pursuant to the
United States Bankruptcy Code in accordance with a final, nonappealable order of
a court of competent jurisdiction.
"Required Payments" shall mean, as of any Payment Date, the sum of (i)
the Interest Distribution Amount and (ii) any Overcollateralization Deficit.
Any notice under each Insurance Policy may be made at the address
listed below for the Insurer or such other address as the Insurer shall specify
in writing to the Indenture Trustee.
The notice address of the Insurer is One State Street Plaza, New York,
New York 10004 Attention: General Counsel, or such other address as the Insurer
shall specify to the Trustee in writing. Each Insurance Policy is being issued
under and pursuant to, and shall be construed under, the laws of the State of
New York, without giving effect to the conflict of laws principles thereof.
THE INSURANCE PROVIDED BY EACH INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Insurance Policies are not cancelable for any reason. The premium
on each Insurance Policy is not refundable for any reason.
THE SALE AND SERVICING AGREEMENT
In addition to the provisions of the Sale and Servicing Agreement
summarized elsewhere in this prospectus supplement and the prospectus, there is
set forth below a summary of certain other provisions of the Sale and Servicing
Agreement. The summaries of certain provisions of the Sale and Servicing
Agreement set forth below, while complete in material respects, do not purport
to be exhaustive. For more details regarding the terms of the Sale and Servicing
Agreement, prospective investors in the Notes are advised to review the Sale and
Servicing Agreement.
DELINQUENCY ADVANCES, COMPENSATING INTEREST AND SERVICING ADVANCES
The Master Servicer will be obligated to make Delinquency Advances to
the extent that such Delinquency Advances, in the Master Servicer's reasonable
judgment, are recoverable from the related Mortgage Loan. Delinquency Advances
are recoverable from (i) future collections on the Mortgage Loan which gave rise
to the Delinquency Advance, (ii) Liquidation Proceeds for such Mortgage Loan and
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(iii) from certain excess cash flows not applied for any other purpose.
"Delinquency Advances" are amounts deposited into the Principal and Interest
Account by the Master Servicer equal to the sum of the interest portions (net of
the Servicing Fees and certain other administrative amounts, if any) due, but
not collected with respect to delinquent Mortgage Loans during the related
Remittance Period. No Delinquency Advance will be required to be made by the
Master Servicer if, in the good faith judgment of the Master Servicer, such
Delinquency Advance would not ultimately be recoverable from the related
Mortgage Loan (any such advance, a "Nonrecoverable Delinquency Advance"); and if
previously made by the Master Servicer, a Nonrecoverable Delinquency Advance
will be reimbursable from any amounts in the Principal and Interest Account
prior to any distributions being made to Noteholders.
The Master Servicer will also be obligated to make Servicing Advances
on a timely basis. "Servicing Advances" means any "out-of-pocket" costs and
expenses, incurred by the Master Servicer in the performance of its servicing
obligations, including, but not limited to, (i) expenditures in connection with
a foreclosed Mortgage Loan prior to the liquidation thereof, including
expenditures for real estate property taxes, hazard insurance premiums and
property restoration or preservation ("Preservation Expenses"), (ii) the cost of
any enforcement or judicial proceedings, including (a) foreclosures, and (b)
other legal actions and costs associated therewith that potentially affect the
existence, validity, priority, enforceability or collectibility of the Mortgage
Loans, including collection agency fees and costs of pursuing or obtaining
personal judgments, garnishments, levies, attachment and similar actions, (iii)
the cost of the conservation, management, liquidation, sale or other disposition
of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan,
including reasonable fees paid to any independent contractor in connection
therewith, and (iv) advances to keep liens current, unless with respect to any
of the foregoing the Master Servicer has determined that such advance would not
be recoverable. No Servicing Advance will be required to be made by the Master
Servicer, if in the good faith judgment of the Master Servicer, such Servicing
Advance would not be recoverable from the related Mortgage Loan (any such
advance, a "Nonrecoverable Servicing Advance"); and if previously made by the
Master Servicer, a Servicing Advance and a Nonrecoverable Servicing Advance will
be reimbursable from any amounts in the Principal and Interest Account prior to
any distribution being made to Noteholders.
In addition, the Master Servicer will also be required to deposit
Compensating Interest in a Trust's Principal and Interest Account with respect
to any full Prepayment received on a Mortgage Loan owned by such Trust during
the related Remittance Period out of its own funds without any right of
reimbursement therefor. "Compensating Interest" is an amount equal to the
difference between (x) 30 days' interest at the Mortgage Loan's interest rate on
the principal balance as of the first day of the related Remittance Period and
(y) to the extent not previously advanced, the interest paid by the Mortgagor
with respect to the Mortgage Loan. The Master Servicer will not be required to
pay Compensating Interest with respect to any Remittance Period in an amount in
excess of the aggregate Servicing Fee received by the Master Servicer for such
Remittance Period nor will the Master Servicer be required to pay Compensating
Interest as a result of the application of the Relief Act or due to partial
Prepayments.
SERVICING COMPENSATION
The Master Servicer is entitled to retain an annual servicing fee,
payable monthly, of 0.50% of the total principal balance of the Mortgage Loans
underlying the Trust. See "The Pooling and Servicing Agreement --Servicing and
other Compensation and Payments of Expenses; Originator's Retained Yield" in the
prospectus.
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GOVERNING LAW
The Sale and Servicing Agreement and each Note will be construed in
accordance with and governed by the laws of the State of New York applicable to
agreements made and to be performed therein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes certain U.S. federal income
tax aspects of the purchase, ownership and disposition of the Notes, is based on
the provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
the Treasury Regulations thereunder, and published rulings and court decisions
in effect as of the date hereof, all of which are subject to change, possibly
retroactively. This discussion does not address every aspect of the U.S. federal
income tax laws which may be relevant to Holders in light of their personal
investment circumstances or to certain types of Holders subject to special
treatment under the U.S. federal income tax laws (for example, banks and life
insurance companies). Accordingly, investors should consult their tax advisors
regarding U.S. federal, state, local, foreign and any other tax consequences to
them of investing in the Notes.
The Trust will not elect initially to be treated as a REMIC under the
Code but may elect to do so in the future. Should a Trust elect to be treated as
a REMIC, the Notes would be designated as the regular interests in such REMIC.
See "Certain Federal Income Tax Consequences - - REMICs" in the prospectus.
Absent a REMIC election, the Notes will not represent "real estate
assets" for purposes of Section 856(c)(4)(A) of the Code or "[l]oans . . .
principally secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C) of the Code.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in
the Indentures and other relevant documents and assuming compliance with the
terms of the Indenture as in effect on the date of issuance of the Notes, Dewey
Ballantine LLP, special tax counsel to the Sponsor ("Tax Counsel"), is of the
opinion that based on the application of existing law to the facts as set forth
in the Indenture and other relevant documents and such investigations as it
deemed appropriate, the portion of the Notes consisting of the right to receive
interest at the Note Formula Capped Rate (the "Capped Notes") will be treated as
debt instruments for federal income tax purposes as of such date and the portion
of the Notes consisting of the right to receive interest in excess of the Note
Formula Capped Rate and up to the Note Interest Rate (the "Available Funds
Amount") will be treated as a notional principal contract. See "Certain Federal
Income Tax Consequences -- Debt Securities" in the prospectus. In addition, the
Trust will not be treated as an association taxable as a corporation (or a
publicly traded partnership) or a taxable mortgage pool.
The Trust and the Holders of the Notes express in the Indenture their
intent that, for applicable tax purposes, the Capped Notes will be indebtedness
secured by the Mortgage Loans. The Originator, the Sponsor and the Holders of
the Notes, by accepting the Notes, and each Holder by its acquisition of a
beneficial interest in a Note, have agreed to treat the Capped Notes as
indebtedness for federal, state and local income and franchise tax purposes.
Investors should be aware that no transaction closely comparable to that
contemplated herein has been the subject of any Treasury Regulation, revenue
ruling or judicial decision, and therefore the matter is subject to
interpretation. Because different criteria are used to determine the non-tax
accounting characterization of the transaction, the Originator intends to
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treat this transaction as a sale of an interest in the Principal Balances of the
Mortgage Loans for financial accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service (the "IRS") and the
courts have set forth several factors to be taken into account in determining
whether the substance of a transaction is a sale of property or a secured loan,
the primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Tax Counsel has analyzed and
relied on these factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Mortgage Loans has been retained by the
Originator and has not been transferred to the Holders of the Notes.
Beneficial Owners of the Capped Notes and the related right to receive
the Available Funds Amount will be treated for tax purposes as owning two
separate investments: a debt instrument and the right to receive the Available
Funds Amount. The Owners of the Notes must allocate the purchase price of the
Notes between these two investments based on their relative fair market values.
The purchase price allocated to the Capped Notes will be the issue price used
for calculating accruals of original issue discount. See "Certain Federal Income
Tax Consequences -- Discount and Premium" in the prospectus and "-- Original
Issue Discount" herein.
A Beneficial Owner of a Capped Note and the related right to receive
the Available Funds Amount will be treated for federal income tax purposes as
having entered into a notional principal contract on the date that it purchases
its Note. Treasury Regulations under Section 446 of the Code relating to
notional principal contracts (the "Notional Principal Contract Regulations")
provide that taxpayers, regardless of their method of accounting, generally must
recognize the ratable daily portion of a periodic payment for the taxable year
to which that portion relates. Any Available Funds Amounts will be periodic
payments. Income with respect to periodic payments under a notional principal
contract for a taxable year should constitute ordinary income. The purchase
price allocated to the Available Funds Amounts will be treated as a nonperiodic
payment under the Notional Principal Contract Regulations. Such a nonperiodic
payment may be amortized using several methods, including the level payment
method described in the Notional Principal Contract Regulations.
TAXATION OF INTEREST INCOME OF HOLDERS
INTEREST INCOME ON THE CAPPED NOTES. As a general rule, interest paid
or accrued on the Capped Notes will be treated as ordinary income to the holders
thereof. A Holder of the Notes using the accrual method of accounting for
federal income tax purposes is required to include interest paid or accrued on
the Capped Notes in ordinary income as such interest accrues, while a Holder
using the cash receipts and disbursements method of accounting for federal
income tax purposes must include such interest in ordinary income when payments
are received (or made available for receipt) by such holder.
ORIGINAL ISSUE DISCOUNT. It is anticipated, and this discussion
assumes, that the Capped Notes will not have any original issue discount ("OID")
other than possibly OID within de minimis exception and that accordingly the
provisions of sections 1271 through 1273 and 1275 of the Code, generally will
not apply to the Notes. OID will be considered de minimis if it is less than
0.25% of the principal amount of a Note multiplied by its expected weighted
average life. The prepayment assumption that will be used for purposes of
computing original issue discount, if any, for federal income tax purposes is
the Prepayment Assumption. See "Material Federal Income Consequences -- Discount
and Premium -- Original Issue Discount" in the prospectus.
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MARKET DISCOUNT. A subsequent purchaser who buys a Capped Note for less
than its principal amount may be subject to the "market discount" rules of
Section 1276 through 1278 of the Code. If a subsequent purchaser of a Capped
Note disposes of such Note (including certain nontaxable dispositions such as a
gift), or receives a principal payment, any gain upon such sale or other
disposition will be recognized, or the amount of such principal payment will be
treated, as ordinary income to the extent of any "market discount" accrued for
the period that such purchaser holds the Note. Such holder may instead elect to
include market discount in income as it accrues with respect to all debt
instruments acquired in the year of acquisition of the Notes and thereafter.
Market discount generally will equal the excess, if any, of the then current
unpaid principal balance of the Note over the purchaser's basis in the Capped
Note immediately after such purchaser acquired the Note. In general, market
discount on a Capped Note will be treated as accruing over the term of such Note
in the ratio of interest for the current period over the sum of such current
interest and the expected amount of all remaining interest payments, or at the
election of the holder, under a constant yield method (taking into account the
Prepayment Assumption). At the request of a holder of a Note, information will
be made available that will allow the holder to compute the accrual of market
discount under the first method described in the preceding sentence. See
"Material Federal Income Consequences -- Discount and Premium -- Market
Discount" in the prospectus.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire a debt instrument at a market discount may be
required to defer the deduction of all or a portion of the interest on such
indebtedness until the corresponding amount of market discount is included
income.
Notwithstanding the above rules, market discount on a debt instrument
will be considered to be zero if it is less than a de minimis amount, which is
0.25% of the remaining principal balance of the debt instrument multiplied by
its expected weighted average remaining life. If OID or market discount is de
minimis, the actual amount of discount must be allocated to the remaining
principal distributions on such debt instrument and, when each such distribution
is received, capital gain equal to the discount allocated to such distribution
will be recognized.
MARKET PREMIUM. A subsequent purchaser who buys a Capped Note for more
than its principal amount generally will be considered to have purchased the
Note at a premium. Such holder may amortize such premium, using a constant yield
method, over the remaining term of the Note and, except as future regulations
may otherwise provide, may apply such amortized amounts to reduce the amount of
interest reportable with respect to such note over the period from the purchase
date to the date of maturity of the Note. The amortization of such premium on an
obligation that provides for partial principal payments prior to maturity should
be governed by the methods for accrual of market discount on such an obligation
(described above). A holder that elects to amortize premium must reduce the tax
basis in the related obligation by the amount of the aggregate deductions (or
interest offsets) allowable for amortizable premium. If a debt instrument
purchased at a premium is redeemed in full prior to its maturity, a purchaser
who has elected to amortize premium should be entitled to a deduction for any
remaining unamortized premium in the taxable year of redemption. See "Material
Federal Income Consequences -- Discount and Premium -- Premium" in the
prospectus.
SALE OR REDEMPTION OF NOTES
If a Note is sold or retired, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale and such
holder's adjusted basis in the Note. Such adjusted basis generally will equal
the cost of the Note to the seller, increased by any original issue discount
included in the seller's gross income in respect of the Note (and by any market
discount which the taxpayer elected to include in income or was required to
include in income), and reduced by payments other than payments of qualified
stated interest in respect of the Note received by the seller and by any
amortized premium.
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TAXATION OF CERTAIN FOREIGN INVESTORS
Interest payments (including OID, if any) on the Notes made to a
Noteholder who is a nonresident alien individual, foreign corporation or other
non-United States person (a "foreign person") generally will be "portfolio
interest" which is not subject to United States tax if such payments are not
effectively connected with the conduct of a trade or business in the United
States by such foreign person and if the Trust (or other person who would
otherwise be required to withhold tax from such payments) is provided with an
appropriate statement that the beneficial owner of the Note identified on the
statement is a foreign person. See "Material Federal Income Consequences --
Foreign Investors" in the prospectus.
BACKUP WITHHOLDING
Distributions of interest and principal as well as distributions of
proceeds from the sale of the Notes, may be subject to the "backup withholding
tax" under Section 3406 of the Code at rate of 31% if recipients of such
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but does not do so in the
proper manner. See "Material Federal Income Consequences -- Backup Withholding"
in the prospectus.
POSSIBLE CLASSIFICATION OF THE TRUST AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS
A CORPORATION
Although, as described above, it is the opinion of Tax Counsel that the
Capped Notes are properly characterized as debt for federal income tax purposes
and the Available Funds Amount will be treated as a notional principal contract,
the opinion of Tax Counsel is not binding on the courts or the IRS and no
assurance can be given that this characterization will prevail. It is possible
that the IRS could assert that, for purposes of the Code, the transaction
contemplated by this prospectus supplement with respect to the Notes constitutes
a sale of the Mortgage Loans (or an interest therein) to the Holders of the
Notes and that the proper classification of the legal relationship between the
Sponsor, the Originator and the Holders of the Notes resulting from this
transaction is that of a partnership (including a publicly traded partnership),
a publicly traded partnership treated as a corporation, or an association
taxable as a corporation.
If it were determined that this transaction created an entity
classified as a publicly traded partnership taxable as a corporation, the Trust
would be subject to U.S. federal income tax at corporate income tax rates on the
income it derives from the Mortgage Loans, which would reduce the amounts
available for distribution to the Holders of the Notes. Cash distributions to
the Note Holders generally would be treated as dividends for tax purposes to the
extent of such corporation's earnings and profits. If the transaction were
treated as creating a partnership (but not a publicly traded partnership taxable
as a corporation) between the Holders of the Notes and the holders of the
Certificates, the partnership itself would not be subject to U.S. federal income
tax; rather, each holder of a Certificate and each Holder of the Notes would be
taxed individually on its respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of the Holders of the Notes and the holder of the
Certificates could differ if the Notes were held to constitute partnership
interests rather than indebtedness.
The Sponsor will not attempt to comply with U.S. federal income tax
reporting requirements applicable to partnerships or corporations as such
requirements would apply if the Capped Notes were not treated as indebtedness
and the Available Funds Amounts were not treated as a notional principal
contract.
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STATE TAXES
The Sponsor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Notes under the tax laws of any state.
Investors considering an investment in the Notes should consult their own tax
advisors regarding such tax consequences.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NOTES.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each, a "Benefit Plan") from engaging
in certain transactions with persons that are "parties in interest" under ERISA
or "disqualified persons under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons. Title
I of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA
make investments that are prudent, diversified (except if prudent not to do so)
and in accordance with governing plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "Equity Interest" in the
Trust and none of the exceptions contained in the Plan Assets Regulation were
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. Although
there is little guidance on the subject, the Sponsor believes that the Notes
should be treated as 'indebtedness without substantial equity features' for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Trust
incurred losses. However, even if the Notes are treated as 'indebtedness without
substantial equity features', the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the related issuing Trust or any of its affiliates is or becomes
a party in interest or a disqualified person with respect to such Benefit Plan.
In such case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-l, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 96-23, regarding transactions affected by "in-house asset
managers"; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." Each investor using the assets of a Benefit Plan
which acquires the Notes, or to whom the Notes are transferred, will be deemed
to have represented that the acquisition and continued holding of the Notes will
be covered by one of the exemptions listed above or by another Department of
Labor Prohibited Transaction Class Exemption.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements; however, such plans may be subject
to comparable restrictions under federal, state or local law.
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A Benefit Plan fiduciary considering the purchase of Notes should
consult its tax and/or legal advisors regarding whether the assets of the Trust
would be considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other related issues and their potential
consequences.
The sale of Notes to a Benefit Plan is in no respect a representation
by the Sponsor, the Master Servicer or the Underwriter that this investment
meets all relevant legal requirements with respect to investments by Benefit
Plans generally or any particular Benefit Plan, or that this investment is
appropriate for Benefit Plans generally or any Particular Benefit Plan.
RATINGS
It is a condition of the original issuance of the Notes that they
receive ratings of "AAA" by Standard & Poor's and "Aaa" by Moody's. The ratings
assigned to the Notes will be based on the claims-paying ability of the Insurer.
Explanations of the significance of such ratings may be obtained from
Moody's, 99 Church Street, New York, New York 10007 and Standard & Poor's, 25
Broadway, New York, New York 10006. Such ratings will be the views only of such
rating agencies. There is no assurance that such ratings will continue for any
period of time or that such ratings will not be revised or withdrawn. Any such
revision or withdrawal of such ratings may have an adverse effect on the market
price of the Notes. A security rating is not a recommendation to buy, sell or
hold securities.
The ratings assigned to the Notes do not address the likelihood of the
payment of any shortfalls due to the application of the Relief Act, Compensating
Interest, Available Funds Cap Current Amounts or any Available Funds Cap
Carry-Forward Amounts.
It is a condition to issuance that the Notes be rated "AAA" by Standard
& Poor's and "Aaa" by Moody's.
A securities rating addresses the likelihood of the receipt by Holders
of distributions on the Mortgage Loans. The rating takes into consideration the
characteristics of the Mortgage Loans and the structural, legal and tax aspects
associated with the Notes. The ratings on the Notes do not, however, constitute
statements regarding the likelihood or frequency of prepayments on the Mortgage
Loans or the possibility that Holders might realize a lower than anticipated
yield.
The ratings assigned to the Notes will depend primarily upon the
creditworthiness of the Insurer. Any reduction in a rating assigned to the
claims-paying ability of the Insurer below the ratings initially assigned to the
Notes may result in a reduction of one or more of the ratings assigned to the
Notes.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will not constitute "mortgage related securities" for
purposes of SMMEA.
S-67
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UNDERWRITING
Subject to the terms and subject to the conditions set forth in the
Underwriting Agreement for the sale of the Notes (the "Underwriting Agreement"),
the Sponsor has agreed to cause the Trust to sell and (the Underwriter) has
agreed to purchase the Notes.
On the Closing Date, a portion of the Notes may be delivered to Advanta
National Bank and/or Advanta Bank Corp in consideration for the transfer of its
respective Mortgage Loans. Such Notes may be resold from time to time in
negotiated transactions at varying prices to be determined at the time of the
related transaction. This prospectus supplement and the accompanying prospectus
also cover the resale of such Notes from time to time by Advanta National Bank,
Advanta Bank Corp. or their respective affiliates.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase the entire principal
amount of the Notes.
The Underwriter has agreed to reimburse the Sponsor for certain
expenses of the issuance and distribution of the Notes.
The Underwriter has informed the Sponsor that it proposes to offer the
Notes for sale from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of the
related sale. The Underwriter may effect such transactions by selling the Notes
to or through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter. In
connection with the sale of the Notes, the Underwriter may be deemed to have
received compensation from the Sponsor in the form of underwriting compensation.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of the Notes may be deemed to be underwriters and any commissions
received by them and any profit on the resale of the Notes by them may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933,
as amended.
The Sponsor has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933, as amended.
In connection with this offering and in compliance with applicable law
and industry practice, the Underwriter may overallot or effect transactions
which stabilize, maintain or otherwise affect the market price of the Notes at a
level above that which might otherwise prevail in the open market, including
stabilizing bids, effecting syndicate covering transactions or imposing penalty
bids. A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of a
security. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. A penalty bid means an
arrangement that permits Morgan Stanley & Co. Incorporated, as managing
underwriter, to reclaim a selling concession from a syndicate member in
connection with the offering when Notes originally sold by the syndicate member
are purchased in syndicate covering transactions. The Underwriter are not
required to engage in any of these activities. Any such activities, if
commenced, may be discontinued at any time.
The Sponsor or its affiliates may apply the net proceeds of the sale of
the Notes to the repayment of debt, including "warehouse" debt secured by the
Mortgage Loans prior to their transfer to the Trust. The Underwriter or one of
its affiliates may have acted as "warehouse" lender to the Sponsor or one or
more of its affiliates and may receive a portion of such proceeds as repayment
of such "warehouse debt."
S-68
<PAGE> 69
The Sponsor has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriter is not obligated, however, to make a market in
the Notes and such market-making may be discontinued at any time at the sole
discretion of the Underwriter. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Notes.
EXPERTS
The consolidated financial statements of the Insurer, [NOTE INSURER],
as of December 31, 1997 and 1996 and for each of the years in the three year
period ended December 31, 1997, are incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Notes will be passed upon by Dewey Ballantine LLP, New York, New York.
S-69
<PAGE> 70
INDEX OF PRINCIPAL DEFINED TERMS
Accelerated Principal Payment...............................................S-53
Actuarial Loan..............................................................S-20
Advanta Parent..............................................................S-42
Affiliated Originators......................................................S-16
Appraised Values............................................................S-20
Available Funds.............................................................S-56
Available Funds Amount......................................................S-64
Available Funds Cap Amount..................................................S-54
Available Funds Cap Carry-Forward Amount....................................S-54
Average Amount Outstanding..................................................S-18
balloon loans...............................................................S-13
Beneficial Owner............................................................S-47
Benefit Plan................................................................S-67
Book-Entry Notes............................................................S-47
Business Day................................................................S-52
Capitalized Interest Account................................................S-46
Capped Notes................................................................S-64
CEDEL Participants..........................................................S-49
Certificates................................................................S-44
Closing Date................................................................S-19
Code........................................................................S-63
Commission...................................................................S-2
Compensating Interest.......................................................S-63
Cooperative.................................................................S-50
Defaulted Mortgage Loan.....................................................S-56
Deficiency Amount...........................................................S-61
Definitive Note.............................................................S-47
Delinquency Advances........................................................S-62
Determination Date..........................................................S-57
DTC.........................................................................S-15
DTC Participants............................................................S-49
Due for Payment.............................................................S-61
Equity Interest.............................................................S-68
ERISA.......................................................................S-67
Euroclear Operator..........................................................S-50
Euroclear Participants......................................................S-49
European Depositaries.......................................................S-48
Excess Cashflow.............................................................S-53
FDIC........................................................................S-43
Final Scheduled Payment Date................................................S-37
Financial Intermediary......................................................S-48
Fixed Rate Available Funds Cap Rate.........................................S-54
FNMA........................................................................S-27
Foreclosure Rate............................................................S-18
foreign person..............................................................S-66
Gross Losses................................................................S-18
Holder......................................................................S-61
Holders.....................................................................S-47
Indenture...................................................................S-47
Indenture Trustee...........................................................S-47
Initial Cut-Off Date........................................................S-19
Initial Mortgage Loans......................................................S-45
S-70
<PAGE> 71
Initial Redemption Date.....................................................S-57
Insurance Policy............................................................S-47
Insured Amounts.............................................................S-61
Insured Obligations.........................................................S-61
Insured Payments............................................................S-61
Insurer.....................................................................S-47
Interest Accrual Period.....................................................S-54
Interest Collections........................................................S-51
Interest Determination Date.................................................S-55
Interest Distribution Amount................................................S-54
IRS.........................................................................S-64
Junior Lien Ratio...........................................................S-21
LIBOR.......................................................................S-55
Master Servicer.............................................................S-16
Master Transfer Agreements..................................................S-45
Mortgage Loan File..........................................................S-45
Mortgage Loan Pool..........................................................S-16
Mortgage Loans..............................................................S-16
Mortgage Notes..............................................................S-19
Net Available Distribution Amount...........................................S-61
Net Losses..................................................................S-18
Nonpayment..................................................................S-61
Nonrecoverable Delinquency Advance..........................................S-62
Nonrecoverable Servicing Advance............................................S-62
Non-U.S. Person.............................................................S-77
Note Account................................................................S-56
Note Formula Capped Rate....................................................S-54
Note Formula Rate...........................................................S-54
Note Interest Rate..........................................................S-54
Note Register...............................................................S-52
Noteholders.................................................................S-47
Notes.......................................................................S-44
Notes.......................................................................S-74
Notice......................................................................S-61
Notional Principal Contract Regulations.....................................S-64
OID.........................................................................S-65
Original Pre-Funded Amount..................................................S-46
Originator..................................................................S-16
Overcollateralization Amount................................................S-52
Overcollateralization Deficit...............................................S-53
Overcollateralization Reduction Amount......................................S-53
Owned and Managed Servicing Portfolio.......................................S-16
Owner Trustee...............................................................S-44
Participants................................................................S-48
Payment Date................................................................S-52
Plan Assets Regulation......................................................S-68
Preference Amount...........................................................S-61
Pre-Funding Account.........................................................S-46
Pre-Funding Period..........................................................S-46
Pre-Funding Period Termination Date.........................................S-46
prepayment..................................................................S-37
Prepayment..................................................................S-36
Prepayment Assumption.......................................................S-37
Preservation Expenses.......................................................S-62
Principal and Interest Account..............................................S-52
Principal Balance...........................................................S-52
S-71
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Principal Collections.......................................................S-51
PTCE........................................................................S-68
Record Date.................................................................S-52
Recoveries..................................................................S-18
Redemption Date.............................................................S-57
Reference Banks.............................................................S-55
Reimbursement Amounts.......................................................S-53
Relevant Depositary.........................................................S-48
Remittance Date.............................................................S-52
Remittance Period...........................................................S-51
Required Payments...........................................................S-61
Reserve Interest Rate.......................................................S-55
Rules.......................................................................S-48
Schedule of Mortgage Loans..................................................S-45
Scheduled Principal Distribution Amount.....................................S-55
Servicing Advances..........................................................S-62
Specified Overcollateralization Amount......................................S-52
Sponsor.....................................................................S-16
Statistic Calculation Pool..................................................S-19
Subsequent Cut-Off Date.....................................................S-46
Subsequent Mortgage Loans...................................................S-45
Subsequent Transfer Agreements..............................................S-46
Subsequent Transfer Dates...................................................S-46
Tax Counsel.................................................................S-64
Terms and Conditions........................................................S-50
Third-Party Servicing Portfolio.............................................S-17
Trust.......................................................................S-19
Trust Agreement.............................................................S-43
Trust Balance...............................................................S-52
Trust Estate................................................................S-47
Trust Property..............................................................S-44
U.S. Person.................................................................S-77
Unaffiliated Originators....................................................S-16
Underwriter.................................................................S-69
Underwriting Agreement......................................................S-69
Weighted average life.......................................................S-37
S-72
<PAGE> 73
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the offered Advanta Mortgage
Backed Notes, Series ____-_ (the "Notes") will be available only in book-entry
form. Investors in the Notes may hold such Notes through any of DTC, CEDEL or
Euroclear. The Notes will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Notes will be subject to U.S.
withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
Participants.
INITIAL SETTLEMENT
All Notes will be held in book-entry form by DTC in the name of Cede &
Co. as nominee of DTC. Investors' interests in the Notes will be represented
through financial institutions acting on their behalf as direct and indirect
Participants in DTC. As a result, CEDEL and Euroclear will hold positions on
behalf of their Participants through their relevant depository which in turn
will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Notes through DTC will follow DTC
settlement practices. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Notes through CEDEL or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no
"lock-up" or restricted period. Notes will be credited to the securities custody
accounts on the settlement date against payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading Between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity revolving credit line loan asset-backed certificates issues in same-day
funds.
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<PAGE> 74
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Originator and CEDEL or Euroclear Participants.
When Notes are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the Relevant Depository, as the case may be, to receive the Notes
against payment. Payment will include interest accrued on the Notes from and
including the last coupon payment date to and excluding the settlement date, on
the basis of the actual number of days in such accrual period and a year assumed
to consist of 360 days. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the Relevant Depository to the DTC
Participant's account against delivery of the Notes. After settlement has been
completed, the Notes will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the CEDEL
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Notes will accrue from, the value date (which would be
the preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debt will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the Notes
are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Notes would incur overdraft charges for one day, assuming they
cleared the overdraft when the Notes were credited to their accounts. However,
interest on the Notes would accrue from the value date. Therefore, in many cases
the investment income on the Notes earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
the result will depend on each CEDEL Participant's or Euroclear Participant's
particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Notes to the
respective European Depository for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Originator and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Notes are to be transferred by the respective clearing system, through the
respective Depository, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depository, as appropriate, to credit the Notes to
the DTC Participant's account against payment. Payment will include interest
accrued on the Notes from and including the last coupon payment to and excluding
the settlement date on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions
S-74
<PAGE> 75
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of CEDEL Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). In the event
that the CEDEL Participant or Euroclear Participant has a line of credit with
its respective clearing system and elects to be in debt in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., the trade fails), receipt of the cash proceeds
in the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Notes from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action is taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Notes in the U.S. from a DTC Participant no later
than one day prior to settlement, which would give the Notes sufficient time to
be reflected in their CEDEL or Euroclear account in order to settle the sale
side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Notes holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below), unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Holders of Notes
that are Non-U.S. Persons (as defined below) can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
S-75
<PAGE> 76
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Holders or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Notes or,
in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting
the appropriate form to the person through whom it holds (the clearing agency,
in the case of persons holding directly on the books of the clearing agency).
Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income or (iv) a "foreign trust" as that term is defined in
Section 7701 of the Code. The term "Non-U.S. Person" means any person who is not
a U.S. Person. This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of the Notes or
with the application of recently issued Treasury Regulations relating to tax
documentation requirements that are generally effective with respect to payments
made after December 31, 1999. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Notes.
S-76
<PAGE> 77
================================================================================
$______________ MORTGAGE BACKED NOTES, SERIES ____-_
ADVANTA MORTGAGE LOAN TRUST ____-_
ISSUER
[LOGO]
ADVANTA MORTGAGE CORP. USA
ORIGINATOR AND MASTER SERVICER
[LOGO]
ADVANTA CONDUIT RECEIVABLES, INC.
SPONSOR
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
[UNDERWRITER]
[DATE]
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the notes offered hereby in any state where such offer is
not permitted.
We represent the accuracy of the information in this prospectus supplement and
the accompanying prospectus only as of the dates on their respective covers.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the notes offered hereby and with respect to their
unsold allotments or subscriptions. In addition, all dealers selling the notes,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and prospectus until ________________.
================================================================================
<PAGE> 1
EXHIBIT 99.2
Prospectus Supplement to Prospectus dated ________________, 1999
ADVANTA MORTGAGE LOAN TRUST [ISSUE]
Issuer
[$--------]
(APPROXIMATE)
MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES [ISSUE]
[ADVANTA LOGO] [ADVANTA LOGO]
ADVANTA CONDUIT RECEIVABLES, INC. ADVANTA MORTGAGE CORP. USA
SPONSOR MASTER SERVICER
THE TRUST IS OFFERING THE FOLLOWING SEVEN CLASSES OF SENIOR CLASS [A]
CERTIFICATES:
Initial Pass- Final Scheduled
Class Principal Balance Through Rate Payment Date
----- ----------------- ------------ ---------------
[A-1] [$__________] [____%] [_______, ____]
[A-2] [$__________] [Libor + ___%] [_______, ____]
Interest and principal on the Class [A] Certificates is scheduled to be paid
monthly on the 25th day of the month, or the next business day. The first
scheduled payment date is ______ __, ____.
The property of the Trust consists of two separate groups of residential
mortgage loans; one group consists entirely of fixed-rate loans, and the other
group consists entirely of adjustable rate loans. The Trust will also hold cash
to purchase additional residential mortgage loans on or before [________ __,
____].
Each class of the Class [A] Certificates will have the benefit of an insurance
policy from [Insurer] which will guarantee certain payments with respect to the
Class [A] Certificates.
[[Insurer] LOGO]
The offering of the Class [A] Certificates is subject to certain conditions,
which are discussed in the "Underwriting" section of this prospectus supplement.
Delivery of the Class [A] Certificates is expected in book-entry form through
The Depository Trust Company, Cedelbank, and the Euroclear System on or about
___________, ____.
The Class [A] Certificates will be offered by the underwriters from time to time
to the public in negotiated transactions or otherwise at varying prices to be
determined at the time of the related sale. Proceeds to the sponsor are
anticipated to be approximately [$____________], plus accrued interest, from the
sale of the Class [A] Certificates before deducting expenses payable by the
sponsor, estimated to be [$_______].
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.
[UNDERWRITER[S]]
The date of this Prospectus Supplement is ___________, ____
- --------------------------------------------------------------------------------
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" STARTING ON PAGE S-__ OF
THIS PROSPECTUS SUPPLEMENT AND PAGE __ OF THE PROSPECTUS AND CONSIDER THESE
FACTORS BEFORE MAKING A DECISION TO INVEST IN THE CERTIFICATES.
These certificates represent non-recourse obligations of the Trust only and are
not interests in or obligations of any other person or entity.
Neither these certificates nor the underlying mortgage loans will be insured or
guaranteed by any governmental agency or instrumentality.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
- --------------------------------------------------------------------------------
<PAGE> 2
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about these securities in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
this series of securities; and (2) this prospectus supplement, which describes
the specific terms of this series of securities.
This prospectus supplement does not contain complete information about
the offering of these securities. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell these securities to you unless you have
received both this prospectus supplement and the prospectus.
IF THE TERMS OF YOUR SERIES OF SECURITIES AND ANY OTHER INFORMATION
CONTAINED HEREIN VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
The Sponsor has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, with
respect to the securities offered pursuant to this prospectus supplement. This
prospectus supplement and the prospectus, which form a part of the registration
statement, omit certain information contained in such registration statement
pursuant to the rules and regulations of the Securities and Exchange Commission.
You may inspect the registration statement at the Public Reference Room at the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
and the Securities and Exchange Commission's regional offices at Seven World
Trade Center, 13th Floor, New York, New York, 10048 and the Citibank Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies
of such materials at prescribed rates from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Securities and Exchange Commission maintains a site on
the World Wide Web at http://www.sec.gov containing reports, proxy materials,
information statements and other items.
The Securities and Exchange Commission allows us to "incorporate by
reference" certain information already on file with it. This means that we can
disclose important information to you by referring you to those documents. Such
information is considered part of this prospectus supplement, and later
information that is filed will automatically update and supersede this
information. We incorporate by reference the financial statements of [Insurer]
included in, or as exhibits to, the following documents, which have been filed
by [Insurer]:
o Annual Report on Form 10-K for the year ended
December 31, [____]; and
o Quarterly Report on Form 10-Q for the quarter ended
[___________, ____].
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. You should
not assume that the information in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
cover page of this prospectus supplement or the accompanying prospectus. You can
obtain from the Sponsor, free of charge, a copy of the financial information
incorporated by reference by making an oral or written request to Advanta
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<PAGE> 3
Conduit Receivables, Inc., Attention: General Counsel, Welsh & McKean Roads,
Spring House, Pennsylvania 19477, (215) 657-4000.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
The Sponsor's principal offices are located at 10790 Rancho Bernardo
Road, San Diego, California 92127, and its telephone number is (619) 674-1800.
S-3
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TABLE OF CONTENTS
SUMMARY.....................................................................S-5
TERMS OF THE CLASS [A] CERTIFICATES AND THE MORTGAGE LOANS..................S-6
RISK FACTORS...............................................................S-12
THE PORTFOLIO OF MORTGAGE LOANS............................................S-18
Delinquencies...........................................................S-19
THE MORTGAGE LOANS.........................................................S-20
General.................................................................S-20
The Fixed Rate Group....................................................S-22
Conveyance of Subsequent Mortgage Loans to the Fixed Rate Group.........S-25
The ARM Group...........................................................S-26
Conveyance of Subsequent Mortgage Loans to the ARM Group................S-29
PREPAYMENT AND YIELD CONSIDERATIONS........................................S-29
Projected Prepayments and Yields for [Class A] Certificates.............S-30
Payment Lag Feature of the Class [A] Fixed Rate Group Certificates......S-34
USE OF PROCEEDS............................................................S-34
THE SPONSOR AND THE MASTER SERVICER........................................S-34
DESCRIPTION OF THE CERTIFICATES............................................S-36
General.................................................................S-36
Pre-Funding Account Feature.............................................S-37
Capitalized Interest Account............................................S-37
Remittance Dates........................................................S-37
Pass-Through Rates......................................................S-38
Distributions of Interest...............................................S-39
Distribution of Principal...............................................S-40
Book Entry Registration of the Class [A] Certificates...................S-42
Optional Redemption.....................................................S-46
Mandatory Redemption....................................................S-47
Calculation of LIBOR....................................................S-47
Certain Activities......................................................S-48
CREDIT ENHANCEMENT.........................................................S-48
Overcollateralization Provisions........................................S-48
Cross-collateralization Provisions......................................S-51
Credit Enhancement Does Not Apply to Prepayment Risk or Basis Risk......S-52
Class [A] Certificate Distributions and Insured Payments to the
Owners of the Class [A] Certificates.................................S-52
THE CERTIFICATE INSURER....................................................S-53
THE CERTIFICATE INSURANCE POLICY...........................................S-55
THE POOLING AND SERVICING AGREEMENT........................................S-57
Formation of the Trust..................................................S-57
Sale of Mortgage Loans..................................................S-58
Conveyance of the Subsequent Mortgage Loans.............................S-59
Delinquency Advances, Compensating Interest and Servicing Advances......S-59
Governing Law...........................................................S-60
Termination of the Trust................................................S-60
Optional Termination....................................................S-61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-62
REMIC Elections.........................................................S-62
Special Tax Attributes..................................................S-63
Supplemental Interest Amounts...........................................S-63
Taxation of Foreign Investors...........................................S-64
Information Reporting and Backup Withholding............................S-64
STATE TAXES................................................................S-65
ERISA CONSIDERATIONS.......................................................S-65
RATINGS....................................................................S-70
LEGAL INVESTMENT CONSIDERATIONS............................................S-70
UNDERWRITING...............................................................S-71
EXPERTS....................................................................S-72
CERTAIN LEGAL MATTERS......................................................S-72
INDEX OF PRINCIPAL DEFINED TERMS...........................................S-73
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<PAGE> 5
SUMMARY
This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to consider
in making your investment decision. To understand all of the terms of the
offering of the Class [A] Certificates, read carefully this entire prospectus
supplement and the accompanying prospectus.
---------------------------
TITLE OF SERIES: Advanta Mortgage Loan Trust
[Trust], Mortgage Loan
Asset-Backed Certificates,
Series [Series]
SPONSOR: Advanta Conduit Receivables, Inc.
MASTER SERVICER: Advanta Mortgage Corp. USA
TRUSTEE: [Trustee]
THE TRUST: The Sponsor is forming the
Advanta Mortgage Loan Trust [Trust] to hold two groups of
residential mortgage loans. The Trust will also hold cash
on deposit in a pre-funding account to be used for the sole
purpose of purchasing additional mortgage loans on or
before [_______, ____], if certain conditions are met. All
of the mortgage loans will be originated by affiliates of
the Sponsor or by one or more unaffiliated originators.
CERTIFICATE The Trustee, on behalf of the
INSURER: owners of the Class [A]
Certificates, will hold an insurance policy issued to it by
[Insurer] guaranteeing payment of certain amounts due to
the owners of the Class [A]
Certificates.
PAYMENT DATES: The 25th day of each month,
beginning on [________, ____].
If the 25th day is not a
business day, then the payment
date will be the next succeeding
business day.
CLOSING DATE: On or about [______, ____].
PRINCIPAL The Trust will distribute
DISTRIBUTIONS: principal, monthly, to the
owners of each class of Class [A] Certificates then
entitled to receive distributions of principal.
INTEREST The Trust will distribute
DISTRIBUTIONS: interest, monthly, to the owners
of each class of Class [A] Certificates based on their
Class [A] Certificates' respective interest rate and
principal balance. All calculations of interest on the
Class [A-1] Certificates will be made on the basis of a
360-day year consisting of 12 months of 30 days each; all
calculations of interest on the Class [A-2] Certificates
will be made on the basis of the actual number of days
elapsed in the related accrual period, divided by 360.
NO OTHER OBLIGORS: The Class [A] Certificates do
not represent the obligation of
any entity other than the Trust.
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TERMS OF THE CLASS [A] CERTIFICATES AND THE MORTGAGE LOANS
o The Terms of the Class [A] Certificates and the Mortgage Loans
provide an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified
by the full description of these calculations, cash flows and
other information in this prospectus supplement and the
accompanying prospectus.
o Reference is made to the Index of Principal Defined Terms for
the location of certain capitalized terms.
ISSUER
Advanta Mortgage Loan Trust [Trust].
THE TRUST
The Trust will be created pursuant to a Pooling and Servicing Agreement
to be dated as of [_______, ____], among Advanta Conduit Receivables, Inc., as
Sponsor, Advanta Mortgage Corp. USA, as Master Servicer, and [Trustee], as
Trustee. The Sponsor will request or direct the Trust to acquire the mortgage
loans. Advanta Mortgage Corp. USA will service the mortgage loans for the Trust.
[Trustee] will act as Trustee for the benefit of the owners of the Certificates.
THE GROUPS
The mortgage loans owned by the Trust will be assigned to one of two
groups: the fixed rate group (which contains loans having fixed rates of
interest) or the ARM group (which contains loans having adjustable rates of
interest).
The Class [A-1] Certificates will relate to the fixed rate group and
the Class [A-2] Certificates will relate to the ARM group.
CLASS [A] CERTIFICATES OFFERED
[$__________] (approximate) Advanta Mortgage Loan [Trust], Mortgage
Loan Asset-Backed Certificates, Series [Series], Class [A] to be issued in the
following classes with initial principal balances as set forth below:
INITIAL
TRANCHE PRINCIPAL PASS-THROUGH
CLASS TYPE(1) BALANCE RATE
--------------------------------------------------------------------
[A-1] Senior Seq $__________ [____%]
Libor +
[A-2] Senior Floater $__________ [___%](2)(3)
1. Tranche types are as follows: "Senior" means a class which is not
subordinate to any other class; "Seq" means a class in a series of
sequential-pay classes; "Floater" means a class having an adjustable
interest rate.
2. Subject to a cap on the pass-through rate.
3. Subject to an increase in the pass-through rate on the payment date
immediately following the month in which the clean-up-call may first be
exercised.
The Trust will also issue one or more classes of subordinate
certificates which are not being offered in this prospectus supplement. The
subordinate certificates will be retained initially by the Sponsor or its
affiliates. The subordinate certificates are subordinate to all classes of Class
[A] Certificates, and essentially represent the excess of the aggregate mortgage
loan balance over the aggregate principal balance of the Class [A] Certificates,
together with any excess cashflow which is not required to be applied to
payments on the Class [A] Certificates.
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<PAGE> 7
The Class [A] Certificates will initially be issued in book-entry form
through DTC, Cedelbank or Euroclear. We refer you to "Description of the
Certificates--Book-Entry Registration of the Certificates" herein, and
"Description of the Certificates--Book-Entry Registration" in the prospectus for
more detail.
INITIAL CUT-OFF DATE
As of the opening of business on [______, ____].
STATISTICAL CALCULATION DATE
As of the opening of business on [_________, ____].
CLOSING DATE
On or about __________, ____.
FINAL SCHEDULED PAYMENT DATES
The final scheduled payment dates for each of the classes are as
follows, although it is anticipated that the actual final payment date for each
class will occur earlier than the final scheduled payment date set forth below.
We refer you to "Prepayment and Yield Considerations" herein for more detail.
Final Scheduled
Class Payment Date
------- ---------------
[A-1] [_______, ____]
[A-2] [_______, ____]
MORTGAGE LOANS
THE SPONSOR
Advanta Conduit Receivables, Inc. acquired or will acquire all of
the mortgage loans to be conveyed to the Trust from either affiliated
originators or unaffiliated originators. See "The Portfolios of Mortgage Loans"
in this prospectus supplement.
MASTER SERVICER
Advanta Mortgage Corp. USA will act as the Master Servicer for the
mortgage loans. The Master Servicer is entitled to retain an annual servicing
fee, payable monthly, of 0.50% of the total principal balance of the mortgage
loans owned by the Trust. The Master Servicer must advance delinquent payments
of interest on the mortgage loans, subject to certain limitations. See "The
Pooling and Servicing Agreement--Delinquency Advances, Compensating Interest and
Servicing Advances" in this prospectus supplement. Advanta Mortgage Corp. USA
may use one or more sub-servicers, which may be affiliates, to carry out its
obligations as Master Servicer.
MORTGAGE LOAN DATA
The mortgage loans owned by the Trust will be segregated into two
groups, one of which consists of fixed rate mortgage loans and the other one of
which consists of adjustable rate mortgage loans. The fixed rate group will
consist of first or junior lien residential mortgage loans and the adjustable
rate or "ARM" group will consist of first lien residential mortgage loans.
The statistical information presented in this prospectus supplement
concerning the mortgage loans in each group is given as of the opening of
business on [________, ____]. The actual mortgage loans in each group as of the
closing date, which will be on or about [_______, ____], will represent
approximately $350,000,000 in the fixed rate group, and approximately
[$___________] in the ARM group, respectively. It is anticipated that as of the
end of the pre-funding period, there will be approximately [$__________] of
mortgage loans in the fixed rate group and approximately [$__________] of
mortgage loans in the ARM group. The additional mortgage loans reflected as of
the end of the pre-funding period represent subsequent mortgage loans which will
be acquired by the Trust in exchange for funds in the pre-funding account.
S-7
<PAGE> 8
Some mortgage loans included in the statistical information presented
here may prepay in full, or may be determined not to meet the eligibility
requirements for inclusion in the respective mortgage loan group and as a result
may not be included in the final groups. In addition, some amortization of the
mortgage loans will occur between [_________, ____] and [________, ____]. The
final group of mortgage loans that the Sponsor will sell to the Trust will
include mortgage loans which were originated between [________, ____] and
[_________, ____]. As a result of the foregoing, the statistical distribution of
mortgage loan characteristics of the Trust as of the [__________, ____] cut-off
date will vary somewhat from those presented in this prospectus supplement,
although such variance is not expected to be material.
As of [___________, ____], the mortgage loans in the fixed rate group
had the following characteristics:
Number of Mortgage Loans [______]
Aggregate Principal Balance [$__________]
Average Principal Balance [$________] to
Range of Principal Balances [$__________]
Weighted Average Mortgage Interest Rate [____%]
Range of Mortgage Interest Rates [____%] to
[____%]
Weighted Average Original Term (months) [__________]
Weighted Average Remaining Term (months) [__________]
As of February 1, 1999, the mortgage loans in the ARM group had the
following characteristics:
Number of Mortgage Loans [___________]
Aggregate Principal Balance [$__________]
Average Principal Balance [$__________]
[$________] to
Range of Principal Balances [$__________]
Weighted Average Mortgage Interest Rate [____%]
Range of Maximum Mortgage Interest Rates [____%] to
[____%]
Weighted Average Maximum Mortgage Interest Rate [____%]
Range of Minimum Mortgage Interest Rates [____% to
[____%]
Weighted Average Minimum Mortgage Interest Rate [____%]
Weighted Average Original Term (months) [____]
Weighted Average Remaining Term (months) [____]
See "The Mortgage Loans" in this prospectus supplement.
PRE-FUNDING ACCOUNT FEATURE
The Trust may purchase additional mortgage loans on or before [______,
____], subject to certain conditions described herein, for inclusion in either
the fixed rate group or the ARM group. At the closing, the Trustee will hold in
trust, from the proceeds of the sale of the Class [A] Certificates, up to
approximately [$___________], which may be applied to the purchase of additional
fixed rate mortgage loans for inclusion in the fixed rate group, and up to
approximately [$___________], which may be applied to the purchase of additional
adjustable rate mortgage loans for inclusion in the ARM group. In addition, the
Sponsor will also be required to fund certain other accounts relating to the
payment of interest during the pre-funding period. See "Description of the
Certificates--Pre-Funding Account Feature" in this prospectus supplement.
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DISTRIBUTIONS
Owners of Class [A] Certificates will be entitled to receive payments
of interest each month. Owners of Class [A] Certificates may not necessarily
receive a distribution of principal in any given month. The amount of principal
the owners of Class [A] Certificates will be entitled to receive will vary
depending on a number of factors, including the payments received on the
underlying mortgage loans in the related mortgage loan group. Each month, the
Trustee will calculate the amounts to be paid to the owners of the Class [A]
Certificates.
Distributions will be made on each payment date to the owners of the
Class [A] Certificates as of the related record date. The record date for a
payment date is the last day of the prior calendar month for Class [A-1]; for
Class [A-2], the record date is the business day immediately preceding the
payment date.
Owners of Class [A] Certificates will receive payments on the 25th day
of each month, or, if such day is not a business day, then on the next
succeeding business day. The first payment date is ________, ____.
In summary, on each payment date the funds available to be distributed
will be applied in the following order of priority:
o first, to pay certain fees, such as fees payable to the Master
Servicer, the Trustee and the Certificate Insurer;
o second, to pay interest on the Class [A] Certificates;
o third, to pay principal of the Class [A] Certificates in accordance
with the priorities set forth herein;
o fourth, to reimburse the Certificate Insurer;
o fifth, to reimburse the Master Servicer for prior unreimbursed advances
and/or other expenses; and
o sixth, to make a distribution to the owners of the subordinate
certificates which will be used to pay supplemental interest amounts,
if any, subject to certain limitations.
The cashflows from the two mortgage loan groups are
cross-collateralized, although the Class [A] Certificates related to a mortgage
loan group will generally amortize in accordance with the amortization of the
mortgage loans contained in the related mortgage loan group.
CREDIT ENHANCEMENT
Credit enhancement refers to a mechanism that is intended to protect
the owners of the Class [A] Certificates against losses due to defaults on the
underlying mortgage loans.
The Class [A] Certificates have the benefit of the following four types
of credit enhancement:
o THE USE OF EXCESS INTEREST TO COVER LOSSES AND TO DISTRIBUTE PRINCIPAL
IN ORDER TO CREATE OVERCOLLATERALIZATION;
o THE SUBORDINATION OF DISTRIBUTIONS ON THE SUBORDINATE CERTIFICATES TO
THE REQUIRED DISTRIBUTIONS ON THE CLASS [A] CERTIFICATES;
o THE ALLOCATION OF LOSSES ON THE UNDERLYING MORTGAGE LOANS TO THE
SUBORDINATE CERTIFICATES; AND
o THE CERTIFICATE INSURANCE POLICY.
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<PAGE> 10
OPTIONAL REDEMPTION
On any date when the outstanding principal balance of the mortgage
loans (calculated as of the date the Trust acquired the related mortgaged loans)
is less than or equal to 10% of the outstanding principal balance of all of the
mortgage loans acquired by the Trust prior to the end of the pre-funding period,
either the Master Servicer or the majority owners of one of the classes of the
subordinate certificates then outstanding, acting directly or through one or
more affiliates, will have the right to exercise a clean-up call, which will
terminate the Trust on a subsequent payment date. In the event that the Master
Servicer or the majority holders of one of the classes of subordinate
certificates do not exercise such option, the certificate insurer shall be
entitled to do so in accordance with the terms of the Pooling and Servicing
Agreement.
The clean-up call will be effected by a purchase from the Trust of all
remaining mortgage loans which will generate proceeds sufficient to pay the
then-outstanding amount of the Class [A] Certificates (plus interest), and will
result in the redemption of the Class [A] Certificates.
MANDATORY REDEMPTION
The Class [A] Certificates will be redeemed in part in sequential order
on the payment date immediately following the end of the pre-funding period to
the extent of any cash remaining in the pre-funding account on such payment date
after the purchase by the Trust of all subsequent mortgage loans, pursuant to
the pre-funding feature. See "Description of the Certificates--Mandatory
Redemption" in this prospectus supplement.
DENOMINATIONS
The Trust will issue the Class [A] Certificates in book-entry form in
integral multiples of $1,000.
RATINGS
Before the Class [A] Certificates can be issued, the Trust must obtain
the security ratings set out below from [Rating Agency/Agencies]:
[Rating Agency] [Rating Agency]
--------------- ---------------
[Rating] [Rating]
A security rating is not a recommendation to buy, sell or hold
securities, and may be subject to revision or withdrawal at any time by a rating
agency. We refer you to "Prepayment and Yield Considerations" and "Ratings" in
this prospectus supplement for more detail.
RISK FACTORS
For a discussion of other risk factors that should be considered by
prospective investors in the Class [A] Certificates, we refer you to "Risk
Factors" in this prospectus supplement and in the accompanying prospectus.
FEDERAL TAX ASPECTS
Dewey Ballantine LLP acted as counsel to the Trust and is of the
opinion that:
o THE TRUST WILL BE TREATED AS A REAL ESTATE MORTGAGE INVESTMENT
CONDUIT, OR REMIC, FOR FEDERAL INCOME TAX PURPOSES.
o THE CLASS [A] CERTIFICATES WILL BE "REGULAR INTERESTS" IN THE
REMIC AND WILL BE TREATED AS DEBT INSTRUMENTS OF THE REMIC FOR
FEDERAL INCOME TAX PURPOSES. WE REFER YOU TO "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT FOR
MORE DETAIL.
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ERISA CONSIDERATIONS
Subject to certain considerations discussed in this prospectus
supplement, the Class [A] Certificates may be purchased by pension,
profit-sharing and other employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended. We refer you to "ERISA
Considerations" in this prospectus supplement and in the prospectus for more
detail.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines "mortgage
related securities" to include only first lien mortgages, and not junior lien
mortgages. The Class [A] Certificates will not be "mortgage related securities"
under that definition. Some institutions may be limited in their legal
investment authority to only first-lien mortgages or "mortgage related
securities" and will not be able to invest in the Class [A] Certificates.
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<PAGE> 12
RISK FACTORS
You should consider the following risk factors prior to any purchase of
any of the Class [A] Certificates. You should also consider the information
under the "Risk Factors" in the accompanying prospectus.
UNDERWRITING STANDARDS The Sponsor's underwriting standards generally are
less stringent than those of the Federal National
Mortgage Association or Federal Home Loan Mortgage
Corporation. The mortgage loans included in the Trust
have been made to borrowers that typically have
limited access to traditional mortgage financing for
a variety of reasons, such as impaired past credit
experience, limited credit history, insufficient home
equity value, or a high level of debt-to-income
ratio. As a result of this approach to underwriting,
the mortgage loans may experience higher rates of
delinquencies, defaults and foreclosures than
mortgage loans underwritten in accordance with the
Federal National Mortgage Association or Federal Home
Loan Mortgage Corporation's guidelines. In addition,
the Sponsor's mortgage loan program includes the
purchase of mortgage loans from unaffiliated parties.
These mortgage loans may have been originated
pursuant to underwriting guidelines which are
different from the Sponsor's underwriting guidelines.
In connection with these purchases, it is the
Sponsor's policy to re-underwrite the related loans
to evaluate the terms of those other underlying
guidelines and the frequency of exceptions to those
guidelines. The Sponsor would typically re-underwrite
only a sample, and not 100% of such purchased loans.
As a result of such differing underwriting
guidelines, these purchased mortgage loans may
experience higher rates of delinquencies, defaults
and foreclosures than mortgage loans underwritten in
accordance with the Sponsor's guidelines.
THE MORTGAGE LOANS MAY The underlying mortgage loans can be prepaid at any
PREPAY AT ANY TIME, time by the borrowers. The rate of prepayment on the
RESULTING IN UNCERTAINTY mortgage loans will affect the amortization rate of
AS TO THE AMORTIZATION the Class [A] Certificates, as well as their weighted
RATE OF THE CLASS [A] average lives. Certain of the mortgage loans may be
CERTIFICATES prepaid in whole or in part at any time without
penalty. In addition, a substantial portion of the
mortgage loans contain due-on-sale provisions which,
if enforced by the Master Servicer, will result in
the prepayment of such mortgage loans. We refer you
to "Prepayment and Yield Considerations" herein and
"Certain Legal Aspects of Mortgage Loans and Related
Matters--Enforcement of the Note" in the Prospectus
for more detail.
The underlying mortgage loans in the fixed rate group
are all fixed rate loans. The rate of prepayments on
fixed-rate mortgage loans is sensitive to prevailing
interest rates. Generally, if prevailing interest
rates fall significantly below the interest rates on
the mortgage loans, the mortgage loans are likely to
be subject to higher prepayment rates than if
prevailing rates remain at or above the interest
rates on the underlying mortgage loans. Conversely,
if prevailing interest rates rise significantly above
the interest rates on the mortgage loans, the rate of
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<PAGE> 13
prepayments is likely to decrease. The weighted
average lives of the Class [A] Certificates and, if
purchased at other than par, the yields realized by
owners of the Class [A] Certificates will be
sensitive to rates of payment of principal (including
prepayments) on the underlying mortgage loans. In
general, the yield on a Class [A] Certificate that is
purchased at a premium from its outstanding principal
amount may be adversely affected by higher than
anticipated levels of prepayments of the underlying
mortgage loans. Conversely, the yield on a Class [A]
Certificate that is purchased at a discount from its
outstanding principal amount may be adversely
affected by lower than anticipated levels of
prepayments of the underlying mortgage loans.
The underlying mortgage loans in the ARM group are
all adjustable rate loans, including hybrid ARMs
("Hybrid ARMs" being loans which have a fixed rate of
interest for the first two years ("2/28 Loans"),
three years ("3/27 Loans") or five years ("5/25
Loans"), which fixed rate then converts to an
adjustable rate). The prepayment experience on the
adjustable rate loans, including the 2/28 Loans, the
3/27 Loans and the 5/25 Loans may differ from the
prepayment experience on fixed rate loans due to
provisions which provide for adjustment to an
adjustable interest rate and related monthly payment
and the applicable periodic reset caps and maximum
rates. In particular, the 2/28 Loans, the 3/27 Loans
and the 5/25 Loans may be subject to higher
prepayment rates as they approach their initial
coupon change dates.
RISK OF JUNIOR MORTGAGES Mortgage loans that are secured by junior mortgages
will receive proceeds from the sale of the related
mortgaged property only after any senior mortgage
loans and prior statutory liens have been paid. If
the remaining proceeds are insufficient to satisfy
the outstanding balance of the junior mortgage loan,
and if the Certificate Insurer fails to perform its
obligations under its insurance policy, then:
o THERE MAY BE A DELAY IN DISTRIBUTIONS TO THE
OWNERS OF THE CLASS [A] CERTIFICATES IF A
DEFICIENCY JUDGMENT AGAINST THE BORROWER IS
SOUGHT.
o OWNERS OF CLASS [A] CERTIFICATES MAY INCUR A
LOSS IF A DEFICIENCY JUDGMENT CANNOT BE
OBTAINED.
We refer you to "The Pooling and Servicing Agreement"
in the prospectus for more detail.
Junior mortgages are also more sensitive to a decline
in the value of a property and could cause the value
of the Trust's interest in the underlying mortgaged
property to be reduced or extinguished.
NATURE AND VALUE OF The combined loan-to-value ratios and loan-to-value
COLLATERAL ratios described herein were calculated based upon
the appraised values of the related mortgaged
properties at the time of origination. In general,
for purchase money loans, the combined loan-to-value
ratios and loan-to-value ratios were calculated using
the lower of the purchase price or appraised
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<PAGE> 14
values of the related mortgaged properties at the
time of origination. No assurance can be given that
such appraised values of the mortgaged properties
have remained or will remain at such values. If
property values decline such that outstanding
balances of the mortgage loans, together with the
outstanding balances of any first lien, become equal
to or greater than the value of the mortgaged
properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those
heretofore experienced by the Master Servicer.
THE MORTGAGE LOANS ARE Many state and federal laws, public policy and
HIGHLY REGULATED, AND general principles of equity relating to the
THIS REGULATION MAY protection of consumers, unfair and deceptive
IMPEDE COLLECTIONS practices and debt collection practices may apply to
the origination, servicing and collection of the
mortgage loans. Depending on the provisions of the
applicable law and the specific facts and
circumstances involved, violations of these laws,
policies and principles may limit the ability of the
Trust to collect all or part of the principal of or
interest on the underlying mortgage loans. Such
violations may entitle the mortgagor to a refund of
amounts previously paid and, in addition, could
subject the Master Servicer to damages and
administrative enforcement. We refer you to "Certain
Legal Aspects of the Mortgage Loans" in the
Prospectus for more detail.
RATINGS OF CLASS [A] The ratings assigned to the Class [A] Certificates by
CERTIFICATES; CERTIFICATE the rating agencies will be based on the credit and
INSURER DEFAULT other characteristics of the underlying mortgage
loans and on the respective ratings assigned to the
financial strength of the Certificate Insurer. Any
reduction in the ratings so assigned to the
Certificate Insurer by the rating agencies could
result in the reduction of the ratings assigned to
the Class [A] Certificates. Any such reduction in the
ratings assigned to the Class [A] Certificates could
adversely affect the liquidity and market value of
the Class [A] Certificates. In the event of a default
by the Certificate Insurer at a time when the
overcollateralization is exhausted, the owners of the
Class [A] Certificates are likely to experience
losses.
CLASS [A-2] CERTIFICATES. The Class [A-2]
Certificates have a pass-through rate based on
one-month LIBOR, subject to the ARM Group Available
Funds Cap Rate (as defined herein). The mortgage
loans in the ARM Group consist of mortgage loans
having interest rates based upon six-month LIBOR and
on the constant maturity treasury, each quoted as
described under "The Mortgage Loans--ARM Group", as
well as some 2/28 Loans, some 3/27 Loans and some
5/25 Loans. Since the indexes and rate adjustment
dates on the mortgage loans in the ARM group differ
from the pass-through rate on the Class [A-2]
Certificates, the weighted-average interest rate on
the mortgage loans in the ARM group could be reduced
to a level such that the pass-through rate on such
Class [A-2] Certificates may be limited by the ARM
Group Available Funds Cap Rate.
NON-OWNER OCCUPIED As of [________, ____], non-owner occupied properties
PROPERTIES represent [____%] of the underlying mortgage loans in
the fixed rate group and [____%] of the underlying
mortgage loans in the ARM Group (by
S-14
<PAGE> 15
aggregate principal balance). It is possible that the
rate of delinquencies, foreclosures and losses on
mortgage loans secured by non-owner occupied
properties could be higher than for loans secured by
the primary residence of the mortgagor.
MANDATORY REDEMPTION Owners of the Class [A] Certificates should be aware
that in the event that the Sponsor does not have
enough subsequent mortgage loans to sell to the Trust
on or before the end of the pre-funding period with
respect to either the fixed rate group or the ARM
group pursuant to the pre-funding feature, owners of
the Class [A] Certificates will receive a prepayment
of principal on the Payment Date immediately
following the end of the pre-funding period. Although
no assurance can be given, the Sponsor expects that
the principal amount of subsequent mortgage loans
sold to the Trust will require substantially all cash
on deposit in the pre-funding account with respect to
the fixed rate group and the ARM group and that there
will be no material principal prepayment to the
owners of the Class [A] Certificates.
ELIGIBILITY OF SUBSEQUENT Each subsequent mortgage loan must satisfy certain
MORTGAGE LOANS eligibility criteria at the time of its acquisition
by the Trust pursuant to the pre-funding feature.
However, subsequent mortgage loans may have been
originated or purchased using credit criteria
different from those which were applied to the
mortgage loans initially conveyed on the Closing
Date, and may be of a different credit quality.
Therefore, following the transfer of subsequent
mortgage loans, the aggregate characteristics of the
mortgage loans then held in the Trust may vary from
those initially conveyed, but such variance is not
expected to be material. See "The Mortgage Loans" in
this prospectus supplement.
S-15
<PAGE> 16
EFFECT OF SOCIAL, The ability of the Trust to purchase subsequent
ECONOMIC AND OTHER mortgage loans pursuant to the pre-funding feature
FACTORS ON THE depends to some degree upon whether such subsequent
ABILITY TO PURCHASE mortgage loans satisfy the eligibility requirements
SUBSEQUENT MORTGAGE for inclusion in the Trust. The satisfaction of such
LOANS eligibility requirements may be affected by a variety
of social and economic factors including interest
rates, unemployment levels, the rate of inflation and
consumers' general perception of economic conditions.
If such factors prevent underlying mortgagors from
performing their obligations in respect of such
mortgage loans or otherwise cause such mortgage loans
to fail to satisfy the eligibility requirements, the
related mortgage loans will not be eligible for
inclusion in the Trust. The Sponsor is unable to
determine and has no basis to predict whether or to
what extent economic or social factors will affect
the availability of subsequent mortgage loans for
inclusion in the Trust.
LIMITATIONS ON Generally, under the terms of the Soldiers' and
INTEREST PAYMENTS Sailors' Civil Relief Act of 1940, as amended (the
AND FORECLOSURES "Relief Act"), or similar state legislation, a
mortgagor who enters military service after the
origination of the related mortgage loan (including a
mortgagor who is a member of the National Guard or is
in reserve status at the time of the origination of
the Mortgage Loan and is later called to active duty)
may not be charged interest (including fees and
charges) above an annual rate of 6% during the period
of such mortgagor's active duty status, unless a
court orders otherwise upon application of the
lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the
ability of the Master Servicer to collect full
amounts of interest on certain of the mortgage loans.
In addition, the Relief Act imposes limitations that
would impair the ability of the Master Servicer to
foreclose on an affected mortgage loan during the
mortgagor's period of active duty status. Thus, in
the event that such a mortgage loan goes into
default, there may be delays and losses experienced
by the owners of the Class [A] Certificates due to
the inability to realize upon the mortgaged property
in a timely fashion. The Certificate Insurance Policy
does not cover any shortfalls in interest due to the
application of the Relief Act nor is the Master
Servicer required to pay compensating interest or
make advances due to the application of the Relief
Act.
S-16
<PAGE> 17
[YEAR 2000 ISSUE] [Many existing computer programs use only two digits
to identify a year in the date field. These programs
were designed and developed without considering the
impact of the upcoming change in the century. If not
corrected, many computer applications could fail or
create erroneous results on or after January 1, 2000
(the "Year 2000 Issue"). In connection with this
issue Advanta Corp., the parent company of the
affiliated originators and of the Master Servicer,
has completed an evaluation of its systems,
applications and vendor lists, and is implementing
project plans to modify existing computer programs,
convert to new programs or replace systems, to the
extent necessary to address the upcoming change in
the century. Advanta Corp. has identified its
significant business relationships, including,
without limitation, vendors, customers, asset
management counterparties and funding counterparties.
Advanta Corp. has initiated communications with these
third parties to determine the extent to which
Advanta Corp. is vulnerable to such third parties'
failure to remediate their own Year 2000 Issues. In
the event that Advanta Corp.'s project plans are not
timely or successfully completed, there can be no
assurance that the upcoming change in the century
will not have a material adverse effect on the
operations of the affiliated originators or of the
Master Servicer, including a shut-down of operations
for a period of time, which may, in turn, have a
material adverse effect on the Class [A]
Certificates. In addition, there can be no assurance
that the systems used by outside service providers,
including sub-servicers providing services to the
Master Servicer, or other third parties upon which
the affiliated originators' and the Master Servicer's
systems rely, will be converted on a timely basis.
Further, there can be no assurance that a failure to
convert by another company, or a conversion that is
incompatible with the affiliated originators' and the
Master Servicer's systems, would not have a material
adverse effect on their operations, which may, in
turn, have a material adverse effect on the Class [A]
Certificates. In the event that the systems or
programs of the Trustee, or the Certificate Issuer
are not Year 2000 compliant, there can be no
assurance that there would not be a material adverse
effect on the operations of the Trustee or the
Certificate Insurer, respectively, which may, in
turn, have a material adverse effect on the Class [A]
Certificates.]
[DTC AND THE YEAR 2000 [The management of the Depository Trust Company
ISSUE] ("DTC") is aware that some computer applications,
systems and the like for processing data that are
dependant upon calendar dates, including dates
before, on and after January 1, 2000, may encounter
Year 2000 Issues. DTC has informed its participants
and members of the financial community that it has
developed and is implementing a program so that its
systems, as the same relate to the timely payment of
distributions (including principal and interest
payments) to securityholders, book-entry deliveries,
and settlement of trades within DTC continue to
function appropriately on and after January 1, 2000.
This program includes a technical assessment and a
remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase,
which is expected to be completed within appropriate
time frames.
S-17
<PAGE> 18
However, DTC's ability to perform properly its
services is also dependent upon other parties,
including, but not limited to, issuers, their agents
and its participating organizations (through which
the owners of the Class [A] Certificates will hold
their certificates) as well as third party vendors on
whom DTC relies for information or the provision of
services, including telecommunication and electrical
utility service providers among others. DTC has
informed the financial community that it is
contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services
being Year 2000 compliant and (ii) determine the
extent of their efforts for Year 2000 remediation
(and, as appropriate, testing) of their services. In
addition, DTC has stated that it is in the process of
developing such contingency plans as it deems
appropriate.
If problems associated with the Year 2000 Issue were
to occur with respect to DTC and the services
described above, distributions to the owners of Class
[A] Certificates could be delayed or otherwise
adversely affected.
According to DTC, the foregoing information with
respect to DTC has been provided to the financial
community for information purposes only and is not
intended to serve as a representation, warranty or
contract modification of any kind.]
THE PORTFOLIO OF MORTGAGE LOANS
Each group of mortgage loans conveyed to the Trust (each such loan, a
"Mortgage Loan", and each such group, a "Mortgage Loan Group" or a "Group")
includes loans which were either originated directly by certain originators
affiliated with the Sponsor (the "Affiliated Originators") or purchased by the
Affiliated Originators from others on a loan-by-loan basis and in either case
acquired by the Sponsor. The Sponsor also acquires loans from unaffiliated
originators (the "Unaffiliated Originators") in long-term commitments from
Conduit Participants (as defined in the Prospectus). Such loans are originated
by Unaffiliated Originators either directly or purchased by the Unaffiliated
Originators from others on a loan-by-loan basis or in bulk purchases (with an
Affiliated Originator and an Unaffiliated Originator each being referred to
herein as an "Originator").
The Affiliated Originators are Advanta Mortgage Corp. USA, Advanta
National Bank, Advanta Bank Corp., Advanta Mortgage Corp. Midatlantic, Advanta
Mortgage Corp. Midatlantic II, Advanta Mortgage Corp. Midwest, Advanta Mortgage
Corp. of New Jersey, Advanta Mortgage Corp. Northeast and Advanta Finance Corp.
All of the Mortgage Loans purchased by the Sponsor from the
Unaffiliated Originators were originated in accordance with the Sponsor's
underwriting guidelines for Unaffiliated Originators. See "Mortgage Loan
Program--Underwriting Guidelines" in the Prospectus.
DELINQUENCIES
Owned and Managed Servicing Portfolio. The following tables set forth
information relating to the delinquency, loan loss and foreclosure experience of
the Master Servicer for its servicing portfolio, excluding certain loans
serviced by the Master Servicer that were not
S-18
<PAGE> 19
originated or purchased and reunderwritten by the Sponsor or its Affiliated
Originators (the "Owned and Managed Servicing Portfolio"), of fixed and
adjustable rate mortgage loans as of [_________, ____], and for each of the
three prior year ends. The Owned and Managed Servicing Portfolio includes, but
is not limited to, the Mortgage Loans originated or purchased on or prior to
[____________, ____]. In addition to the Owned and Managed Servicing Portfolio,
the Master Servicer serviced, as of [__________, ____], approximately [_______]
mortgage loans with an aggregate principal balance as of such date of
approximately [$________]; such loans were not originated or purchased by the
Sponsor or its Affiliated Originators but are being serviced for third parties
on a contract servicing basis (the "Third-Party Servicing Portfolio"). No loans
in the Third-Party Servicing Portfolio are included in the tables set forth
below.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE
MASTER SERVICER'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT
LOANS (000) LOANS (000) LOANS (000) LOANS (000)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Delinquency
percentage(1)
30-59 days
60-89 days
90 days or more
Total
Foreclosure rate(2)
REO properties(3)
</TABLE>
- --------------------
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period
exclude loans in foreclosure.
(2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount
of mortgage loans in foreclosure as a percentage of the total number of
mortgage loans or the dollar amount of mortgage loans, as the case may
be, as of the date indicated.
(3) REO Properties (i.e., "real estate owned" properties -- properties
relating to foreclosed mortgages or for which deeds in lieu of
foreclosure have been accepted, and held by the Master Servicer pending
disposition) percentages are calculated using the number of loans, not
the dollar amount.
S-19
<PAGE> 20
LOAN LOSS EXPERIENCE
OF THE MASTER SERVICER'S OWNED AND MANAGED SERVICING
PORTFOLIO OF MORTGAGE LOANS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<S> <C>
Average amount outstanding(1)
Gross losses(2)
Recoveries(3)
Net losses(4)
Net losses as a percentage of
average amount outstanding
</TABLE>
- --------------------
(1) "Average Amount Outstanding" during the period is the arithmetic
average of the principal balances of the mortgage loans outstanding on
the last business day of each month during the period.
(2) "Gross Losses" are amounts relating to mortgage loans which have been
determined by the Master Servicer to be uncollectible for each
respective period.
(3) "Recoveries" are amounts received by the Master Servicer as recoveries
from liquidation proceeds and deficiency judgments.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
THE MORTGAGE LOANS
GENERAL
The Mortgage Loans will be predominantly used to refinance an existing
mortgage loan on more favorable terms, to consolidate debt, or to obtain cash
proceeds by borrowing against the related borrower's (the "Mortgagor") equity in
the real property and improvements pledged to secure the related Mortgage Loan
(the "Mortgaged Property").
The Mortgage Loans to be sold by the Sponsor to the Trust consisted, as
of the Statistical Calculation Date, of loans evidenced by promissory notes (the
"Notes") secured by Mortgages on the Mortgaged Properties, which are located in
[___]states [and the District of Columbia]. The Mortgaged Properties securing
the Mortgage Loans consist primarily of single-family residences (which may be
detached, part of a two- to four-family dwelling, a condominium unit or a unit
in a planned unit development). The Mortgaged Properties may be owner-occupied
(which includes second and vacation homes) and non-owner occupied investment
properties.
The Mortgage Loans will be required to satisfy the following criteria
as of the opening of business on [_________, ____] (the "Initial Cut-Off Date"):
have remaining terms to maturity of not greater than 30 years; will not be 30 or
more days delinquent (except that certain Mortgage Loans, representing in the
aggregate not in excess of [____%] of the aggregate principal balance of all
Mortgage Loans as of the Initial Cut-Off Date, may be 30-59 days delinquent).
Neither the Sponsor nor the Master Servicer have reason to believe that the
delinquency and loss experience of the Mortgage Loans will differ in any
material respect from that of the Master Servicer's Owned and Managed Servicing
Portfolio, although there can be no assurance that this will be the case.
S-20
<PAGE> 21
Less than [____%] of the Mortgage Loans (as a percentage of the
aggregate principal balance of all Mortgage Loans as of the Statistical
Calculation Date) are "simple interest" or "date of payment" loans, with the
remainder being "actuarial" or "pre-computed" loans. A "simple interest" loan
provides that interest which has accrued to date is paid first and the remaining
payment is applied to reduce the unpaid principal balance. An "actuarial" loan
provides for amortization of the loan over a series of fixed level monthly
installments.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups (the "Fixed Rate Group" or the "ARM Group"). Each of the Mortgage
Loans contained in the Fixed Rate Group will be a fixed-rate loan secured by a
mortgage having either a first or junior lien position with respect to the
related Mortgaged Property. The Mortgage Loans contained in the ARM Group will
be an adjustable rate loan secured by a mortgage having a first lien position
with respect to the related Mortgaged Property. The Class [A-1] Certificates
(the "Class A Fixed Rate Group Certificates") represent undivided ownership
interests in all Mortgage Loans contained or to be contained in the Fixed Rate
Group, and the Class [A-2] Certificates (sometimes referred to as the "[Class A]
ARM Group Certificates") represent undivided ownership interests in all Mortgage
Loans contained or to be contained in the ARM Group. As of the Statistical
Calculation Date, [____%] of the Mortgage Loans in both Groups (as a percentage
of the aggregate principal balance of all Mortgage Loans on such date) are
secured by first lien mortgages on the related Mortgaged Properties ("Senior
Loans"), and [____%] of the Mortgage Loans in both Groups (as a percentage of
the aggregate principal balance of all Mortgage Loans on such date) are secured
by junior liens on the related Mortgaged Properties ("Junior Loans").
The combined loan-to-value ratios ("CLTVs") and loan-to-value ratios
("LTVs") described herein were calculated based upon the appraised values of the
related Mortgaged Properties at the time of origination (the "Appraised
Values"). In general, for purchase money loans, the CLTVs and LTVs were
calculated using the lower of the purchase price or appraised values of the
related Mortgaged Properties at the time of origination. No assurance can be
given that such appraised values of the Mortgaged Properties have remained or
will remain at such values. If property values decline such that the outstanding
balances of the Mortgage Loans, together with the outstanding balances of any
first lien, become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those previously experienced by the Master Servicer, as set forth
above under "The Portfolio of Mortgage Loans," and in the mortgage lending
industry.
Difference between Statistical Calculation Date; Closing Date and Final
Groups.
The statistical information presented in this Prospectus Supplement is
based on the Mortgage Loans computed as of the opening of business on [________,
____] (the "Statistical Calculation Date"). As of the Statistical Calculation
Date, the Mortgage Loans aggregated [$_____________] with respect to the Fixed
Rate Group and [$__________] with respect to the ARM Group. The Sponsor expects
that the actual aggregate principal balance of the Mortgage Loans to be sold to
the Trust on the Closing Date (the "Initial Mortgage Loans"), as of the Initial
Cut-Off Date, plus the aggregate principal balance of the Mortgage Loans (the
"Subsequent Mortgage Loans") to be conveyed to the Trust during the period (the
"Pre-Funding Period") from the Closing Date until the earlier of (i) the date on
which the amount on deposit in the related Pre-Funding Account is less than
$100,000 or (ii) [_________, ____] or (iii) the occurrence of an event of
default as specified in the Pooling and Servicing Agreement, as of the end of
the Pre-Funding Period will represent approximately [__________] in Mortgage
Loans in the Fixed Rate Group and approximately [$____________] in Mortgage
Loans in the ARM Group. The additional Mortgage Loans reflected as of the end of
the Pre-Funding Period represent
S-21
<PAGE> 22
Subsequent Mortgage Loans which will be acquired by the Trust in exchange for
funds in the related Pre-Funding Account (as defined herein).
In addition, with respect to the Mortgage Loans as of the Statistical
Calculation Date, some amortization of the Mortgage Loans will occur prior to
the Closing Date. Moreover, certain Mortgage Loans as of the Statistical
Calculation Date may prepay in full or may be determined not to meet the
eligibility requirements for the final Mortgage Loan Groups and as a result may
not be included in the final Mortgage Loan Groups. As a result of the foregoing,
the statistical distribution of characteristics as of the Closing Date or as of
the end of the Pre-Funding Period for the Fixed Rate Group and the ARM Group,
respectively, will vary somewhat from the statistical distribution of such
characteristics computed as of the Statistical Calculation Date as presented in
this Prospectus Supplement, although such variance will not be material.
THE FIXED RATE GROUP
The Mortgage Loans in the Fixed Rate Group as of the Statistical
Calculation Date consist of [______] Mortgage Loans under which the related
Mortgaged Properties are located in [___] states [and the District of Columbia,]
as set forth herein; had an aggregate principal balance of [$_____________]; the
minimum principal balance of any of the Mortgage Loans was [$_________]; had a
maximum principal balance of [$_____________] and had an average principal
balance of approximately [$____________]. The interest rates of such Mortgage
Loans ranged from [_____%] to [____%] per annum, and the weighted average
interest rate of such Mortgage Loans was [____%] per annum. The original term to
stated maturity of the Mortgage Loans as of the Statistical Calculation Date
ranged from [___] months to [___] months, the remaining term to stated maturity
ranged from [___] months to [____] months, the weighted average original term to
stated maturity was [____] months, the weighted average remaining term to stated
maturity was [___] months and the weighted average seasoning was [___] months.
[____%] of the Mortgage Loans in the Fixed Rate Group as of the Statistical
Calculation Date (calculated as a percentage of aggregate principal balance of
all of the Mortgage Loans in the Fixed Rate Group) require monthly payments of
principal that will fully amortize the Mortgage Loans by their respective
maturity dates, and [_____%] of such Mortgage Loans (calculated as a percentage
of aggregate principal balance of all of the Mortgage Loans in the Fixed Rate
Group) are Balloon Loans.
The weighted average CLTV of the Mortgage Loans included in the Fixed
Rate Group as of the Statistical Calculation Date (calculated as a percentage of
aggregate principal balance of all of the Mortgage Loans in the Fixed Rate
Group) was [_____%]. The weighted average LTV of the Mortgage Loans in the Fixed
Rate Group as of the Statistical Calculation Date (calculated as a percentage of
aggregate principal balance of all of the Mortgage Loans in the Fixed Rate
Group) was [____%]. The weighted average Junior Lien Ratio (as defined below) of
the Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation
Date was [____%]. Approximately [_____%] of the Mortgage Loans in the Fixed Rate
Group as of the Statistical Calculation Date (calculated as a percentage of
aggregate principal balance of all of the Mortgage Loans in the Fixed Rate
Group) were secured by first lien mortgages and approximately [______%] by
junior lien mortgages.
The "Junior Lien Ratio" of a Mortgage Loan which is in a junior lien
position is equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the outstanding principal balance of any
lien on the related Mortgaged Property having priorities senior to that of
S-22
<PAGE> 23
the lien which secures such Mortgage Loan (such lien, a "Senior Lien") at the
time of origination of the Mortgage Loan.
The following tables describe the Fixed Rate Group of Mortgage Loans
and the related Mortgaged Properties as of the opening of business on the
Statistical Calculation Date.
FIXED RATE GROUP
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL....................... [________] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF CLTVS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
RANGE OF CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF LTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF JUNIOR LIEN RATIOS
(JUNIOR LIENS ONLY)
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
JUNIOR LIEN RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
S-23
<PAGE> 24
FIXED RATE GROUP
REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
MONTHS REMAINING MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPLES BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
SF Detached/Deminimus PUD.........
SF Rowhouse/Townhouse/Condo.......
Two to Four Family Home...........
Prefabricated Single Family.......
Other.............................
-------------- ----------------- -----------------
TOTAL............................. [_______] [$________] 100.00%
============== ================= =================
</TABLE>
FIXED RATE GROUP
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner occupied*.................
Non-owner occupied..............
-------------- ----------------- -----------------
TOTAL........................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
- ------------------
* Includes vacation and second homes.
S-24
<PAGE> 25
FIXED RATE GROUP
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE
SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS TO THE FIXED RATE GROUP
During the Pre-Funding Period, the Trust may acquire up to
approximately [$__________] aggregate principal balance of Subsequent Mortgage
Loans for assignment to the Fixed Rate Group. Accordingly, the statistical
characteristics of the Fixed Rate Group will vary following the acquisition by
the Trust of such Subsequent Mortgage Loans.
S-25
<PAGE> 26
THE ARM GROUP
The Mortgage Loans in the ARM Group as of the Statistical Calculation
Date consist of [________] loans under which the related Mortgaged Properties
are located in [__] states [and the District of Columbia,] as set forth herein.
The Mortgage Loans in the ARM Group as of the Statistical Calculation Date had
an aggregate principal balance of [$___________], the minimum principal balance
of any of such Mortgage Loans was [$__________], the maximum principal balance
thereof was [$________] and the average principal balance of such Mortgage Loans
was approximately [$___________]. The weighted average current interest rate of
the Mortgage Loans in the ARM Group as of the Statistical Calculation Date was
[_____%]. The margins for the Mortgage Loans in the ARM Group as of the
Statistical Calculation Date ranged from [____%] to [_____%] and the weighted
average margin was [____%].
The Mortgage Loans in the ARM Group as of the Statistical Calculation
Date have original terms to stated maturity from [___] months to [___] months,
remaining terms to stated maturity from [___] months to [___] months, a weighted
average original term to stated maturity of [___] months, a weighted average
remaining term to stated maturity of [___] months and a weighted average
seasoning of [____] months. No Mortgage Loan in the ARM Group as of the
Statistical Calculation Date had a stated maturity later than [______________,
____]. All of the Mortgage Loans in the ARM Group as of the Statistical
Calculation Date by aggregate principal balance require monthly payments of
principal that will fully amortize such Mortgage Loans by their respective
maturity dates.
The weighted average CLTV of the Mortgage Loans included in the ARM
Group as of the Statistical Calculation Date was [_____%]. All of the Mortgage
Loans in the ARM Group as of the Statistical Calculation Date by aggregate
principal balance were secured by first lien mortgages.
[_______%] of the Mortgage Loans in the ARM Group as of the Statistical
Calculation Date bear interest (in some instances, following an initial
fixed-rate period) at a six-month LIBOR rate, plus a margin. [______%] are
indexed on the average of the six-month LIBOR rates based on quotations at five
major banks as set forth in the "Money Rates" section of The Wall Street
Journal, Western Edition, on the first business day of the month; [_____%] are
indexed on the average of the six-month LIBOR rates based on quotations of major
banks, as published by the Federal National Mortgage Association, on the first
business day of the month; [_____%] are indexed on the average of the six-month
LIBOR rates based on quotations at five major banks as set forth in the "Money
Rates" section of The Wall Street Journal, Western Edition, on the most recent
daily quote available; [_____%] are indexed on other six-month LIBOR rates;
[_____%] are indexed on the one year Constant Maturity Treasury Index published
in the Wall Street Journal as a Key Interest Rate each week and [_____%] are
indexed on the weekly average of one year constant maturity treasury.
With respect to the hybrid ARM Mortgage Loans in the ARM Group as of
the Statistical Calculation Date, [_____%] of such Mortgage Loans bear interest
at a fixed rate of interest for a two-year period following origination,
[_____%] of such Mortgage Loans bear interest at a fixed rate of interest for a
three-year period following origination, and [_____%] of such Mortgage Loans
bear interest at a fixed rate of interest for a five year period following
origination; after such initial periods, such Mortgage Loans bear interest at
adjustable rates, as described above.
[_____%] of the loans in the ARM Group as of the Statistical
Calculation Date have semi-annual interest rate and semi-annual payment
adjustment frequencies. [_____%] of the
S-26
<PAGE> 27
loans in the ARM Group as of the Statistical Calculation Date have annual
interest rate and annual payment adjustment frequencies. [_____%] of the
Mortgage Loans in the ARM Group as of the Statistical Calculation Date have a
periodic rate adjustment cap of 1%; [_____%] of such Mortgage Loans have a
periodic rate adjustment cap of 1.5%; [_____%] of the Mortgage Loans in the ARM
Group as of the Statistical Calculation Date have a periodic rate adjustment cap
of 2% and [_____%] have other periodic rate caps. [_____%] of the Mortgage Loans
in the ARM Group as of the Statistical Calculation Date have a lifetime cap of
7.00%; [_____%] have a lifetime cap of 6.50%; [______%] have a lifetime cap of
6.00%. The weighted average number of months until the next reset date is
approximately [___] months. The weighted average maximum Interest rate was
approximately [______%], with maximum Interest rates that range from [____%] to
[_____%]. The weighted average minimum Interest rate was approximately [_____%],
with minimum Interest rates that range from [____%] to [_____%].
The following tables describe the ARM Group Mortgage Loans and the
related Mortgaged Properties as of the opening of business on the Statistical
Calculation Date.
ARM GROUP
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
TOTAL....................... [________] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF CLTVS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
RANGE OF CLTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF LTVS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
LTV RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
S-27
<PAGE> 28
ARM GROUP
REMAINING TERM TO MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
REMAINING TERM NUMBER OF AGGREGATE % OF AGGREGATE
TO MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
PRINCIPLES BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
SF Detached/Deminimus PUD.........
SF Rowhouse/Townhouse/Condo.......
Two to Four Family Home...........
Prefabricated Single Family.......
Other.............................
-------------- ----------------- -----------------
TOTAL............................. [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF OCCUPANCY STATUS
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE % OF AGGREGATE
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner occupied*.................
Non-owner occupied..............
-------------- ----------------- -----------------
TOTAL........................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
- ------------------
* Includes vacation and second homes.
ARM GROUP
DISTRIBUTION OF SEASONING
<TABLE>
<CAPTION>
MONTHS ELAPSED NUMBER OF AGGREGATE % OF AGGREGATE
SINCE ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
S-28
<PAGE> 29
ARM GROUP
DISTRIBUTION OF MAXIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF MAXIMUM NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF MINIMUM MORTGAGE RATES
<TABLE>
<CAPTION>
RANGE OF MINIMUM NUMBER OF AGGREGATE % OF AGGREGATE
MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
DISTRIBUTION OF MARGINS
<TABLE>
<CAPTION>
RANGE OF NUMBER OF AGGREGATE % OF AGGREGATE
MARGINS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
ARM GROUP
NEXT INTEREST ADJUSTMENT DATE DISTRIBUTION
<TABLE>
<CAPTION>
NEXT INTEREST NUMBER OF AGGREGATE % OF AGGREGATE
ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
-------------- ----------------- -----------------
TOTAL....................... [_______] [$________] 100.00%
============== ================= =================
</TABLE>
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS TO THE ARM GROUP
During the Pre-Funding Period, the Trust may acquire up to
approximately [$___________] aggregate principal balance of Subsequent Mortgage
Loans for assignment to the ARM Group. Accordingly, the statistical
characteristics of the ARM Group will vary following the acquisition by the
Trust of such Subsequent Mortgage Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par, the
yield to maturity on any Class [A] Certificate will be directly related to the
rate of payment of principal of the Mortgage Loans in the related Mortgage Loan
Group, including for this purpose voluntary payment in whole or in part prior to
stated maturity (a "Prepayment"), liquidations due to defaults, casualties and
condemnations, and repurchases of Mortgage Loans by the Sponsor, the Originators
or the Master Servicer. The actual rate of principal prepayments on mortgage
loans is influenced by a variety of economic, tax, geographic, demographic,
social, legal and other factors and has fluctuated considerably in recent years.
In addition, the rate of principal prepayments
S-29
<PAGE> 30
may differ among groups of mortgage loans at any time because of specific
factors relating to the mortgage loans in the particular group, including, among
other things, the age of the mortgage loans, the geographic locations of the
properties securing the loans and the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
unemployment.
The timing of changes in the rate of prepayments may significantly
affect the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's yield
of prepayments occurring at a rate higher (or lower) than the rate anticipated
by the investor during the period immediately following the issuance of the
Class [A] Certificates will not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments. Investors must make their own
decisions as to the appropriate prepayment assumptions to be used in deciding
whether to purchase any of the Class [A] Certificates. The Sponsor makes no
representations or warranties as to the rate of prepayment or the factors to be
considered in connection with such determination.
PROJECTED PREPAYMENTS AND YIELDS FOR [CLASS A] CERTIFICATES
If purchased at other than par, the yield to maturity on the Class [A]
Certificates will be affected by the rate of the payment of principal of the
Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in the related Mortgage Loan Group is slower than
the rate anticipated by an investor who purchases a Class [A] Certificate of the
related class at a discount, the actual yield to such investor will be lower
than such investor's anticipated yield. If the actual rate of payments on the
Mortgage Loans in the related Mortgage Loan Group is faster than the rate
anticipated by an investor who purchases a Class [A] Certificate of the related
class at a premium, the actual yield to such investor will be lower than such
investor's anticipated yield.
The Mortgage Loans in the Fixed Rate Group are fixed-rate mortgage
loans. The rate of prepayments with respect to conventional fixed rate mortgage
loans has fluctuated significantly in recent years. In general, if prevailing
interest rates fall significantly below the interest rates on fixed rate
mortgage loans, such mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above the interest rate
on such mortgage loans. Conversely, if prevailing interest rates rise
appreciably above the interest rates on fixed rate mortgage loans, such mortgage
loans are likely to experience a lower prepayment rate than if prevailing rates
remain at or below the interest rates on such mortgage loans. The monthly
payment on mortgage loans similar to the Mortgage Loans is often smaller than
the monthly payment on a purchase-money first mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the Mortgagor's monthly
payment, as a result of the relatively small loan balance. [__________%] of the
Mortgage Loans in the Fixed Rate Group as of the Statistical Calculation Date by
aggregate principal balance had prepayment penalties.
All of the Mortgage Loans in the ARM Group are adjustable rate mortgage
loans. As is the case with conventional fixed rate mortgage loans, adjustable
rate mortgage loans may be subject to a greater rate of principal prepayments in
a declining interest rate environment. For example, if prevailing interest rates
fall significantly, adjustable rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates remain constant because the
availability of fixed-rate mortgage loans at competitive interest rates may
encourage mortgagors
S-30
<PAGE> 31
to refinance their adjustable rate mortgage loans to "lock in" a lower fixed
interest rate. No assurance can be given as to the level of prepayments that the
Mortgage Loans in the ARM Group will experience. [________%] of the Mortgage
Loans in the ARM Group as of the Statistical Calculation Date by aggregate
principal balance had prepayment penalties.
The final scheduled payment dates (as set forth in the "Terms of the
Class [A] Certificates and Mortgage Loans" herein) (each a "Final Scheduled
Payment Date") for the Class [A-1] Certificate has been calculated assuming that
each Mortgage Loan in the Fixed Rate Group amortizes according to its terms and
the final scheduled payment dates for the Class [A-2] Certificate was assumed to
be [____________, ____].
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
Class [A] Certificates of each class will be influenced by the rate at which
principal payments on the Mortgage Loans in the related Mortgage Loan Group are
paid, which may be in the form of scheduled amortization, accelerated
amortization or prepayments (for this purpose, the term "prepayment" includes
Prepayments and liquidations due to default) or as a result of an early
termination of the Trust.
The model used in this Prospectus Supplement for the Class [A] Fixed
Rate Group Certificates is a prepayment assumption (the "Prepayment Assumption")
which represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of the Fixed Rate Group for the life of such
mortgage loans. The "100% Prepayment Assumption" assumes a conditional
prepayment rate of 3% per annum of the then outstanding principal balance of the
Mortgage Loans in the first month of the life of the Mortgage Loans and an
additional 1.55% (precisely, 17/11%) per annum in each month thereafter until
the twelfth month. Beginning in the twelfth month and in each month thereafter
during the life of the Mortgage Loans, the 100% Prepayment Assumption assumes a
conditional prepayment rate of 20% per annum each month. As used in the table
below, 0% Prepayment Assumption assumes prepayment rates equal to 0% of the
Prepayment Assumption, i.e., no prepayments on the synthetic mortgage loans
having the characteristics described below. Correspondingly, 100% Prepayment
Assumption assumes prepayment rates equal to 100% of the Prepayment Assumption,
and so forth.
The model used in this Prospectus Supplement for the Class [A-2]
Certificates represents an assumed conditional prepayment rate per annum of the
then outstanding principal balance of the ARM Group for the life of such
mortgage loans (the "CPR Assumption"). Neither the Prepayment Assumption nor the
CPR Assumption purport to be a historical description of prepayment experience
or a prediction of the anticipated rate of prepayment of any mortgage loans,
including the related Mortgage Loans. The Sponsor believes that no existing
statistics of which it is aware provide a reliable basis for Owners of Class [A]
Certificates to predict the amount or the timing of receipt of prepayments on
the Mortgage Loans.
The tables below were prepared on the basis of the assumptions in the
following paragraph and there are discrepancies between the characteristics of
the actual Mortgage Loans and the characteristics of the Mortgage Loans assumed
in preparing the tables. Any such discrepancy may have an effect upon the
percentages of the initial principal balances outstanding and the weighted
average lives of the Class [A] Certificates set forth in the tables. In
addition, since the actual Mortgage Loans in each Mortgage Loan Group have
characteristics which differ from those assumed in preparing the tables set
forth below, the distributions of principal on the Class [A] Certificates may be
made earlier or later than as indicated in the tables.
S-31
<PAGE> 32
For the purpose of the tables below, it is assumed that:
(i) the Mortgage Loans consist of mortgage loans having
the characteristics set forth below,
(ii) the Closing Date is [___________, ____],
(iii) distributions on the Class [A] Certificates are made
on the 25th day of each month regardless of the day
on which the payment actually occurs, commencing on
[____________, ____] in accordance with the
priorities described herein,
(iv) all prepayments are prepayments in full and include
30 days' interest thereon,
(v) no early termination of the Trust occurs, unless
otherwise specified,
(vi) no Mortgage Loan is ever delinquent,
(vii) the assumed levels of one-month LIBOR, six-month
LIBOR, and 1 year CMT are [________%], [____%] and
[_____%], respectively,
(viii) the Class [A] Certificates have the respective
pass-through rates and original principal balances as
set forth herein, and
(ix) all of the Subsequent Mortgage Loans are delivered to
the Trust approximately one month after the Closing
Date.
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario V Scenario Scenario
I II III IV VI VII
-------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Group(1)..........
ARM Group(2).................
</TABLE>
- ---------------
(1) As a percentage of the Prepayment Assumption.
(2) As a conditional prepayment rate (CPR) percentage.
FIXED RATE GROUP
REPRESENTATIVE MORTGAGE LOANS
FIXED RATE GROUP INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL AMORTIZATION REMAINING
PRINCIPAL GROSS TERM TO MATURITY TERM TO MATURITY AMORTIZATION
BALANCE COUPON RATE (MONTHS) (MONTHS) METHOD
--------- ----------- --------------------- ---------------- ------------
<S> <C> <C> <C> <C>
</TABLE>
FIXED RATE GROUP SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL AMORTIZATION REMAINING
PRINCIPAL GROSS TERM TO MATURITY TERM TO MATURITY AMORTIZATION
BALANCE COUPON RATE (MONTHS) (MONTHS) METHOD
--------- ----------- --------------------- ---------------- ------------
<S> <C> <C> <C> <C>
</TABLE>
S-32
<PAGE> 33
ARM GROUP
REPRESENTATIVE MORTGAGE LOANS
ARM GROUP INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL REMAINING PERIODIC
GROSS TERM TO TERM TO MONTHS TO PERIODIC CAP
COUPON MATURITY MATURITY COUPON CAP (FIRST (SUBSEQUENT LIFE
PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) ADJUSTMENT INDEX MARGIN RESET DATE) RESET DATES) LIFE CAP FLOOR
- ----------------- ------ -------- -------- ---------- ----- ------ ----------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
ARM GROUP SUBSEQUENT MORTGAGE LOANS
<TABLE>
<CAPTION>
ORIGINAL REMAINING PERIODIC
GROSS TERM TO TERM TO MONTHS TO PERIODIC CAP
COUPON MATURITY MATURITY COUPON CAP (FIRST (SUBSEQUENT LIFE
PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) ADJUSTMENT INDEX MARGIN RESET DATE) RESET DATES) LIFE CAP FLOOR
- ----------------- ------ -------- -------- ---------- ----- ------ ----------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
The following tables set forth the percentages of the initial principal
amount of the Class [A] Certificates that would be outstanding after each of the
dates shown, based on prepayment scenarios described in the table entitled
"Prepayment Scenarios". The percentages have been rounded to the nearest 1%.
PERCENTAGE OF INITIAL CLASS [A-1] CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years):(1)
Weighted Average
Life (years):(2)
</TABLE>
(1) To Maturity
(2) To 10% Call
The weighted average life of each indicated class of Class[ A]
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related Payment
Date, (ii) adding the results and (iii) dividing the sum of the initial
respective principal balance for the related Class [A] Certificates as of the
Closing Date.
S-33
<PAGE> 34
PERCENTAGE OF INITIAL CLASS [A-2] CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
DATES SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4 SCENARIO 5 SCENARIO 6 SCENARIO 7
----- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Life (years):(1)
Weighted Average
Life (years):(2)
</TABLE>
(1) To Maturity
(2) To 10% Call
The weighted average life of each indicated class of Class [A]
Certificates has been determined by (i) multiplying the amount of each principal
payment by the number of years from the date of issuance to the related Payment
Date, (ii) adding the results and (iii) dividing the sum of the initial
respective principal balance for the related Class [A] Certificates as of the
Closing Date.
PAYMENT LAG FEATURE OF THE CLASS [A] FIXED RATE GROUP CERTIFICATES
Pursuant to the Pooling and Servicing Agreement, interest on the Class
[A] Fixed Rate Group Certificates generally accrues during the calendar month
immediately preceding the month in which the related Payment Date occurs.
Payment Dates occur on the 25th day of each month (or, if such day is not a
business day, on the next business day). Thus, the effective yield to the Owners
of the Class [A] Fixed Rate Group Certificates will be below that otherwise
produced by the related Pass-Through Rate.
USE OF PROCEEDS
The Sponsor will cause the Trust to acquire the Mortgage Loans (other
than the Subsequent Mortgage Loans) concurrently with the sale of the Class [A]
Certificates. The Pre-Funding Account and the Capitalized Interest Account will
be funded from a portion of the proceeds of the sale of the Class [A]
Certificates and the net proceeds will be paid to the Originators in
consideration of the sale of the Mortgage Loans. Proceeds from the sale of the
Class [A] Certificates will be determined as a result of the pricing of the
Class [A] Certificates through the offering described in this Prospectus
Supplement. The net proceeds to be received from the sale of the Mortgage Loans
will be added to the Affiliated Originators' general funds and will be available
for general corporate purposes, including the repayment of debt, including
"warehouse" debt secured by the Mortgage Loans (prior to their sale to the
Trust) and the origination and purchase of new mortgage loans. One or more of
the Underwriters (or their respective affiliates) may have acted as a "warehouse
lender" to the Sponsor or one or more of its affiliates and may receive a
portion of such proceeds as a repayment of such "warehouse" debt.
THE SPONSOR AND THE MASTER SERVICER
The Sponsor, Advanta Conduit Receivables, Inc., is a subsidiary of
Advanta Mortgage Corp. USA, the Master Servicer, and is an indirect subsidiary
of Advanta Corp., a Delaware corporation ("Advanta Parent"), a publicly-traded
company with its principal executive
S-34
<PAGE> 35
offices located in Spring House, Pennsylvania with assets as of [____________,
____] in excess of [$__________]. Advanta Parent, through its subsidiaries
(including the Master Servicer) has managed assets (including the Mortgage
Loans) in excess of [______] as of [___________, ____]. See "The Sponsor and the
Transferor" in the Prospectus.
As of [___________, ____], the Master Servicer and its subsidiaries
were servicing approximately [___________] Mortgage Loans in the Owned and
Managed Servicing Portfolio representing an aggregate outstanding principal
balance of approximately [$________], and approximately [____________] mortgage
loans in the Third-Party Servicing Portfolio representing an aggregate
outstanding principal balance of approximately [$____________]. See "The Master
Servicer" in the Prospectus.
As of [______________, ____], the Sponsor or its affiliates have
issued, all serviced by the Master Servicer, [__] series of mortgage
pass-through securities with an original principal balance of approximately
[$___________].
[The Master Servicer understands the implications of the Year 2000
Issue with respect to internal operations as well as external interactions with
other third-party business entities. The Master Servicer is currently evaluating
the impact of the Year 2000 Issue, and is implementing project plans to modify
existing computer programs or conversions to new programs, to the extent
necessary, to address the Year 2000 Issue. The Master Servicer's review includes
all systems, applications and vendor lists. See "Risk Factors--Year 2000 Issue"
herein.]
The Master Servicer may resign or be removed, only in accordance with
the terms of the Pooling and Servicing Agreement. No removal or resignation
shall become effective until the Trustee or a successor servicer shall have
assumed the Master Servicer's responsibilities and obligations in accordance
therewith. See "The Pooling and Servicing Agreement--Removal and Resignation of
the Master Servicer" in the Prospectus.
The Master Servicer has the right, but not the obligation, to purchase
from the Trust any Mortgage Loan which is in default or is "in imminent danger
of being in" default.
The Master Servicer may not assign its obligations under the Pooling
and Servicing Agreement, in whole or in part, unless it shall have first
obtained the written consent of the Trustee and the Certificate Insurer, which
consent is required not to be unreasonably withheld; provided, however, that any
assignee must meet the eligibility requirements for a successor servicer set
forth in the Pooling and Servicing Agreement. See "The Pooling and Servicing
Agreement--Removal and Resignation of the Master Servicer" in the Prospectus.
The Master Servicer may enter into agreements with qualified
sub-servicers ("Sub-Servicing Agreements") with respect to the servicing of all
or any portion of the Mortgage Loans. The Pooling and Servicing Agreement
provides that affiliates of the Master Servicer which are qualified to service
mortgage loans are qualified sub-servicers. No Sub-Servicing Agreements
discharge the Master Servicer from its servicing obligations. See "Mortgage Loan
Program--Sub-Servicers" in the Prospectus.
Upon removal or resignation of the Master Servicer, the Trustee may
solicit bids for a successor servicer and, pending the appointment of a
successor Master Servicer as a result of soliciting such bids, will be required
to serve as Master Servicer. If the Trustee is unable to obtain a qualifying bid
and is prevented by law from acting as Master Servicer, the Trustee will be
required to appoint, or petition a court of competent jurisdiction to appoint,
an eligible
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successor. Any successor is required to be a housing and home finance
institution, bank or mortgage servicing institution which is acceptable to the
Trustee and the Certificate Insurer (or if a Certificate Insurer default has
occurred and is continuing, 51% of the Owners of the Class [A] Certificates) and
shall assume all or any part of the responsibilities, duties or liabilities of
the Master Servicer.
The Class [A] Certificates will not represent an interest in or
obligation of, nor are the Mortgage Loans guaranteed by, the Sponsor, the Master
Servicer, Advanta Parent, the Trustee or any of their respective affiliates, nor
will they be insured or guaranteed by the Federal Deposit Insurance Corporation
(the "FDIC") or any other governmental agency or instrumentality.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Class [A] Certificates will be issued by the Trust pursuant to a
Pooling and Servicing Agreement, dated as of [____________, ____] (the "Pooling
and Servicing Agreement") among the Sponsor, the Master Servicer and the
Trustee. The Trust will also issue one or more classes of subordinate
certificates which are not being offered hereby (the "Subordinate
Certificates"). The Subordinate Certificates will be retained initially by the
Sponsor or its affiliates.
Distributions on the Class [A] Certificates are required to be made on
the twenty-fifth day of each calendar month, or if such day is not a business
day, the next succeeding business day (each, a "Payment Date") commencing on
[_________, ____] to the Owners of record. The "Owners of record" are the Owners
of the Class [A] Certificates as of the last day of the prior calendar month (in
the case of the Class [A] Fixed Rate Group Certificates) or as of the business
day immediately preceding the Payment Date (in the case of the Class [A-2]
Certificates (each such day being a "Record Date"). Distributions will be made
in amounts equal to the product of (a) such Owner's Percentage Interest and (b)
the amount distributed with respect to such Owner's class of Class [A]
Certificates on such Payment Date.
Persons in whose name a Class [A] Certificate is registered in the
Register maintained by the Trustee are the "Owners" of the Class [A]
Certificates. For so long as the Class [A] Certificates are in book-entry form
with DTC, the only "Owner" of the Class [A] Certificates, as the term "Owner" is
used in the Pooling and Servicing Agreement, will be Cede. No person acquiring a
beneficial interest in a Class [A] Certificate (a "Beneficial Owner") will be
entitled to receive a definitive certificate representing such person's interest
in the Trust, except in the event that Physical Certificates are issued under
limited circumstances set forth in the Pooling and Servicing Agreement. All
references herein to the Owners of Class [A] Certificates shall mean and include
the rights of Beneficial Owners, as such rights may be exercised through DTC and
its participating organizations, except as otherwise specified in the Pooling
and Servicing Agreement. See "Description of the Securities--Form of Securities"
in the Prospectus.
Each class of Class [A] Certificates will evidence the right to receive
on each Payment Date the Class [A] Distribution Amount for such class of Class
[A] Certificates, in each case until the related principal balance has been
reduced to zero. The Owners of the Subordinate Certificates will be entitled to
receive distributions of residual cashflow not required to be applied to other
purposes, as set forth in the Pooling and Servicing Agreement.
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PRE-FUNDING ACCOUNT FEATURE
On the Closing Date, up to approximately [$___________] (the "Original
Fixed Rate Group Pre-Funded Amount") will be deposited in an account (the
"Pre-Funding Account") in the name of the Trustee from the proceeds of the sale
of the Class [A] Fixed Rate Group Certificates. Similarly, on the Closing Date,
up to approximately [$____________] (the "Original ARM Group Pre-Funded Amount",
together with the Original Fixed Rate Group Pre-Funded Amount, the "Original
Pre-Funded Amount") will be deposited into the Pre-Funding Account from the
proceeds of the sale of the Class [A-2] Certificates. During the Pre-Funding
Period, the Sponsor may deliver Subsequent Mortgage Loans to the Trustee for
assignment to either the Fixed Rate Group or the ARM Group in exchange for a
corresponding release of money from the related Pre-Funding Account. Each of the
Subsequent Mortgage Loans must meet the criteria set forth in the Pooling and
Servicing Agreement and must be reasonably acceptable to the Certificate
Insurer. The Sponsor expects that the Original Pre-Funded Amount for each
Mortgage Loan Group will be reduced to less than $100,000 by the end of the
Pre-Funding Period. Any amount remaining in the Pre-Funding Account not used to
purchase additional fixed rate mortgage loans on the Payment Date immediately
following the end of the Pre-Funding Period will be used to redeem the Class [A]
Fixed Rate Group Certificates on a sequential basis, and any amount remaining in
the Pre-Funding Account on the Payment Date immediately following the end of the
Pre-Funding Period not used to purchase additional adjustable rate mortgage
loans will be used to redeem the Class [A-2] Certificates.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date, the Trustee will be required to deposit a portion
of the sale proceeds of the Class [A] Fixed Rate Group Certificates and the
Class [A-2] Certificates in an account (the "Capitalized Interest Account") to
be used, as necessary, by the Trustee during the Pre-Funding Period to make up
for any shortfalls that may arise in the event that interest collected on the
underlying mortgage loans is insufficient to pay all of the interest due on the
Class [A] Fixed Rate Group Certificates and the Class [A-2] Certificates and
certain expenses during such period. Any amounts remaining in the Capitalized
Interest Account on the Payment Date immediately following the end of the
Pre-Funding Period which were not used for such purposes are required to be paid
directly to the Owners of the Subordinate Certificates on such Payment Date.
REMITTANCE DATES
The Pooling and Servicing Agreement will require that the Trustee
create and maintain an account (the "Certificate Account"). See "Description of
the Securities--Payments on Mortgage Loans; Deposits to Distribution Account" in
the Prospectus.
On the eighteenth day of each month (or, if such day is not a business
day, the immediately succeeding business day) (each such day being a "Remittance
Date") the Master Servicer is required to withdraw from the Principal and
Interest Account and remit to the Trustee, for deposit in the Certificate
Account, the Monthly Remittance Amount. The "Monthly Remittance Amount" is the
sum of the principal collected by the Master Servicer and interest accrued in
respect of the Mortgage Loans during the period beginning on the first day of
the calendar month immediately preceding the month in which the related
Remittance Date occurs and ending on the last day of such month (the "Remittance
Period") plus any related Loan Purchase Prices, Substitution Amounts (as such
terms are defined in the Prospectus), Delinquency Advances and Compensating
Interest (as such terms are defined herein), less the sum of certain amounts the
Master Servicer is permitted to withdraw from the Principal and Interest
Account.
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PASS-THROUGH RATES
The "Pass-Through Rates" applicable to the Class [A] Certificates for
any Payment Date are as follows:
Class [A-1] Pass-Through Rate: [____%] per annum.
Class [A-2] Pass-Through Rate: The lesser of (i)(a) with respect to any
Payment Date which occurs on or prior to the Step-Up Payment Date, the London
interbank offering rate for one-month United States dollar deposits ("LIBOR")
(calculated as described below under "Calculation of LIBOR") plus [____%] per
annum or (b) with respect to any Payment Date thereafter, LIBOR plus [_____%]
per annum (the rate described in this clause (i) being the "Class [A-2] Formula
Pass-Through Rate") and (ii) the ARM Group Available Funds Cap Rate for such
Payment Date.
The excess, if any, of (x) the interest due on the Class [A-2]
Certificates on any Payment Date calculated at the Class [A-2] Formula
Pass-Through Rate over (y) the interest due on the Class [A-2] Certificates
calculated at the ARM Group Available Funds Cap Rate applicable to such Payment
Date is the "Supplemental Interest Amount" for the Class [A-2] Certificates for
such Payment Date.
If, on any Payment Date, there is a Supplemental Interest Amount due
with respect to the Class [A-2] Certificates, the Owners of the Subordinate
Certificates have agreed to pay such amount from the sources of funds specified
in the Pooling and Servicing Agreement, including amounts which would otherwise
be distributed to such owners by the Trust on such Payment Date. If the full
amount of any Supplemental Interest Amount is not paid on any Payment Date, then
the unpaid amount will accrue interest at the Class [A-2] Formula Pass-Through
Rate until such amount is paid. If any of the Master Servicer, the Owners of a
majority of Percentage Interests (the "Majority Owners") of one of the classes
of the Subordinate Certificates then outstanding, acting directly or through one
or more affiliates, or the Certificate Insurer, in accordance with the terms of
the Pooling and Servicing Agreement, exercises its right to an optional
termination of the Trust (an "Optional Termination"), the Supplemental Interest
Amounts then owing with respect to the Class [A-2] Certificates might not be
paid in full.
The Certificate Insurer does not guarantee the payment of, nor do the
ratings assigned to the Class [A-2] Certificates address the likelihood of the
payment of any Supplemental Interest Amount.
The Pooling and Servicing Agreement defines the "Fixed Rate Group
Available Funds Cap Rate," as of any Payment Date, to be an amount, expressed as
a per annum rate, equal to (a)(i) the aggregate amount of interest accrued and
collected (or advanced) on all of the Mortgage Loans in the Fixed Rate Group for
the related Remittance Period minus (ii) the aggregate amount of the Servicing
Fee, the Trustee's Fee and the premiums due to the Certificate Insurer, in each
case relating to the Fixed Rate Group, on such Payment Date, divided by (b) the
aggregate principal balance of the Mortgage Loans in the Fixed Rate Group as of
the beginning of the related Remittance Period, calculated on the basis of a
360-day year consisting of 12 months of 30 days each.
The Pooling and Servicing Agreement defines the "ARM Group Available
Funds Cap Rate," as of any Payment Date, to be an amount, expressed as a per
annum rate, equal to the (a)(i) the aggregate amount of interest accrued and
collected (or advanced) on all of the Mortgage
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Loans in ARM Group for the related Remittance Period minus (ii) the aggregate of
the Servicing Fee and the Trustee's Fee and the premiums due to the Certificate
Insurer, in each case relating to ARM Group, on such Payment Date and minus
(iii) commencing on the seventh Payment Date following the Closing Date, an
amount equal to 0.50 % per annum times the aggregate principal balance of the
Mortgage Loans in ARM Group as of the beginning of such related Remittance
Period, divided by (b) the aggregate principal balance of the Mortgage Loans in
ARM Group as of the beginning of the related Remittance Period, calculated on
the basis of a 360-day year and the actual number of days elapsed.
The "Step-Up Payment Date" is the Payment Date following the calendar
month in which the Clean-up Call Date occurs.
DISTRIBUTIONS OF INTEREST
For each Payment Date, the interest due with respect to the Class [A]
Fixed Rate Group Certificates will be the interest which has accrued thereon at
the related Pass-Through Rate during the immediately preceding calendar month,
and the interest due with respect to the Class [A-2] Certificates will be the
interest which has accrued thereon at the Class [A-2] Pass-Through Rate from the
preceding Payment Date (or from the Closing Date in the case of the first
Payment Date) to and including the day prior to the current Payment Date, (each
such amount being the "Current Interest Amount" for the related class of Class
[A] Certificates). Each period referred to in the prior sentence relating to the
accrual of interest is the "Accrual Period" for the related class of Class [A]
Certificates.
With respect to a Payment Date, any unpaid interest shortfalls relating
to a class of Class [A] Certificates from prior Accrual Periods is the "Class
[A] Interest Carry Forward Amount."
The Pooling and Servicing Agreement defines the "Class [A] Interest
Distribution Amount" for each class of Class [A] Certificates with respect to
each Payment Date as being the Current Interest Amount with respect to such
class of Class [A] Certificates, together with any Interest Carry Forward Amount
with respect to such class. The Class [A] Interest Distribution Amount for the
Class [A-2] Certificates does not include the amount, if any, of the related
Supplemental Interest Amount.
The Class [A] Interest Distribution Amount with respect to the Class
[A] Fixed Rate Group Certificates is sometimes referred to as the "Fixed Rate
Group Interest Distribution Amount"; the Class [A] Interest Distribution Amount
with respect to the Class [A-2] Certificates is sometimes referred to as the
"ARM Group Interest Distribution Amount;" and each of the Fixed Rate Group
Interest Distribution Amount, or the ARM Group Interest Distribution Amount is
sometimes referred to as the related "Group Interest Distribution Amount."
All calculations of interest on the Class [A] Fixed Rate Group
Certificates will be made on the basis of a 360-day year consisting of 12 months
of 30 days each; all calculations of interest on the Class [A-2] Certificates
will be made on the basis of the actual number of days elapsed in the related
Accrual Period, divided by 360.
DISTRIBUTION OF PRINCIPAL
The Owners of the Class [A] Certificates relating to a Mortgage Loan
Group will be entitled to receive certain monthly distributions of principal on
each Payment Date which
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generally reflect collections of principal during the prior Remittance Period on
the underlying Mortgage Loans.
The overcollateralization provisions of the Trust result in a limited
acceleration of principal payments to the Owners of each class of Class [A]
Certificates. Such overcollateralization provisions are more fully described
under "Credit Enhancement--Overcollateralization Provisions" and "Credit
Enhancement--Cross-collateralization Provisions." Such overcollateralization
provisions also have an effect on the weighted average lives of the Class [A]
Certificates; see "Prepayment and Yield Considerations." In addition, the
following discussion makes use of a number of defined terms which are defined
under "Credit Enhancement--Overcollateralization Provisions" and "Credit
Enhancement--Cross-collateralization Provisions."
The Pooling and Servicing Agreement defines the "Class [A] Principal
Distribution Amount" for each Mortgage Loan Group (such amount with respect to
the Fixed Rate Group, the "Fixed Rate Group Class [A] Principal Distribution
Amount"; such amount with respect to the ARM Group, the "ARM Group Class [A]
Principal Distribution Amount"); with respect to each Payment Date as being the
lesser of:
(a) the Group Available Funds for the related Mortgage Loan Group,
plus any related Insured Payment and minus the related Group
Interest Distribution Amount, and
(b) (i) the sum, without duplication of:
(A) the principal actually collected by the Master
Servicer with respect to the Mortgage Loans in the
related Mortgage Loan Group during the related
Remittance Period;
(B) the Principal Balance of each Mortgage Loan in the
related Mortgage Loan Group that either was
repurchased by the Sponsor or an Originator or
purchased by the Master Servicer or any Sub-Servicer
on the related Remittance Date, to the extent such
Principal Amount is actually received by the Trustee;
(C) any Substitution Amounts delivered by the Sponsor or
an Originator on the related Remittance Date in
connection with a substitution of a Mortgage Loan in
the related Mortgage Loan Group, to the extent such
Substitution Amounts are actually received by the
Trustee;
(D) all Net Liquidation Proceeds (as defined in the
Prospectus) actually collected by the Master Servicer
with respect to the Mortgage Loans in the related
Mortgage Loan Group during the related Remittance
Period (to the extent such Net Liquidation Proceeds
relate to principal);
(E) the amount of any Overcollateralization Deficit (as
defined herein) with respect to the related Mortgage
Loan Group for such Payment Date;
(F) the proceeds received by the Trustee from any
termination of the Trust (to the extent such proceeds
relate to principal);
(G) any unused moneys in the Pre-Funding Account relating
to such Mortgage Loan Group at the end of the
Pre-Funding Period;
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(H) the amount of any Overcollateralization Increase
Amount with respect to the related Mortgage Loan
Group for such Payment Date to the extent of any Net
Monthly Excess Cashflow available for such purpose;
minus
(ii) the amount of any Overcollateralization Reduction
Amount with respect to the related Mortgage Loan
Group for such Payment Date.
In no event will the Class [A] Principal Distribution Amount for any
class of Class [A] Certificates on any Payment Date (x) be less than zero or (y)
be greater than the then-outstanding principal balance of the related class of
Class [A] Certificates.
The Fixed Rate Group Class [A] Principal Distribution Amount is
required to be distributed on each Payment Date in the following order of
priority:
(i) first, to the Class [A-1] Certificates, in the amounts necessary to
reduce their principal balances to zero;
Notwithstanding the foregoing, if on any Payment Date a Certificate
Insurer default has occurred and an Overcollateralization Default exists with
respect to the Fixed Rate Group, the Fixed Rate Group Class [A] Principal
Distribution Amount will be distributed pro rata to the owners of the Class [A]
Fixed Rate Group Certificates.
The ARM Group Class [A] Principal Distribution Amount is required to be
distributed on each Payment Date to the Owners of the Class [A-2] Certificates,
until the Class [A-2] Certificate principal balance has been reduced to zero.
With respect to the Class [A] Fixed Rate Group Certificates and any
Payment Date, the sum of the Fixed Rate Group Interest Distribution Amount and
the amount of the Fixed Rate Group Overcollateralization Deficit, if any, is the
"Fixed Rate Group Insured Distribution Amount." With respect to the Class [A-2]
Certificates and any Payment Date, the sum of the ARM Group Interest
Distribution Amount and the ARM Group Overcollateralization Deficit, if any, is
the "ARM Group Insured Distribution Amount." The Fixed Rate Group Insured
Distribution Amount and the ARM Group Insured Distribution Amount are sometimes
referred to as the related "Insured Distribution Amount".
The actual amount distributed with respect to each class of Class [A]
Certificates on any Payment Date is the "Class [A] Distribution Amount" for such
class and Payment Date.
The Certificate Insurance Policy does not require that the Certificate
Insurer fund Realized Losses until such time as such aggregate, cumulative
Realized Losses have created a an Overcollateralization Deficit with respect to
the related Mortgage Loan Group, nor does the Certificate Insurance Policy cover
the Master Servicer's failure to make Delinquency Advances until such time as
the aggregate, cumulative amount of such unpaid Delinquency Advances, when added
to Realized Losses, have created an Overcollateralization Deficit with respect
to the related Mortgage Loan Group.
An "Overcollateralization Deficit" with respect to a Mortgage Loan
Group and Payment Date is the amount, if any, by which (x) the aggregate
principal balance of the Class [A] Certificate issued with respect to a Mortgage
Loan Group, after taking into account all
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distributions to be made on such Payment Date (except for any payment to be made
as to principal from the proceeds of the Certificate Insurance Policy), exceeds
(y) the aggregate principal balance of the Mortgage Loans in the related
Mortgage Loan Group as of the close of business on the last day of the preceding
Remittance Period, plus any amounts held by the Trustee in the related
Pre-Funding Account.
BOOK ENTRY REGISTRATION OF THE CLASS [A] CERTIFICATES
The Class [A] Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Owners may elect to hold their Class
[A] Certificates through DTC in the United States, or Cedelbank or Euroclear in
Europe if they are participants of such systems ("Participants"), or indirectly
through organizations which are Participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates per class of Class [A]
Certificates which in the aggregate equal the principal balance of such Class
[A] Certificates and will initially be registered in the name of "Cede & Co.",
the nominee of DTC. Cedelbank and Euroclear will hold omnibus positions on
behalf of their Participants through customers' securities accounts in
Cedelbank's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedelbank and Morgan Guaranty Trust Company of New York will act as depositary
for Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Investors may hold such beneficial
interests in the Book-Entry Certificates in minimum denominations representing
principal amounts of $1,000 and in integral multiples in excess thereof. Except
as described below, no Beneficial Owner will be entitled to receive a Definitive
Certificate. Unless and until Definitive Certificates are issued, it is
anticipated that the only "Owner" of such Class [A] Certificates will be Cede &
Co., as nominee of DTC. Beneficial Owners will not be Owners as that term is
used in the Pooling and Servicing Agreement. Beneficial Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's Ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of Cedelbank or Euroclear, as appropriate).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Class [A] Certificates from the Trustee through DTC and DTC
Participants. While such Class [A] Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to such Class [A] Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Class [A] Certificates.
Participants and indirect participants with whom Beneficial Owners have accounts
with respect to Class [A] Certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
possess certificates, the Rules provide a mechanism by which Beneficial Owners
will receive distributions and will be able to transfer their interest.
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Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Class [A]
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Class [A] Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Class [A] Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Class [A]
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Class [A] Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Owners.
Because of time zone differences, credits of securities received in
Cedelbank or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedelbank Participants on such business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank Participant (as defined below) or Euroclear Participant (as defined
below) to a DTC Participant will be received with value on the DTC settlement
date but will be available in the relevant Cedelbank or Euroclear cash account
only as of the business day following settlements in DTC. For information with
respect to tax documentation procedures relating to the Certificates, see
"Certain Federal Income Tax Consequences--Foreign Investors" and "--Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I to the Prospectus.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedelbank Participants and Euroclear Participants will occur
in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedelbank Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
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Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participant
organizations ("Cedelbank Participants") and facilitates the clearance and
settlement of securities transactions between Cedelbank Participants through
electronic book-entry changes in accounts of Cedelbank Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedelbank in any of 28 currencies, including United States dollars.
Cedelbank provides to its Cedelbank Participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedelbank interfaces
with domestic markets in several countries. As a professional depository,
Cedelbank is subject to regulation by the Luxembourg Monetary Institute.
Cedelbank Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to
Cedelbank is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Cedelbank Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 27 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the
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accounts of the applicable DTC Participants in accordance with DTC's normal
procedures. Each DTC Participant will be responsible for disbursing such payment
to the Beneficial Owners of the Book-Entry Certificates that it represents and
to each Financial Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the Beneficial Owners
of the Book-Entry Certificates that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Class [A] Certificates held through Cedelbank or Euroclear will be credited to
the cash accounts of Cedelbank Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Owner to pledge Book-Entry Certificates, to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance of
the Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Monthly and annual reports on the Trust provided by the Trustee to
Cede, as nominee of DTC, may be made available to Beneficial Owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
owners of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. Cedelbank or the Euroclear Operator, as the case
may be, will take any action permitted to be taken by an Owner under the Pooling
and Servicing Agreement on behalf of a Cedelbank Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect such actions on its
behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Class [A] Certificates which conflict with
actions taken with respect to other Class [A] Certificates.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Sponsor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book-Entry Certificates and the Sponsor or the
Trustee is unable to locate a qualified successor, (b) the Sponsor, at its sole
option, elects to terminate a book-entry system through DTC or (c) DTC, at the
direction of the Beneficial Owners representing a majority of the outstanding
Percentage Interests of the Class [A] Certificates, advises the Trustee in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of Beneficial Owners.
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<PAGE> 46
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, at the
Sponsor's expense and thereafter the Trustee will recognize the owners of such
Definitive Certificates as Owners under the Pooling and Servicing Agreement.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Neither the Sponsor, the Master Servicer, the Certificate Insurer nor
the Trustee will have any liability for any actions taken by DTC or its nominee,
Euroclear, or Cedelbank, including, without limitation, actions for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in the Class [A] Certificates held by Euroclear, Cedelbank or Cede &
Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
OPTIONAL REDEMPTION
Each of the Master Servicer and the Majority Owners of one of the
classes of the Subordinate Certificates then outstanding, acting directly or
through one or more affiliates, will have the right to purchase from the Trust
all the Mortgage Loans then held by the Trust at a price at least equal to the
sum of the aggregate principal balance of the Class [A] Certificates then
outstanding plus accrued interest, together with any amount owed to the
Certificate Insurer and certain other amounts, on any Payment Date after the
Remittance Period during which the outstanding aggregate principal balance of
the Mortgage Loans in the Trust (calculated as of the date the Trust acquired
the related Mortgage Loan) had declined to 10% or less of the aggregate
principal balance of all of the Mortgage Loans acquired by the Trust prior to
the end of the Pre-Funding Period (the "Clean-up Call"). Any such purchase will
result in the redemption of the Class [A] Certificates. The first such Payment
Date on which such option may be exercised is the "Clean-up Call Date". The
Clean-up Call applies to the Trust as a whole, and not to either Mortgage Loan
Group individually. In the event that either the Master Servicer or the Majority
Owners of one of the classes of the Subordinate Certificates do not exercise
such option, the Certificate Insurer shall be entitled to do so in accordance
with the Pooling and Servicing Agreement.
MANDATORY REDEMPTION
Class [A] Fixed Rate Group Certificates. The Original Fixed Rate Group
Pre-Funded Amount of approximately [$___________] may be used to acquire fixed
rate Subsequent Mortgage Loans for the Fixed Rate Group. In the event that, by
the end of the Pre-Funding Period, not all of the Original Fixed Rate Group
Pre-Funded Amount has been used to acquire such fixed rate Subsequent Mortgage
Loans, then the Class [A] Fixed Rate Group Certificates will be prepaid in part
on the Payment Date immediately following the end of the Pre-Funding Period in
accordance with the sequential payment priorities described herein, from and to
the extent of such remaining funds.
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<PAGE> 47
ARM Group. The Original ARM Group Pre-Funded Amount of approximately
[$____________] may be used to acquire adjustable rate Subsequent Mortgage Loans
for the ARM Group. In the event that, by the end of the Pre-Funding Period, not
all of the Original ARM Group Pre-Funded Amount has been used to acquire such
adjustable rate Subsequent Mortgage Loans, then the Class [A-2] Certificates
will be prepaid in part on the Payment Date immediately following the
Pre-Funding Period from and to the extent of such remaining funds.
CALCULATION OF LIBOR
On the second business day preceding each Payment Date or, in the case
of the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"), the Trustee will determine
the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR")
for the next Accrual Period for the Class [A-2] Certificates on the basis of the
offered rates of the Reference Banks for one-month U.S. dollar deposits, as such
rates appear on the Telerate Screen 3750, as of 11:00 a.m. (London time) on such
Interest Determination Date. As used in this section, "business day" means a day
on which banks are open for dealing in foreign currency and exchange in London
and New York City; and "Reference Banks" means leading banks selected as the
Trustee and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on the Telerate Screen 3750 on the related Interest
Determination Date, (iii) which have been designated as such by the Trustee and
(iv) which are not controlling, controlled by, or under common control with, the
Sponsor.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Class [A-2] Certificates will be established by the Trustee as
follows:
(a) If on such Interest Determination Date two or more Reference Banks
provides such offered quotations, LIBOR for the related Accrual Period for the
Class [A-2] Certificates shall be the arithmetic mean of such offered quotations
(rounded to the nearest whole multiple of 1/16%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Accrual Period for
the Class [A-2] Certificates shall be the higher of (x) LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve Interest Rate. The
"Reserve Interest Rate" shall be the rate per annum that the Trustee determines
to be either (i) the arithmetic mean (rounded to the nearest whole multiple of
1/16%) of the one-month U.S. dollar lending rates which New York City banks
selected by the Trustee are quoting on the relevant Interest Determination Date
to the principal London offices of leading banks in the London interbank market
or, in the event that the Trustee can determine no such arithmetic mean, (ii)
the lowest one-month U.S. dollar lending rate which New York City banks selected
by the Trustee are quoting on such Interest Determination Date to leading
European banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class [A-2] Certificates for the related Accrual Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning the Trustee at 1-800-735-7777.
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<PAGE> 48
CERTAIN ACTIVITIES
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities in exchange for property
(except Certificates for the Mortgage Loans); or (viii) repurchase or otherwise
reacquire its securities, except as provided in the Pooling and Servicing
Agreement. See "Description of the Securities--Reports To The Securityholders"
in the Prospectus for information regarding reports to the Owners.
CREDIT ENHANCEMENT
OVERCOLLATERALIZATION PROVISIONS
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Payment Date, certain excess cash
flows with respect to a Mortgage Loan Group, consisting of the difference
between (i) the difference between (x) the interest which is collected on the
Mortgage Loans in such Mortgage Loan Group during the prior Remittance Period
(net of the Servicing Fee) plus any Delinquency Advances and Compensating
Interest and (y) the sum of (I) the interest which accrues on the related Class
[A] Certificates during the related Accrual Period and (II) the premiums due to
the Certificate Insurer with respect to the related Certificate Insurance
Policy, and the Trustee's Fee (such difference, the "Total Monthly Excess
Spread" with respect to the related Mortgage Loan Group), and (ii) any portion
of the Total Monthly Excess Spread which is used to cover any shortfalls in
Group Available Funds (provided, that this does not apply to any shortfall
attributed to any Supplemental Interest Amount) on such Payment Date in the
related Mortgage Loan Group, or in the other Mortgage Loan Group, or used to
reimburse the Certificate Insurer on account of prior Insured Payments (such
excess cash flows with respect to a Mortgage Loan Group being the "Net Monthly
Excess Spread" with respect to such Mortgage Loan Group), be applied on such
Payment Date as an accelerated payment of principal on the related Class [A]
Certificates, but only to the limited extent hereafter described.
This accelerated payment of principal has the effect of accelerating
the amortization of the Class [A] Certificates relative to the amortization of
the Mortgage Loans in the related Mortgage Loan Group. To the extent that any
Net Monthly Excess Spread is not so used, the Pooling and Servicing Agreement
provides that it will be used to reimburse the Master Servicer with respect to
any amounts owing to it, or otherwise applied as directed by the Owners of the
Subordinate Certificates.
With respect to any Mortgage Loan Group and Payment Date, the
difference, if any, between (x) the aggregate principal balances of the Mortgage
Loans in such Mortgage Loan Group as of the close of business on the last day of
the preceding Remittance Period and (y) the aggregate principal balance of the
Class [A] Certificates issued in respect of the related Group as of such Payment
Date (and following the making of all distributions on such Payment Date) is the
"Overcollateralization Amount" with respect to such Mortgage Loan Group as of
such Payment Date. Pursuant to the Pooling and Servicing Agreement, each
Mortgage Loan Group's Net Monthly Excess Spread will be applied as an
accelerated payment of principal on the related class or classes of Class [A]
Certificates until the related Overcollateralization Amount has increased to the
level required with respect to the related Mortgage Loan Group. Any amount of
Net Monthly
S-48
<PAGE> 49
Excess Spread actually applied as an accelerated payment of principal is a
"Overcollateralization Increase Amount." The required level of the
Overcollateralization Amount with respect to a Mortgage Loan Group and Payment
Date is the "Specified Overcollateralization Amount" with respect to such
Mortgage Loan Group and Payment Date. The Specified Overcollateralization Amount
may, over time, decrease, or increase, subject to certain floors, caps and
triggers.
To the extent that any Mortgage Loan Group's Net Monthly Excess Spread
is not required to be applied to the payment of an Overcollateralization
Increase Amount on the Class [A] Certificates relating to such Mortgage Loan
Group because the Overcollateralization Amount with respect to such Mortgage
Loan Group is equal to or greater than the then Specified Overcollateralization
Amount with respect to such Mortgage Loan Group, such Net Monthly Excess Spread
(together with the amount of any Overcollateralization Reduction Amount, as
described in the next paragraph) is permitted to be applied to the payment of
Overcollateralization Increase Amounts on the class or classes of Class [A]
Certificates relating to the other Mortgage Loan Group, to the extent necessary
to increase the Overcollateralization Amount with respect to such Mortgage Loan
Group to the level of its respective Specified Overcollateralization Amount.
In the event that the required level of the Specified
Overcollateralization Amount with respect to a Mortgage Loan Group is permitted
to decrease or "step down" on a Payment Date in the future, the Pooling and
Servicing Agreement provides that a portion of the principal which would
otherwise be distributed to the Owners of the class or classes of Class [A]
Certificates on such Payment Date shall be distributed to, or otherwise applied
as directed by, the Owners of the Subordinate Certificates on such Payment Date.
This has the effect of decelerating the amortization of the Class [A]
Certificates relative to the amortization of the Mortgage Loans in the related
Mortgage Loan Group, and of reducing the related Overcollateralization Amount.
With respect to any Mortgage Loan Group and Payment Date, the excess, if any, of
(x) the Overcollateralization Amount that would apply to the related Mortgage
Loan Group on such Payment Date after taking into account all distributions to
be made on such Payment Date (except for any distributions of related
Overcollateralization Reduction Amounts as described in this sentence) over (y)
the related Specified Overcollateralization Amount is the "Excess
Overcollateralization Amount" with respect to such Mortgage Loan Group and
Payment Date. If, on any Payment Date, the Excess Overcollateralization Amount
is, or, after taking into account all other distributions to be made on such
Payment Date would be, greater than zero (i.e., the Overcollateralization Amount
is or would be greater than the related Specified Overcollateralization Amount),
then any amounts relating to principal which would otherwise be distributed to
the Owners of the related class or classes of Class [A] Certificates on such
Payment Date shall instead be used to reimburse the Master Servicer for certain
amounts owing to it, or otherwise applied as directed by, the Owners of the
Subordinate Certificates (subject to certain other prior applications as
described below under "--Cross-collateralization Provisions") in an amount equal
to the lesser of (x) the Excess Overcollateralization Amount and (y) the amount
available for distribution on account of principal with respect to the related
Class [A] Certificates on such Payment Date; such amount being the
"Overcollateralization Reduction Amount" with respect to the related Mortgage
Loan Group for such Payment Date. As a technical matter regarding the cash flow
structure of the Trust, Overcollateralization Reduction Amounts may result even
prior to the occurrence of any decrease or "step-down" in the related Specified
Overcollateralization Amount. This is because the Owners of the related Class
[A] Certificates will generally be entitled to receive 100% of collected
principal, even though the related principal balance will, following the
accelerated amortization resulting from the application of the Net Monthly
Excess Spread, represent less than 100% of the related Mortgage Loan Group's
aggregate principal balance. In the absence of the provisions relating to
Overcollateralization Reduction Amounts, the foregoing may otherwise increase
the Overcollateralization Amounts
S-49
<PAGE> 50
above their Specified Overcollateralization Amount requirements even without the
further application of any Net Monthly Excess Spread.
The Pooling and Servicing Agreement provides that, on any Payment Date,
all amounts collected on account of principal (other than any such amount
applied to the payment of a Overcollateralization Reduction Amount) with respect
to a Mortgage Loan Group during the prior Remittance Period will be distributed
to the Owners of the related class of Class [A] Certificates on such Payment
Date. If any Mortgage Loan became a Liquidated Mortgage Loan during such prior
Remittance Period, the Net Liquidation Proceeds related thereto and allocated to
principal may be less than the principal balance of the related Mortgage Loan;
the amount of any such insufficiency is a "Realized Loss." A "Liquidated
Mortgage Loan" is, in general, a defaulted Mortgage Loan as to which the Master
Servicer has determined that all amounts that it expects to recover on such
Mortgage Loan have been recovered (exclusive of any possibility of a deficiency
judgment). In addition, the Pooling and Servicing Agreement provides that the
principal balance of any Mortgage Loan which becomes a Liquidated Mortgage Loan
shall thenceforth equal zero. The Pooling and Servicing Agreement does not
contain any rule which requires that the amount of any Realized Loss be
distributed to the Owners of the related Class [A] Certificates on the Payment
Date which immediately follows the event of loss, i.e., the Pooling and
Servicing Agreement does not require the current recovery of losses. However,
the occurrence of a Realized Loss will reduce the Overcollateralization Amount
with respect to the related Mortgage Loan Group, which, to the extent that such
reduction causes the Overcollateralization Amount to be less than the related
Specified Overcollateralization Amount applicable to the related Payment Date,
will require the payment of an Overcollateralization Increase Amount on such
Payment Date (or, if insufficient funds are available on such Payment Date, or
subsequent Payment Dates, until an Overcollateralization Amount equals the
related Specified Overcollateralization Amount). The effect of the foregoing is
to allocate losses to the Owners of the Subordinate Certificates by reducing, or
eliminating entirely, payment of Monthly Excess Spread and of
Overcollateralization Reduction Amounts which such Owners would otherwise
receive.
Overcollateralization and the Certificate Insurance Policy. The Pooling
and Servicing Agreement requires the Trustee to make a claim for an Insured
Payment under the Certificate Insurance Policy not later than the second
Business Day prior to any Payment Date as to which the Trustee has determined
that an Overcollateralization Deficit will occur for the purpose of applying the
proceeds of such Insured Payment as a payment of principal to the Owners of the
Class [A] Certificates on such Payment Date. The Certificate Insurance Policy is
thus similar to the overcollateralization provisions described above insofar as
the Certificate Insurance Policy guarantees ultimate, rather than current,
payment of the amounts of any Realized Losses to the Owners of the related Class
[A] Certificates. Investors in the Class [A] Certificates should realize that,
under extreme loss or delinquency scenarios applicable to the related Mortgage
Loan Pool, they may temporarily receive no distributions of principal.
CROSS-COLLATERALIZATION PROVISIONS
On each Payment Date, an amount equal to the sum of (x) the Total
Monthly Excess Spread with respect to each Mortgage Loan Group and Payment Date
plus (y) any Overcollateralization Reduction Amount with respect to such
Mortgage Loan Group and Payment Date (such amount being the "Total Monthly
Excess Cashflow" with respect to such Mortgage Loan Group and Payment Date) with
respect to each Mortgage Loan Group will be required to be applied in the
following order of priority:
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<PAGE> 51
(i) such amount shall be used to fund any shortfall on such
Payment Date with respect to the related Mortgage Loan Group
and equal to the difference, if any, between (x) the Insured
Distribution Amount for the related Mortgage Loan Group for
such Payment Date and (y) the Group Available Funds with
respect to the related Mortgage Loan Group for such Payment
Date (the amount of such difference being equal to an
"Available Funds Shortfall" with respect to the related
Mortgage Loan Group);
(ii) any remaining amount after the application described in clause
(i) above shall be used to fund any Available Funds Shortfall
with respect to the other Group for such Payment Date.
(iii) any portion of the Total Monthly Excess Cashflow with respect
to such Mortgage Loan Group remaining after the applications
described in clause (i) and (ii) above shall be paid to the
Certificate Insurer in respect of amounts owed on account of
any Insured Payments theretofore made with respect to the
related Mortgage Loan Group (any such amount so owed to the
Certificate Insurer and not theretofore paid, together with
accrued interest thereon, the "Certificate Insurer
Reimbursable Amount" with respect to the related Mortgage Loan
Group); and
(iv) any portion of the Total Monthly Excess Cashflow with respect
to such Mortgage Loan Group remaining after the application
described in clauses (i), (ii) and (iii) above shall be paid
to the Certificate Insurer in respect of any Certificate
Insurer Reimbursable Amount with respect to the other Mortgage
Loan Group.
The amount, if any, of the Total Monthly Excess Cashflow with respect
to a Mortgage Loan Group on a Payment Date remaining after the applications set
forth in clauses (i) though (iv) above is the "Net Monthly Excess Cashflow" with
respect to such Mortgage Loan Group for such Payment Date; such Net Monthly
Excess Cashflow is required to be applied in the following order of priority on
such Payment Date:
(i) such amount shall be used to fund the payment of any required
Overcollateralization Increase Amount with respect to the
related Mortgage Loan Group as a portion of the distribution
of the Class [A] Principal Distribution Amount on such Payment
Date;
(ii) any portion of the Net Monthly Excess Cashflow remaining after
the application described in clause (i) above shall be used to
make any required Overcollateralization Increase Amount with
respect to the other Mortgage Loan Group;
(iii) any remaining Net Monthly Excess Cashflow may then be used to
reimburse the Master Servicer for certain amounts owing to it;
and
(iv) any remaining Net Monthly Excess Cashflow may be paid to or
otherwise applied as directed by the Owners of the Subordinate
Certificates.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK OR BASIS RISK
In general, the protection afforded by the overcollateralization
provisions and by the Certificate Insurance Policy is protection for credit risk
and not for prepayment risk or basis risk
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<PAGE> 52
(the risk that changes in the value of the indices on the Mortgage Loans will
not match the changes in the value of the index applicable to calculate the
interest on the Certificates). The overcollateralization provisions may not be
adjusted, nor may a claim be made under the Certificate Insurance Policy to
guarantee or insure that any particular rate of prepayment is experienced by the
Trust.
CLASS [A] CERTIFICATE DISTRIBUTIONS AND INSURED PAYMENTS TO THE OWNERS OF THE
CLASS [A] CERTIFICATES
No later than the second Business Day prior to each Payment Date the
Trustee will be required to determine the amount for each Mortgage Loan Group
(the "Fixed Rate Group Available Funds" with respect to the Class [A] Fixed Rate
Group Certificates, the "ARM Group Available Funds" with respect to the Class
[A-2] Certificates with each being sometimes referred to as the "Group Available
Funds") to be on deposit in the Certificate Account on such Payment Date (after
taking into account any amounts transferred as a result of the
cross-collateralization mechanics described above, and after deducting the
amounts of certain fees and reimbursements). If the Group Insured Distribution
Amount for any Payment Date exceeds the related Group Available Funds for such
Payment Date, the Trustee will be required to draw the amount of such
insufficiency from the Certificate Insurer under the Certificate Insurance
Policy. The Pooling and Servicing Agreement provides that amounts which cannot
be distributed to the Owners of the Class [A] Certificates as a result of
proceedings under the United States Bankruptcy Code or similar insolvency laws
will not be considered in determining the amount of Group Available Funds with
respect to any Payment Date.
On each Payment Date, and following the making by the Trustee of all
allocations, transfers and deposits heretofore described, from amounts
(including any related Insured Payment) then on deposit in the Certificate
Account, the Trustee will be required to distribute to the Owners of each class
of Class [A] Certificates the Class [A] Distribution Amount with respect to such
class for such Payment Date.
THE CERTIFICATE INSURER
The following information has been supplied by [Certificate Issuer] for
inclusion in this Prospectus Supplement. No representation is made by the
Sponsor, the Master Servicer, the Underwriter or any of their affiliates as to
the accuracy or completeness of such information
The consolidated financial statements of the Certificate Insurer and
its subsidiaries as of December 31, [____] and December 31, [____] and for each
of the three years in the period ended December 31, 1997, prepared in accordance
with generally accepted accounting principles, included in the Annual Report on
Form 10-K of [_______] for the year ended December 31, [____] and the
consolidated financial statements of the Certificate Insurer and its
subsidiaries as of [____________, ____] and for the [____]-month periods ending
[__________, ____] and [_____________, ____] included in the Quarterly Report on
Form 10-Q of MBIA Inc. for the period ending [__________, ____], are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed to
be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this Prospectus
Supplement to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus Supplement.
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All financial statements of the Certificate Insurer and its
subsidiaries included in documents filed by [_________] pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Class [A] Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
SAP
--------------------------------------
[--------] [---------]
----------------- ----------------
(Audited) (Unaudited)
(In millions)
Admitted Assets
Liabilities
Capital and Surplus
GAAP
--------------------------------------
[--------] [---------]
----------------- ----------------
(Audited) (Unaudited)
(In millions)
Admitted Assets
Liabilities
Capital and Surplus
-------------------------------------
Copies of the financial statements of the Certificate Insurer
incorporated by reference herein and copies of the Certificate Insurer's [____]
year-end audited financial statements prepared in accordance with statutory
accounting practices are available, without charge, from the Certificate
Insurer. The address of the Certificate Insurer is [Address]. The telephone
number of the Certificate Insurer is[ (___) ___-____].
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Certificate Insurance Policy and
Certificate Insurer set forth under the headings "THE CERTIFICATE INSURER" and
"THE CERTIFICATE INSURANCE POLICY." Additionally, the Certificate Insurer makes
no representation regarding the Class [A] Certificates or the advisability of
investing in the Class [A] Certificates.
[Rating Agency] rates the financial strength of the Certificate Insurer
"___."
[Rating Agency] rates the financial strength of the Certificate Insurer
"___."
[Rating Agency] rates the financial strength of the Certificate Insurer
"AAA."
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<PAGE> 54
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the
Class [A] Certificates and such ratings may be subject to revision or withdrawal
at any time by the rating agencies. Any downward revision or withdrawal of any
of the above ratings may have an adverse effect on the market price of the Class
[A] Certificates. The Certificate Insurer does not guaranty the market price of
the Class [A] Certificates nor does it guaranty that the ratings on the Class
[A] Certificates will not be revised or withdrawn.
[An area of potential risk to the Certificate Insurer's financial
guarantee business would be the inability of an issuer or its trustee or paying
agent to make payments on a Certificate Insurer insured transaction because of
their failure to be Year 2000 ready. To mitigate this risk, the Certificate
Insurer has been surveying all trustees, all paying agents and selected high
volume issuers to determine their state of readiness. While the survey is not
complete, the results to date are that all respondents are either ready or
planning to be ready by late 1999. If the Certificate Insurer is asked to pay in
those situations where the issuer's system fails, it will so do and would expect
to recover any such payment in a fairly short time period. It is not possible at
this time to evaluate the extent of such payments. The Certificate Insurer
believes that it has adequate sources of liquidity to cover these payments.]
THE CERTIFICATE INSURANCE POLICY
The following information has been supplied by the Certificate Insurer
for inclusion in this Prospectus Supplement.
The Certificate Insurer, in consideration of the payment of the premium
and subject to the terms of the Certificate Insurance Policy (the "Policy"),
thereby unconditionally and irrevocably guarantees to any Owner that an amount
equal to each full and complete Insured Payment will be received by [Trustee],
or its successor, as trustee for the Owners (the "Trustee"), on behalf of the
Owners, from the Certificate Insurer, for distribution by the Trustee to each
Owner of each Owner's proportionate share of the Insured Payment. The
Certificate Insurer's obligations under the Policy with respect to particular
Insured Payments shall be discharged to the extent funds equal to the applicable
Insured Payment are received by the Trustee, whether or not such funds are
properly applied by the Trustee. Insured Payment shall be made only at the time
set forth in the Policy and no accelerated Insured Payments shall be made
regardless of any acceleration of the Class [A] Certificates, unless such
acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any, (including interest and penalties in
respect of any such liability). The Policy does not cover, and Insured Payments
do not include, any Civil Relief Act shortfalls or any Supplemental Interest
Amounts.
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day by the
Fiscal Agent (as described below) of (i) a certified copy of the order requiring
the return of a preference payment, (ii) an opinion of counsel satisfactory to
the Certificate Insurer that such order is final and not subject to appeal,
(iii) an assignment in such form as is reasonably required by the Certificate
Insurer, irrevocably
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assigning to the Certificate Insurer all rights and claims of the Owner relating
to or arising under the Class [A] Certificates against the debtor which made
such preference payment or otherwise with respect to such preference payment and
(iv) appropriate instruments to effect the appointment of the Certificate
Insurer as agent for such Owner in any legal proceeding related to such
preference payment, such instruments being in a form satisfactory to the
Certificate Insurer; provided, that if such documents are received after 12:00
noon New York City time on such Business Day, they will be deemed to be received
on the following Business Day. Such payments shall be disbursed to the receiver
or trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Owner and not to any Owner directly unless such
Owner has returned principal or interest paid on the Class [A] Certificates, to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Policy no later than 12:00 noon New York City time on the later of the Payment
Date on which the related Deficiency Amount is due or the second Business Day
following receipt in New York, New York on a Business Day by [Fiscal Agent], as
Fiscal Agent for the Certificate Insurer or any successor fiscal agent appointed
by the Certificate Insurer (the "Fiscal Agent") of a Notice (as described
below); provided, that if such Notice is received after 12:00 noon New York City
time on such Business Day, it will be deemed to be received on the following
Business Day. If any such Notice received by the Fiscal Agent is not in proper
form or is otherwise insufficient for the purpose of making claim under the
Policy it shall be deemed not to have been received by the Fiscal Agent for
purposes of this paragraph, and the Certificate Insurer or the Fiscal Agent, as
the case may be, shall promptly so advise the Trustee and the Trustee may submit
an amended Notice.
Insured Payments due under the Policy unless otherwise stated therein
will be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by
wire transfer of immediately available funds in the amount of the Insured
Payment less, in respect of Insured Payments related to Preference Amounts, any
amount held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of
[___________, ____] among Advanta Mortgage Corp. USA, as Master Servicer,
Advanta Conduit Receivables, Inc., as Sponsor, and [Trustee], as Trustee,
without regard to any amendment or supplement thereto.
"Business Day" means any day other than (i) a Saturday or Sunday or
(ii) a day on which the Certificate Insurer is closed or banking institutions in
the State of New York, the State of [Trustee's State of Principal Operation] or
the city in which the principal corporate trust office of the Trustee under the
Agreement is located, are authorized or obligated by law or executive order to
be closed.
"Deficiency Amount" means the excess, if any, of Required Distributions
over the Net Available Distribution Amount.
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"Insured Payment" means (i) as of any Payment Date, any Deficiency
Amount and (ii) any Preference Amount (without duplication).
"Net Available Distribution Amount" means, with respect to a Mortgage
Loan Group and any Payment Date, the related Group Available Funds for such
Payment Date.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by fax substantially in the form of Exhibit A attached to the Policy,
the original of which is subsequently delivered by registered or certified mail,
from the Trustee specifying the Insured Payment which shall be due and owing on
the applicable Payment Date.
"Owner" means each Owner (as defined in the Agreement) who, on the
applicable Payment Date, is entitled under the terms of the applicable Class [A]
Certificates, to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the Class [A] Certificates, that is recoverable and sought to be recovered as
a voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
"Required Distributions" means, with respect to a Mortgage Loan Group
and (i) any Payment Date occurring prior to the Payment Date in [__________,
____], the Insured Distribution Amount (net of any shortfalls arising due to the
application of the Relief Act) with respect to such Mortgage Loan Group and (ii)
the Payment Date occurring in [________, ____], the aggregate outstanding
principal balance, if any, of the Class [A] Certificates relating to such
Mortgage Loan Group (after giving effect to all other payments of principal on
the Class [A] Certificates on such Payment Date).
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment or modification to the Agreement unless such amendment or modification
has been approved in writing by the Certificate Insurer.
Any notice under the Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is [Address] Attention:
[_______________] or such other address as the Fiscal Agent shall specify to the
Trustee in writing.
THE POLICY IS BEING ISSUED UNDER AND PURSUANT TO, AND SHALL BE
CONSTRUED UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy
is not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Class [A] Certificates.
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THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in this Prospectus Supplement and the Prospectus, there is
set forth below a summary of certain other provisions of the Pooling and
Servicing Agreement.
FORMATION OF THE TRUST
The Trust will be created and established pursuant to the Pooling and
Servicing Agreement on the Closing Date. On such date, the Sponsor will cause
the Trust to acquire the Mortgage Loans, and the Trust will issue the Class [A]
Certificates.
The property of the Trust shall include all money, instruments and
other property to the extent such money, instruments and other property are
subject or intended to be held in trust for the benefit of the Owners, and all
proceeds thereof, including, without limitation, (i) the Mortgage Loans, (ii)
such amounts including principal collections in respect of the related Mortgage
Loans received on and after the Initial Cut-Off Date and each Subsequent Cut-Off
Date, as well as Eligible Investments, as from time to time may be held by the
Trustee in the Certificate Account and the Pre-Funding Account, and by the
Master Servicer in the Principal and Interest Account (except as otherwise
provided in the Pooling and Servicing Agreement), each to be created pursuant to
the Pooling and Servicing Agreement, except any premium recapture and interest
accrued prior to the Initial Cut-Off Date and each Subsequent Cut-Off Date,
(iii) any Mortgaged Property, the ownership of which has been effected on behalf
of the Trust as a result of foreclosure or acceptance by the Master Servicer of
a deed in lieu of foreclosure and that has not been withdrawn from the Trust,
(iv) any insurance policies relating to the Mortgage Loans and any rights of the
Sponsor or the Affiliated Originators under any mortgage insurance policies
(excluding any non-mortgage related or credit life insurance products), (v) Net
Liquidation Proceeds with respect to any Liquidated Mortgage Loan, (vi) the
amounts on deposit in the Pre-Funding Account and the rights to receive payments
under the Certificate Insurance Policy (collectively, the "Trust Estate").
The Pooling and Servicing Agreement also establishes an account, the
"Supplemental Interest Account," which is held in trust by the Trustee, but does
not constitute a part of the Trust. The Supplemental Interest Account will hold
certain amounts and other property relating to the funding of Supplemental
Interest Amounts, if any, with respect to the Class [A-2] Certificate.
The Trustee will hold the Certificate Insurance Policy on behalf of the
Owners of the Class [A] Certificates.
SALE OF MORTGAGE LOANS
Not later than the Closing Date the Sponsor will cause the Originators
to transfer the Initial Mortgage Loans pursuant to one or more master mortgage
loan transfer agreements between the Originators and the Sponsor (the "Master
Transfer Agreements"). In the Master Transfer Agreements the Originators will
make certain representations and warranties and the Sponsor will assign its
rights to enforce such representations and warranties to the Trustee.
Pursuant to the Pooling and Servicing Agreement, the Sponsor on the
Closing Date will cause the Trust to acquire all right, title and interest of
the Originators in each Mortgage Loan listed on the schedule delivered to the
Trustee on the Closing Date (the "Schedule of Mortgage
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Loans") and all their right, title and interest in all principal collected and
all interest due on each such Mortgage Loan (excluding any premium recapture) on
or after the Initial Cut-Off Date.
In connection with the sale of the Mortgage Loans on the Closing Date
or on such date specified in the Pooling and Servicing Agreement, the
Originators will be required to deliver to the Trustee a file (a "Mortgage Loan
File") consisting of, among other things, (i) the original Notes or certified
copies thereof, endorsed by the related Originator in blank or to the order of
the holder, (ii) originals of all intervening assignments, showing a complete
chain of title from origination to the applicable Originators, if any, including
warehousing assignments, with evidence of recording thereon, (iii) originals of
all assumption and modification agreements if any, and, unless such Mortgage
Loan is covered by a counsel's opinion as described in the next paragraph, (iv)
either: (a) the original Mortgage, with evidence of recording thereon, (b) a
true and accurate copy of the Mortgage where the original has been transmitted
for recording, until such time as the original is returned by the public
recording office or (c) a copy of the Mortgage certified by the public recording
office in those instances where the original recorded Mortgage has been lost.
The Trustee will agree, for the benefit of the Owners, to review each such file
within 90 days after the Closing Date to ascertain that all required documents
(or certified copies of documents) have been executed and received.
The Pooling and Servicing Agreement generally requires that there be
prepared and recorded, within 75 business days of the Closing Date (or, if
original recording information is unavailable, within such later period as is
permitted by the Pooling and Servicing Agreement) assignments of the Mortgages
from the Originators to the Trustee, in the appropriate jurisdictions in which
such recordation is necessary to perfect the lien thereof against creditors of
or purchasers from the Originators; provided, however, that such requirements
may be waived by the Certificate Insurer under certain circumstances set forth
in the Pooling and Servicing Agreement.
CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS
In addition to the Initial Mortgage Loans, the Subsequent Mortgage
Loans will be assigned to the Trust from time to time during the Pre-Funding
Period. Subject to certain conditions, the Sponsor may, on certain dates (the
"Subsequent Transfer Dates") specified in certain transfer agreements entered
into after the Closing Date (the "Subsequent Transfer Agreements"), deliver to
the Trust as applicable, additional mortgage loans eligible to become Subsequent
Mortgage Loans on the next Payment Date in exchange for monies released to the
Sponsor from the Pre-Funding Account. The cut-off date for each Subsequent
Mortgage Loan will be the opening of business on the first day of the calendar
month in which the related Subsequent Transfer Date occurs (the "Subsequent
Cut-Off Date").
Upon assignment of any Mortgage Loan to the Trust by the Sponsor during
the Pre-Funding Period, the Trustee shall release to the Sponsor an amount equal
to the Principal Balance thereof as of the related Subsequent Cut-Off Date from
amounts then on deposit in the Pre-Funding Account.
DELINQUENCY ADVANCES, COMPENSATING INTEREST AND SERVICING ADVANCES
The Master Servicer will be obligated to make Delinquency Advances to
the extent that such Delinquency Advances, in the Master Servicer's reasonable
judgment, are recoverable from the related Mortgage Loan. Delinquency Advances
are recoverable from (i) future collections on the Mortgage Loan which gave rise
to the Delinquency Advance, (ii) Liquidation Proceeds for
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such Mortgage Loan and (iii) from certain excess cash flows not applied for any
other purpose. "Delinquency Advances" are amounts deposited into an account,
which the Master Servicer and/or any designee thereof, as applicable, shall
establish in the name of the Trust for the benefit of the Owners of the
Certificates and the Certificate Insurer, as their interests may appear (the
"Principal and Interest Account") by the Master Servicer equal to the sum of the
interest portions (net of the Servicing Fees and certain other administrative
amounts, if any) due, but not collected with respect to delinquent Mortgage
Loans during the related Remittance Period. No Delinquency Advance will be
required to be made by the Master Servicer if, in the good faith judgment of the
Master Servicer, such Delinquency Advance would not ultimately be recoverable
from the related Mortgage Loan (any such advance, a "Nonrecoverable Delinquency
Advance"); and if previously made by the Master Servicer, a Nonrecoverable
Delinquency Advance will be reimbursable from any amounts in the Principal and
Interest Account prior to any distributions being made to Certificateholders.
The Master Servicer will also be obligated to make Servicing Advances
on a timely basis. "Servicing Advances" means any "out-of-pocket" costs and
expenses, incurred by the Master Servicer in the performance of its servicing
obligations, including, but not limited to, (i) expenditures in connection with
a foreclosed Mortgage Loan prior to the liquidation thereof, including
expenditures for real estate property taxes, hazard insurance premiums and
property restoration or preservation ("Preservation Expenses"), (ii) the cost of
any enforcement or judicial proceedings, including (a) foreclosures, and (b)
other legal actions and costs associated therewith that potentially affect the
existence, validity, priority, enforceability or collectibility of the Mortgage
Loans, including collection agency fees and costs of pursuing or obtaining
personal judgments, garnishments, levies, attachment and similar actions, (iii)
the cost of the conservation, management, liquidation, sale or other disposition
of any Mortgaged Property acquired in satisfaction of the related Mortgage Loan,
including reasonable fees paid to any independent contractor in connection
therewith, and (iv) advances to keep liens current, unless with respect to any
of the foregoing the Master Servicer has determined that such advance would not
be recoverable. No Servicing Advance will be required to be made by the Master
Servicer, if in the good faith judgment of the Master Servicer, such Servicing
Advance would not be recoverable from the related Mortgage Loan (any such
advance, a "Nonrecoverable Servicing Advance"); and if previously made by the
Master Servicer, a Nonrecoverable Servicing Advance will be reimbursable from
any amounts in the Principal and Interest Account prior to any distribution
being made to Certificateholders.
In addition, the Master Servicer will also be required to deposit
Compensating Interest in the Principal and Interest Account with respect to any
full Prepayment received on a Mortgage Loan during the related Remittance Period
out of its own funds without any right of reimbursement therefor. "Compensating
Interest" is an amount equal to the difference between (x) 30 days' interest at
the Mortgage Loan's interest rate on the principal balance as of the first day
of the related Remittance Period and (y) to the extent not previously advanced,
the interest paid by the Mortgagor with respect to a full Prepayment of a
Mortgage Loan. The Master Servicer will not be required to pay Compensating
Interest with respect to any Remittance Period in an amount in excess of the
aggregate Servicing Fee received by the Master Servicer for such Remittance
Period nor will the Master Servicer be required to pay Compensating Interest as
a result of the application of the Relief Act or due to partial Prepayments.
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GOVERNING LAW
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
TERMINATION OF THE TRUST
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the payment to the Owners of all Certificates of all amounts
required to be paid such Owners and to the Certificate Insurer of all amounts
required to be paid to the Certificate Insurer as reimbursement for any prior
drawings on the Certificate Insurance Policy upon the latest to occur of (a) the
final payment or other liquidation (or any advance made with respect thereto) of
the last Mortgage Loan or (b) the disposition of all property acquired in
respect of any Mortgage Loan remaining in the Trust Estate and (c) at any time
when a Qualified Liquidation of the Trust Estate is effected as described below.
To effect a termination pursuant to clause (c) above, the Owners of all Class
[A] Certificates then outstanding will be required (i) unanimously to direct the
Trustee on behalf of the Trust to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code and (ii) to furnish to the
Trustee an opinion of counsel reasonably acceptable to the Trustee to the effect
that such liquidation constitutes a Qualified Liquidation.
OPTIONAL TERMINATION
By the Master Servicer or By Owners of the Subordinate Certificates. On
any Payment Date on and after the Clean-up Call Date, at their respective
option, the Master Servicer or the Majority Owners of one of the classes of
Subordinate Certificates then outstanding, acting directly or through one or
more affiliates, may purchase from the Trust all of the Mortgage Loans and other
property then held by the Trust, and thereby effect early redemption of the
Class [A] Certificates. In the event that either the Master Servicer or the
Majority Owners of one of the classes of Subordinate Certificates do not
exercise such option, the Certificate Insurer shall be entitled to do so in
accordance with the Pooling and Servicing Agreement.
Upon Loss of REMIC Status. Following a final determination by the
Internal Revenue Service, or by a court of competent jurisdiction, in each case
from which no appeal is taken within the permitted time for such appeal, or if
any appeal is taken, following a final determination of such appeal from which
no further appeal can be taken to the effect that the Trust does not and will no
longer qualify as a "REMIC" pursuant to Section 860D of the Code (the "Final
Determination"), at any time on or after the date which is 30 calendar days
following such Final Determination, (i) the Certificate Insurer, or in the event
that a Certificate Insurer default has occurred and is continuing, the Majority
Owners of Class [A] Certificates then outstanding may direct the Trustee to
adopt a plan of complete liquidation with respect to the Trust or (ii) the
Certificate Insurer (so long as no Certificate Insurer default has occurred and
is continuing) may notify the Trustee of the Certificate Insurer's determination
to purchase from the Trust all Mortgage Loans and other property acquired by
foreclosure, deed in lieu of foreclosure, or otherwise in respect of any
Mortgage Loan then remaining in the Trust, and thereby effect the early
retirement of the Certificates. Upon receipt of such notice or direction, the
Trustee will be required to notify the Master Servicer and the Owners of the
Subordinate Certificates of the determination of the Certificate Insurer or the
Owners of the Class [A] Certificates to liquidate (the "Termination Notice").
Either the Master Servicer or the Majority Owners of one of the classes of the
Subordinate Certificates then outstanding, acting directly or through one or
more affiliates, may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase
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Option Period"), at their option, purchase from the Trust all of the Mortgage
Loans and other property then held by the Trust as of the date of such purchase
at a price at least equal to the sum of the aggregate principal balance of the
Class [A] Certificates then outstanding, plus accrued interest.
If, during the Purchase Option Period, the Master Servicer or the
Majority Owners of one of the classes of the Subordinate Certificates then
outstanding, acting directly or through one or more affiliates, have not
exercised the option described above, then upon the expiration of the Purchase
Option Period the Certificate Insurer may purchase the Trust Estate within 60
days after the expiration of the Purchase Option Period or the Trustee, with the
consent of the Certificate Insurer (so long as no Certificate Insurer default
has occurred and is continuing), will liquidate the Trust Estate and distribute
the proceeds of the liquidation thereof.
Following a Final Determination, the Master Servicer or the Majority
Owners of one of the classes of the Subordinate Certificates then outstanding,
acting directly or through one or more affiliates, may, at their option (and
upon delivery to the Trustee and the Certificate Insurer of an opinion of
counsel experienced in Federal income tax matters to the effect that the effect
of the Final Determination is to substantially increase the probability that the
gross income of the Trust will be subject to federal taxation), purchase from
the Trust all Mortgage Loans and other property then held by the Trust, plus any
amounts owing to the Certificate Insurer and certain other amounts. The Pooling
and Servicing Agreement provides that the foregoing opinion shall be deemed
satisfactory unless the Majority Owners of the Class [A] Certificates then
outstanding give the Master Servicer or the Majority Owners of one of the
classes of Subordinate Certificates notice that such opinion is not satisfactory
within thirty days after receipt of such opinion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Supplemental Interest Amounts and the Class [A] Certificates is to be considered
only in connection with "Certain Federal Income Tax Consequences" in the
Prospectus. The discussion herein and in the Prospectus is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below and in the Prospectus does not purport to deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors in determining the federal, state, local and any other tax consequences
to them of the purchase, ownership and disposition of the Supplemental Interest
Amounts and the Class [A] Certificates.
REMIC ELECTIONS
The Trustee will cause one or more REMIC elections to be made with
respect to certain specified assets of the Trust for federal income tax
purposes. Qualification as a REMIC requires ongoing compliance with certain
conditions. Dewey Ballantine LLP, special tax counsel, will advise that, in its
opinion, for federal income tax purposes, assuming the REMIC elections are made
and compliance with the Pooling and Servicing Agreement, the Trust will be
treated as a REMIC for federal income tax purposes. Each of the Class [A]
Certificates will be a "regular interest" in a REMIC, which will be treated as a
debt instrument of the Trust for federal income tax purposes. The right of an
Owner of a Class [A-2] Certificate to receive payments of any Supplemental
Interest Amounts will have the characteristics described below.
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For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of Class [A] Certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to such
Class [A] Certificates under an accrual method. It is anticipated that the Class
[A] Certificates will not have any original issue discount ("OID") other than
possibly OID within a de minimus exception and that accordingly the provisions
of Sections 1271 through 1273 and 1275 of the Code generally will not apply to
the Class [A] Certificates. OID will be considered de minimus if it is less than
0.25% of the principal amount of a Class [A] Certificate multiplied by its
expected weighted average life. Because rules regarding the accrual of income on
prepayable debt instruments such as the Class [A] Certificates have not yet been
issued by the Internal Revenue Service, the proper treatment regarding possible
OID and the accrual of income on the Class [A] Certificates is not clear.
Potential investors should consult their own tax advisors regarding an
investment in the Class [A] Certificates. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount on the Class
[A] Certificates is 100% of the "Prepayment Assumption". See "Payment and Yield
Considerations--Projected Prepayments and Yields for Class [A] Certificates"
herein. No representation is made that any of the Mortgage Loans will prepay at
such rates or any other rate. See "Payment and Yield Considerations--Projected
Prepayments and Yields for Class [A] Certificates" herein and "Certain Federal
Income Tax Consequences--Discount and Premium" in the Prospectus.
SPECIAL TAX ATTRIBUTES
The Class [A] Certificates possess certain special tax attributes by
virtue of the REMIC provisions of the Code. See "Certain Federal Income Tax
Consequences--REMIC Securities--Special Tax Attributes" in the Prospectus. The
Small Business Job Protection Act of 1996 repeals the bad debt reserve method of
accounting for mutual savings banks and domestic building and loan associations
for tax years beginning after December 31, 1995. As a result, Section 593(d) of
the Code is no longer applicable to treat REMIC regular interests, including the
Certificates, as "qualifying real property loans."
SUPPLEMENTAL INTEREST AMOUNTS
The Beneficial Owners of the Class [A-2] Certificates and the related
rights to receive Supplemental Interest Amounts will be treated for tax purposes
as owning two separate investments: (i) the Class [A-2] Certificates without the
right to receive Supplemental Interest Amounts and (ii) the right to receive the
Supplemental Interest Amounts. The Owners of the Class [A-2] Certificates must
allocate the purchase price of their Certificates between these two investments
based on their relative fair market values. The purchase price allocated to the
first investment will be the issue price of the Class [A-2] Certificates for
calculating accruals of original issue discount. See "Certain Federal Income Tax
Consequences--Discount and Premium" in the Prospectus.
The Trust intends to treat the Supplemental Interest Amounts for
federal income tax purposes as a notional principal contract. Treasury
Regulations under Section 446 of the Code relating to notional principal
contracts (the "Notional Principal Contract Regulations") provide that
taxpayers, regardless of their method of accounting, generally must recognize
the ratable daily portion of a periodic payment for the taxable year to which
that portion relates. Any Supplemental Interest Amounts will be periodic
payments. Income with respect to periodic payments under a notional principal
contract for a taxable year should constitute ordinary income. The purchase
price allocated to the right to receive the related Supplemental Interest
Amounts
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will be treated as a nonperiodic payment under the Notional Principal Contract
Regulations. Such a nonperiodic payment may be amortized using several methods,
including the level payment method described in the Notional Principal Contract
Regulations.
Alternative federal income tax characterization of the Supplemental
Interest Amounts is possible, including treatment of the Supplemental Interest
Amounts as indebtedness or an interest in a partnership. The amount, timing and
character of the income and deductions for a Beneficial Owner of Supplemental
Interest Amounts would differ if the Supplemental Interest Amounts were held to
constitute indebtedness or an interest in a partnership. Because the Trust will
treat the Supplemental Interest Amounts as a notional principal contract, the
Master Servicer will not attempt to satisfy the tax reporting requirements that
would apply under these alternative characterizations of the Supplemental
Interest Amounts. Investors that are foreign persons should consult their own
tax advisors in determining the federal, state, local and other tax consequences
to them of the purchase, ownership and disposition of the Supplemental Interest
Amounts.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of Section 856(c)(5)(B)
of the Internal Revenue Code (the "Code") if held by a real estate investment
trust; (ii) a "qualified mortgage" within the meaning of Section 860G(a)(3) of
the Code or a "permitted investment" within the meaning of Section 860G(a)(5) of
the Code if held by a REMIC; or (iii) assets described in Section
7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special
rules may apply to certain investors, including dealers in securities and
dealers in notional principal contracts.
If the Master Servicer, acting directly or through a permitted
designee, exercises its right to an Optional Termination, the Supplemental
Interest Amount might not be paid in full.
TAXATION OF FOREIGN INVESTORS
Subject to the discussion in "Certain Federal Income Tax
Consequences--Foreign Investors--Grantor Trust Securities and REMIC Regular
Securities" in the Prospectus, foreign investors will not be subject to U.S.
withholding on income from the Supplemental Interest Amounts, if such income is
not connected with a U.S. trade or business and the foreign investor certifies
its foreign status. The Treasury Department has issued new regulations which
make certain modifications to the requirements set forth in Annex I to the
Prospectus. These new regulations will generally be effective for payments made
after December 31, 1999. Prospective investors are urged to consult their tax
advisors regarding these new regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will furnish or make available, within a reasonable time
after the end of each calendar year, to each person who held a Class [A]
Certificate at any time during such year, such information as may be required by
applicable rules to assist such holders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such Certificates on behalf of
beneficial owners. In particular, such information will include a statement of
the adjusted issue price of the Class [A] Certificate at the beginning of each
accrual period. In addition, the reports will include information necessary to
compute the accrual of any market discount that may arise upon secondary trading
of Class [A] Certificates.
Distributions of interest and principal as well as distributions of
proceeds from the sale of the Class [A] Certificates, may be subject to the
"backup withholding tax" under Section 3406 of
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the Code at a rate of 31% if the recipients of such distributions fail to
furnish to the payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an exemption from such
tax. Any amounts deducted and withheld from a distribution to a recipient would
be allowed as a credit against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of distributions that
is required to supply information but does not do so in the proper manner. See
"Certain Federal Income Consequences--Backup Withholding" in the Prospectus.
STATE TAXES
The Sponsor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Class [A] Certificates and
Supplemental Interest Amounts under tax laws of any state. Investors considering
an investment in the Class [A] Certificates and Supplemental Interest Amounts
should consult their own tax advisors regarding such tax consequences.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CLASS [A] CERTIFICATES AND THE SUPPLEMENTAL INTEREST AMOUNTS.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan (the "Plans") from engaging in
certain transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
the Plan unless a statutory or administrative exemption applies to the
transaction. A violation of these "prohibited transaction" rules may generate
excise tax and other liabilities under ERISA and the Code for such persons. In
addition, investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
The United States Department of Labor (the "DOL") has issued a
regulation (the "Plan Asset Regulation") describing what constitutes the assets
of a Plan when the Plan acquires an equity interest in another entity. The Plan
Asset Regulation states that, unless an exception described in the regulation is
applicable, the underlying assets of a corporation, partnership or trust in
which a Plan makes an equity investment will be considered, for purposes of
ERISA, to be assets of the investing Plan. Pursuant to the Plan Asset
Regulation, if the assets of the Trust were deemed to be plan assets by reason
of a Plan's investment in any Class [A] Certificates, such plan assets would
include an undivided interest in any assets held in such Trust. Therefore, in
the absence of an exemption, the purchase, sale or holding of any Class [A]
Certificate by a Plan (including certain individual retirement arrangements)
subject to Section 406 of ERISA or Section 4975 of the Code might result in
prohibited transactions and the imposition of excise taxes and civil penalties.
The DOL has issued to the Underwriters individual prohibited
transaction exemptions, (the "Exemptions"), which generally exempt from the
application of the prohibited transaction provisions of Section 406(a), Section
406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise taxes
imposed pursuant to Sections 4975(a) and (b) of the Code, certain
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<PAGE> 65
transactions with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemptions. The loans covered by the Exemptions include
mortgage loans such as the Mortgage Loans.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(i) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least
as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
(ii) the rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust;
(iii) the certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the three
highest generic rating categories from either Standard &
Poor's Rating Group, a division of The McGraw Hill Companies
("Standard & Poor's"), Moody's Investors Services ("Moody's),
Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co.
("D&P");
(iv) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(v) the sum of all payments made to and retained by the
Underwriters in connection with the distribution of the
certificates represents not more than reasonable compensation
for underwriting the certificates; the sum of all payments
made to and retained by the Originators and the Sponsor
pursuant to the assignment of the loans to the Trust
represents not more than the fair market value of such loans;
the sum of all payments made to and retained by the Master
Servicer or any sub-servicer represents not more than
reasonable compensation for such person's services under the
Pooling and Servicing Agreement and reimbursement of such
person's reasonable expenses in connection therewith; and
(vi) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
The Trust Estate must also meet the following requirements:
(i) the corpus of the Trust Estate must consist solely of assets
of the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of
Standard & Poor's, Moody's, Fitch or D&P for at least one year
prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans
for at least one year prior to the Plan's acquisition of
certificates.
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<PAGE> 66
Moreover, the Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all of the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemptions do not apply to Plans sponsored by the Sponsor, the Certificate
Insurer, the Underwriter(s), the Trustee, the Master Servicer, any other
servicer, any obligor with respect to Mortgage Loans included in the Trust
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust, or any affiliate of such parties (the
"Restricted Group").
On July 21, 1997, the DOL published in the Federal Register amendments
to the Exemptions ("PTE 97-34"), which extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the Class
[A] Certificates, PTE 97-34 generally allows Mortgage Loans supporting payments
to Owners of Class [A] Certificates, and having a value equal to no more than
25% of the total principal amount of the Certificates being offered by the
Trust, to be transferred to the Trust within a funding period no longer than 90
days or three months following the Closing Date instead of requiring that all
such Mortgage Loans be either identified or transferred on or before the Closing
Date. The relief will apply to the purchase, sale and holding of the Class [A]
Certificates, provided that the following general conditions are met:
1. the ratio of the amount allocated to the Pre-Funding Account
to the total principal amount of the Certificates being
offered (the "Pre-Funding Limit") does not exceed 25%;
2. all Subsequent Mortgage Loans meet the same terms and
conditions for eligibility as the original Mortgage Loans used
to create the Trust, which terms and conditions have been
approved by Standard and Poor's or Moody's (the "Rating
Agencies");
3. the transfer of such Subsequent Mortgage Loans to the Trust
during the Pre-Funding Period does not result in the Class [A]
Certificates receiving a lower credit rating from the
applicable Rating Agency upon termination of the Pre-Funding
Period than the rating that was obtained at the time of the
initial issuance of the Class [A] Certificates by the Trust;
4. solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest
Rate") for all of the Mortgage Loans and Subsequent Mortgage
Loans in the Trust at the end of the Pre-Funding Period is not
more than 100 basis points lower than the Average Interest
Rate for the Mortgage Loans which were transferred to the
Trust on the Closing Date;
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<PAGE> 67
5. either:
(i) the characteristics of the Subsequent Mortgage Loans
are monitored by an insurer or other credit support
provider which is independent of the Sponsor; or
(ii) an independent accountant retained by the Sponsor
provides the Sponsor with a letter (with copies
provided to the Rating Agencies, the Underwriters and
the Trustee) stating whether or not the
characteristics of the Subsequent Mortgage Loans
conform to the characteristics described in the
Prospectus Supplement and/or Pooling and Servicing
Agreement. In preparing such letter, the independent
accountant must use the same type of procedures as
were applicable to the Mortgage Loans which were
transferred to the Trust as of the Closing Date;
6. the Pre-Funding Period ends no later than three months or 90
days after the Closing Date or earlier in certain
circumstances if the Pre-Funding Account falls below the
minimum level specified in the Pooling and Servicing Agreement
or an event of default occurs;
7. amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the
pre-funding may be invested only in investments which are
permitted by the Rating Agencies and:
(i) are direct obligations of, or obligations fully
guaranteed as to timely payment of principal and
interest by, the United States or any agency or
instrumentality thereof (provided that such
obligations are backed by the full faith and credit
of the United States); or
(ii) have been rated (or the obligor has been rated) in
one of the three highest generic rating categories by
either Standard & Poor's, Moody's, Fitch or D&P;
8. the Prospectus or Prospectus Supplement describes;
(i) the Pre-Funding Account and/or Capitalized Interest
Account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the
Pre-Funding Limit for the Pre-Funding Period that
will be remitted to Owners of Class [A] Certificates
as repayments of principal;
(iv) that the amounts remaining in the Pre-Funding Account
at the end of the Pre-Funding Period will be remitted
to Owners of Class [A] Certificates as repayments of
principal; and
9. the Pooling and Servicing Agreement describes the permitted
investments for the Pre-Funding Account and/or Capitalized
Interest Account and, if not disclosed in the Prospectus or
Prospectus Supplement, the terms and conditions for the
eligibility of Subsequent Mortgage Loans.
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As of the Initial Cut-Off Date, there is no single Mortgage Loan
included in the Trust that constitutes more than five percent of the aggregate
unamortized principal balance of the assets of the Trust. Before purchasing a
Class [A] Certificate based on the Exemptions, as amended by PTE 97-34, a
fiduciary of a Plan should itself confirm (1) that such Certificate constitutes
a "certificate" for purposes of the Exemptions and (2) that the conditions and
other requirements set forth in the Exemptions would be satisfied.
Any person purchasing a Class [A-2] Certificate and the related right
to receive Supplemental Interest Amounts will have acquired, for purposes of
ERISA and for federal income tax purposes, such Class [A-2] Certificate without
the right to receive the Supplemental Interest Amounts, together with the right
to receive the Supplemental Interest Amounts. The Exemptions do not apply to the
acquisition, holding or resale of the right to receive the Supplemental Interest
Amounts. Accordingly, the acquisition of the right to receive the Supplemental
Interest Amounts by a Plan could result in a prohibited transaction unless
another administrative exemption to ERISA's prohibited transaction rules is
applicable. One or more alternative exemptions may be available with respect to
certain prohibited transaction rules of ERISA that might apply in connection
with the initial purchase, holding and resale of the right to receive the
Supplemental Interest Amounts, including, but not limited to: (i) Prohibited
Transaction Class Exemption ("PTCE") 91-38, regarding investments by bank
collective investment funds; (ii) PTCE 90-1, regarding investments by insurance
company pooled separate accounts; (iii) PTCE 84-14, regarding transactions
negotiated by qualified professional asset managers; (iv) PTCE 96-23, regarding
transactions negotiated by in-house asset managers or (v) PTCE 75-1, Part II,
regarding principal transactions by broker-dealers (the "Principal Transactions
Exemption"). It is believed that the conditions of the Principal Transactions
Exemption will be met with respect to the acquisition of a right to receive the
Supplemental Interest Amounts by a Plan, so long as such Underwriter is not a
fiduciary with respect to the Plan (and is not a party in interest with respect
to the Plan by reason of being a participating employer or affiliate thereof).
Before purchasing Class [A-2] Certificates based on an administrative exemption
(or exemptions), a fiduciary of a Plan should determine whether the conditions
of such exemption (or exemptions) would be met and whether the scope of the
relief provided by such exemption (or exemptions) would cover all acts that
might be construed as prohibited transactions.
Prospective Plan investors in the Class [A] Certificates should consult
with their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemptions as amended by PTE 97-34, and the potential
consequences in their specific circumstances, prior to making an investment in
the Class [A] Certificates. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment procedure and
diversification an investment in the Class [A] Certificates is appropriate for
the Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
The sale of the Class [A] Certificates to a Plan is in no respect a
representation by the Sponsor or the Underwriters that this investment meets all
relevant legal requirements with respect to investments by Plans generally or by
any particular Plan or that this investment is appropriate for Plans generally
or any particular Plan.
In addition to the matters described above, purchasers of a Class [A]
Certificates that are insurance companies should consult with their counsel with
respect to the recent United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank, 510 U.S. 86 (1993). In John
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Hancock, the Supreme Court ruled that assets held in an insurance company's
general account may be deemed to be "plan assets" for ERISA purposes under
certain circumstances. Prospective purchasers using insurance company general
account assets should determine whether the decision affects their ability to
make purchases of the Class [A] Certificates.
RATINGS
It is a condition of the original issuance of the Class [A]
Certificates that they receive ratings of "[___]" by [Rating Agency], and
"[___]" by [Rating Agency]. The ratings assigned to the Class [A] Certificates
will be based on the financial strength of the Certificate Insurer. Such ratings
will be the views only of such rating agencies.
Explanations of the significance of such ratings may be obtained from
[Rating Agency], whose principal offices are located at [Address] and [Rating
Agency], whose principal offices are located at [Address]. There is no assurance
that such ratings will continue for any period of time or that such ratings will
not be revised or withdrawn. Any such revision or withdrawal of such ratings may
have an adverse effect on the market price of the Class [A] Certificates. A
security rating is not a recommendation to buy, sell or hold securities.
The ratings assigned to the Class [A] Certificates do not address the
likelihood of the payment of any Supplemental Interest Amounts.
The ratings of [Rating Agency] on mortgage loan pass-through
certificates address the likelihood of the receipt by the Owners of all
distributions to which such Owners are entitled. [Rating Agency] rating opinions
address the structural and legal issues and tax-related aspects associated with
the Certificates, including the nature of the underlying mortgage loans and the
credit quality of the credit support provider, if any. [Rating Agency] ratings
on pass-through certificates do not represent any assessment of the likelihood
that principal prepayments may differ from those originally anticipated.
Such ratings do not address the possibility that, as a result of
principal prepayments, certificateholders may receive a lower than anticipated
yield.
The ratings of the Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
The Sponsor has not requested a rating of the Class [A] Certificates
offered hereby by any rating agency other than [Rating Agency] and [Rating
Agency] and the Sponsor has not provided information relating to the Class [A]
Certificates or the Mortgage Loans to any rating agency other than [Rating
Agency] and [Rating Agency]. There can be no assurance as to whether any other
rating agency will rate the Class [A] Certificates offered hereby or, if another
rating agency rates such Class [A] Certificates, what rating would be assigned
to such Class [A] Certificates by such rating agency. Any such unsolicited
rating assigned by another rating agency to the Class [A] Certificates offered
hereby may be lower than the rating assigned to such Class [A] Certificates by
[Rating Agency] and [Rating Agency].
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LEGAL INVESTMENT CONSIDERATIONS
No class of the Class [A] Certificates will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984.
UNDERWRITING
Under the terms and subject to the conditions set forth in an
Underwriting Agreement for the sale of the Class [A] Certificates, dated
[___________, ____] (the "Underwriting Agreement"), the Sponsor has agreed to
cause the Trust to sell to the underwriter(s) of the Class [A] Certificates set
forth below (the "Underwriter(s)"), and the Underwriter(s) have agreed to
purchase, the Class [A] Certificates.
In the Underwriting Agreement, the Underwriter(s) have agreed, subject
to the terms and conditions set forth therein, to purchase the entire principal
amount of the Class [A] Certificates in the amounts with respect to each of the
Underwriter(s) as set forth below:
Underwriter Principal Amount
- ------------------------------------------------- ----------------
[Underwriter].................................... [$___________]
[Underwriter].................................... [$___________]
----------------
Total ............................... [$___________]
The Underwriter(s) have informed the Sponsor that they propose to offer
the Class [A] Certificates for sale from time to time in one or more negotiated
transactions, or otherwise, at varying prices to be determined, in each case, at
the time of the related sale. The Underwriter(s) may effect such transactions by
selling the Class [A] Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter(s). In connection with the sale of the Class
[A] Certificates, the Underwriter(s) may be deemed to have received compensation
from the Sponsor in the form of underwriting compensation. The Underwriter(s)
and any dealers that participate with the Underwriter(s) in the distribution of
the Class [A] Certificates may be deemed to be underwriters and any commissions
received by them and any profit on the resale of the Class [A] Certificates by
them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended.
The Sponsor has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933, as amended.
In connection with this offering and in compliance with applicable law
and industry practice, the Underwriter(s) may overallot or effect transactions
which stabilize, maintain or otherwise affect the market price of the Class [A]
Certificates at a level above that which might otherwise prevail in the open
market, including stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits [Underwriter/Representative of Underwriters],
as managing underwriter], to reclaim a selling concession from a syndicate
member in connection with the offering when Class [A] Certificates
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<PAGE> 71
originally sold by the syndicate member are purchased in syndicate covering
transactions. The Underwriter(s) are not required to engage in any of these
activities. Any such activities, if commenced, may be discontinued at any time.
The Sponsor or its affiliates may apply the net proceeds of the sale of
the Class [A] Certificates to the repayment of debt, including "warehouse" debt
secured by the Mortgage Loans prior to their transfer to the Trust. [One or more
of] the Underwriters (or their respective affiliates) may have acted as
"warehouse" lender to the Sponsor or one or more of its affiliates and may
receive a portion of such proceeds as repayment of such "warehouse debt."
The Sponsor has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Class [A] Certificates, as permitted by
applicable laws and regulations. The Underwriter(s) are not obligated, however,
to make a market in the Class [A] Certificates and such market-making may be
discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Class [A] Certificates.
EXPERTS
The consolidated balance sheets of [Certificate Insurer] [and
Subsidiaries] as of December 31, ____ and December 31, ____ and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, ____,
incorporated by reference in this Prospectus Supplement have been incorporated
herein in reliance on the report of [Accountants], independent accountants,
given on the authority of that firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Class [A] Certificates will be passed upon for the Sponsor by Dewey Ballantine
LLP, New York, New York, and for the Underwriters by [Counsel].
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INDEX OF PRINCIPAL DEFINED TERMS
2/28 Loans.................................................................S-13
3/27 Loans.................................................................S-13
5/25 Loans.................................................................S-13
Accrual Period.............................................................S-39
Advanta Parent.............................................................S-34
Affiliated Originators.....................................................S-18
Agreement..................................................................S-56
Appraised Values...........................................................S-21
ARM Group..................................................................S-21
ARM Group Available Funds..................................................S-52
ARM Group Available Funds Cap Rate.........................................S-39
ARM Group Class [A] Principal Distribution Amount..........................S-40
ARM Group Insured Distribution Amount......................................S-41
ARM Group Interest Distribution Amount.....................................S-39
Available Funds Shortfall..................................................S-51
Average Amount Outstanding.................................................S-20
Average Interest Rate......................................................S-67
Beneficial Owner...........................................................S-36
Book-Entry Certificates....................................................S-42
Business Day...............................................................S-56
Capitalized Interest Account...............................................S-37
Cedelbank Participants.....................................................S-44
Certificate Account........................................................S-37
Certificate Insurer Reimbursable Amount....................................S-51
Class [A] Distribution Amount..............................................S-42
Class [A] Principal Distribution Amount....................................S-40
Class [A-1] Pass-Through Rate..............................................S-38
Class [A-2] Formula Pass-Through Rate......................................S-38
Class [A-2] Pass-Through Rate..............................................S-38
Class A ARM Group Certificates.............................................S-21
Class A Fixed Rate Group Certificates......................................S-21
Class A Interest Carry Forward Amount......................................S-39
Class A Interest Distribution Amount.......................................S-39
Clean-up Call..............................................................S-46
Clean-up Call Date.........................................................S-47
CLTV.......................................................................S-21
Code.......................................................................S-64
Compensating Interest......................................................S-60
CPR Assumption.............................................................S-31
Current Interest Amount....................................................S-39
D&P........................................................................S-66
Deficiency Amount..........................................................S-56
Delinquency Advances.......................................................S-59
DTC........................................................................S-44
DTC Participants...........................................................S-44
ERISA......................................................................S-11
Euroclear Operator.........................................................S-44
Euroclear Participants.....................................................S-44
European Depositaries......................................................S-42
Excess Overcollateralization Amount........................................S-49
Exemptions.................................................................S-65
FDIC.......................................................................S-36
Final Determination........................................................S-61
Final Scheduled Payment Date...............................................S-31
Financial Intermediary.....................................................S-42
Fiscal Agent...............................................................S-55
Fitch......................................................................S-66
Fixed Rate Group...........................................................S-21
Fixed Rate Group Available Funds...........................................S-52
Fixed Rate Group Available Funds Cap Rate..................................S-38
Fixed Rate Group Class A Principal Distribution Amount.....................S-40
Fixed Rate Group Insured Distribution Amount...............................S-41
Fixed Rate Group Interest Distribution Amount..............................S-39
Foreclosure Rate...........................................................S-19
Gross Losses...............................................................S-20
Group......................................................................S-18
Group Available Funds......................................................S-52
Group Interest Distribution Amount.........................................S-39
Hybrid ARMs................................................................S-13
Initial Cut-Off Date.......................................................S-20
Initial Mortgage Loans.....................................................S-21
Insured Distribution Amount................................................S-41
Insured Payment............................................................S-56
Interest Determination Date................................................S-47
Junior Lien Ratio..........................................................S-23
Junior Loans...............................................................S-21
LIBOR......................................................................S-38
Liquidated Mortgage Loan...................................................S-50
LTV........................................................................S-21
Majority Owners............................................................S-38
Master Transfer Agreements.................................................S-58
Monthly Remittance Amount..................................................S-37
Moody's....................................................................S-66
Mortgage Loan..............................................................S-18
Mortgage Loan File.........................................................S-58
Mortgage Loan Group........................................................S-18
Mortgaged Property.........................................................S-20
Net Available Distribution Amount..........................................S-56
Net Losses.................................................................S-20
Net Monthly Excess Cashflow................................................S-51
Net Monthly Excess Spread..................................................S-48
Nonrecoverable Delinquency Advance.........................................S-59
Nonrecoverable Servicing Advance...........................................S-60
Notes......................................................................S-20
Notice.....................................................................S-56
Notional Principal Contract Regulations....................................S-63
OID........................................................................S-62
Optional Termination.......................................................S-38
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<PAGE> 73
Original ARM Group Pre-Funded Amount.......................................S-37
Original Fixed Rate Group Pre-Funded Amount................................S-37
Original Pre-Funded Amount.................................................S-37
Overcollateralization Amount...............................................S-49
Overcollateralization Deficit..............................................S-42
Overcollateralization Increase Amount......................................S-49
Overcollateralization Reduction Amount.....................................S-50
Owned and Managed Servicing Portfolio......................................S-19
Owner......................................................................S-56
Participants...............................................................S-42
Pass-Through Rates.........................................................S-38
Payment Date...............................................................S-36
Plan Asset Regulation......................................................S-65
Plans......................................................................S-65
Policy.....................................................................S-55
Pooling and Servicing Agreement............................................S-36
Preference Amount..........................................................S-56
Pre-Funding Account........................................................S-37
Pre-Funding Limit..........................................................S-67
Pre-Funding Period.........................................................S-21
Prepayment.................................................................S-29
Prepayment Assumption......................................................S-31
Preservation Expenses......................................................S-60
Principal and Interest Account.............................................S-59
Principal Transactions Exemption...........................................S-69
PTCE.......................................................................S-69
PTE 97-34..................................................................S-67
Purchase Option Period.....................................................S-61
Rating Agencies............................................................S-67
Realized Loss..............................................................S-50
Record Date................................................................S-36
Recoveries.................................................................S-20
Reference Banks............................................................S-47
Relevant Depositary........................................................S-42
REMIC......................................................................S-61
Remittance Date............................................................S-37
Remittance Period..........................................................S-38
Required Distributions.....................................................S-57
Reserve Interest Rate......................................................S-48
Restricted Group...........................................................S-67
Rules......................................................................S-43
Schedule of Mortgage Loans.................................................S-58
Senior Lien................................................................S-23
Senior Loans...............................................................S-21
Servicing Advances.........................................................S-60
Specified Overcollateralization Amount.....................................S-49
Standard & Poor's..........................................................S-66
Statistical Calculation Date...............................................S-21
Step-Up Payment Date.......................................................S-39
Subordinate Certificates...................................................S-36
Subsequent Cut-Off Date....................................................S-59
Subsequent Mortgage Loans..................................................S-21
Subsequent Transfer Agreements.............................................S-59
Subsequent Transfer Dates..................................................S-59
Sub-Servicing Agreements...................................................S-35
Supplemental Interest Account..............................................S-58
Supplemental Interest Amount...............................................S-38
Termination Notice.........................................................S-61
Terms and Conditions.......................................................S-45
Third-Party Servicing Portfolio............................................S-19
Total Monthly Excess Cashflow..............................................S-51
Total Monthly Excess Spread................................................S-48
Trust Estate...............................................................S-58
Trustee....................................................................S-55
Unaffiliated Originators...................................................S-18
Underwriter(s).............................................................S-71
Underwriting Agreement.....................................................S-71
Weighted average life......................................................S-31
Year 2000 Issue............................................................S-17
S-73
<PAGE> 74
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[$-----------]
(APPROXIMATE)
ADVANTA MORTGAGE LOAN TRUST [TRUST]
MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES [SERIES]
[LOGO]
ADVANTA MORTGAGE CORP. USA
MASTER SERVICER
[LOGO]
ADVANTA CONDUIT RECEIVABLES, INC.
SPONSOR
-----------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------
[UNDERWRITER]
[CO-UNDERWRITERS]
[___________, ____]
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the securities offered hereby in any state where such offer
is not permitted.
We represent the accuracy of the information in this prospectus supplement and
the accompanying prospectus only as of the dates on their respective covers.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the securities offered hereby and with respect to
their unsold allotments or subscriptions. In addition, all dealers selling the
securities, whether or not participating in this offering, may be required to
deliver a prospectus supplement and prospectus until [___________, ____].
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