<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER: 1-8645
------------------------
MEGO FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 13-5629885
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
4310 PARADISE ROAD, LAS VEGAS, NEVADA 89109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(702) 737-3700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 7, 1997, there were 18,733,121 shares of Common Stock, $.01 par
value per share, of the Registrant outstanding.
================================================================================
<PAGE> 2
MEGO FINANCIAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
May 31, 1997 and August 31, 1996 (Unaudited)........................... 1
Consolidated Statements of Operations for the Three and Nine Months
Ended May 31, 1997 and May 31, 1996 (Unaudited)........................ 2
Consolidated Statements of Stockholders' Equity for the Nine Months
Ended May 31, 1997 (Unaudited)......................................... 3
Consolidated Statements of Cash Flows for the Nine Months Ended May 31,
1997 and May 31, 1996 (Unaudited)...................................... 4
Notes to Consolidated Financial Statements............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 31
Item 6. Exhibits and Reports on Form 8-K....................................... 32
SIGNATURE............................................................................ 33
</TABLE>
i
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
-------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 8,363 $ 3,185
Restricted cash....................................................... 7,857 6,657
Notes receivable, net of allowances for cancellations, valuation
discounts, and credit losses of $10,288 and $12,059................. 64,407 45,220
Mortgage related securities, at fair value............................ 94,298 22,944
Excess servicing rights............................................... -- 14,268
Mortgage servicing rights............................................. 7,751 3,827
Timeshare interests held for sale..................................... 34,604 33,691
Land and improvements inventory....................................... 2,218 2,185
Other investments..................................................... 1,931 1,972
Property and equipment, net of accumulated depreciation of $15,253 and
$13,550............................................................. 25,295 20,262
Deferred selling costs................................................ 2,946 2,901
Prepaid debt expenses................................................. 3,830 1,003
Prepaid commitment fee................................................ 2,637 --
Other assets.......................................................... 8,917 7,482
-------- --------
TOTAL ASSETS................................................ $265,054 $165,597
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable......................................... $ 99,027 $ 84,449
Accounts payable and accrued liabilities............................ 26,477 19,662
Payable to assignors................................................ -- 2,579
Future estimated contingency for notes receivable sold with
recourse......................................................... 15,605 9,332
Deposits............................................................ 2,474 2,971
Negative goodwill................................................... 61 82
Income taxes payable................................................ 16,677 10,980
-------- --------
Total liabilities before minority interest, subordinated
debt and redeemable preferred stock....................... 160,321 130,055
-------- --------
Minority interest of consolidated subsidiary.......................... 9,066 --
-------- --------
Subordinated debt..................................................... 48,269 9,691
-------- --------
Redeemable preferred stock, Series A, 12% cumulative preferred stock,
$.01 par value, $10 redemption value, 0 shares issued and
outstanding at May 31, 1997 and August 31, 1996..................... -- --
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value (authorized -- 5,000,000 shares).... -- --
Common stock, $.01 par value (authorized -- 50,000,000 shares;
issued and outstanding -- 18,733,121 at May 31, 1997 and
18,433,121 at August 31, 1996)................................... 187 184
Additional paid-in capital.......................................... 17,974 6,504
Retained earnings................................................... 29,237 19,163
-------- --------
Total stockholders' equity.................................. 47,398 25,851
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $265,054 $165,597
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Timeshare interest sales, net............. $ 8,466 $ 7,965 $ 23,595 $ 20,159
Land sales, net........................... 4,736 4,484 12,510 15,242
Gain on sale of notes receivable.......... 16,707 1,205 37,626 12,486
Net unrealized gain on mortgage related
securities............................. 2,305 2,182 5,213 2,182
Interest income........................... 4,852 2,436 11,280 5,627
Financial income.......................... 929 1,755 2,799 4,208
Amortization of negative goodwill......... 7 18 21 53
Incidental operations..................... 881 1,115 2,324 2,347
Other..................................... 995 774 2,575 2,023
----------- ----------- ----------- -----------
Total revenues.................... 39,878 21,934 97,943 64,327
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Direct cost of:
Timeshare interest sales............... 1,354 1,001 3,866 2,852
Land sales............................. 392 446 1,126 1,491
Incidental operations.................. 719 550 2,127 1,670
Commissions and selling................... 8,901 7,601 24,952 22,133
Depreciation and amortization............. 642 597 1,871 1,672
Provision for credit losses............... 7,085 318 12,601 815
Interest expense.......................... 3,980 3,088 10,493 6,012
General and administrative................ 10,344 8,257 28,119 20,740
----------- ----------- ----------- -----------
Total costs and expenses.......... 33,417 21,858 85,155 57,385
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST.................................. 6,461 76 12,788 6,942
INCOME TAXES (BENEFIT)...................... 535 (230) 1,221 2,360
MINORITY INTEREST........................... 799 -- 1,493 --
----------- ----------- ----------- -----------
NET INCOME.................................. 5,127 306 10,074 4,582
CUMULATIVE PREFERRED STOCK DIVIDENDS........ -- 40 -- 180
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON STOCK....... $ 5,127 $ 266 $ 10,074 $ 4,402
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
Primary:
Net income............................. $ 0.27 $ 0.01 $ 0.52 $ 0.24
=========== =========== =========== ===========
Weighted-average number of common
shares and common share equivalents
outstanding.......................... 19,299,365 18,087,556 19,497,659 18,087,556
=========== =========== =========== ===========
Fully Diluted:
Net income............................. $ 0.27 $ 0.01 $ 0.52 $ 0.23
=========== =========== =========== ===========
Weighted-average number of common
shares and common share equivalents
outstanding.......................... 19,310,198 19,484,667 19,497,659 19,484,667
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(thousands of dollars, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1996................... 18,433,121 $184 $ 6,504 $19,163 $25,851
Gain on sale of stock of subsidiary, net of
income taxes of $4,972..................... -- -- 8,113 -- 8,113
Issuance of warrants in connection with
commitment received........................ -- -- 3,000 -- 3,000
Issuance of common stock in connection with
the exercise of common stock warrants...... 300,000 3 357 -- 360
Net income for the nine months ended May 31,
1997....................................... -- -- -- 10,074 10,074
---------- ---- ------- ------- -------
Balance at May 31, 1997...................... 18,733,121 $187 $ 17,974 $29,237 $47,398
========== ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
MEGO FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 10,074 $ 4,582
--------- ---------
Adjustments to reconcile net income to net cash used in operating activities:
Undistributed minority interest............................................ 1,493 --
Amortization of negative goodwill.......................................... (21) (42)
Charges to allowances for credit losses and cancellations.................. (7,677) (6,039)
Provisions for credit losses and cancellations............................. 20,292 7,800
Cost of sales.............................................................. 4,992 4,343
Depreciation and amortization expense...................................... 1,871 1,312
Additions to excess servicing rights....................................... -- (16,076)
Amortization of excess servicing rights.................................... -- 3,500
Accretion of residual interest on mortgage related securities.............. (2,684) (23)
Net unrealized gain on mortgage related securities......................... (5,213) (2,182)
Additions to mortgage related securities................................... (51,267) --
Payments on mortgage related securities.................................... 815 442
Amortization of mortgage related securities................................ 1,177 --
Additions to mortgage servicing rights..................................... (5,538) (2,007)
Amortization of mortgage servicing rights.................................. 976 345
Loan originations and additions to notes receivable........................ (387,921) (125,210)
Payments on notes receivable............................................... 23,466 17,608
Proceeds from sale of notes receivable..................................... 346,716 95,403
Purchase of land and timeshare interests................................... (5,938) (14,451)
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash................................... (1,200) 2,172
Increase in other assets................................................. (13,322) (381)
Decrease (increase) in deferred selling costs............................ (45) 788
Increase in accounts payable and accrued liabilities..................... 6,665 3,110
Decrease in deposits..................................................... (497) (1,678)
Increase in income taxes payable......................................... 5,697 3,150
--------- ---------
Total adjustments..................................................... (67,163) (28,116)
--------- ---------
Net cash used in operating activities............................. (57,089) (23,534)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................................... (6,788) (3,843)
Proceeds from the sale of property and equipment............................. 29 14
Additions to other investments............................................... (785) (1,201)
Decreases in other investments............................................... 826 501
--------- ---------
Net cash used in investing activities............................. (6,718) (4,529)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings..................................................... 341,572 124,900
Payments on borrowings....................................................... (326,994) (97,130)
Preferred stock dividends.................................................... -- (180)
Redemption of preferred stock................................................ -- (1,000)
Payments on payable to assignors............................................. (2,579) --
Payments on subordinated debt................................................ (1,422) (5)
Issuance of subordinated debt................................................ 37,750 --
Proceeds from sale of Mego Mortgage Corporation common stock................. 20,658 --
--------- ---------
Net cash provided by financing activities......................... 68,985 26,585
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 5,178 (1,478)
--------- ---------
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............................... 3,185 7,338
--------- ---------
CASH AND CASH EQUIVALENTS -- END OF PERIOD..................................... $ 8,363 $ 5,860
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized....................................... $ 7,122 $ 5,249
========= =========
Income taxes............................................................... $ 1,691 $ 25
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Issuance of a warrant for 1,000,000 shares of common stock in connection with
commitment received........................................................ $ 3,000 $ --
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended May 31, 1997 and May 31, 1996
(unaudited)
1. FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Consolidated Financial Statements for the years ended August 31, 1996 and 1995,
contained in the Form 10-K of Mego Financial Corp. (Mego Financial) filed for
the year ended August 31, 1996, the accompanying unaudited Consolidated
Financial Statements contain all of the information necessary to present fairly
the financial position of Mego Financial and Subsidiaries at May 31, 1997 and
the results of its operations for the three and nine months ended May 31, 1997
and 1996, and the cash flows for the nine months ended May 31, 1997 and 1996.
All intercompany accounts between the parent and its subsidiaries have been
eliminated. Certain reclassifications have been made to conform prior periods
with the current period presentation. The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, all material adjustments necessary for
the fair presentation of these statements have been included herein which are
normal and recurring in nature. The results of operations for the three and nine
months ended May 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
2. NATURE OF OPERATIONS
Mego Financial was incorporated under the laws of the state of New York in
1954 under the name Mego Corp. and, in 1992, changed its name to Mego Financial
Corp. Mego Financial is a specialty financial services company that, through its
81.3% owned subsidiary, Mego Mortgage Corporation (MMC) and its wholly owned
subsidiary, Preferred Equities Corporation (PEC), is engaged primarily in
originating, selling and servicing consumer receivables generated through home
improvement and debt consolidation loans, and timeshare and land sales. Mego
Financial and its subsidiaries are herein collectively referred to as the
Company.
3. PREFERRED EQUITIES CORPORATION
PEC markets and finances timeshare interests and land in select resort
areas. By providing financing to virtually all of its customers, PEC also
originates consumer receivables that it sells and services. In February 1988,
Mego Financial acquired PEC, pursuant to an assignment by the assignors (Comay
Corp., GRI, RRE Corp., and H&H Financial, Inc.) of their contract right to
purchase PEC. To facilitate its sales of timeshare interests, the Company has
entered into several trust agreements. The trustees administer the collection of
the related notes receivable. The Company has assigned title to certain of its
resort properties in Nevada and its interest in certain related notes receivable
to the trustees.
4. MEGO MORTGAGE CORPORATION
MMC originates Title I home improvement loans (Title I Loans) insured by
the Federal Housing Administration (FHA) of the Department of Housing and Urban
Development (HUD) through a network of loan correspondents and home improvement
contractors. In May 1996, MMC commenced the origination of conventional home
improvement and debt consolidation loans through its network of loan
correspondents and dealers. Mego Financial's ownership in MMC was reduced from
100% at August 31, 1996 to 81.3% in November 1996, when MMC issued 2,300,000
shares of its common stock in an underwritten public offering at $10.00 per
share. Mego Financial continues to have voting control on all matters submitted
to the stockholders of MMC, including the election of directors and approval of
extraordinary corporate transactions. Concurrently with the common stock
offering, MMC issued $40 million of 12.5% Senior Subordinated Notes due in 2001
in an underwritten public offering. The proceeds from the offerings received by
MMC have been
5
<PAGE> 8
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended May 31, 1997 and May 31, 1996
(unaudited)
used to repay borrowings and provide funds for originations and securitizations
of loans. The proceeds received from the public stock offering in excess of the
book value of Mego Financial's investment in MMC ($13.1 million, less income
taxes of $5 million), have been recorded as additional paid-in capital of Mego
Financial. The undistributed minority interest of MMC reflected on the Company's
Consolidated Statements of Financial Condition was $9.1 million at May 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further discussion.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
(SFAS 125) which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This statement
also provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. It requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value. SFAS 125
also requires that servicing assets be measured by allocating the carrying
amount between the assets sold and retained interests based on their relative
fair values at the date of transfer. Additionally, this statement requires that
the servicing assets and liabilities be subsequently measured by (a)
amortization in proportion to and over the period of estimated net servicing
income or loss and (b) assessment for asset impairment or increased obligation
based on their fair values. The statement requires the Company's existing and
future excess servicing rights be measured at fair market value and reclassified
as interest only strip receivables, carried as mortgage related securities, and
accounted for in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
As required by the statement, the Company adopted the new requirements
effective January 1, 1997 and applied them prospectively. The book value of the
Company's mortgage related securities approximates fair value. The adoption of
SFAS 125 caused PEC to begin recognizing servicing rights and notes receivable
held for sale, similar to the method currently used by MMC for mortgage
servicing rights under SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an amendment of SFAS No. 65." This increases the gain on sale of notes at the
time of sale and reduces future servicing fee income on PEC generated
receivables sold after January 1, 1997. No material impact resulted from the
implementation of SFAS 125.
The following table reflects the components of mortgage related securities
as required by SFAS 125 at May 31, 1997:
<TABLE>
<S> <C>
Interest only receivables (formerly excess servicing rights)....... $29,541
Interest only strip securities..................................... 6,860
Residual interest securities....................................... 57,897
-------
Total mortgage related securities............................. $94,298
=======
</TABLE>
6
<PAGE> 9
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended May 31, 1997 and May 31, 1996
(unaudited)
All mortgage related securities are classified as trading securities and
are recorded at their estimated fair values. Changes in the estimated fair
values are recorded in current operations.
The FASB issued SFAS No. 128, "Earnings per Share" (SFAS 128) in March
1997, effective for financial statements issued after December 15, 1997. The
statement provides simplified standards for the computation and presentation of
earnings per share (EPS), making EPS comparable to international standards. SFAS
128 requires dual presentation of "Basic" and "Diluted" EPS, by entities with
complex capital structures, replacing "Primary" and "Fully Diluted" EPS under
APB Opinion No. 15.
Basic EPS excludes dilution from common stock equivalents and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution from common stock equivalents, similar to fully diluted EPS,
but uses only the average stock price during the period as part of the
computation.
Data utilized in calculating pro forma earnings per share under the SFAS
128 statement are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic:
Net income.......................... $ 5,127,000 $ 266,000 $10,074,000 $ 4,402,000
=========== =========== =========== ===========
Weighted-average number of common
shares........................... 18,733,121 18,087,556 18,582,572 18,087,556
=========== =========== =========== ===========
Diluted:
Net income.......................... $ 5,127,000 $ 266,000 $10,074,000 $ 4,402,000
=========== =========== =========== ===========
Weighted-average number of common
shares and common share
equivalents outstanding.......... 19,299,365 19,150,835 19,497,659 19,118,936
=========== =========== =========== ===========
</TABLE>
The following tables reconcile the net income applicable to common
stockholders, basic and diluted shares, and EPS for the following periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, 1997 THREE MONTHS ENDED MAY 31, 1996
---------------------------------------- ---------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income................ $ 5,127,000 $ 306,000
Less: Preferred stock
dividends............... -- 40,000
---------- --------
BASIC EPS
Income applicable to
common stockholders..... 5,127,000 18,733,121 $0.27 266,000 18,087,556 $0.01
===== =====
---------- ----------
Effect of dilutive
securities:
Warrants.................. -- 337,662 -- 785,395
Stock options............. -- 228,582 -- 277,884
---------- -------- ----------
DILUTED EPS
Income applicable to
common stockholders and
assumed conversions..... $ 5,127,000 19,299,365 $0.27 $ 266,000 19,150,835 $0.01
========== ========== ===== ======== ========== =====
</TABLE>
7
<PAGE> 10
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended May 31, 1997 and May 31, 1996
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1997 NINE MONTHS ENDED MAY 31, 1996
---------------------------------------- ---------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
----------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income................ $10,074,000 $4,582,000
Less: Preferred stock
dividends............... -- 180,000
---------- --------
BASIC EPS
Income applicable to
common stockholders..... 10,074,000 18,582,572 $0.54 4,402,000 18,087,556 $0.24
===== =====
---------- ----------
Effect of dilutive
securities:
Warrants................ -- 658,160 -- 761,169
Stock options........... -- 256,927 -- 270,211
---------- ---------- -------- ----------
DILUTED EPS
Income applicable to
common stockholders and
assumed conversions..... $10,074,000 19,497,659 $0.52 $4,402,000 19,118,936 $0.23
========== ========== ===== ======== ========== =====
</TABLE>
6. PAYMENTS TO ASSIGNORS
In January 1997, the outstanding balance of payable to assignors of $2.6
million, including accrued interest of $45,000, was paid in full. The assignors
are affiliates of certain officers and directors of the Company. See Note 3 of
Notes to Consolidated Financial Statements for further discussion. Additionally,
effective March 1, 1997, the assignors began receiving the first of 7 equal
semi-annual payments of $1,429,000 plus interest related to the repayment of the
subordinated debt. These payments are collateralized by a pledge of PEC's
outstanding stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Company Liquidity" for additional information.
7. INCOME TAX PROVISION
The Company generally records a loss for tax purposes in the year of sale
of timeshare interests and land sold on installments because it recognizes costs
and expenses (other than cost of sales for which only a portion is recognized in
the year of sale) at that time while recognizing associated revenues only when
received in subsequent years. As a result, the Company has accumulated federal
net operating loss (NOL) carryforwards and has made less than a full provision
at the statutory rates for federal income taxes for the nine months ended May
31, 1997, due to partial utilization of these NOL carryforwards. No assurance
can be given that the Company has sufficient NOL carryforwards to fully offset
its income for the current fiscal year, that the Company will continue to
generate sufficient NOL carryforwards to offset future income or that future
changes in tax laws will not adversely affect the Company's tax position.
8. SUBSEQUENT EVENTS
On June 26, 1997, MMC replaced its $20 million warehouse line of credit
with a $40 million revolving warehouse credit facility from two new
institutional lenders. The credit facility may be increased to $90 million (at
MMC's option, assuming additional participants join in the facility), expires in
June 1998 and is secured by loans prior to their sale. This facility provides
liquidity for increased fundings for additional loan originations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- MMC -- Negative Cash Flow" for
additional information.
8
<PAGE> 11
MEGO FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and nine months ended May 31, 1997 and May 31, 1996
(unaudited)
MMC completed a $104.6 million senior subordinated loan securitization on
June 27, 1997, representing a non-monoline insured transaction collateralized by
conventional home improvement and debt consolidation mortgage loans with
generally high loan-to-value ratios. Pursuant to this securitization, seven
classes of home loan asset-backed notes and certificates were issued and sold in
a public offering. MMC continues to service the sold loans and is entitled to
receive, from payments with respect to interest on the sold loans, a servicing
fee equal to 1.00% per annum on the aggregate principal balance of the loans.
MMC received residual instruments and contractual rights which will be recorded
as mortgage related securities on the Statements of Financial Condition,
representing the excess interest differential (after payment of servicing, other
fees, and the contractual obligations payable to the note and certificate
holders) between the interest paid by the obligors of the sold loans and the
yield on the sold notes and certificates. MMC may be required to repurchase
loans that do not conform to the representations and warranties made by MMC in
the securitization agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General" for additional
information.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements, including the notes thereto, contained
elsewhere herein.
GENERAL
The business of the Company is primarily the generation of consumer
receivables by marketing timeshare interests, retail lots and land parcels,
generating home improvement and debt consolidation loans, and servicing the
related notes receivable and loans.
The Company, through its subsidiary PEC, provides financing to the
purchasers of its timeshare interests and land. This financing is generally
evidenced by notes secured by deeds of trust and mortgages as well as
non-recourse installment sales contracts. These notes receivable are generally
payable over a period of up to 10 years, bear interest at rates ranging from 0%
to 16% and require equal monthly installments of principal and interest. MMC
originates, purchases, sells, securitizes and services consumer loans consisting
primarily of home improvement and debt consolidation loans, generally secured by
liens on improved property, through its network of independent correspondent
lenders (Correspondents) and home improvement construction contractors
(Dealers). The conventional loans are purchased or originated by MMC in amounts
up to a maximum of $75,000 with fixed interest rates and up to 25 year
maturities, and are generally secured by a lien on the respective primary
residence. The Title I Loans are purchased or originated by MMC in amounts up to
a maximum of $25,000 with maturities up to 20 years and are generally secured by
a lien on the improved property. During the first quarter of fiscal 1997, MMC
began offering conventional home improvement loans through its dealer division
and debt consolidation loans to its borrowers through both its correspondent and
dealer divisions. Since MMC began offering conventional loans in May 1996,
conventional loans have accounted for an increasing portion of loan
originations. Conventional loan products typically have high loan-to-value
ratios.
10
<PAGE> 13
The following tables set forth certain data regarding loans originated,
sold, securitized, and serviced by MMC and PEC during the three and nine months
ended May 31, 1997 and 1996 (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
-----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
LOAN ORIGINATIONS:
PRINCIPAL AMOUNT OF LOANS ORIGINATED:
Correspondents:
Title I.......................................... $ 11,970 6.4% $ 21,577 45.9%
Conventional..................................... 144,634 77.6 335 0.7
-------- ----- -------- -----
Total Correspondents................................ 156,604 84.0 21,912 46.6
-------- ----- -------- -----
Dealers:
Title I.......................................... 12,427 6.7 11,386 24.2
Conventional..................................... 4,908 2.6 -- 0.0
-------- ----- -------- -----
Total Dealers....................................... 17,335 9.3 11,386 24.2
-------- ----- -------- -----
Notes receivable additions through sales of
timeshare interests and land..................... 12,457 6.7 13,724 29.2
-------- ----- -------- -----
Total................................................. $186,396 100.0% $ 47,022 100.0%
======== ===== ======== =====
NUMBER OF LOANS ORIGINATED:
Correspondents:
Title I.......................................... 565 7.4% 1,357 39.3%
Conventional..................................... 4,377 57.5 11 0.3
-------- ----- -------- -----
Total Correspondents................................ 4,942 64.9 1,368 39.6
-------- ----- -------- -----
Dealers:
Title I.......................................... 1,018 13.4 716 20.7
Conventional..................................... 299 3.9 -- 0.0
-------- ----- -------- -----
Total Dealers....................................... 1,317 17.3 716 20.7
-------- ----- -------- -----
Notes receivable additions through sales of
timeshare interests and land..................... 1,359 17.8 1,372 39.7
-------- ----- -------- -----
Total................................................. 7,618 100.0% 3,456 100.0%
======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
LOAN ORIGINATIONS:
PRINCIPAL AMOUNT OF LOANS ORIGINATED:
Correspondents:
Title I.......................................... $ 42,481 11.0% $ 57,777 47.2%
Conventional..................................... 263,395 68.5 335 0.3
-------- ----- -------- -----
Total Correspondents................................ 305,876 79.5 58,112 47.5
-------- ----- -------- -----
Dealers:
Title I.......................................... 34,852 9.1 31,278 25.5
Conventional..................................... 6,932 1.8 -- 0.0
-------- ----- -------- -----
Total Dealers....................................... 41,784 10.9 31,278 25.5
-------- ----- -------- -----
Notes receivable additions through sales of
timeshare interests and land..................... 37,133 9.6 33,053 27.0
-------- ----- -------- -----
Total................................................. $384,793 100.0% $122,443 100.0%
======== ===== ======== =====
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C> <C> <C>
NUMBER OF LOANS ORIGINATED:
Correspondents:
Title I.......................................... 2,058 11.7% 3,795 40.5%
Conventional..................................... 8,337 47.3 11 0.1
-------- ----- -------- -----
Total Correspondents................................ 10,395 59.0 3,806 40.6
-------- ----- -------- -----
Dealers:
Title I.......................................... 2,925 16.6 2,054 21.9
Conventional..................................... 392 2.2 -- 0.0
-------- ----- -------- -----
Total Dealers....................................... 3,317 18.8 2,054 21.9
-------- ----- -------- -----
Notes receivable additions through sales of
timeshare interests and land..................... 3,926 22.2 3,515 37.5
-------- ----- -------- -----
Total................................................. 17,638 100.0% 9,375 100.0%
======== ===== ======== =====
LOANS SERVICED AT END OF PERIOD (INCLUDING NOTES
SECURITIZED, SOLD TO INVESTORS, AND HELD FOR SALE):
Title I............................................... $248,361 39.2% $170,713 59.1%
Conventional.......................................... 268,065 42.3 335 0.1
Timeshare and land.................................... 116,730 18.5 117,602 40.8
-------- ----- -------- -----
Total................................................. $633,156 100.0% $288,650 100.0%
======== ===== ======== =====
</TABLE>
The Company has entered into financing arrangements with certain purchasers
of timeshare interests and land whereby no stated interest rate is charged if
the aggregate down payment is at least 50% of the purchase price and the balance
is payable in 24 or fewer monthly payments. Notes receivable of $6.8 million and
$6 million at May 31, 1997 and August 31, 1996, respectively, made under this
arrangement are included in the table above. A valuation discount is established
to provide for an effective interest rate (currently 10%) on notes receivable
bearing no stated interest rate at the time of sale, and is applied to the
principal balance and amortized over the term of the note. The effective
interest rate is based upon the economic interest rate environment and similar
industry data.
Land sales as of May 31, 1997, exclude $12.4 million in sales not yet
recognized under GAAP since the requisite payment amounts have not yet been
received. If ultimately recognized, revenues from these sales will be reduced by
a related estimated provision for cancellation of $1.8 million, estimated
deferred selling costs of $2.9 million and cost of sales of $1 million.
The Company is obligated under certain agreements for the sale of notes
receivable and certain loan agreements to maintain various minimum net worth
requirements. At May 31, 1997, the most restrictive of these agreements required
PEC to maintain a minimum tangible net worth of $25 million and MMC to maintain
a minimum tangible net worth of $12.5 million plus any issuance of capital stock
or other capital instruments since August 31, 1995, plus 50% of MMC's cumulative
net income since May 1, 1996. At May 31, 1997, MMC's minimum tangible net worth
requirement was $39.4 million, and MMC's tangible net worth was $48.5 million.
Additionally, MMC was required to maintain a minimum level of profitability of
at least $500,000 per rolling 6 month period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- MMC -- Negative Cash Flow and PEC -- Liquidity" for further
information.
At May 31, 1997 and August 31, 1996, receivables aggregating $46.2 million
and $54.2 million, respectively, were pledged to lenders to collateralize
certain of the Company's indebtedness. Receivables which qualify for the
lenders' criteria may be pledged as collateral whether or not such receivables
have been recognized for accounting purposes.
On May 22, 1997, $63.5 million of loans were repurchased, securitized and
sold by MMC, comprised of $60.8 million of limited equity conventional loans and
$2.7 million of Title I Loans. Pursuant to this
12
<PAGE> 15
securitization, asset-backed notes secured by the loans were sold in a public
offering. The securitization consisted of five note classes and one certificate
class. MMC continues to service the sold loans and is entitled to receive, from
payments with respect to interest on the sold loans, a servicing fee equal to
1.00% per annum on the remaining principal balance of each loan. MMC received
certificates and contractual rights which have been recorded as mortgage related
securities on the Consolidated Statements of Financial Condition, representing
the interest differential, after payment of servicing and other fees, between
the interest paid by the obligors of the sold loans and the yield on the sold
notes, and the receipt of the over-collateralization. MMC may be required to
repurchase loans that do not conform to the representations and warranties made
by MMC in the securitization agreements.
MMC completed a $104.6 million senior subordinated loan securitization on
June 27, 1997, representing a non-monoline insured transaction collateralized by
conventional home improvement and debt consolidation mortgage loans with
generally high loan-to-value ratios. Pursuant to this securitization, seven
classes of home loan asset-backed notes and certificates were issued and sold in
a public offering. MMC continues to service the sold loans and is entitled to
receive, from payments with respect to interest on the sold loans, a servicing
fee equal to 1.00% per annum on the aggregate principal balance of the loans.
MMC received residual instruments and contractual rights which will be recorded
as mortgage related securities on the Statements of Financial Condition,
representing the excess interest differential (after payment of servicing, other
fees, and the contractual obligations payable to the note and certificate
holders) between the interest paid by the obligors of the sold loans and the
yield on the sold notes and certificates. MMC may be required to purchase loans
that do not conform to the representations and warranties made by MMC in the
securitization agreements.
MMC
MMC recognizes revenue from the gain on sale of loans, unrealized gain on
mortgage related securities, interest income and servicing income. Interest
income, net, represents the interest received on loans in MMC's portfolio prior
to their sale, net of interest paid under its debt agreements. Net loan
servicing income represents servicing fee income and other ancillary fees
received for servicing loans less the amortization of capitalized mortgage
servicing rights and excess servicing rights through January 1, 1997, which was
the date of adoption of SFAS 125. Mortgage servicing rights and excess servicing
rights were amortized over the estimated lives of the loans.
MMC primarily sells loans through securitizations, and also sells whole
loans to third party purchasers. Certain of the regular interests of the related
securitizations are sold, with the interest only and residual interest
securities retained by MMC. MMC sells its loans through whole loan sales to
third party purchasers, generally retaining the right to service the loans and
to receive any amounts in excess of the guaranteed yield to the purchasers. In
the third quarter of fiscal 1997, MMC recorded loan sales of $159.2 million, of
which $10 million were sold with servicing released.
13
<PAGE> 16
The following table sets forth the principal balance of loans sold or
securitized and related gain on sale data for the three and nine months ended
May 31, 1997 and 1996 (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------- --------------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
ALL LOANS SOLD:
MMC Loans Sold:
Title I Loans................................... $ 22,879 $31,652 $ 78,545 $88,073
Conventional.................................... 136,297 -- 248,072 --
-------- ------- -------- -------
Total........................................ $159,176 $31,652 $326,617 $88,073
======== ======= ======== =======
Gain on sale of loans............................. $ 16,204 $ 811 $ 36,233 $11,621
======== ======= ======== =======
Net unrealized gain on mortgage related
securities...................................... $ 2,305 $ 2,182 $ 5,213 $ 2,182
======== ======= ======== =======
LOANS SOLD EXCLUDING THOSE WITH SERVICING
RELEASED:
MMC Loans Sold:
Title I Loans................................... $ 22,879 $31,652 $ 78,545 $88,073
Conventional(1)................................. 126,296 -- 238,071 --
-------- ------- -------- -------
Total........................................ $149,175 $31,652 $316,616 $88,073
======== ======= ======== =======
Gain on sale of loans(2).......................... $ 15,804 $ 811 $ 35,833 $11,621
======== ======= ======== =======
Gain on sale of loans as a percentage of principal
balance of loans sold(2)........................ 10.6% 2.6% 11.3% 13.2%
======== ======= ======== =======
Gain on sale of loans plus net unrealized gain on
mortgage related securities as a percentage of
principal balance of loans sold(2).............. 12.1% 9.5% 13.0% 15.7%
======== ======= ======== =======
</TABLE>
- ---------------
(1) Excludes $10,001,000 of loans sold with servicing released.
(2) Excludes gain on sale of $400,000 relating to the whole loan sale of
$10,001,000 of loans sold with servicing released.
The combined gain on sale and net unrealized gain on mortgage related
securities for the 3 months ended May 31, 1997 was $18.8 million, or 11.8% of
loans sold during the period, before adjustments totaling $295,000 relating to
Title I Loans originated prior to March 1, 1996. The adjustments were
approximately 0.2% of the original principal balances of such loans. The
percentage of gain on sale of loans can vary for several reasons, including the
relative amounts of conventional and Title I Loans, each of which type of loan
has different (i) estimated prepayment rates, (ii) weighted-average interest
rates, (iii) weighted-average maturities, and (iv) estimated future default
rates. The gain on sale of loans percentage has increased since January 1, 1997,
due to the reclassification of net loan servicing revenue into gain on sale of
loans as a result of compliance with SFAS 125. Typically, the gain on sale of
loans through securitizations is higher than on whole loan sales.
As a holder of residual interest securities, MMC is entitled to receive
certain excess cash flows. These excess cash flows are calculated as the
difference between (a) principal and interest paid by borrowers and (b) the sum
of (i) pass-through interest and principal to be paid to the holders of the
regular securities and interest only securities, (ii) trustee fees, (iii)
third-party credit enhancement and FHA insurance fees, (iv) servicing fees and
(v) estimated loan pool losses. MMC's right to receive the excess of cash flows
is subject to the satisfaction of certain over-collateralization or reserve
requirements which are specific to each securitization and are used as a means
of credit enhancement.
14
<PAGE> 17
Delinquencies -- The following table sets forth the Title I Loan and
conventional loan delinquency and Title I insurance claims experience of loans
serviced by MMC at the dates indicated (thousands of dollars):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
-------- ----------
<S> <C> <C>
Delinquency period(1)
31-60 days past due................................................. 1.53% 2.17%
61-90 days past due................................................. 0.65 0.85
91 days and over past due(2)........................................ 3.06 4.53
91 days and over past due, net of claims filed(3)................... 2.32 1.94
Outstanding claims filed with HUD(4).................................. 0.74 2.59
Outstanding number of Title I insurance claims........................ 259 255
Total servicing portfolio............................................. $516,426 $214,189
Title I Loans serviced................................................ 248,361 202,766
Conventional loans serviced........................................... 268,065 11,423
Amount of FHA insurance available(5).................................. 21,413 21,205
Amount of FHA insurance available as a percentage of Title I
Loans serviced...................................................... 8.62% 10.46%
Losses on liquidated loans(6)......................................... $ 48 $ 32
</TABLE>
- ---------------
(1) Represents the dollar amount of delinquent loans as a percentage of the
total dollar amount of loans serviced by MMC (including loans owned by MMC)
as of the dates indicated. There were no conventional loan delinquencies at
August 31, 1996.
(2) During the year ended August 31, 1996 and the first two quarters of fiscal
1997, the processing and payment of claims filed with HUD was delayed.
Claims paid by HUD during the third quarter of 1997 were $4.4 million.
(3) Represents the dollar amount of delinquent loans net of delinquent Title I
Loans for which claims have been filed with HUD and payment is pending as a
percentage of the total dollar amount of total loans serviced by MMC
(including loans owned by MMC) as of the dates indicated.
(4) Represents the dollar amount of delinquent Title I Loans for which claims
have been filed with HUD and payment is pending as a percentage of the total
dollar amount of total loans serviced by MMC (including loans owned by MMC)
as of the dates indicated.
(5) If all claims filed with HUD had been processed as of May 31, 1997, the
amount of FHA insurance available for all serviced Title I Loans would have
been reduced to $17.7 million, which as a percentage of Title I Loans
serviced, net of claims, would have been 7.2%.
(6) On Title I Loans, a loss is recognized upon receipt of payment of a claim or
final rejection thereof. Claims paid in a period may relate to a claim filed
in an earlier period. Since MMC commenced its Title I lending operations in
March 1994, there has been no final rejection of a claim by the FHA.
Aggregate losses on liquidated Title I Loans relates to 560 Title I
insurance claims made by MMC, as servicer, since commencing operations
through May 31, 1997. Losses on Title I Loans liquidated will increase as
the balance of the claims are processed by HUD. MMC has received an average
payment from HUD equal to 90% of the outstanding principal balance of such
Title I Loans, plus appropriate interest and costs.
Pooling and servicing agreements and sales and servicing agreements
relating to MMC's securitization transactions contain provisions with respect to
the maximum permitted loan delinquency rates and loan default rates, which, if
exceeded, would allow the termination of MMC's right to service the related
loans. At May 31, 1997, the rolling three month average annual default rate on
the pool of loans sold in the March 1996 and August 1996 securitization
transactions exceeded 6.5%, the permitted limit set forth in the related pooling
and servicing agreements. Accordingly, this condition could result in the
termination of MMC's servicing rights with respect to those pools of loans by
the trustee, the master servicer or the insurance company providing credit
enhancement for that transaction. Although the insurance company has indicated
that it, and to its knowledge, the trustee and the master servicer have no
present intention to terminate MMC's servicing
15
<PAGE> 18
rights related to those pools of loans, no assurance can be given that one or
more of such parties will not exercise its right to terminate. In the event of
such termination, there would be a material adverse effect on the valuation of
the Company's mortgage servicing rights and the results of operations in the
amount of such mortgage servicing rights ($2.6 million before income taxes at
May 31, 1997) on the date of termination.
The pooling and servicing agreements and sales and servicing agreements
also require that certain delinquency and default rates not exceed certain
thresholds. If these thresholds are exceeded, higher levels of
over-collateralization are required which can cause a delay in cash receipts to
MMC as a holder of the residual interest, causing an adverse valuation
adjustment to the residual security.
Delinquencies of loans serviced by MMC have also decreased the amount of
loan servicing income recorded during the nine months ended May 31, 1997 as
MMC's loan servicing income has been reduced by the amount of interest advanced
to the owners of these loans.
Delinquencies have increased to $27.1 million at May 31, 1997 from $16.2
million at August 31, 1996. Since MMC began originating Title I Loans in 1994,
an increasing level of delinquencies has appeared as expected on such loans less
than two years old. After this initial period, the level of delinquencies on
such loans is not anticipated to increase.
Once a loan becomes 30 days past due, a collection supervisor generally
analyzes the account to determine the appropriate course of remedial action. It
is MMC's policy to consult with the delinquent customer to resolve the past due
balance before Title I claim processing or legal action is initiated.
PEC
PEC recognizes revenue primarily from sales of timeshare interests and land
sales in resort areas, gain on sale of receivables and interest income. PEC also
sells its consumer receivables while generally retaining the servicing rights.
Revenue from sales of timeshare interests and land is recognized after the
requisite rescission period has expired and at such time as the purchaser has
paid at least 10% of the sales price for sales of timeshare interests and 20% of
the sales price for land sales. Land sales typically meet these requirements
within eight to ten months of closing, and sales of timeshare interests
typically meet these requirements at the time of sale. The sales price, less a
provision for cancellation, is recorded as revenue and the allocated cost
related to the timeshare interest or land parcel is recorded as expense in the
year that revenue is recognized. When revenue related to land sales is
recognized, the portion of the sales price attributable to uncompleted required
improvements, if any, is deferred.
Notes receivable with payment delinquencies of 90 days or more have been
considered in determining the allowance for cancellation. Cancellations occur
when the note receivable is determined to be uncollectible and the related
collateral, if any, has been recovered. Cancellation of a note receivable in the
year the revenue is recognized is accounted for as a reversal of revenue, since
the determination that a loan is uncollectible is made in such a short period of
time, that it is deemed to not actually be a sale, so no revenue is recognized.
Cancellation of a note receivable subsequent to the year the revenue was
recognized is charged to the allowance for cancellation.
Interest only strip receivables, which were formerly named excess servicing
rights, are included in mortgage related securities, and are carried at fair
market value.
Gain on sale of notes receivable includes the present value of the
differential between contractual interest rates charged to borrowers on notes
receivable sold by PEC and the interest rates to be received by the purchasers
of such notes receivable, after considering the effects of estimated prepayments
and a normal servicing fee. PEC generally retains the servicing rights and
participation in certain cash flows from the sold notes receivable. PEC
generally sells its notes receivable at par value.
16
<PAGE> 19
RESULTS OF OPERATIONS
Three Months Ended May 31, 1997 compared to Three Months Ended May 31, 1996
MMC
MMC originated $173.9 million of loans during the 3 months ended May 31,
1997 compared to $33.3 million of loans during the 3 months ended May 31, 1996,
an increase of 422.4%. The increase is a result of the overall growth in MMC's
business, including an increase in the number of active Correspondents and an
increase in the number of states served. At May 31, 1997, MMC had approximately
562 active Correspondents and 463 active Dealers, compared to approximately 254
active Correspondents and 445 active Dealers at May 31, 1996. Of the $173.9
million of loans originated during the 3 months ended May 31, 1997, $149.5
million were conventional loans and $24.4 million were Title I Loans compared to
$335,000 of conventional loans and $33 million of Title I Loans during the 3
months ended May 31, 1996.
Total revenues increased 334.9% to $20.4 million during the 3 months ended
May 31, 1997 from $4.7 million during the 3 months ended May 31, 1996. The
increase was primarily the result of the increased volume of loans originated
and the gain on sale of loans.
Gain on sale of loans and net unrealized gain on sale of mortgage related
securities increased to $18.5 million during the 3 months ended May 31, 1997
compared to $1.3 million during the 3 months ended May 31, 1996, primarily due
to increased loan sales of $159.2 million during the 3 months ended May 31, 1997
compared to $31.7 million during the 3 months ended May 31, 1996.
Loan servicing income decreased 43.6% to $726,000 during the 3 months ended
May 31, 1997 from $1.3 million during the 3 months ended May 31, 1996. The
decrease was primarily the result of increased amortization of mortgage
servicing rights, reclassification of net revenue in compliance with SFAS 125,
and increased interest advances and reduced servicing fees related to $27.1
million in serviced delinquent loans at May 31, 1997 compared to $12.9 million
at May 31, 1996.
Interest income on loans held for sale and mortgage related securities, net
of interest expense, increased 182.1% to $1.1 million during the 3 months ended
May 31, 1997 from $403,000 during the 3 months ended May 31, 1996. This was
primarily the result of the combined increase in the size of the portfolio of
loans held for sale and in the mortgage related securities portfolio to $116.3
million at May 31, 1997 from $19.8 million at May 31, 1996.
The provision for credit losses increased to $7.1 million for the 3 months
ended May 31, 1997 from $318,000 for the 3 months ended May 31, 1996. The
increase in the provision was directly related to the increase in the volume of
loans originated and the increased ratio of conventional loans to Title I Loans
originated during the 3 months ended May 31, 1997 compared to the 3 months ended
May 31, 1996. The provision for credit losses is based upon periodic analysis of
the portfolio, economic conditions and trends, historical credit loss
experience, borrowers' ability to repay, collateral values, and estimated FHA
insurance recoveries on loans originated and sold. As MMC increased its
conventional loan originations as compared to Title I Loan originations, the
provision for credit losses as a percentage of loans originated increased due to
the greater risk of loss associated with conventional loans, which are not FHA
insured.
Total general and administrative expenses increased 100.8% to $6.1 million
during the 3 months ended May 31, 1997 compared to $3 million during the 3
months ended May 31, 1996. The increase was primarily a result of increased
payroll related to the hiring of additional underwriting, loan processing,
administrative, loan quality control and other personnel as a result of the
expansion of MMC's business and costs related to the opening of additional
offices.
Payroll and benefits expense increased 123.9% to $2.9 million during the 3
months ended May 31, 1997 from $1.3 million during the 3 months ended May 31,
1996 primarily due to an increased number of employees. The number of employees
increased to 332 at May 31, 1997 from 158 at May 31, 1996 due to increased staff
necessary to support the business expansion and improve quality control.
Commissions and selling expenses increased 24.3% to $675,000 during the 3
months ended May 31, 1997 from $543,000 during the 3 months ended May 31, 1996,
while loan originations increased by $140.6 million
17
<PAGE> 20
to $173.9 million during the period. The sales network has expanded to
substantially all states, adding new personnel and offices to further the loan
origination growth strategy.
Professional services decreased to $80,000 during the 3 months ended May
31, 1997 from $92,000 during the 3 months ended May 31, 1996 due primarily to
decreased audit and legal fees.
Other general and administrative expenses increased 82.6% to $902,000
during the 3 months ended May 31, 1997 from $494,000 during the 3 months ended
May 31, 1996 due primarily to added expenses related to increased loan
sub-servicing fees and management services fees paid to PEC and the ongoing
expansion of facilities.
Income before income taxes increased to $6.9 million for the 3 months ended
May 31, 1997 from $1 million for the 3 months ended May 31, 1996, therefore, the
provision for income taxes increased to $2.6 million for the 3 months ended May
31, 1997 from $255,000 for the 3 months ended May 31, 1996.
As a result of the foregoing, MMC's net income increased 459.2% to $4.3
million for the 3 months ended May 31, 1997 from $764,000 for the 3 months ended
May 31, 1996.
PEC
Total revenues for PEC increased 9.8% or $1.6 million to $18.3 million
during the 3 months ended May 31, 1997 compared to $16.6 million during the 3
months ended May 31, 1996 primarily due to an increase in net sales of
timeshares and increased gain on sale of receivables, partially offset by a
decrease in incidental operations. Additionally, income from net retail lot
sales, financial income, and interest income increased during the third quarter
of fiscal 1997.
Timeshare interests and land sales, net, increased to $13.2 million during
the 3 months ended May 31, 1997 from $12.4 million during the 3 months ended May
31, 1996, or 6%. Gross sales of timeshare interests increased to $10.3 million
during the 3 months ended May 31, 1997 from $8.8 million during the 3 months
ended May 31, 1996, an increase of 18.2%. Net sales of timeshare interests
increased to $8.5 million during the 3 months ended May 31, 1997 from $8 million
during the 3 months ended May 31, 1996, an increase of 6.3%. The provision for
cancellation represented 18.2% and 9% of gross sales of timeshare interests
during the 3 months ended May 31, 1997 and 1996, respectively. The increase in
the provision for cancellation was primarily due to an increase in sales volume
in the current quarter and the lower provision required during the same quarter
in 1996 due to a reduction of a provision for one timeshare project. During the
first quarter of fiscal 1997, the Aloha Bay resort in Indian Shores, Florida was
completed and 131 timeshare interests in that resort were sold through May 31,
1997.
Gross sales of land decreased to $5.6 million during the 3 months ended May
31, 1997 from $5.7 million during the 3 months ended May 31, 1996, a decrease of
2.1%. Net sales of land increased to $4.7 million during the 3 months ended May
31, 1997 from $4.5 million during the 3 months ended May 31, 1996, an increase
of 5.6%. The provision for cancellation represented 15.3% and 21.5% of gross
sales of land during the 3 months ended May 31, 1997 and 1996, respectively. The
decrease in the provision for cancellation was primarily due to a decrease in
gross land sales. The decrease in gross land sales is the result of PEC's
emphasis shift, as part of its strategic plan, from sales of land to sales of
timeshare interests due both to its diminishing inventory of land available for
sale and its increasing inventory of timeshare interests from the opening of new
resorts. The shift from land sales to timeshare sales is due primarily to the
reduction of PEC's current land inventory which has not been replenished with
additional land due to the unavailability of suitable land at acceptable prices.
Gain on sale of notes receivable increased $445,000 to $503,000 during the
3 months ended May 31, 1997 from $58,000 during the 3 months ended May 31, 1996
due to a sale of notes receivable of $10 million during the third quarter of
1997 compared to a sale of notes receivable of $646,000 during the third quarter
of 1996.
PEC's interest income increased slightly to $2 million during the 3 months
ended May 31, 1997 from $1.8 million during the 3 months ended May 31, 1996
primarily due to a relatively flat interest rate
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environment combined with a slight increase in the average balance of notes
receivable outstanding during the current quarter as compared to the 3 months
ended May 31, 1996.
Financial income increased to $726,000 during the 3 months ended May 31,
1997 from $458,000 during the 3 months ended May 31, 1996, an increase of 58.5%,
due to growth in the serviced loan portfolio.
Revenues from incidental operations decreased to $881,000 during the 3
months ended May 31, 1997 from $1.1 million during the 3 months ended May 31,
1996, which was a decrease of 21%. The decrease was primarily due to a decline
in utility revenues.
As a result of the foregoing, total PEC revenues increased to $18.3 million
during the 3 months ended May 31, 1997 from $16.6 million during the 3 months
ended May 31, 1996, or 9.8%.
Total costs and expenses increased to $17.5 million during the 3 months
ended May 31, 1997 from $14.8 million during the 3 months ended May 31, 1996, an
increase of 18.1%. The increase resulted primarily from an increase in
commissions and selling expenses to $8.9 million from $7.6 million, an increase
of 17.1%; an increase in general and administrative costs to $3.9 million from
$3.3 million, an increase of 15.1%; an increase in interest expense of $282,000
to $1.8 million, or 18.8%, due to a higher level of borrowings; and an increase
in direct costs of timeshare interest sales to $1.4 million from $1 million, an
increase of 35.3%, resulting from increased timeshare interest sales. PEC's
commissions and selling expenses increased primarily as a result of increased
sales and costs relating to the establishment of new marketing programs during
fiscal 1997, and strategies designed to increase sales of timeshare interests,
market research costs, additional staffing, increased advertising costs, and
additional sales offices. The increase in general and administrative costs is
primarily due to increases in payroll related to hiring of additional
administrative personnel and owners' association costs related to a higher level
of unsold timeshare inventory. In June 1997, sales commenced at PEC's new
Orlando, Florida timeshare property and 1,122 new upscale timeshare interests in
Las Vegas are expected to be available for sale in July 1997.
As a percentage of gross sales of timeshare interests and land, commissions
and selling expenses relating thereto increased to 55.9% during the 3 months
ended May 31, 1997 from 52.6% during the 3 months ended May 31, 1996 and cost of
sales increased to 11% during the 3 months ended May 31, 1997 from 10% during
the 3 months ended May 31, 1996. Sales prices of timeshare interests are
typically lower than those of land, while selling costs per sale, other than
commissions, are approximately the same in amount for timeshare interests and
land; accordingly, PEC generally realizes lower profit margins from sales of
timeshare interests than from sales of land.
Depreciation expense increased to $469,000 during the 3 months ended May
31, 1997 from $349,000 during the 3 months ended May 31, 1996, an increase of
34.4%, resulting from additions made to property and equipment.
Interest expense increased to $1.8 million during the 3 months ended May
31, 1997 from $1.5 million during the 3 months ended May 31, 1996, an increase
of 18.8%. The increase is a result of an increased average outstanding balance
of notes payable at May 31, 1997 from May 31, 1996.
Income before income taxes decreased to $797,000 for the 3 months ended May
31, 1997 from $1.8 million for the 3 months ended May 31, 1996, therefore, the
provision for income tax expense also declined to $271,000 for the 3 months
ended May 31, 1997 from $627,000 for the 3 months ended May 31, 1996.
As a result of the foregoing, PEC's net income decreased to $526,000 for
the 3 months ended May 31, 1997 compared to $1.2 million for the 3 months ended
May 31, 1996.
COMPANY
Net income applicable to common stock increased $4.9 million to $5.1
million during the 3 months ended May 31, 1997 from $266,000 for the 3 months
ended May 31, 1996. The increase was due primarily to an increase of $3.5
million in MMC net income, a decrease in general and administrative expenses of
$2.1 million, of which $1.5 million related to audit and professional fees, a
decrease in interest expense to
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assignors of $888,000 and other decreases in expenses of Mego Financial (parent
only). These items were offset partially by a decrease of $691,000 in PEC net
income as a result of increased expenses related to the expansion of selling
operations. See prior discussion for MMC and PEC.
Total costs and expenses during the 3 months ended May 31, 1997 were $33.4
million, an increase of 52.9% over $21.9 million during the 3 months ended May
31, 1996. Commissions and selling expenses increased 17.1% to $8.9 million
during the 3 months ended May 31, 1997 compared to $7.6 million during the 3
months ended May 31, 1996 due primarily to the expansion of timeshare marketing
efforts by PEC and higher volumes of loan originations by MMC and sales by PEC.
General and administrative expenses increased 25.3% to $10.3 million during the
3 months ended May 31, 1997 compared to $8.3 million during the 3 months ended
May 31, 1996 primarily due to the expansion of the operating staff of MMC.
Provision for credit losses increased $6.8 million due to the increase in the
level of conventional loan originations by MMC compared to Title I Loan
originations as well as the overall increased volume of MMC's loan originations.
Additionally, Mego Financial (parent only) incurred interest expense on amounts
payable to assignors and continues to incur interest on subordinated debt. Total
general and administrative expenses for Mego Financial (parent only) were
primarily comprised of professional services, external financial reporting
expenses, and regulatory and other public company corporate expenses.
Provision for income taxes for the 3 months ended May 31, 1997 increased to
$535,000 compared to an income tax benefit of $230,000 for the 3 months ended
May 31, 1996. The increase was due to an increase in pre-tax income from $76,000
for the third quarter of 1996 to $6.5 million for the third quarter of 1997. See
Note 7 of Notes to Consolidated Financial Statements for additional information.
RESULTS OF OPERATIONS
Nine Months Ended May 31, 1997 compared to Nine Months Ended May 31, 1996
MMC
MMC originated $347.7 million of loans during the 9 months ended May 31,
1997 compared to $89.4 million of loans during the 9 months ended May 31, 1996,
an increase of 288.9%. The increase is a result of the overall growth in MMC's
business, including an increase in the number of active Correspondents and an
increase in the number of states served. At May 31, 1997, MMC had approximately
562 active Correspondents and 463 active Dealers, compared to approximately 254
active Correspondents and 445 active Dealers at May 31, 1996. Of the $347.7
million of loans originated during the 9 months ended May 31, 1997, $270.3
million were conventional loans and $77.4 million were Title I Loans compared to
$335,000 of conventional loans and $89.1 million of Title I Loans during the 9
months ended May 31, 1996.
Total revenues increased 161% to $45.4 million during the 9 months ended
May 31, 1997 from $17.4 million during the 9 months ended May 31, 1996. The
increase was primarily the result of the increased volume of loans originated
and the gain on sale of loans.
Gain on sale of loans and net unrealized gain on mortgage related
securities increased 200.3% to $41.4 million during the 9 months ended May 31,
1997 from $13.8 million during the 9 months ended May 31, 1996. The increase was
primarily due to increased loan sales of $326.6 million during the 9 months
ended May 31, 1997 compared to $88.1 million during the 9 months ended May 31,
1996.
Loan servicing income decreased 36.9% to $1.9 million during the 9 months
ended May 31, 1997 from $3 million during the 9 months ended May 31, 1996. The
decrease was primarily the result of increased amortization of mortgage
servicing rights, reclassification of net revenue in compliance with SFAS 125,
and increased interest advances and reduced servicing fees related to $27.1
million in delinquent serviced loans at May 31, 1997 compared to $12.9 million
at May 31, 1996.
Interest income on loans held for sale and mortgage related securities, net
of interest expense, increased 275.1% to $2 million during the 9 months ended
May 31, 1997 from $538,000 during the 9 months ended May 31, 1996. The increase
was primarily the result of the increase in the average size of the portfolio of
loans held for sale, and the increased mortgage related securities portfolio.
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The provision for credit losses increased to $12.6 million for the 9 months
ended May 31, 1997 from $815,000 for the 9 months ended May 31, 1996. The
increase in the provision was directly related to the increase in the volume of
loans originated and the increased ratio of conventional loans to Title I Loans
originated during the 9 months ended May 31, 1997 compared to the 9 months ended
May 31, 1996. The provision for credit losses is based upon periodic analysis of
the portfolio, economic conditions and trends, historical credit loss
experience, borrowers' ability to repay, collateral values, and estimated FHA
insurance recoveries on loans originated and sold. As MMC increased its
conventional loan originations as compared to Title I Loan originations, the
provision for credit losses as a percentage of loans originated increased due to
the greater risk of loss associated with conventional loans, which are not FHA
insured.
Total general and administrative expenses increased 88.6% to $15.7 million
during the 9 months ended May 31, 1997 compared to $8.4 million during the 9
months ended May 31, 1996. The increase was primarily a result of increased
payroll related to the hiring of additional underwriting, loan processing,
administrative, loan quality control and other personnel as a result of the
expansion of MMC's business and costs related to the opening of additional
offices.
Payroll and benefits expense increased 103.4% to $7.2 million during the 9
months ended May 31, 1997 from $3.6 million during the 9 months ended May 31,
1996 primarily due to an increased number of employees. The number of employees
increased to 332 at May 31, 1997 from 158 at May 31, 1996 due to increased staff
necessary to support the business expansion and improve quality control.
Commissions and selling expenses increased 22.4% to $1.9 million during the
9 months ended May 31, 1997 from $1.6 million during the 9 months ended May 31,
1996, while loan originations increased by $258.3 million or 288.9% to $347.7
million at May 31, 1997. The sales network expanded to substantially all states,
adding new personnel and offices to further the loan origination growth
strategy.
Professional services increased 63.3% to $387,000 during the 9 months ended
May 31, 1997 from $237,000 during the 9 months ended May 31, 1996 due primarily
to increased audit and legal fees attributable to continued growth.
Other general and administrative expenses increased 94.2% to $2.3 million
during the 9 months ended May 31, 1997 from $1.2 million during the 9 months
ended May 31, 1996 due primarily to increased expenses related to increased loan
sub-servicing fees and management services fees paid to PEC and the ongoing
expansion of facilities.
Income before income taxes increased to $16.4 million for the 9 months
ended May 31, 1997 from $7.5 million for the 9 months ended May 31, 1996,
therefore, the provision for income taxes increased to $6.2 million for the 9
months ended May 31, 1997 compared to $2.8 million for the 9 months ended May
31, 1996.
As a result of the foregoing, MMC's net income increased 118.6% to $10.1
million for the 9 months ended May 31, 1997 from $4.6 million for the 9 months
ended May 31, 1996.
PEC
Total revenues for PEC increased 7.4% or $3.4 million to $49.7 million
during the 9 months ended May 31, 1997 from $46.3 million during the 9 months
ended May 31, 1996 mostly due to an increase in the aggregate net timeshare and
land sales, gain on sale of notes receivable, financial income, and interest
income.
Timeshare interests and land sales, net, increased slightly to $36.1
million during the 9 months ended May 31, 1997 from $35.4 million during the 9
months ended May 31, 1996. Gross sales of timeshare interests increased to $29.3
million during the 9 months ended May 31, 1997 from $23.9 million during the 9
months ended May 31, 1996, an increase of 22.5%. Net sales of timeshare
interests increased to $23.6 million during the 9 months ended May 31, 1997 from
$20.2 million during the 9 months ended May 31, 1996, an increase of 17%. The
provision for cancellation represented 19.4% and 15.6% of gross sales of
timeshare interests during the 9 months ended May 31, 1997 and 1996,
respectively. The increase in the provision for cancellation was primarily due
to an increase in sales volume during the current 9 month period and the lower
provision
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required during the same period in 1996 due to a reduction of a provision for
one timeshare project. During the first quarter of fiscal 1997, the Aloha Bay
resort in Indian Shores, Florida was completed and 131 timeshare interests in
that resort were sold through May 31, 1997.
Gross sales of land decreased to $14.5 million during the 9 months ended
May 31, 1997 from $18.5 million during the 9 months ended May 31, 1996, a
decrease of 21.4%. Net sales of land decreased to $12.5 million during the 9
months ended May 31, 1997 from $15.2 million during the 9 months ended May 31,
1996, a decrease of 17.9%. The provision for cancellation represented 13.9% and
17.6% of gross land sales during the 9 months ended May 31, 1997 and May 31,
1996, respectively. The decrease in the provision for cancellation for land was
primarily due to a decreased volume of land sales. The decrease in gross sales
of land is the result of PEC shifting its emphasis as part of its strategic plan
from sales of land, to sales of timeshare interests due both to its diminishing
inventory of land available for sale and its increasing inventory of timeshare
interests from the opening of new timeshare resorts. The shift from land sales
to timeshare sales is due primarily to the reduction of PEC's current land
inventory which has not been fully replenished with additional land due
generally to the unavailability of suitable land at acceptable prices.
Gain on sale of notes receivable increased to $1.4 million during the 9
months ended May 31, 1997 from $529,000 during the 9 months ended May 31, 1996,
an increase of 163.3%. The increase is due to notes receivable sales of $19.9
million during the 9 months ended May 31, 1997 compared to notes receivable
sales of $7.3 million during the 9 months ended May 31, 1996.
PEC's interest income increased slightly to $5.3 million during the 9
months ended May 31, 1997 from $4.8 million during the 9 months ended May 31,
1996 primarily due to a relatively flat interest rate environment combined with
a slight increase in the average balance of notes receivable outstanding.
Financial income increased to $2.1 million during the 9 months ended May
31, 1997 from $1.2 million during the 9 months ended May 31, 1996, an increase
of 78.7%, due to an increase in the serviced notes receivable portfolio.
As a result of the foregoing, total PEC revenues increased to $49.7 million
during the 9 months ended May 31, 1997 from $46.3 million during the 9 months
ended May 31, 1996.
Total costs and expenses increased to $50.2 million during the 9 months
ended May 31, 1997 from $42.7 million during the 9 months ended May 31, 1996, an
increase of 17.7%. The increase for the fiscal 1997 period resulted primarily
from an increase in commissions and selling expenses to $25 million from $22.1
million, an increase of 12.7%; an increase in general and administrative costs
to $11.5 million from $9.5 million, an increase of 21.8%; and an increase in
interest expense to $5.3 million from $4 million, an increase of 30.6% compared
to the fiscal 1996 period. PEC's commissions and selling expenses increased
primarily as a result of increased sales and costs relating to the establishment
of new marketing programs and strategies designed to increase sales of timeshare
interests, market research costs, additional staffing, increased advertising
costs, and additional sales offices. The increase in general and administrative
costs is primarily due to increased payroll expenses related to the hiring of
additional administrative personnel and owners' association costs related to a
higher level of unsold timeshare inventory. In June 1997, sales commenced at
PEC's new Orlando, Florida timeshare property and 1,122 new upscale timeshare
interests in Las Vegas are expected to be available for sale in July 1997.
As a percentage of gross sales of timeshare interests and land, commissions
and selling expenses relating thereto increased to 57% during the 9 months ended
May 31, 1997 from 52.2% during the 9 months ended May 31, 1996 and cost of sales
increased to 11.4% during the 9 months ended May 31, 1997 from 10.2% during the
9 months ended May 31, 1996. Sales prices of timeshare interests are typically
lower than those of land while selling costs per sale, other than commissions,
are approximately the same in amount for timeshare interests and land;
accordingly, PEC generally realizes lower profit margins from sales of timeshare
interests than from sales of land.
Depreciation expense increased to $1.4 million during the 9 months ended
May 31, 1997 from $1.1 million during the 9 months ended May 31, 1996, an
increase of 33.5%. The increase is a result of the additions made to property
and equipment to support continued growth.
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Interest expense increased to $5.3 million during the 9 months ended May
31, 1997 from $4 million during the 9 months ended May 31, 1996, an increase of
30.6%. The increase is a result of an increased average outstanding balance of
notes payable at May 31, 1997 from May 31, 1996.
Income before income taxes decreased to a loss of $500,000 for the 9 months
ended May 31, 1997 from income of $3.6 million for the 9 months ended May 31,
1996, therefore, an income tax benefit of $170,000 was recorded for the 9 months
ended May 31, 1997, compared to an income tax provision expense of $1.2 million
for the 9 months ended May 31, 1996.
As a result of the foregoing, PEC's net loss amounted to $330,000 for the 9
months ended May 31, 1997 compared to net income of $2.4 million for the 9
months ended May 31, 1996.
Company
Net income applicable to common stock increased $5.7 million to $10.1
million during the 9 months ended May 31, 1997 from $4.4 million for the 9
months ended May 31, 1996 due primarily to an increase in MMC's income and a
decrease in the federal tax provision for Mego Financial (parent only). See
prior discussion for MMC and PEC and Note 7 of Notes to Consolidated Financial
Statements.
Total costs and expenses during the 9 months ended May 31, 1997 were $85.2
million, an increase of 48.4% over $57.4 million during the 9 months ended May
31, 1996. Commissions and selling expenses increased 12.7% to $25 million during
the 9 months ended May 31, 1997 from $22.1 million during the 9 months ended May
31, 1996 due primarily to the expansion of timeshare marketing efforts by PEC
and higher volumes of loan originations by MMC and sales by PEC. General and
administrative expenses increased 35.6% to $28.1 million during the 9 months
ended May 31, 1997, compared to $20.7 million during the 9 months ended May 31,
1996 primarily due to the expansion of the operating staff of MMC. Additionally,
Mego Financial (parent only) incurred interest expense on amounts payable to
assignors and continues to incur interest on subordinated debt. Total general
and administrative expenses for Mego Financial (parent only) were primarily
comprised of professional services, external financial reporting expenses,
regulatory and other public company corporate expenses.
Provision for income taxes for the 9 months ended May 31, 1997 was $1.2
million compared to $2.4 million for the 9 months ended May 31, 1996. The
decrease in provision is primarily due to the partial utilization of the NOL
carryforwards. See Note 7 of Notes to Consolidated Financial Statements for
additional information.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents for the Company was $8.4 million at May 31, 1997
compared to $3.2 million at August 31, 1996. The increase was primarily due to
proceeds received from the common stock and debt offerings of MMC in November
1996. The Company's principal cash requirements relate to loan originations, the
acquisition of timeshare properties and land, and the payment of commissions and
selling expenses in connection with timeshare and land sales. MMC and PEC each
require continued access to sources of debt financing and sales in the secondary
market of loans and receivables, respectively.
MMC -- Negative Cash Flow
MMC has operated since March 1994, and expects to continue to operate for
the foreseeable future on a negative operating cash flow basis as a result of
the substantial growth of its loan originations. During the 9 months ended May
31, 1997, MMC operated on a negative operating cash flow basis due primarily to
an increase in loans originated, using $63 million in operations that was funded
primarily from borrowings and the proceeds of its stock and debt public
offerings. In connection with whole loan sales with servicing retained and
securitizations, MMC recognizes a gain on sale of the loans upon the closing of
the transaction and the delivery of the loans, but does not receive the cash
representing such gain until it receives the excess servicing spread, which is
payable over the actual life of the loans sold. MMC incurs significant expenses
in connection with securitizations and incurs tax liabilities as a result of
gains on sale. MMC must maintain external sources
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of cash to fund its operations and pay taxes and therefore must maintain
warehouse lines of credit and other external funding sources. If the capital
sources of MMC were to decrease, the rate of growth of MMC would be negatively
affected. Management anticipates that in the future MMC may seek to raise funds
through public or private offerings of its debt or equity securities. However,
MMC has no present plans or intentions with respect to any such offerings.
In November 1996, MMC issued 2,300,000 shares of its common stock in an
underwritten public offering at $10.00 per share. As a result of this
transaction, the parent's ownership in MMC was reduced from 100% at August 31,
1996 to 81.3%. The parent continues to have voting control on all matters
submitted to stockholders of MMC, including the election of directors and
approval of extraordinary corporate transactions. Concurrently with the common
stock offering, MMC issued $40 million of 12.5% Senior Subordinated Notes due in
2001 in an underwritten public offering. MMC used approximately $13.9 million of
the aggregate net proceeds received from the offerings to repay amounts due to
Mego Financial (parent only) and PEC and approximately $21.5 million to reduce
the amounts outstanding under MMC's warehouse and revolving lines of credit.
Additionally, MMC repaid $3 million under a repurchase agreement.
The pooling and servicing agreements and sale and servicing agreements
relating to MMC's securitizations require MMC to build over-collateralization
levels through retention within each securitization trust of excess servicing
distributions and application thereof to reduce the principal balances of the
senior interests issued by the related trust or cover interest shortfalls. This
retention causes the aggregate principal amount of the loans in the related pool
to exceed the aggregate principal balance of the outstanding investor notes or
certificates. Such over-collateralization amounts serve as credit enhancement
for the related trust and therefore are available to absorb losses realized on
loans held by such trust. Higher over-collateralization levels are required on
conventional loans that are securitized as compared to Title I Loans.
MMC continues to be subject to the risks of default and foreclosure
following the sale of loans through securitizations to the extent excess
servicing distributions are required to be retained or applied to reduce
principal or cover interest shortfalls, if necessary. Such retained amounts are
predetermined by the entity insuring the related senior interests or the rating
agencies and are a condition to obtaining insurance and/or appropriate ratings
thereon. In addition, such retention delays cash distributions that otherwise
would flow to MMC through its retained interests, thereby adversely affecting
the flow of cash to MMC.
MMC's cash requirements arise from loan originations, payments of operating
and interest expenses and deposits to reserve accounts related to loan sale
transactions. Loan originations are initially funded principally through MMC's
new $40 million warehouse line of credit that was executed in June 1997, which
replaces a previous $20 million warehouse line of credit. See Note 8 of Notes to
Consolidated Financial Statements. At May 31, 1997, $19.9 million was
outstanding under the $20 million warehouse line that had been temporarily
increased to $30 million pending the final execution of the new $40 million
warehouse line of credit in June 1997. In excess of 95% of the aggregate loans
originated by MMC through May 31, 1997 had been sold. Net cash used in MMC's
operating activities was funded primarily from the reinvestment of proceeds from
the sale of loans in the secondary market totaling approximately $326.6 million
during the 9 months ended May 31, 1997. The loan sale transactions generally
required the subordination of certain cash flows payable to MMC to the payment
of scheduled principal and interest due to the loan purchasers. In connection
with certain of such sale transactions, a portion of amounts payable to MMC from
the excess interest spread is required to be maintained in a reserve account to
the extent of the subordination requirements. The subordination requirements
generally provide that the excess interest spread is payable to the reserve
account until a specified percentage of the principal balances of the sold loans
is accumulated therein. The excess interest required to be deposited and
maintained in the respective reserve accounts is not available to support the
cash flow requirements of MMC. At May 31, 1997, amounts on deposit in such
reserve accounts totaled $6.1 million.
Adequate credit facilities and other sources of funding, including the
ability of MMC to sell loans in the secondary market, are essential for the
continuation of MMC's loan origination operations. At May 31, 1997, $19.9
million was outstanding under the $30 million warehouse line of credit that was
in effect at that time and $10.1 million was available. The $30 million
warehouse line of credit bore interest at the prime rate plus 1%
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<PAGE> 27
per year and was secured by loans prior to sale. The agreement with the lender
required MMC to maintain a minimum tangible net worth of $12.5 million plus any
issuance of capital stock or other capital instruments since August 31, 1995,
plus 50% of MMC's cumulative net income after May 1, 1996, and a minimum level
of profitability of at least $500,000 per rolling 6 month period. At May 31,
1997, MMC's minimum tangible net worth requirement was $39.4 million and its
tangible net worth was $48.5 million.
The new $40 million warehouse line of credit, which became effective after
May 31, 1997, bears interest at the lower of the one-month London Interbank
Offered Rate (LIBOR) + 1.50% or the Federal Funds rate plus 0.25%, expires June
26, 1998, and is secured by loans prior to sale. The agreement requires MMC to
maintain adjusted minimum tangible net worth of $65 million plus 50% of MMC's
cumulative net income since November 30, 1996, plus all net proceeds received by
MMC through the sale or issuance of stock or additional subordinated notes. At
May 31, 1997, the adjusted minimum tangible net worth as defined in the
agreement was $82.9 million, and the required adjusted tangible net worth at May
31, 1997 would have been $68.8 million. Additionally, the following material
covenant restrictions exist: i) the ratio of total liabilities (not including
subordinated notes) divided by tangible net worth (including subordinated notes)
cannot exceed 3:1, and ii) total liabilities must be less than the aggregate of
100% of cash plus 93% of loans held for sale plus 55% of restricted cash and
mortgage related securities. At May 31, 1997, the ratio of total liabilities to
tangible net worth was 0.66:1 and total liabilities were $54.5 million, which
was $26.2 million under the maximum amount allowed. See Note 8 of Notes to
Consolidated Financial Statements.
In April 1997, MMC entered into a pledge and security agreement with
another financial institution for an $11 million revolving credit facility, with
respect to which $11 million was outstanding at May 31, 1997. The amount which
can be borrowed under the agreement was increased to $15 million in June 1997.
This facility is secured by a pledge of certain MMC interest only and residual
class certificates relating to securitizations carried as mortgage related
securities on MMC's Statements of Financial Condition, payable to MMC pursuant
to its securitization agreements. A portion of the loans under the credit line
agreement bears interest at one-month LIBOR +3.5%, expiring one year from the
initial advance, and requires MMC to maintain a minimum net worth requirement of
the greater of $35 million, or 80% of net worth, following fiscal year end 1997.
The portion of the credit line agreement applicable to a repurchase agreement
secured by insured interest only certificates is at one-month LIBOR +2.0%. At
May 31, 1997, the required net worth was $35 million and MMC's actual net worth
was $48.5 million. Additionally, the agreement requires MMC to maintain a
debt-to-net-worth ratio not to exceed 2.5:1. At May 31, 1997, the ratio was
0.39:1.
Certain material covenant restrictions exist in the indenture agreement
regarding the $40 million in subordinated notes of MMC dated November 19, 1996.
These covenants include limitations on MMC's ability to incur indebtedness,
grant liens on its assets and to enter into extraordinary corporate
transactions. MMC may not incur indebtedness if, on the date of such incurrence
and after giving thereto, the Consolidated Leverage Ratio would exceed 2:1,
subject to certain exceptions. At May 31, 1997, the Consolidated Leverage Ratio
was 1.25:1. The Consolidated Leverage Ratio is the ratio of (i) total debt,
including subordinated debt, but excluding the Permitted Warehouse Debt (as
defined below), accounts payable outstanding less than 60 days, and the tax
sharing payable to the parent from MMC to (ii) the consolidated net worth of
MMC. The Permitted Warehouse Debt generally is the outstanding amount under the
warehouse line of credit agreement. The Permitted Warehouse Debt cannot exceed 3
times MMC's consolidated tangible net worth. At May 31, 1997, this ratio was
0.46:1. In addition, an escalating amount of MMC's mortgage related securities
are required to remain unpledged. At May 31, 1997, that requirement was $28.8
million, and at that date $66.4 million of the mortgage related securities were
unpledged, resulting in $37.6 million of mortgage related securities available
for pledging.
While MMC believes that it will be able to maintain its existing credit
facilities and obtain replacement financing as its credit arrangements mature
and additional financing, if necessary, there can be no assurance that such
financing will be available on favorable terms, or at all. At May 31, 1997, no
commitments existed for material capital expenditures.
MMC also sells loans through whole loan sales. MMC has entered into
agreements with 3 financial institutions to which an aggregate of $556.4 million
in principal amount of loans had been sold at May 31,
25
<PAGE> 28
1997, for amounts ranging between 90% - 103% of the remaining principal
balances, plus accrued interest. Pursuant to the agreements, the purchasers are
entitled to receive interest at various rates. MMC retained the right to service
the loans and the right to receive the difference (excess interest) between the
sold loans' stated interest rate and the yield to the purchasers. Pursuant to
the agreements, MMC is required to maintain reserve accounts ranging from 1% of
the declining principal balance of the loans sold up to 100% of the principal
balance of conventional loans over 150 days past due, which are funded from the
excess interest received by MMC, less its servicing fee.
In the first quarter of fiscal 1997, MMC entered into an agreement with a
financial institution, providing for the purchase of up to $2 billion of loans
over a five-year period. Pursuant to the agreement, Mego Financial issued to the
financial institution a four-year warrant to purchase one million shares of Mego
Financial common stock at an exercise price of $7.125 per share. The agreement
also provides (i) that so long as the aggregate principal balance of loans
purchased by the financial institution and not resold to third parties exceeds
$100 million (temporarily increased to $150 million through August 31, 1997),
the financial institution shall not be obligated to purchase, and MMC shall not
be obligated to sell, loans under the agreement and (ii) that the percentage of
conventional loans owned by the financial institution at any one-time and
acquired pursuant to the agreement shall not exceed 65% of the total amount of
loans owned by the financial institution at such time and acquired pursuant to
the agreement which provision has been waived from time to time. The value of
the warrants of $3 million (0.15% of the commitment amount) as of the commitment
date, was charged to MMC and is being amortized as the commitment for the
purchase of loans is utilized. At May 31, 1997, $1.7 billion remained available
to be sold under the commitment. These warrants were recorded as additional
paid-in capital of Mego Financial.
During the 9 months ended May 31, 1997 and 1996, MMC used net cash of $63
million and $10.3 million, respectively, in operating activities. During the 9
months ended May 31, 1997 and 1996, MMC used net cash of $1.5 million and
$488,000, respectively, in investing activities, which was substantially
expended for office equipment and furnishings and data processing equipment.
During the 9 months ended May 31, 1997, MMC provided net cash of $68 million
from financing activities, primarily due to the issuance of subordinated debt
and common stock, compared to $10.9 million during the 9 months ended May 31,
1996.
PEC -- Liquidity
PEC's cash requirements arise from the acquisition of timeshare properties
and land, payments of operating expenses, payments of taxes to the parent,
payments of principal and interest on debt obligations, and payments of
commissions and selling expenses in connection with the sale of timeshare
interests and land. Commissions and selling expenses payable by PEC in
connection with sales of timeshare interests and land typically exceed the down
payments received at the time of sale, as a result of which PEC generates a cash
shortfall. This cash shortfall and PEC's other cash requirements are funded
primarily through sales of receivables, PEC's lines of credit in the aggregate
amount of up to $127.5 million and cash flows from operations. At May 31, 1997
no commitments existed for material capital expenditures.
At May 31, 1997, PEC had arrangements with 4 institutional lenders for the
financing of receivables in connection with sales of timeshare interests and
land and the acquisition of timeshare properties and land, which provide for 5
lines of credit of up to an aggregate of $127.5 million. Such lines of credit
are secured by timeshare and land receivables and mortgages. At May 31, 1997, an
aggregate of $62.4 million was outstanding under such lines of credit, and $65.1
million was available for borrowing. At August 31, 1996, $65.9 million had been
borrowed under these lines. Under the terms of these lines of credit, PEC may
borrow up to a range of 70% to 85% of the balances of the pledged timeshare and
land receivables. Summarized lines
26
<PAGE> 29
of credit information and accompanying notes relating to these five lines of
credit outstanding at May 31, 1997 consist of the following (thousands of
dollars):
<TABLE>
<CAPTION>
BORROWING
AMOUNT AT MAXIMUM
MAY 31, BORROWING REVOLVING MATURITY INTEREST
1997 AMOUNT EXPIRATION DATE(S) DATE RATE
- ---------- --------- ------------------- --------------- ----------------------
<S> <C> <C> <C> <C>
$44,866(a) $75,000 May 15, 2000 Various Prime +2.0% to 2.25%
4,115(b) 15,000 May 30, 1998 Various Prime +2.0%
6,365(c) 15,000 September 29, 1997 March 29, 1999 LIBOR +4.25%
3,404(c) 15,000 February 6, 1998 August 6, 1999 LIBOR +4.25%
3,602(d) 7,500 April 30, 1998 May 31, 2002 Prime +2.0%
</TABLE>
- ---------------
(a) Restrictions include PEC's requirement to maintain a tangible net worth of
at least $20 million up to $25 million. The maximum borrowing amount was
increased from $57 million to $75 million as of May 15, 1997. At May 31,
1997, $30.2 million was outstanding related to financings at prime +2.0%, of
which $23.5 million of loans secured by land receivables mature May 15, 2010
and $6.7 million of loans secured by timeshare receivables mature May 15,
2007. The outstanding borrowing amount includes $3.3 million in acquisition
and development (A&D) financing maturing May 20, 1998 and $6.1 million
maturing July 1, 2003 for the financing of corporate office buildings; both
loans are amortizing loans and bear interest at prime +2.25%. The remaining
outstanding receivables, A&D, and resort lobby loans outstanding of $5.3
million are at prime +2.0% and mature between January 31, 1998 and May 15,
2000.
(b) Restrictions include PEC's requirement to maintain a tangible net worth of
$25 million during the life of the loan. At May 31, 1997, $1.5 million was
outstanding under the A&D loan which matures in November 1997 and $2.6
million, maturing June 1, 2002 was outstanding under the receivables loan.
(c) Restrictions include PEC's requirement to maintain a tangible net worth of
$17 million during the life of the loan. These credit lines include
available financings for A&D and receivables, however only the A&D lines are
currently outstanding and bear interest at 90 day LIBOR + 4.25%. The
available receivable financings would be at 90 day LIBOR + 4% and have
maturity dates of June 2005 and August 2005.
(d) Restrictions include PEC's requirement to maintain tangible net worth of $15
million. This credit line is for the purpose of financing receivables.
(e) Revolving expiration dates represent the expiration of the revolving
features of the lines of credit, at which time the credit lines become loans
with fixed maturities.
Set forth below is a schedule of the cash shortfall arising from recognized
and unrecognized sales for PEC for the periods indicated (thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------- --------------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Commissions and selling expenses attributable to
recognized and unrecognized sales................ $ 8,643 $ 7,790 $ 25,055 $21,346
Less: Down payments................................ (3,606) (3,552) (10,348) (9,724)
------- ------- -------- -------
Cash shortfall..................................... $ 5,037 $ 4,238 $ 14,707 $11,622
======= ======= ======== =======
</TABLE>
During the 3 months ended May 31, 1997, PEC sold notes receivable of $10
million to a financial institution from which $8.5 million of the proceeds were
used to reduce debt. The receivables, which have an average interest rate of
12.5%, were sold to yield a return of 9% to the purchasers, with all excess
interest spread payable to PEC.
At May 31, 1997, PEC was contingently liable to replace or repurchase notes
receivable sold with recourse totaling $78.5 million. PEC sells notes receivable
subject to recourse provisions as contained in each agreement. PEC is obligated
under these agreements to replace or repurchase accounts that become over 90
days delinquent or otherwise subject to replacement or repurchase. The
repurchase provisions provide for
27
<PAGE> 30
substitution of receivables as recourse for $76.8 million of sold notes
receivable and cash payments for repurchase relating to $1.7 million of sold
notes receivable. At May 31, 1997, the undiscounted amount of the recourse
obligations on such notes receivable was $12 million. PEC periodically reviews
the adequacy of this liability. These reviews take into consideration changes in
the nature and level of the portfolio, current and future economic conditions
which may affect the obligors' ability to pay, collateral values and overall
portfolio quality.
During the 9 months ended May 31, 1997 and 1996, PEC provided net cash of
$4.4 million and used net cash of $14.7 million, respectively, in operating
activities. During the 9 months ended May 31, 1997 and 1996, PEC used net cash
of $439,000 and $5.6 million, respectively, in investing activities. During the
9 months ended May 31, 1997 and May 31, 1996, PEC used net cash of $4.5 million
and provided net cash of $20.3 million, respectively, from financing activities.
Company -- Liquidity
At January 31, 1995, when accrual of payments to assignors ceased, $13.3
million was payable to the assignors. On March 2, 1995, the assignors agreed to
defer payment of $10 million (subordinated debt) of the amounts due to them
pursuant to an amendment to the Assignment and Assumption Agreement providing
for the subordination of such amounts to payment of debt for money borrowed by
the Company or obligations of the Company's subsidiaries guaranteed by the
Company. In January 1997, the outstanding balance of payable to assignors of
$2.6 million (including interest of $45,000) was paid in full. Additionally,
effective March 1, 1997, the assignors received the first of 7 equal semiannual
payments of $1,429,000 plus interest related to the repayment of the
subordinated debt. These payments are collateralized by a pledge of PEC's
outstanding stock. Interest of $218,000 was paid during the first half of fiscal
1997 related to payable to assignors and interest on subordinated debt of
$500,000 was paid during the first half of fiscal 1997.
During the 9 months ended May 31, 1997 and 1996, the Company used cash of
$57.1 million and $23.5 million, respectively, in operating activities. During
the 9 months ended May 31, 1997 and 1996, the Company used cash of $6.7 million
and $4.5 million, respectively, in investing activities. During the 9 months
ended May 31, 1997 and 1996, the Company provided cash of $69 million and $26.6
million, respectively, from financing activities, which was substantially from
the MMC stock and debt offerings in November 1996.
The Company believes that its capital requirements will be met from cash
balances, internally generated cash, existing lines of credit, sales and
securitizations of loans, the modification, replacement or addition to its
credit lines, and new financings.
The components of the Company's debt, including lines of credit consist of
the following (thousands of dollars):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
------- ----------
<S> <C> <C>
Notes collateralized by receivables............................ $36,540 $ 41,568
Mortgages collateralized by real estate properties............. 27,964 31,078
Notes collateralized by excess servicing rights and mortgage
related securities........................................... 10,996 10,000
Installment contracts and other notes payable.................. 23,527 1,803
------- -------
Total.......................................................... $99,027 $ 84,449
======= =======
</TABLE>
FINANCIAL CONDITION
May 31, 1997 compared to August 31, 1996
Cash and cash equivalents increased 162.6% to $8.4 million at May 31, 1997
from $3.2 million at August 31, 1996, primarily as a result of increased loan
sales and borrowings by MMC.
Restricted cash deposits increased 18% to $7.9 million at May 31, 1997 from
$6.7 million at August 31, 1996, primarily due to an increase in the aggregate
amount of securitizations.
28
<PAGE> 31
Notes receivable, net, increased 42.4% to $64.4 million at May 31, 1997
from $45.2 million at August 31, 1996, primarily as a result of MMC loan
originations increasing and the timing of loan sales.
The Company provides allowances for credit losses and cancellations, in
amounts which, in the Company's judgment, will be adequate to absorb losses on
notes receivable and loans after FHA insurance recoveries on the loans, that may
become uncollectible. The Company's judgment in determining the adequacy of
these allowances is based on its continual review of its portfolio which
utilizes historical experience and current economic factors. These reviews take
into consideration changes in the nature and level of the portfolio, historical
rates, collateral values, and current and future economic conditions which may
affect the obligors' ability to pay, collateral values and overall portfolio
quality. Changes in the allowances for cancellations and credit losses and the
future estimated contingency for notes receivable sold with recourse for the
three and nine months ended May 31, 1997 consist of the following (thousands of
dollars):
<TABLE>
<S> <C>
Balance at February 28, 1997............................................... $21,430
Provisions for credit losses and cancellations........................... 9,819
Reductions of allowance due to loans sold without recourse or
securitized........................................................... (2,977)
Amounts charged to allowances for cancellations.......................... (2,876)
-------
Balance at May 31, 1997.................................................... $25,396
=======
Balance at August 31, 1996................................................. $20,939
Provisions for credit losses and cancellations........................... 20,292
Reductions of allowance due to loans sold without recourse or
securitized........................................................... (7,582)
Amounts charged to allowances for cancellations.......................... (8,253)
-------
Balance at May 31, 1997.................................................... $25,396
=======
</TABLE>
The allowances for credit losses and cancellations and the future estimated
contingency for notes receivable sold with recourse consist of the following at
these dates (thousands of dollars):
<TABLE>
<CAPTION>
MAY 31, 1997 AUGUST 31, 1996
------------ ---------------
<S> <C> <C>
Allowances for credit losses and cancellations,
excluding valuation discount......................... $ 9,791 $11,607
Future estimated contingency for notes receivable sold
with recourse........................................ 15,605 9,332
------- -------
Total............................................. $ 25,396 $20,939
======= =======
</TABLE>
Excess servicing rights decreased to $0 at May 31, 1997 from $14.3 million
at August 31, 1996 due to the implementation of SFAS 125, which requires the
reclassification of excess servicing rights as mortgage related securities which
are carried at fair market value. The excess cash flow created through
securitizations which had been recognized as excess servicing rights on loans
repurchased and securitized are included in the cost basis of the mortgage
related securities. Mortgage related securities were $94.3 million at May 31,
1997 and $22.9 million at August 31, 1996. The increase is due to the increased
value of loans originated and securitized and the reclassification of excess
servicing rights. See Note 5 of Notes to Consolidated Financial Statements.
Mortgage servicing rights increased 102.5% to $7.8 million at May 31, 1997
from $3.8 million at August 31, 1996 as a result of increased loan originations
with subsequent loan sales with servicing retained to $316.6 million during the
first 9 months of fiscal 1997 from $88.1 million during the first 9 months of
1996.
Property and equipment, net, increased 24.8% to $25.3 million at May 31,
1997 from $20.3 million at August 31, 1996 due to increased purchases of office
equipment related to facility expansion and building, water, and sewer
improvements.
Notes and contracts payable increased 17.3% to $99 million at May 31, 1997
from $84.4 million at August 31, 1996 due to the increased borrowings by MMC and
PEC to fund loans and receivables as a result of the overall growth in MMC's and
PEC's business.
29
<PAGE> 32
Accounts payable and accrued liabilities increased to $26.5 million at May
31, 1997 from $19.7 million at August 31, 1996 primarily as a result of the
increased amounts due to investors on sold loans and interest payable on
subordinated debt.
Future estimated contingency for notes receivable sold with recourse
increased 67.2% to $15.6 million at May 31, 1997 from $9.3 million at August 31,
1996. Loans sold with recourse which were reacquired and included in the 1996
securitizations decreased the amount needed for this allowance while increased
loan sales increased the allowance requirements. Recourse to Mego Financial on
sales of loans is limited to sales made by PEC and is governed by the agreements
between the purchasers and PEC. Mego Financial is a guarantor of PEC's recourse
obligations. Recourse on the whole loan sales made by MMC is limited to the
future excess spread MMC will receive and existing reserves. The allowance for
credit losses on loans sold with recourse represents the Company's estimate of
its probable future credit losses to be incurred over the lives of the loans
considering estimated future FHA insurance recoveries on Title I Loans. No
allowance for credit losses on loans sold with recourse is established on loans
sold through securitizations, as MMC has no recourse obligation, other than for
customary representations and warranties, under those securitization agreements.
Estimated credit losses on loans sold through securitizations are considered in
MMC's valuation of its residual interest securities.
Income taxes payable increased 51.9% to $16.7 million at May 31, 1997 from
$11 million at August 31, 1996 due to taxable income for the period and taxes on
the sale of MMC stock. See Note 4 of Notes to Consolidated Financial Statements
for further discussion. The Company generally records a loss for tax purposes in
the year of sale of timeshare interests and land sold on installments because it
recognizes costs and expenses (other than cost of sales for which only a portion
is recognized in the year of sale) at that time while recognizing associated
revenues only when received in subsequent years. As a result, the Company has
accumulated federal NOL carryforwards and has made less than a full provision at
the statutory rates for federal income taxes for the nine months ended May 31,
1997, due to partial utilization of these NOL carryforwards. No assurance can be
given that the Company has sufficient NOL carryforwards to fully offset its
income for the current fiscal year, that the Company will continue to generate
sufficient NOL carryforwards to offset future income or that future changes in
tax laws will not adversely affect the Company's tax position. See Note 7 of
Notes to Consolidated Financial Statements.
Stockholders' equity increased 83.4% to $47.4 million at May 31, 1997 from
$25.9 million at August 31, 1996 as a result of the sale of MMC stock, the
issuance of a warrant valued at $3 million for the purchase of 1 million shares
of Mego Financial common stock, the exercise of warrants to purchase 300,000
shares of Mego Financial common stock for an exercise price of $360,000, and net
income applicable to common stock of $10.1 million during the 9 months ended May
31, 1997. In February 1997, warrants outstanding to purchase 300,000 shares of
Mego Financial common stock at an exercise price of $1.20 per share were
exercised in full for $360,000 and 300,000 shares of Mego Financial common stock
were subsequently issued in March 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities," (SFAS 125)
which provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. As required by the
statement, the Company adopted the new requirements effective January 1, 1997
and applied them prospectively. No material impact resulted from the
implementation of SFAS 125. See Note 5 of Notes to Consolidated Financial
Statements.
The FASB issued SFAS No. 128, "Earnings per Share," (SFAS 128) in March
1997, effective for financial statements issued after December 15, 1997. The
statement provides simplified standards for the computation and presentation of
earnings per share (EPS), making EPS comparable to international standards. SFAS
128 requires dual presentation of "Basic" and "Diluted" EPS, by entities with
complex capital structures, replacing "Primary" and "Fully Diluted" EPS under
Accounting Principles Board Opinion No. 15. See Note 5 of Notes to Consolidated
Financial Statements for further discussion and SFAS 128 pro forma calculations.
30
<PAGE> 33
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123), which establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 is effective for
fiscal years beginning after December 15, 1995. The Company intends to provide
the pro forma and other additional disclosure about stock-based employee
compensation in its financial statements for the year ending August 31, 1997 as
required by SFAS 123.
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations and beliefs concerning future events, including the
sufficiency of the Company's cash flow for the Company's future liquidity and
capital resource needs. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, including, without
limitation, the following: decline in demand for home improvement and debt
consolidation loans; decline in demand for timeshare interests; increases in the
level of delinquencies on the Company's loans and receivables; the effect of
general economic conditions generally and specifically changes in interest
rates; the effect of competition; the Company's dependence on the ability to
sell its loans and receivables; and the regulation of the Company by federal,
state and local regulatory authorities. Actual events or results may differ as a
result of these and other factors.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 26, 1996, in the matter of "In re Mego Financial Corp.
Securities Litigation," Master File No. CV-9-95-01082-LDG (RLH) (the
"Litigation"), in the United States District Court for the District of Nevada
(the "Court"), which matter was described in the Company's Form 10-K for the
fiscal year ended August 31, 1996 (the "1996 10-K"), Michael Nadler ("Nadler")
filed a purported class action complaint against the Company, certain of the
Company's officers and directors, and the Company's independent auditors. On
February 13, 1997, defendants moved to dismiss Nadler's complaint. On March 13,
1997, Nadler filed a "Motion for the Filing of a Consolidated Complaint and a
Class Certification Motion, the Holding of a Pretrial Conference and the
Suspension of Briefing on Defendants' Motions to Dismiss." The Company opposed
that motion. On March 31, 1997, the Court issued an Order that, among other
things, denied, without prejudice to refiling after either the filing of a
consolidated complaint or a ruling on Nadler's motion for the filing of a
consolidated complaint, defendants' motions to dismiss Nadler's complaint. On
May 31, 1997, the Court issued an Order denying Nadler's "Motion to Compel
Compliance with Local Rule 26-6" against the Company and its officers and
directors, and granting that motion against other parties, who have moved for
reconsideration.
On May 12, 1997, counsel for the plaintiffs in the Dunleavy and Peyser
actions, which were described in the 1996 10-K, and counsel for the defendants
executed a Memorandum of Understanding with respect to a proposed settlement.
The proposed settlement, which is subject to a number of conditions, including
approval by the Court, calls for certification, for settlement purposes only, of
a class consisting of all purchasers of Mego Financial stock (excluding the
defendants and their respective directors, executive officers, partners and
affiliates and their respective immediate families, heirs, successors and
assigns) during the period from January 14, 1994 through November 9, 1995,
inclusive, and for creation of a settlement fund of $1.725 million. The portion
of this amount to be contributed by the Company, net of anticipated insurance
proceeds, is not expected to have a material, adverse effect on the Company. The
parties anticipate submitting papers to the Court in due course seeking approval
of the settlement. Final approval of the settlement is expected to dispose of
all class claims in the Litigation, including those asserted by Nadler. The
Company believes that it has substantial defenses to all of the complaints that
have been filed against it; however, the Company presently cannot predict the
outcome of this matter.
31
<PAGE> 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -------------------------------------------------------------------------
<S> <C>
10.113 Employment Agreement between Jerome C. Cohen and Mego Financial Corp.
dated September 1, 1996.
10.114 Purchase and Servicing Agreement between Preferred Equities Corporation
as Seller and BankBoston, N.A. as Purchaser dated May 30, 1997.
10.115 Second Amended and Restated and Consolidated Loan and Security Agreement
between Preferred Equities Corporation as Borrower and FINOVA Capital
Corporation as lender, dated May 15, 1997.
10.116 Form of Owners Association Agreement between Resort Condominiums
International, Inc. and Homeowners Associations with schedule listing the
associations.
10.117 Loan Purchase Agreement dated as of November 1, 1996 between Financial
Asset Securities Corp. and Mego Mortgage Corporation.
10.118 Pooling and Servicing Agreement dated as of November 1, 1996 among
Financial Asset Securities Corp., Mego Mortgage Corporation, Norwest Bank
Minnesota, N.A. and First Trust of New York, National Association.
10.119 Home Loan Purchase Agreement dated as of February 1, 1997 between
Financial Asset Securities Corp. and Mego Mortgage Corporation.
10.120 Sale and Servicing Agreement dated as of February 1, 1997 among Mego
Mortgage Home Loan Owner Trust 1997-1, Financial Asset Securities Corp.,
Mego Mortgage Corporation, Norwest Bank Minnesota, N.A. and First Trust
of New York, National Association.
10.121 Trust Agreement dated as of February 1, 1997 among Financial Asset
Securities Corp., Mego Mortgage Corporation, Wilmington Trust Company and
First Trust of New York, National Association.
10.122 Home Loan Purchase Agreement dated as of May 1, 1997 between Financial
Asset Securities Corp. and Mego Mortgage Corporation.
10.123 Sale and Servicing Agreement dated as of May 1, 1997 among Mego Mortgage
Home Loan Owner Trust 1997-2, Financial Asset Securities Corp., Mego
Mortgage Corporation, Norwest Bank Minnesota N.A. and First Trust of New
York, National Association.
10.124 Trust Agreement dated as of May 1, 1997 among Financial Asset Securities
Corp., Mego Mortgage Corporation, Wilmington Trust Company and First
Trust of New York, National Association.
10.125 Home Loan Purchase Agreement dated as of June 14, 1997 between Financial
Asset Securities Corp. and Mego Mortgage Corporation.
10.126 Sale and Servicing Agreement dated as of June 14, 1997 among Mego
Mortgage Home Loan Owner Trust 1997-3, Financial Asset Securities Corp.,
Mego Mortgage Corporation, Norwest Bank Minnesota N.A. and First Trust of
New York, National Association.
10.127 Trust Agreement dated as of June 14, 1997 among Financial Asset
Securities Corp., Mego Mortgage Corporation, Wilmington Trust Company and
First Bank National Association.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
No reports on Form 8-K were filed during the period.
32
<PAGE> 35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGO FINANCIAL CORP.
By: /s/ CHARLES G. BALTUSKONIS
------------------------------------
Charles G. Baltuskonis
Vice President and Chief Accounting
Officer
Date: July 14, 1997
33
<PAGE> 1
Exhibit 10.113
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of September, 1996, by and between
MEGO FINANCIAL CORP., a New York corporation (herein called "Company"), and
JEROME J. COHEN (herein called "Employee").
BACKGROUND OF AGREEMENT
The Company and the Employee mutually desire to agree upon the terms of
the Employee's future employment with Company and are entering into this
Agreement to set forth all of such terms and agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, and in consideration of the mutual covenants herein contained, agree as
follows:
1. EMPLOYMENT
The Company hereby employs the Employee, and the Employee
hereby accepts employment upon the terms and conditions set forth herein.
2. DUTIES
The Employee shall be an executive officer of the Company, and
his duties and powers in such capacity shall be such as may be determined by
the Board of Directors of the Company; provided that until action by the said
Board of Directors, the powers and duties shall be those of President of the
Company and its subsidiaries, and such powers and duties shall only be
determined so that they are at all times consistent with those of an executive
officer. During the term of this Agreement, the Employee shall also serve,
without additional compensation, as a Director or Officer of the Company or any
of its subsidiaries.
3. EXTENT OF SERVICES
Employee agrees to devote as much time to the Company's
business as necessary to fulfill his fiduciary responsibility. During the term
of this Agreement, Employee agrees not to be engaged in the operation of any
other business requiring any substantial amount of his
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business time, and except for such time as may be approved in connection with
the affairs of such other companies as are approved by the Board of Directors
of the Company. However, this provision shall not be deemed to prevent the
Employee from investing and managing his assets in such form or manner as will
not unreasonably interfere with the services to be rendered by Employee
hereunder, or to prevent him from acting as a director, trustee, officer of; or
upon a committee of, any other firm, trust or corporation where such positions
do not unreasonably interfere with the services to be rendered by the Employee
hereunder.
4. COMPENSATION
4.1 As compensation for all services rendered by Employee to
Company and its subsidiaries during the term hereof, Company agrees to pay and
Employee agrees to accept the Basic Salary (as hereinafter defined) set forth
in Section 4.2 hereof and the Incentive Bonus (as hereinafter defined) set
forth in Section 4.3 hereof. However, neither the provisions for the Basic
Salary or the Incentive Bonus nor any other provision of this Agreement shall
be deemed to preclude Employee from being eligible to receive, or to
participate in or to continue to participate in, any supplemental employee
benefits which the Board of Directors of the Company may, from time to time,
generally make available to, or provide for, executive and management employees
of the Company or of any one or more of its subsidiaries, including such
benefit plans as are now in force.
4.2 The Basic Salary (herein called "Basic Salary") for the
term of this Agreement shall be $300,000 per annum payable in agreed monthly
installments or otherwise as mutually agreed. Notwithstanding the foregoing,
the Employee's Basic Salary may be reduced in accordance with the provisions of
Section 6 below.
4.3 For each fiscal year of the Company, commencing with
fiscal 1997 and ending with fiscal 2001, the Employee shall receive, in
addition to the Basic Salary as hereinabove defined, a sum of money (herein
called the "Incentive Bonus") in an amount equal to two and one-half percent
(2-1/2%) of the Incentive Income of the Company as defined in, and calculated
pursuant to, the Executive Incentive Compensation Plan of the Company adopted
by the Company's Board of
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Directors on June 22, 1994, a copy of which is attached hereto as Exhibit "A".
Such amount shall be due and payable whether or not the Company's Executive
Incentive Compensation Plan shall be in effect for such fiscal year, and shall
be paid no later than ninety days after the amount of Incentive Income can be
calculated. Notwithstanding the foregoing, the Employee's Incentive Bonus may
be reduced or eliminated in accordance with the provisions of Section 6 below.
5. TERM
The term of this Agreement shall commence on September 1, 1996,
and shall continue until January 31, 2002.
6. DISABILITY
In the event that, while this Agreement is in force, Employee
shall become disabled for any reason whatsoever so as to prevent him from
performing his duties hereunder, and such disability shall continue for any
consecutive period of six months or more, Company shall pay and Employee shall
accept, from and after the end of such six-month period, (the "Disability
Date") for the balance of the remaining term of this Agreement, an annual
income benefit equal to one-half of the Basic Salary which was being received
hereunder by Employee at the commencement of such six-month period. During
such six-month period, Employee shall be entitled to compensation payable
pursuant to Section 4 hereof. In addition, for the fiscal year in which the
Disability Date may occur, the Incentive Bonus due and payable to the Employee
shall be reduced to an amount calculated by multiplying the amount of the
Incentive Bonus which would otherwise be due and payable to the Employee had he
not become disabled, by a fraction, the numerator of which is the number of
days from the commencement of the fiscal year through the Disability Date and
the denominator of which is 365. The Employee shall not be entitled to any
Incentive Bonus for a fiscal year commencing after the Disability Date.
7. EXPENSES
The parties recognize that in the course of performing his
duties hereunder, Employee will necessarily incur expenses in connection with
his duties. Company agrees to reimburse Employee upon
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presentation of vouchers for reasonable expenses incurred by Employee in
performance of his duties hereunder. Moreover, while this Agreement shall be
in force, Company shall provide Employee with appropriate offices, in Las
Vegas, Nevada, secretarial help, administrative staff and automobile and other
transportation facilities in Las Vegas.
8. VACATION
For and during each year of employment, Employee shall be
entitled to reasonable vacation periods consistent with his position with the
Company.
9. MEDICAL EXPENSES
In addition to any other benefits which may be due to Employee,
Company shall, to the extent that any medical insurance program established by
Company, the premiums for which are to be paid by the Company, shall be
insufficient to meet any medical expenses of Employee incurred from and after
September 1, 1996, and prior to January 31, 2002, expend and pay over or
reimburse to Employee the full amount by which such medical expenses shall
exceed the benefits provided by such insurance.
10. SITUS
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
11. ENTIRE AGREEMENT
This Agreement constitutes the full and complete understanding
and agreement of the parties and, effective September 1, 1996, supersedes all
prior understandings and agreements between Employee and the Company or any of
its subsidiaries concerning the subject matter of this Agreement, and may not
be modified or amended orally, but only by an agreement in writing, signed by
the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
12. BINDING EFFECT
This Agreement and all of the terms hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
successors, administrators and assigns.
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13. SEVERABILITY
In the event that is shall be determined, to the mutual
satisfaction of the parties hereto, or by a final order of a court of competent
jurisdiction, that any term or provision herein set forth is prohibited by, or
is unlawful or unenforceable under any applicable law of any jurisdiction, such
provision shall, as to jurisdiction, be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ATTEST: MEGO FINANCIAL CORP.
/s/ DON A MAYERSON /s/ ROBERT NEDERLANDER
- ------------------------------ ------------------------------
Don A. Mayerson Robert Nederlander
Secretary Chairman of the Board and
Chief Executive Officer
/s/ JEROME J. COHEN
------------------------------
Jerome J. Cohen
Employee
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EXHIBIT 10.114
PURCHASE AND SERVICING AGREEMENT
This Purchase and Servicing Agreement, dated as of May 30, 1997, is
between Preferred Equities Corporation, a Nevada corporation having an address
of and office at 4310 Paradise Road, Las Vegas, Nevada 89109-6597 (hereafter
referred to as "Seller") and BankBoston, N.A., a national banking association
having an address of and office at 100 Federal Street, Boston, Massachusetts
02110 ATTN: Real Estate Department-Amy Weinstock and also having an office at
115 Perimeter Center Place N.E., Suite 500, Atlanta, Georgia 30346 ATTN: John
Pearson (hereafter referred to as "Purchaser").
WITNESSETH:
Whereas, Seller is the owner of the Receivables (as defined in Section
1.01 below) created by the sale of building lots in the Subdivision Project (as
defined in Section 1.01 below) and by the sale of timeshare interests under
deeds, Agreements for Deed (as defined in Section 1.01 below) and Right to Use
Agreements (as defined in Section 1.01 below) in the Timeshare Project (as
defined in Section 1.01 below); and
Whereas, on the Initial Closing Date, Seller desires to sell, transfer,
assign and convey to Purchaser the Receivables set forth on Schedule A hereto
and on the Subsequent Closing Date Seller desires to sell, transfer, assign and
convey to Purchaser additional Receivables to be identified after the Initial
Closing Date; and
Whereas, Purchaser desires to purchase from Seller on the Initial
Closing Date and on the Subsequent Closing Date, the Receivables, on the terms
and conditions set forth in this Agreement; and
Whereas, Seller has agreed in connection with and in partial
consideration for the purchase by Purchaser of the Receivables to continue to
service the Receivables; and
Whereas, Purchaser has requested that Seller continue to service the
Receivables on the terms and conditions set forth in this Agreement.
Now therefore, in consideration of the premises and mutual agreements
herein contained, Seller and Purchaser agree as follows:
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ARTICLE I.
Definitions
Section 1.01 Definitions. Whenever in this Agreement the following
words and phrases are used, unless the context otherwise requires, such words
and phrases shall have the meaning ascribed to them as set forth below:
"Accrued Interest" on a Receivable means that amount of interest
accrued on the Principal Balance of such Receivable but not paid by or on behalf
of the Obligor as of such date.
"Affiliate" when used with respect to any person or entity, shall mean
any other person or entity which, directly or indirectly, controls or is
controlled by or is under common control with such person. For purposes of this
definition "control" including the correlative meanings of the terms "controlled
by" and "under common control with", with respect to any person, shall mean
possession, directly or indirectly of the power to direct or cause the direction
of the management and policies of such person, whether through the ownership of
voting securities or by contract or otherwise.
"Agency Agreement" shall mean that certain Agency Agreement dated as of
May 30, 1997 among Seller, Purchaser and Custodian as the same may be amended or
modified from time to time, and any agreement entered into in replacement
therefor.
"Agent" means Bank of America, NT & SA, a banking corporation or its
successors or assigns which shall act as Agent for Purchaser under the Agency
Agreement.
"Agreement" means this Purchase and Servicing Agreement, as amended or
modified from time to time.
"Agreement for Deed" means a written agreement for the purchase and
sale of a timeshare interest in the Timeshare Project, under which Seller is the
vendor thereunder, providing for delivery of a deed to the vendee thereunder to
the related Financed Property upon payment and performance of the Obligor's
obligations as vendee thereunder.
"Amount Financed" in respect of a Receivable means the original amount
advanced under the Receivable toward the purchase price of the Financed Property
and related costs.
"Annual Percentage Rate" of a Receivable means the annual rate of
interest stated in the Receivable for purposes of the Federal Truth In Lending
disclosure stated therein, which may differ from the contract rate stated
therein.
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"Business Day" means a day other than a Saturday, Sunday or other day
on which Purchaser is not open for transaction of substantially all of its
banking functions or a day other than when banks in Las Vegas, Nevada are
authorized or required by law or regulation to close.
"Closing Date" means the Initial Closing Date and/or the Subsequent
Closing Date as applicable to the context in which the term is used.
"Collected Interest" means the portion of all payments received (from
whatever source including all late fees and other administrative fees or
payments received on any Receivable) during a Collection Period from Receivables
that is allocable to interest pursuant to the terms of such Receivable.
"Collected Principal" means the portion of all payments received (from
whatever source) during a Collection Period on a Receivable that is allocable to
principal pursuant to the terms of such Receivable.
"Collection Period" means each calendar month until this Agreement
shall terminate pursuant to Article VIII.
"Consolidated" or "consolidated" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for two or more persons
or entities of the amounts signified by such term for all such persons or
entities determined on a consolidated basis in accordance with generally
acceptable accounting principles.
"Credit and Collection Policies" shall mean the credit and collection
policies of Seller set forth on Schedule B hereto.
"Custodian" shall mean Bank of New York or its successors or assigns,
which shall act as custodian and bailee for Purchaser under the Custodial
Agreement.
"Custodial Agreement" means the Custodial Agreement dated May 30, 1997
among Seller, Purchaser and Custodian as the same may be amended or modified
from time to time and any agreement entered into in replacement therefor.
"Custodian Receivable File" means the documents specified in
Section 2.06(a).
"Cutoff Date" means, for the Initial Closing Date, April 30, 1997 and
for the Subsequent Closing Date the close of business on a date specified as the
Cutoff Date by Seller and agreed to by Purchaser with respect to the purchase by
Purchaser from Seller of a Pool.
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"Deed of Trust Agreement" means a written agreement for the purchase
and sale of Financed Property in the Timeshare Project or the Subdivision
Project under which Seller conveys title thereto to the Obligor with the unpaid
purchase price therefor evidenced by a promissory note and secured by a deed of
trust or mortgage on the related Financed Property in favor of Seller.
"Defaulted Receivable" means a Receivable (a) as to which Seller has
knowledge that a bankruptcy or insolvency of any Obligor under the Receivable
has occurred or that eventual payment in full is unlikely, or (b) in respect of
which any principal or interest due thereunder is 90 days or more overdue as
determined in accordance with the Credit and Collection Polices, or (c) in
respect of which payments have been rescheduled or extended or other terms have
been modified or waived within the one-year period preceding the Cutoff Date
with respect to such Receivable, or (d) in respect of which Seller shall have
taken any steps to realize upon such Receivable pursuant to Section 3.03, or (e)
in respect of which any action is taken to enforce or perfect any other Lien on
the related Financed Property including those arising from applicable Taxes or
assessments, or (f) at the option of Purchaser, any event of default by the
Obligor under the Receivable, which event is known to Seller (other than a
default under (b) above) has occurred and remains uncured for more than fourteen
(14) months, including any failure to pay applicable Taxes or assessments
(whether or not expressly required under the terms of the Receivable), or (g) as
to which the Obligor has exercised any right to exchange the Financed Property
for other property or is otherwise released from Obligor's obligations under any
Receivable by Seller, including any Receivable in respect of which an upgrading
or downgrading contract is entered into as contemplated by Section 3.06(a) or
(h) for which a Custodian Receivable File has been delivered to Custodian and
there shall be missing items in such file as shall be identified on an exception
list as is more particularly set forth in Section 1.2 of the Custodial
Agreement, which items shall not have been furnished within thirty (30) days
after delivery of such Custodian Receivable File unless Purchaser shall have
waived the furnishing of such items or consented to the Receivable not being
designated as a Defaulted Receivable; and which, in the case of each of clauses
(a) through (h), shall not have been repurchased from Purchaser by or on behalf
of Seller or replaced pursuant to Section 4.02.
"Distribution Date" means the third Business Day after the
Report Date for each Collection Period.
"Event of Transfer" means any event or condition specified
in Section 7.01.
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"Financed Property" means, in respect of a Receivable, the land in the
case of a Land Receivable, or the timeshare interest or right to use interest in
the case of a Timeshare Receivable, together with all hereditaments and
appurtenances thereto, securing (or as to which title is retained to secure) an
Obligor's indebtedness under such Receivable.
"Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles applied on a consistent basis.
"Guarantor" shall mean Mego Financial Corp., a New York corporation,
which owns all of the issued and outstanding capital stock of Seller.
"Guaranty Agreement" means that certain Guaranty Agreement, dated as of
May 30, 1997, by Guarantor in favor of Purchaser, as the same may be amended or
modified from time to time.
"Initial Closing Date" means May 30, 1997.
"Land Receivable" means a Receivable arising from the sale of land in
the Subdivision Project by the Seller.
"Lien" means a security interest, lien, title retention arrangement,
charge, pledge, preference or encumbrance of any kind, including tax liens,
mechanics' liens and any liens that attach by operation of law.
"Minimum Reserve Account Amount" means as of the Cutoff Date and on
each subsequent Record Date an amount equal to 5% of the Pool on each such date.
"Obligor" means the purchaser or the co-purchasers of the Financed
Property purchased in part or in whole by the execution and delivery of such
Receivable, or any other Person who owes or may be liable for payments under
such Receivable.
"Opinion of Counsel" means a written opinion of independent
counsel acceptable to the Purchaser.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof, or any other entity of whatever nature.
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"Pool" means the aggregate outstanding Principal Balance of the
Receivables purchased by Purchaser on the Initial Closing Date and the aggregate
outstanding Principal Balance of the Receivables purchased by Purchaser on the
Subsequent Closing Date and thereafter the aggregate outstanding Principal
Balance of the Receivables purchased by Purchaser on each of the Closing Dates
less the Principal Balance of Defaulted Receivables plus the Principal Balance
of Replacement Receivables calculated separately for each such Pool purchased.
"Principal Balance" of a Receivable, as of any date means the Amount
Financed minus that portion of all payments received prior to such date
allocable to principal of such Receivable.
"Purchaser" means BankBoston, N.A., a national banking association and
its successors and assigns (but such term shall not include any Person
repurchasing Receivables pursuant to the terms of this Agreement).
"Receivable" means an installment contract (which shall be either a
Deed of Trust Agreement or an Agreement for Deed or a Right to Use Agreement)
entered into between Seller and an Obligor in respect of Financed Property which
installment contract is purchased by Purchaser from Seller or is collaterally
assigned by Seller to Purchaser to constitute all or a portion of the Reserve
Account, pursuant to this Agreement, and includes all promissory notes,
mortgages, deeds of trust, land contracts, agreements for deed and other
property, right, title and interest conveyed pursuant to Section 2.01. A
Receivable repurchased by or on behalf of Seller or replaced pursuant to Section
4.02, shall be removed and shall not thereafter be deemed a Receivable for
purposes of this Agreement. Each Replacement Receivable assigned by Seller
pursuant to Section 4.02 shall be included in the Pool and thereafter be deemed
a Receivable for all purposes of this Agreement.
"Receivable Files" means the documents specified in Section
2.06(a) and (b).
"Record Date" means the last day of a Collection Period.
"Replacement Receivable" means a Receivable assigned to Purchaser by
Seller pursuant to Section 4.02 in replacement of a Defaulted Receivable.
"Replacement Request" means each request by Seller that
Purchaser accept Replacement Receivables pursuant to Section
4.02.
"Report Date" means for each Collection Period the fifteenth calendar
day of the month following each Collection Period.
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"Repurchase Amount" of any Receivable means, as of a Record Date, the
Principal Balance thereof.
"Reserve Account" means the account established pursuant to Section
5.01.
"Reserve Account Balance" shall mean the balance of the Reserve Account
at any time.
"Right To Use Agreement" means a written agreement wherein installment
payments are due by the Obligor thereunder for the right to use a specified
accommodation or type of accommodation for a stated period of time on either a
fixed period or floating, discretionary period basis at the Timeshare Project
under which the Seller is the grantor.
"Servicer Receivable File" means the documents specified in
Section 2.06(b).
"Subdivision Project" means the Calvada Valley Subdivision, the Calvada
North Subdivision, the Calvada Meadows Subdivision, the Country View Estates
Subdivision, the Golden Spring Ranch Subdivision (Units No. 1-8 inclusive), the
Vegas Acres Subdivision (Unit No.2), the Calvada 9B Subdivision, and the Country
Place II Subdivision projects located in Nye County, Nevada, which comprise a
part of the Calvada subdivisions, for which Seller has acted as the seller of
lots therein.
"Subsequent Closing Date" means any date up to and including October
24, 1997 as is agreed to be the Subsequent Closing Date by Purchaser and Seller,
upon which date Purchaser acquires title to a Pool of Receivables.
"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other subsidiaries of such
person or by any combination thereof, provided, however, that for purposes of
this Agreement no New York corporations which, on the date of this Agreement,
would otherwise constitute Subsidiaries, shall be deemed Subsidiaries.
"Tangible Net Worth" of any person or entity shall mean, as of any
date, (a) the amount of any capital stock, paid in capital and similar equity
accounts plus (or minus in the case of a deficit) the capital surplus and
retained earnings of such person
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or entity and the amount of any foreign currency translation adjustment account
shown as a capital account of such person or entity, less (b) the net book value
of all items of the following character which are included in the assets of such
person or entity: (i) good will, including without limitation, the excess of
cost over book value of any asset, (ii) organization or experimental expenses,
(iii) unamortized debt discount and expense, (iv) patents, trademarks, trade
names and copyrights, (v) treasury stock, (vi) deferred taxes and deferred
charges, (vii) franchises, licenses and permits, and (viii) other assets which
are deemed intangible assets under generally accepting accounting principles,
provided, however, that, notwithstanding the foregoing, no deduction shall be
made pursuant to clause (b) in respect of any asset presently shown on the
balance sheet of the Seller as "Deferred Selling Expense" as determined in
accordance with generally accepted accounting principles.
"Taxes" mean real property taxes and assessments, and other similar
fees and taxes relating to a Financed Property.
"Timeshare Project" means the White Sands Waikiki Resort Club located
in the metropolitan area of Honolulu, Hawaii which has been dedicated to
timeshare ownership by Seller pursuant to White Sands Waikiki Resort Club Notice
of Timeshare Plan filed in the Office of Assistant Registrar of the Land Court
of the State of Hawaii as Document No. 1205652, and the Reno Spa Resort Club
located in the metropolitan area of Reno, Nevada which has been dedicated to
timeshare ownership by Seller pursuant to Declaration of Timeshare Ownership
Covenants, Conditions and Restrictions recorded in the Official Records of
Washoe County, Nevada on April 18, 1984 in Book 2002 at Page 0651 as Document
No. 919447, and the Brigantine Villas located in the metropolitan area of
Atlantic City, New Jersey which has been dedicated to timeshare ownership by
Seller pursuant to Declaration of Conditions, Covenants and Restrictions
recorded in the Office of the Clerk of Atlantic County in Book 4731 of Deeds at
Page 134, and the Brigantine Inn Resort Club located in the metropolitan area of
Atlantic City, New Jersey which has been dedicated to timeshare ownership by
Seller pursuant to Declaration of Conditions, Covenants and Restrictions
recorded in the Office of the Clerk of Atlantic County in Book 4057 of Deeds at
Page 1, and the Grand Flamingo Villas resort located in the metropolitan area of
Las Vegas, Nevada which has been dedicated to timeshare ownership by Seller
pursuant to Declaration of Timeshare Ownership Covenants, Conditions and
Restrictions recorded in the Official Records of Clark County, Nevada on
November 10, 1983 in Book 1832 as Document No. 1791580, and the Grand Flamingo
Towers resort located in the metropolitan area of Las Vegas, Nevada which has
been dedicated to timeshare ownership by Seller pursuant to Declarations of
Timeshare Ownership Covenants, Conditions and Restrictions recorded in the
Official Records of Clark County, Nevada on August 23, 1984 in Book 1978 as
Document
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No. 1937487, and the Grand Flamingo Terraces resort located in the metropolitan
area of Las Vegas, Nevada which has been dedicated to timeshare ownership by
Seller pursuant to Declaration of Timeshare Plan Ownership Covenants, Conditions
and Restrictions recorded in the Official Records of Clark County, Nevada on
December 12, 1989 in Book 891212 as Document No. 00188, and the Grand Flamingo
Suites resort located in the metropolitan area of Las Vegas, Nevada which has
been dedicated to timeshare ownership by Seller pursuant to Declaration of
Timeshare Ownership Covenants, Conditions and Restrictions recorded in the
Official Records of Clark County, Nevada on November 8, 1991 in Book 911108 as
Document No. 00235, and the Grand Flamingo Winnick resort located in the
metropolitan area of Las Vegas, Nevada which has been dedicated to timeshare
ownership by Seller pursuant to Declaration of Timeshare Ownership Covenants,
Conditions and Restrictions recorded in the Official Records of Clark County,
Nevada on March 19, 1993 in Book 930319 as Document No. 00051, and the Grand
Flamingo Fountains resort located in the metropolitan area of Las Vegas, Nevada
which has been dedicated to timeshare ownership by Seller pursuant to
Declaration of Timeshare Ownership recorded in the Official Records of Clark
County, Nevada on May 26, 1983 in Book 930526 as Document No. 00566 and the
Aloha Bay, A Condominium-Indian Shores resort located in Indian Shores, Florida
which has been dedicated to timeshare ownership by Seller pursuant to a
Declaration of condominium for Aloha Bay, A Condominium recorded in the Official
Records Book of Pinellas County Florida as Instrument #96-266636 in Book 9477 at
Page 1645 and the Suites at Steamboat resort located in Steamboat Springs,
Colorado which has been dedicated to timeshare ownership by Steamboat Suites,
Inc., a subsidiary of Seller pursuant to an Amended and Restated Condominium
Declaration with Timeshare Ownership Covenants, Conditions and Restrictions for
The Suites at Steamboat, a Condominium recorded in the official records of Routt
County as Instrument #446385 on March 22, 1995 in Book 706 at page 337.
"Timeshare Receivable" means a Receivable arising from the sale of a
timeshare interest by Seller, whether in fee or by a Right to Use Agreement in
the Timeshare Project.
"Trust Agreements" shall mean (a) that certain Amended, Restated and
Consolidated Trust Agreement-Grand Flamingo Towers, dated as of March 19, 1990,
among Valley Bank of Nevada (now known as Bank of America NT & SA), as trustee,
Vacation Spa Resorts, a Tennessee corporation, whose existence ceased upon
merger into Seller on March 11, 1993 and the Grand Flamingo Owners Association,
(b) that certain Amended, Restated and Consolidated Trust Agreement-Grand
Flamingo Villas, dated as of March 19, 1990, among Valley Bank of Nevada (now
known as Bank of America NT & SA), as trustee, Vacation Spa Resorts, a Tennessee
corporation, whose existence ceased upon merger into Seller on March 11, 1993
and the Grand Flamingo Villas Owners Association,
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(c) that certain Trust Agreement-Grand Flamingo Terraces, dated as of December
8, 1989, among Valley Bank of Nevada (now known as Bank of America NT & SA), as
trustee, Seller and Grand Flamingo Terraces Owners Association and (d) that
certain Trust Agreement dated November 13, 1991 between Valley Bank of Nevada
(now known as Bank of America NT & SA) and Seller with reference to the property
known as the Grand Flamingo Suites.
"Trustee" shall mean Bank of America NT & SA, a Nevada banking
corporation, in its capacity as trustee under the Trust Agreements, and any
successor to any of its rights and duties under the Trust Agreements.
"UCC" means the Uniform Commercial Code as in effect in a
respective jurisdiction.
SECTION 1.02 Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other gender; references to a writing include
printing, typing, lithography, and other means of reproducing words in a visible
form; references to agreements and other contractual instruments include all
subsequent amendments thereto or changes therein entered into in accordance with
their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the term "including"
means "including without limitation".
SECTION 1.03 Simple Interest Method. All allocations of payments to
principal and interest and determinations of periodic charges and the like shall
be made using the simple interest method, based on the actual number of days
elapsed and the actual number of days in the calendar year. Each payment on a
Receivable shall be applied first to the amount of late payment charges or
similar fees or reimbursable advances not included in the Amount Financed, then
to interest accrued on such Receivable to the date of receipt and then to reduce
the principal amount outstanding on the Receivable.
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ARTICLE II
The Receivables
SECTION 2.01 Conveyance of Receivables. In consideration of the payment
of the purchase price by Purchaser pursuant to Section 2.02, on the Initial
Closing Date and on the Subsequent Closing Date, Seller hereby agrees to sell,
transfer, assign, and otherwise convey to Purchaser without recourse (but
subject to Seller's obligations herein) the following:
(i) The Receivables listed in Schedule A to this Agreement
(and on the Subsequent Closing Date the Receivables listed on
Schedule A-1 to be attached to this Agreement) together with
all monies paid thereon on or after the Cutoff Date and all
monies due and to become due thereon on or after the Cutoff
Date and all other rights and claims arising thereunder or
related thereto;
(ii) All right, title and interest of Seller in any promissory
notes or other instruments or agreements evidencing the
indebtedness of the Obligors under such Receivables and all
rights of payment thereunder;
(iii) All right, title and interest of Seller in the liens,
security interests and other legal and beneficial rights and
claims in and to the related Financed Property, including
those arising or held under any related mortgages, deeds of
trust, land contracts, Agreements for Deed, Right to Use
Agreement and trust agreements (including the Trust
Agreements) pertaining to any such Financed Property;
(iv) All right, title and interest of Seller in any proceeds
of any physical damage and title insurance policies
attributable to such Financed Property and in any proceeds of
any mortgage, credit life, accident, health and disability and
hospitalization insurance policies covering any such
Receivables or any Obligor with respect thereto;
(v) All right, title and interest of Seller in any
recourse to others for payment of or relating and
attributable to such Receivables;
(vi) All right, title and interest of Seller in any
collateral, guaranty or other credit support that shall secure
any of such Receivables and in any deposits, impounds, and
other funds that may be payable from time to time to holders
of such Receivables;
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(vii) All accounts, contract rights, general intangibles,
instruments or documents evidencing, arising out of or
relating and attributable to such Receivables;
(viii) All right, title and interest of Seller in all files,
documents, surveys, certificates, correspondence, appraisals,
computer programs, tapes, disks, cards, accounting records and
other books, records, information and data of Seller
pertaining to such Receivables;
(ix) All right, title and interest of Seller relating and
attributable to such Receivables or such Financed Property not
otherwise described in this Section 2.01; and
(x) All proceeds of the foregoing (including
insurance and condemnation proceeds).
It is expressly acknowledged that the foregoing does not include an
assignment of any property of any owners association for the Timeshare Project.
SECTION 2.02 Payment of Purchase Price: Conditions Precedent.
(a) On the Initial Closing Date, Purchaser will purchase up to Ten
Million ($10,000,000) Dollars of Receivables in the aggregate in substantially
equal amounts of Land Receivables and Timeshare Receivables from Seller. The
Receivables which Purchaser has agreed to purchase as of the Initial Closing
Date are set forth on Schedule A to this Agreement and shall be subject to the
terms and conditions of this Agreement on the Closing Date.
In addition, Purchaser has agreed to purchase of up to Ten Million
($10,000,000) Dollars of Receivables in the aggregate on the Subsequent Closing
Date, which shall occur on or before the Cutoff Date, in substantially equal
amounts of Land Receivables and Timeshare Receivables from Seller on such
Subsequent Closing Date. The Receivables to be purchased by Purchaser on the
Subsequent Closing Date shall be acceptable in all respect to Purchaser and
shall be set forth, on or before the Subsequent Closing Date, on a Schedule A-1
to be appended to this Agreement with such subsequent purchase being subject to
the terms and conditions of this Agreement.
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(b) Purchaser agrees, subject to the terms and conditions of this
Agreement, to pay on the Closing Date, as the purchase price for the conveyance
of such Receivables, the amount of the Pool.
(c) Unless waived by Purchaser, the obligation of Purchaser to pay the
purchase price is subject to receipt by Purchaser of the following documents and
completion of the following matters, all in form, scope and substance
satisfactory to Purchaser in its sole discretion:
(i) Articles of Incorporation; Etc. Certificates of recent
date of the appropriate authority or official of Nevada for
Seller and New York for Guarantor listing all charter
documents of Seller and Guarantor on file in that office and
certifying as to the respective good standing and corporate
existence of Seller and Guarantor, together with copies of
such charter documents of Seller and Guarantor certified as of
a date acceptable to Purchaser by such authority or official
and certified as true and correct as of the Closing Date by a
duly authorized officer of Seller and Guarantor respectively;
(ii) By-Laws; Resolutions. Copies of the By-Laws of Seller and
Guarantor together with all authorizing resolutions and
evidence of other corporate action taken by Seller and
Guarantor to authorize the execution, delivery and performance
by Seller and Guarantor of this Agreement and the Guaranty
Agreement, as the case may be and the consummation of the
transactions contemplated hereby, certified as true and
correct as of the Closing Date by a duly authorized officer of
Seller and Guarantor respectively;
(iii) Officer's Certificates. Certificates of incumbency of
Seller and Guarantor containing, and attesting to the
genuineness of, the signatures of those officers authorized to
act on behalf of Seller and Guarantor in connection with this
Agreement and the Guaranty Agreement, as the case may be, and
the consummation of the transactions contemplated hereby,
certified as true and correct as of the Closing Date by a duly
authorized officer of Seller and Guarantor respectively;
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(iv) Assignment of Receivables. A blanket assignment with
respect to the Receivables listed on Schedule A and Schedule
A-1 deemed by Purchaser to be acceptable for purchase, duly
executed and delivered by Seller, together with endorsement by
Seller (and all prior holders) of all promissory notes and
other instruments evidencing any Receivable (or satisfactory
arrangements therefor) and assignment of the Right to Use
Agreement, deed of trust, mortgage or Agreement for Deed
executed by the Obligor to secure any Receivable sufficient to
assign the right, title and interest of Seller thereunder of
record to Purchaser and evidence that no prior holder has any
right, title or interest in or to any of the Receivables;
(v) Perfection of Assignment. Evidence of the due execution
and delivery of, and the recordation and filing of, and other
action (including payment of any applicable taxes or fees) in
connection with, assignments of deeds of trust, assignments of
mortgages, Agreements for Deed, financing statements and
similar documents which Purchaser deems necessary or desirable
to create, to preserve or perfect the right, title and
interest in such Receivables intended to be granted to
Purchaser hereunder in such jurisdictions as Purchaser may
deem necessary or appropriate, together with (i) such title
insurance and UCC record searches in such offices as Purchaser
may request and (ii) a receipt for the applicable Custodian
Receivable Files to be retained by the Custodian pursuant to
Section 2.06 and confirmation that all such Receivables have
been endorsed in blank (or satisfactory arrangements made
therefor) and contain no legends, notations or indications of
claims of others (or satisfactory arrangements for
cancellation thereof);
(vi) Other Agreements. The Custodial Agreement, the
Agency Agreement and Guaranty Agreement duly executed
and delivered by the parties thereto;
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(vii) Lockbox and Reserve Account. The Reserve Account shall
have been established as provided in Section 5.01; in an
amount which, together with any cash amounts then held in the
Reserve Account, is not less than the Minimum Reserve Account
Amount. The lock box account contemplated by the Custodial
Agreement shall have been established with the Custodian and
undertakings requested by Purchaser shall have been received
from any prior holders of such Receivables regarding delivery
of any payments thereon to Purchaser;
(viii) Opinion of Counsel. The favorable written opinion of
Lionel, Sawyer & Collins as counsel for Seller and an opinion
of counsel for Guarantor with respect to such matters as
Purchaser may reasonably request;
(ix) Representation and Warranties: No Event of Transfer. The
representations and warranties contained in Section 2.03 and
6.01 hereof and in Section 5 of the Guaranty Agreement shall
be true and correct on and as of the Closing Date and no Event
of Transfer or no event or condition which might become such
an Event of Transfer with notice or lapse of time, or both,
shall exist or shall have occurred and be continuing on the
Closing Date and Purchaser shall have received a certificate
to such effect certified as true and correct as of the Closing
Date by a duly authorized officer of Seller and Guarantor
respectively;
(x) Consumer and Project Documents. Purchaser shall have
received copies of (A) the forms of all contract documents,
disclosures, applications and related documentation utilized
in originating the Receivables, (B) the declarations of
covenants, conditions and restrictions for the Timeshare
Project, (C) the articles of incorporation, by-laws and the
rules and regulations of the owners associations for the
Timeshare Project; and (D) all other related documents,
including association budgets, assessment information, the
property reports and public offering statements filed with the
Department of Housing and Urban Development and the Nevada
Division of Real Estate with respect to the Subdivision
Project, the Trust Agreements, property reports and public
offering statements filed with the Nevada, Florida and
Colorado Divisions of Real Estate with respect to the
Timeshare Project, and evidence that the declarations of
covenants for the Subdivision Project and the Timeshare
Project have been duly recorded in accordance with
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applicable law, each certified as true and correct as
of the Closing Date by a duly authorized officer of
Seller;
(xi) Management and Other Agreements. If requested by
Purchaser at any time, a list of all material management,
maintenance, service, supply, employment and other contracts
in effect with respect to the management and operation of the
Timeshare Project, together with copies thereof certified as
true and correct as of the Closing Date by a duly authorized
officer of Seller;
(xii) Timeshare Exchange. If requested by Purchaser at any
time, a copy of all contracts with Resort Condominiums
International relating to the Timeshare Project and evidence
that the Timeshare Project is in good standing and the owners
of timeshare interests therein are eligible to purchase
memberships in and thereby to enjoy exchange privileges
through such organization;
(xiii) Zoning. Etc. If requested by Purchaser at any time,
evidence satisfactory to Purchaser that the Timeshare Project
and the Subdivision Project each complies with all applicable
covenants, restrictions, zoning, development, building, use
and similar laws, ordinances and codes and that adequate
utilities and access are available, including certificates of
occupancy and/or use;
(xiv) Statutory Compliance. Evidence as Purchaser may request
at any time that the Timeshare Project complies with
applicable provisions of applicable law, including any
regulatory permits issued thereunder, and that the Subdivision
Project is in compliance with Chapter 278 and 119 of the
Nevada Revised Statutes and Seller is in compliance with all
applicable provisions of the Federal Interstate Land Sales
Act, and all other applicable laws affecting the sale of
interests in the Timeshare Project or the Subdivision Project;
(xv) Insurance. Evidence of appropriate liability and casualty
insurance covering the Timeshare Project and, if applicable,
the Subdivision Project, including standard mortgagee clauses
and such other endorsements and coverages as Purchaser may
request, issued by companies, in amounts, and upon other terms
satisfactory to Purchaser, which insurance without limitation
will be in an amount not less than the full insurable value of
the related property;
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(xvi) Surveys/Plats. An as-built survey of the Timeshare
Project and plat of the Subdivision Project, together with a
certificate of the surveyor stating that no portion of the
Timeshare Project and a certificate of Seller or satisfactory
alternative evidence that no portion of the Subdivision
Project is located in a flood hazard area designated by the
Federal Emergency Management Agency or, if located in such an
area, evidence of flood insurance;
(xvii) Environmental Matters. Copies of such environmental
assessments and analyses prepared by such environmental
consultants and otherwise acceptable to Purchaser as Purchaser
may request with respect to the Timeshare Project and the
Subdivision Project; and
(xviii) Prior Transaction Cross Default and Collateralization.
Seller and Purchaser shall have entered into such agreements
as are deemed necessary by Purchaser to have any and all
reserve account amounts existing from time to time, under the
portfolio purchases by Purchaser from Oxford Finance Company
effected on or about December 31, 1992 and under a portfolio
purchase of July 6, 1994 and under a portfolio purchase of
August 31, 1995, granted as additional collateral security to
Purchaser to secure the payment and performance of Sellers
obligations under this Agreement.
(xix) Miscellaneous. Delivery of such other documents and
completion of such other matters as Purchaser may reasonably
request.
SECTION 2.03 Representations and Warranties of Seller. Seller hereby
makes the following representations and warranties to Purchaser on which
Purchaser will rely in purchasing the Receivables or in accepting an assignment
of Replacement Receivables pursuant to Section 4.02. Such representations and
warranties shall speak as of the Closing Date (or the immediately preceding
Record Date, in the case of Replacement Receivables assigned pursuant to Section
4.02), unless otherwise specified, and shall survive the sale, transfer and
assignment of the Receivables to Purchaser. For purposes of the following
representations and warranties made with respect to any Replacement Receivables,
references to Cutoff Date and Closing Date shall be deemed references to the
immediately preceding Record Date.
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(i) Receivable Term. Each receivable conveyed to the Purchaser
shall have a remaining term to maturity of not greater than
117 months.
(ii) Annual Percentage Rate. Each Receivable conveyed hereby
shall have an Annual Percentage Rate equal to or greater than
9.5%. As of the Cutoff Date, the weighted average Annual
Percentage Rate of the Receivables is not less than 9.75%.
(iii) Characteristics of Receivables. Each Receivable (a)
shall have been originated by Seller in the States of Nevada,
Hawaii, California, Colorado, Florida or New Jersey for the
original retail sale of the related Financed Property in the
ordinary course of Seller's business, and shall have been
fully and properly executed by the parties thereto, (b) all
Timeshare Receivables identified in Schedule A or Schedule A-1
to this Agreement as arising from sales of Financed Property
in the White Sands Timeshare Development constitute Right to
Use Agreements and in the Reno Spa, Grand Flamingo Villas and
Grand Flamingo Towers Timeshare Developments constitute
Agreements for Deed and all other Receivables constitute Deed
of Trust Agreements, (c) in the case of the Land Receivables,
the Financed Property was unimproved at the time of sale and
comprises single family residential lots (except as otherwise
specified in Schedule A or Schedule A-1), (d) shall contain
customary and enforceable provisions such that the rights and
remedies of the holder thereof shall be adequate for
realization against the Financed Property of the benefits of
the lien or vendor's interest, and in the case of Receivables
constituting Deed of Trust Agreements, shall be eligible for
summary remedies in lieu of judicial foreclosure proceedings
and, in the case of those Timeshare Receivables constituting
Agreements for Deed, the holder shall be entitled to terminate
such agreement after default and reasonable notice to the
Obligor, and to retain all payments made without necessity for
legal proceedings to obtain marketable title to the related
Financed Property, and in the case of all Receivables no
Obligor shall be entitled to recover or obtain any rebate of
amounts previously paid in respect of such Receivable, (e)
shall provide for level monthly payments (excepting the final
monthly payment thereon which may be a lesser amount than such
level monthly payments) in US dollars by the related Obligor,
who is a natural person and is a citizen and resident, at the
time of origination, of one of the United States or Canada,
provided, that up
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to twelve (12%) of the portion of the aggregate Pool
attributable to Receivables may be from citizens and residents
of countries other than the United States if all other
conditions of this Section 2.03 and this Subsection of each of
such Receivables are complied with, but not more than ten
(10%) percent of such Receivables where the Obligor is a
citizen or resident of a country other than the United States
shall be from citizens and/or residents of Canada, (f)
pursuant to which all payments may properly be applied on a
Receivable first to any late payment charges or similar fees
or reimbursable advances not included in the Amount Financed,
then to the amount of interest accrued on such Receivables to
the date of receipt and then to reduce the principal amount
outstanding on the Receivable, and such allocations of
payments to such amounts may properly be applied in accordance
with the simple interest method described in Section 1.03, (g)
shall be on the applicable forms of Seller delivered to
Purchaser pursuant to Section 2.02(c)(x), and such forms
comprise all of the agreements entered into with the Obligors
relating to the Receivable and the Financed Property (except
for agreements arising from the confirmation of reservations
for occupancy of the Timeshare Project in the ordinary course
of business), (h) shall be originated to an individual
consumer end user of the Financed Property and shall not
constitute except in the case of the White Sands Timeshare
Development a "Vacation Resort Assurance Certificate" or other
"right to use" interest in the case of the Timeshare Project,
(i) shall require that the Obligor pay all applicable Taxes in
the case of the Land Receivables and, under the declarations
of covenants for the Timeshare Project (other than the White
Sands resort), the Obligors under the Timeshare Receivables
(other than the White Sands resort) are required to pay
assessments to provide for payment of all applicable Taxes,
maintenance and physical damage insurance covering the
Financed Property, (j) shall have not been repurchased by
Seller pursuant to an agreement providing for the sale of
receivables (except as otherwise specified in Schedule A or
Schedule A-1), (k) shall have complied at the time of
origination with the Credit and Collection Policies of Seller
set forth in Schedule B hereto, (l) is not subject to any
unexpired rescission or similar right under law or otherwise,
(m) shall be a contract which has a paid in equity of not less
than ten (10%) percent of the original sale price which sum
has been paid in cash to Seller except in the case of a
Replacement Receivable which results from a trade up or down
and shall have a paid in equity of not less than ten (10%)
percent of the original sale price
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of the original contract and the Obligor under such Receivable
shall not at the time of transfer to Purchaser of such
Receivable be greater than thirty (30) days delinquent in
payment of principal and interest without the prior consent of
Purchaser and if any such Receivable is accepted, the Obligor
of such Receivable must make a regular monthly payment of
principal and interest within thirty (30) days of the Cutoff
Date or such Receivable will be deemed a Defaulted Receivable,
(n) shall contain a requirement for periodic payments of at
least monthly frequency in equal amounts of principal and
interest providing for a complete amortization of the
principal and interest obligation represented by the
Receivable over the initial contract term, and (o) shall have
an Obligor who has not had filed against such Obligor or is
not on the Cutoff Date the subject of a voluntary or
involuntary Chapter 7, 11 or 13 bankruptcy petition or
proceeding.
(iv) Schedule of Receivables. Schedule A to this Agreement
lists all of the Receivables being purchased on the Initial
Closing Date and the information set forth in Schedule A shall
be true and correct in all material respects as of the close
of business on the Cutoff Date and no selection procedures
materially adverse to Purchaser shall have been utilized in
selecting the Receivables from all receivables owned by Seller
which meet the selection criteria specified in this Agreement.
Schedule A-1 to this Agreement lists all of the Receivables
being purchased on the Subsequent Closing Date and the
information set forth in Schedule A-1 shall be true and
correct in all material respects as of the close of business
on the Cutoff Date and no selection procedures materially
adverse to Purchaser shall have been utilized in selecting the
Receivables from all receivables owned by Seller which meet
the selection criteria specified in this Agreement.
(v) Compliance with Law. Each Receivable and each sale of the
related Financed Property shall have complied at the time it
was originated or made, and shall comply at the Cutoff Date,
with all applicable requirements of federal, state, and local
laws, and regulations thereunder, including, to the extent
applicable, the laws of any jurisdiction in which any
Receivable was originated, the Interstate Land Sales Full
Disclosure Act, usury laws, the Federal Truth-In-Lending
Act, the Equal Credit Opportunity Act, the Fair Credit Billing
Act, the Fair Credit Reporting Act, the Federal Trade
Commission Act, the National Flood
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Insurance Act of 1968, the Flood Disaster Protection Act of
1973, Federal Reserve Board Regulations B and Z, state
adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, and Chapters 116, 119, ll9A, 278, 278A
and 278B of the Nevada Revised Statutes.
(vi) Binding Obligation. Each Receivable shall constitute the
genuine, legal, valid, and binding payment obligation in
writing of the Obligor, enforceable by the holder thereof in
accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization and other laws affecting generally
the enforcement of creditors' rights.
(vii) Lien on or Interest in Financed Property. At the time of
the sale, assignment, and transfer thereof to Purchaser under
this Agreement, (a) each Receivable constituting a Deed of
Trust Agreement shall be secured by a validly perfected first
priority lien on the beneficial interest of Obligor in the
Financed Property in favor of Seller, (b) each Receivable
constituting a note shall be secured by a validly filed first
priority mortgage lien on the interest of Obligor in the
Financed Property in favor of Seller or secured by a validly
filed deed of trust granted by Obligor on the Financed
Property providing Seller with a validly filed first priority
lien on the beneficial interest of Obligor in the Financed
Property, (c) each Receivable constituting a Right To Use
Agreement shall provide Seller or its assignee with a right to
terminate the interest of Obligor in the Financed Property
upon default by Obligor in the performance of the terms of
such Receivable, and (d) each Receivable constituting an
Agreement for Deed shall have created a valid, subsisting,
perfected and enforceable right in favor of Seller to obtain
fee simple title to the related Financed Property after
default by and reasonable notice to the Obligor thereunder,
and all necessary and appropriate action with respect to such
Receivables shall have been taken to perfect such right in the
related Financed Property in favor of Seller as vendor.
(viii) Receivables in Force. No Receivable shall have been
satisfied, subordinated, or rescinded, nor shall any Financed
Property have been released from the Lien granted by the
related deed of trust, mortgage or the vendor's interest under
the related Agreement for Deed, in whole or in part.
(ix) No Defenses. No facts shall exist which would
give rise to any consumer complaint, right of
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rescission, set off, claim, counterclaim, or defense, credit
allowance, payment compromise or extension of payment
obligation nor shall the same have been asserted or
threatened, with respect to any Receivable.
(x) No Liens. No Liens or claims shall exist, including Liens
for work, labor, or materials relating to any Financed
Property, that shall be Liens prior to, or equal or coordinate
with, the Lien granted by the Receivable, except for Liens for
Taxes not due and payable and Liens disclosed in the title
policies issued pursuant to Section 2.O2(c)(v).
(xi) Insurance. Adequate physical damage insurance covering
the Financed Property subject to any Timeshare Receivable is
in force on the Cutoff Date.
(xii) Good Title. It is the intention of Seller and Purchaser
that the transfer and assignment herein contemplated, taken as
a whole, constitute a sale of the Receivables from Seller to
Purchaser and effect a valid sale, transfer and assignment of
the Receivables by Seller enforceable against creditors of and
purchasers from Seller, and that the beneficial interest in
and title to the Receivables, not be part of Seller's estate
in the event of the filing of a bankruptcy, insolvency,
receivership or other petition by or against Seller under any
bankruptcy, insolvency, receivership or other similar law. At
the time of the transfer and assignment herein contemplated,
Seller has good and marketable title to each Receivable free
and clear of all Liens except for Liens for Taxes not yet due
and payable and, immediately upon the transfer thereof,
Purchaser shall have good and marketable title to each
Receivable, free and clear of all Liens and rights of others,
except for Liens for Taxes not yet due and payable; and the
sale, transfer and assignment shall have been perfected under
the UCC and applicable real property law on the applicable
Cutoff Date (except for filing and recording of UCC financing
statements and real estate assignments which may be made
subsequent to the Cutoff Date). Notwithstanding the foregoing,
in the event that the transfer and assignment herein
contemplated is not construed as a sale, Seller hereby grants,
assigns and transfers to Purchaser a first-priority security
interest in and to the property conveyed to Purchaser pursuant
to Section 2.01 to secure the repayment of the purchase price
paid by Purchaser pursuant to Section 2.02(b), amounts to be
paid to Purchaser pursuant to Section 5.03 hereof and all
other obligations of Seller and the Custodian owing to
Purchaser in connection with the transactions
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contemplated by this Agreement. No Receivables shall have been
sold, transferred, assigned or pledged by Seller to any Person
other than Purchaser, except that certain Receivables may have
been previously sold by Seller and certain of the Receivables
may have been previously pledged by Seller to Finova Capital
Corporation, Greyhound Real Estate Finance company, Bank of
America NT & SA, Dorfinco Corporation, NBD Bank, or Heller
Financial, Inc. or as specified on Schedule A or Schedule A-1
to this Agreement, and Seller has delivered sufficient
discharges, termination statements and other documents to
Purchaser and taken other action pursuant to Section
2.02(c)(v) to effectively terminate and discharge all right,
title and interest of such Persons in the Receivables.
(xiii) Lawful Assignment. No Receivable shall have been
originated in, or shall be subject to the laws of, any
jurisdiction under which the sale, transfer, and assignment of
such Receivable under this Agreement shall be unlawful, void,
or voidable or subject to satisfaction of any unfulfilled
condition or requirement, or shall subject Purchaser to any
licensing or regulatory requirements.
(xiv) All Recordings and Filings Made, Etc. All filings,
notices and other action, including assignments of deeds of
trust and agreements for deed and UCC filings, necessary in
any jurisdiction to sell, transfer and assign the Receivables
to Purchaser, and to perfect the sale, transfer and assignment
of the Receivables to Purchaser shall have been made,
including notice to the Trustee that the Receivables
constituting Agreements for Deed have been transferred and
assigned to Purchaser.
(xv) One Original. There shall be only one executed copy
designated as the original of the Right To Use Agreement
evidencing those Timeshare Receivables arising out of the
White Sands Timeshare Project and only one executed copy
designated as the original of the Agreements for Deed
evidencing those Timeshare Receivables arising out of the Reno
Spa Resort Club, Grand Flamingo Villas and Grand Flamingo
Towers Timeshare Projects and, in all other cases, there shall
be only one original executed promissory note evidencing the
indebtedness under each Receivable constituting a Deed of
Trust Agreement.
(xvi) Accuracy of Information. All information
furnished by Seller and the Guarantor to Purchaser is,
and all information furnished by Seller and the
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Guarantor to Purchaser will be, true and accurate in all
material respects.
(xvii) Improvements and Buildings: Etc. Seller has completed
all improvements to the Subdivision Project and the Timeshare
Project which have been promised or committed in any way to
any Obligor or which are otherwise required by law or by an
applicable zoning, development, building, use or similar laws,
ordinances or codes; and the buildings and improvements which
are a part of the Timeshare Project, including all
foundations, walls, roof, ceilings, plumbing, heating,
ventilation, and air conditioning equipment, are in good
order, repair and operating condition, without material
structural or mechanical defects, and are in full compliance
with all laws, ordinances and codes applicable to their
construction and current use and Seller has no knowledge of
any hidden structural defects, infestation or damage by
termites or other destructive elements; neither the
Subdivision Project nor the Timeshare Project is situated,
used or operated in violation of any zoning, building, health,
environmental, labor or other law, ordinance or code (except
as disclosed in writing to Purchaser) and Seller has received
no notice of any such violation, and Seller has obtained, or
caused to be obtained, all necessary or appropriate licenses,
permits and authorizations from any governmental authority as
may be required for the use and operation of the Subdivision
Project and the Timeshare Project; Seller has furnished to
Purchaser a list of all material management, maintenance,
service, supply, employment and other contracts in effect with
respect to the operation and management of the Timeshare
Project, together with true and correct copies thereof,
pursuant to Section 2.O2(c)(xi); and all Financed Property has
vehicular access from public streets and roads and such access
is not limited or restricted and all utilities are available
(or, in the case of the Subdivision Project, can be extended)
to the Financed Property in capacities sufficient to serve the
Financed Property for its intended purposes, provided that
certain Financed Property in the Subdivision Project does not
have available public water or sanitary sewer which must be
provided by private well and septic systems.
(xviii) Tax Assessment, Etc. All Taxes assessed
against the Financed Property in the Subdivision
Project are assessed to and payable by the Obligor
under the related Receivable, and Taxes on the
Timeshare Project are assessed in gross and are payable
by the respective owners associations responsible for
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management of the Timeshare Project and not by the Obligor
under the related Receivable except by way of assessments by
such associations against the Obligors; and neither Seller nor
Purchaser shall have responsibility for the payment of any
Taxes assessed against any Financed Property in the
Subdivision Project unless Seller or Purchaser acquires record
title to such Financed Property; Purchaser shall not have
responsibility for the payment of any assessment against any
of the Financed Property in the Timeshare Project unless
Purchaser acquires record title to such Financed Property or
terminates an Agreement for Deed and thereby acquires the sole
beneficial interest therein.
(xix) No Licenses, Etc. It is not necessary for Purchaser to
obtain any license, permit or authorization, or to make any
regulatory declaration, registration or filing, pursuant to
the law of any State outside Georgia or Massachusetts in
connection with the purchase of the Receivables or any of the
other transactions contemplated by this Agreement which
Purchaser has not obtained or made.
(xx) Trust Agreements. The rights of Seller in respect of
those Timeshare Receivables constituting Agreements for Deed
for Financed Property in (a) Grand Flamingo Towers are
governed by that certain Amended, Restated and Consolidated
Trust Agreement-Grand Flamingo Towers, dated as of March 19,
1990, among the Trustee, Vacation Spa Resort, a Tennessee
corporation, whose existence ceased upon merger into Seller on
March 11, 1993 and Grand Flamingo Owners Association, and (b)
Grand Flamingo Villas are governed by that certain Amended,
Restated and Consolidated Trust Agreement-Grand Flamingo
Villas, dated as of March 19, 1990, among the Trustee,
Vacation Spa Resort, a Tennessee corporation, whose existence
ceased upon merger into Seller on March 11, 1993 and Grand
Flamingo Villas Owners Association; which agreements are
valid, binding, enforceable and subsisting, have not been
amended or modified (and will not be amended or modified
without the consent of Purchaser), all right, title and
interest of Seller in the Financed Property thereunder has
been assigned to Purchaser pursuant to Section 2.01 of this
Agreement, and all necessary or appropriate action has been
taken thereunder as of the Closing Date to perfect the sale,
transfer and assignment of those Timeshare Receivables
constituting Agreements for Deed to Purchaser and to perfect
the rights of Purchaser under such Trust Agreements as against
Seller and all third parties (subject to any
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rights of Obligors under Agreements for Deed).
(xxi) Subsidiaries. Schedule C hereto correctly sets forth the
corporate name, jurisdiction of incorporation and ownership
percentage with respect to each Subsidiary of the Seller. Each
such Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to do
business in each additional jurisdiction where the failure to
so qualify could have a material adverse effect on the
Subsidiary or on the transactions contemplated by this
Agreement. Each Subsidiary of the Seller has and will have all
requisite corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be
conducted. All outstanding shares of capital stock of each
class of each Subsidiary of the Seller, have been and will be
validly issued and are fully paid and non assessable and,
except as otherwise indicated in Schedule C hereto or
disclosed in writing to the Purchaser from time to time, are
and will be owned, beneficially and of record, by the Seller
or another Subsidiary of the Seller free and clear of any
Liens, charges, encumbrances or rights of others whatsoever.
SECTION 2.04 Repurchase or Replacement Upon Seller's Breach. Seller or
Purchaser, as the case may be, shall inform the other party promptly, in
writing, upon the discovery of any breach of Seller's representations and
warranties pursuant to Section 2.03. Unless the breach shall have been cured to
the reasonable satisfaction of Purchaser on or before the second Record Date
following such discovery, Seller shall repurchase or replace pursuant to Section
4.02 any Receivable affected by the breach. As consideration for the repurchase
or replacement of a Receivable, Seller shall remit the Repurchase Amount of, or
assign a Replacement Receivable for, such Receivable as of such Record Date, in
the manner specified in Article IV.
SECTION 2.05 Repurchase or Replacement of Defaulted Receivables.
Seller agrees that it shall repurchase any Receivable sold to Purchaser under
this Agreement which constitutes a Defaulted Receivable as of any Record Date,
unless such Defaulted Receivable is replaced pursuant to Section 4.02. As
consideration for the repurchase of a Receivable, Seller shall remit the
Repurchase Amount of, or assign a Replacement Receivable for, such Receivable as
of such Record Date, in the manner specified in Article IV.
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SECTION 2.06 Custody of Receivable Files.
(a) On or before the Closing Date, Purchaser shall revocably appoint
the Custodian, and the Custodian shall accept such appointment, pursuant to the
Custodial Agreement to act as the agent of Purchaser as custodian of the
following documents or instruments which Seller shall deliver to the Custodian
with respect to each Receivable (collectively, a "Custodian Receivable File"):
(i) The original promissory note evidencing the indebtedness
under the Receivable, endorsed by Seller in blank, or, in the
case of a Timeshare Receivable evidenced by an Agreement for
Deed or Right To Use Agreement, by the original agreement
evidencing the indebtedness under such Receivable; and
(ii) The recorded deed of trust or mortgage creating the Lien
on the Financed Property in favor of Seller where the
Receivable is not evidenced by an Agreement for Deed or Right
to Use Agreement.
(b) On or before the Closing Date, Seller shall segregate the original
copies of the following documents or instruments which shall be held with
respect to each Receivable for the benefit of the Purchaser (collectively, a
"Servicer Receivable File"):
(i) The original application for membership fully executed by
the Obligor, if any;
(ii) The disclosure statement required by the Federal
Truth-in-Lending Act if not included in the purchase agreement
referred to in clause (iii);
(iii) The original purchase agreement entered into by the
Obligor with Seller (other than original Agreements for Deed
held by the Custodian pursuant to Section 2.06 (a)(i);
(iv) The acknowledgement of receipt by the Obligor of the
Federal property report for all Land Receivables; and
(v) Any and all other documents that Seller shall keep on
file, in accordance with applicable law or its customary
procedures, relating to a Receivable, an Obligor or any
Financed Property.
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SECTION 2.07 Duties of Custodian and Seller as Servicer.
(a) Safekeeping. Custodian shall hold the Custodian Receivable Files on
behalf of Purchaser pursuant to the Custodial Agreement and Seller shall hold
the Servicer Receivable Files on behalf of Purchaser. Seller shall maintain, or
cause the Custodian to maintain, such accurate and complete accounts, records,
and computer systems pertaining to the Receivables as shall be reasonably
requested by Purchaser or as required under the Custodial Agreement or the
Agency Agreement. Seller shall promptly report to Purchaser any failure on the
Custodian's part to hold the Custodian Receivable Files or to maintain accounts,
records and computer systems as herein provided and promptly take appropriate
action to remedy any such failure.
(b) Maintenance of and Access to Records. Seller shall make available
to Purchaser or its duly authorized representatives, attorneys, or auditors the
Servicer Receivable Files and Seller shall make available to Purchaser or its
duly authorized representatives, attorneys or auditors, the related accounts,
records and computer systems maintained by Seller at such times as Purchaser
shall reasonably instruct. Seller shall maintain each Servicer Receivable File
at its chief executive office.
(c) Release of Documents. Upon written request from Purchaser, Seller
shall deliver any document in the Servicer Receivable Files to Purchaser,
Purchaser's agent or Purchaser's designee, as the case may be, at such place or
places as Purchaser may designate, as soon as practicable.
SECTION 2.08 Effective Period and Termination. The Custodian's
appointment as Custodian shall become effective as of the Closing Date with
respect to purchased Receivables (or the date of receipt with respect to
Replacement Receivables) and shall continue in full force and effect until
terminated pursuant to the Custodial Agreement. If Purchaser shall terminate the
rights and obligations of Seller, as servicer, under Section 7.01, Seller shall
take any and all action requested by Purchaser to effect delivery of the
Servicer Receivable Files to Purchaser or Purchaser's agent at such place or
places as Purchaser may designate.
SECTION 2.09 Further Assurances. (a) Within thirty days after the
Closing Date, Seller shall have given notice to the applicable Obligors and
shall have taken all other action to require that all payments under the
Receivables are paid directly by the Obligors to the Lockbox (as defined in the
Agency Agreement) maintained by the Custodian for the benefit of Purchaser under
the Agency Agreement.
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(b) Seller will from time to time do and perform, and cause to be done
and performed, any and all acts and execute any and all documents (including,
without limitation, the execution, amendment or supplementation of any mortgage,
deed of trust, agreement for deed, assignments, financing statements and
continuation statements relating to the Receivables for filing under applicable
law (including the provisions of the UCC), the execution, amendment or
supplementation of any instrument of transfer, and the making of notations on
the records of Seller of title and delivery of the Receivables to the Custodian
as Purchaser's bailee) as may be requested by Purchaser in order to effect the
purposes of this Agreement and the sale of the Receivables hereunder and to
perfect, preserve and protect the interest of Purchaser in the Receivables
against all Persons whomsoever.
SECTION 2.10 Power of Attorney. Without limiting the generality of the
sale, transfer and assignment of the Receivables, but in furtherance thereof,
Seller hereby grants Purchaser (and all Persons designated by Purchaser) an
irrevocable power of attorney, with full power of substitution, coupled with an
interest, (a) to notify any or all Obligors that a Receivable has been sold to
Purchaser, (b) to do and perform any and all acts and execute any and all
documents in the name and on behalf of Seller as Purchaser may deem necessary or
appropriate in order to effect the purposes of this Agreement and the sale of
the Receivables hereunder and to perfect, preserve and protect the interest of
Purchaser in the Receivables against all Persons whomsoever, and (c) to endorse
the name of Seller upon any checks, drafts, or similar items which are received
in payment of, or in connection with any Receivable, and to do all things
necessary in order to reduce the same to money. Seller will from time to time
execute and deliver to Purchaser such additional powers of attorney as Purchaser
may request to give effect to the sale, transfer and assignment of the
Receivables and the other provisions of this Agreement.
ARTICLE III
Administration and Servicing of Receivables
SECTION 3.01 Duties of Seller as Servicer. From and after the Closing
Date, the Seller, as servicer shall administer the Receivables with reasonable
care and in compliance with all applicable laws, using that degree of skill and
attention that a prudent servicer would exercise with respect to comparable
receivables that it services for itself and others. Seller's duties as servicer
shall include posting of all payments, responding to inquiries by federal,
state, or local governmental authorities regarding the Receivables,
investigating delinquencies, sending monthly statements to Obligors, responding
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to inquiries by Obligors with respect to the Receivables, reporting tax
information and complying with all other requirements under applicable law and
its customary practices. Seller, as servicer, shall follow the same standards,
policies, and procedures in performing its duties as servicer as it follows with
respect to comparable receivables that it services for itself and others and as
specifically outlined in the Credit and Collection Policies. Without limiting
the generality of the foregoing Seller, as servicer, shall be authorized and
empowered by Purchaser to execute and deliver, on behalf of Purchaser, 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
Receivables or the Financed Property upon appropriate payment in full of the
related Receivable and satisfaction of all obligations of the Obligor to
Purchaser thereunder.
SECTION 3.02 Collection of Receivables Payments. Seller and Purchaser
shall cause the Custodian to be the sole recipient of all payments on the
Receivables pursuant to the terms of the Agency Agreement. The Seller shall make
reasonable efforts to collect all payments called for under the terms and
provisions of the Receivables as and when the same shall become due, and shall
follow such collection procedures as it follows with respect to comparable
receivables that it services for itself and others and as specifically outlined
in the Credit and Collection Policies. Seller may not waive any late payment
charge or any other fee that may be due in the ordinary course of servicing a
Receivable except as expressly provided in the Credit and Collection Policies.
Seller will at no time be more lenient or less careful in its application of
standards, policies and procedures with respect to servicing the Receivables
than it is with respect to comparable receivables that it services for itself
and others and will act in a manner so as to enhance the collectability of the
Receivables. The Seller will not modify or waive any provision of the Credit and
Collection Policies without prior written notice to and the written consent of
Purchaser. In the event that Seller shall receive any such payments, Seller
agrees to deposit daily to the Lockbox Account (as defined in the Agency
Agreement), in the form received and with all necessary endorsements, all
payments by or on behalf of Obligors on the Receivables, as collected during the
Collection Period, and the funds therein shall be held as provided in the Agency
Agreement pending payment to Purchaser as provided therein. Seller shall further
take such actions as may be reasonably requested by Purchaser to assure that any
payments on the Receivables which may be received by third parties shall be
deposited in the Lockbox Account or as otherwise specified by Purchaser. Seller
shall provide prompt notice to Purchaser of any payments on the Receivables
known to Seller which are not paid initially to the Lockbox Account. In
addition, if requested by Purchaser, Seller, as servicer, shall cause notice to
be given promptly to the
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Obligors of the sale, transfer and assignment of the Receivables to Purchaser in
a manner acceptable to Purchaser. In addition to the notification required
pursuant to Section 2.09(a), Seller shall, upon request of Purchaser, take such
further action as may be necessary after such initial notice to the Obligors to
assure that all payments under the Receivables continue to be paid directly by
the Obligors to the Lockbox (as defined in the Agency Agreement) maintained by
the Custodian for the benefit of Purchaser under the Agency Agreement.
SECTION 3.03 Realization Upon Receivables. On behalf of Purchaser and
if requested by Purchaser, the Seller, as servicer, shall use its best efforts,
consistent with prudent servicing procedures and as specifically outlined in the
Credit and Collection Policies, to foreclose or otherwise recover and convert
the ownership of the Financed Property securing any Receivable which constitutes
a Defaulted Receivable and which has not been repurchased by Seller. In the
enforcement or collection of the Receivables, as provided above in this Section
3.03, the Seller, as servicer, shall be entitled to sue thereon in its own name
if possible, or if, but only if, Purchaser provides its express prior written
consent, as agent of Purchaser. In no event shall the Seller be entitled to take
any action which would make Purchaser a party to any litigation without
Purchaser's express prior written consent. Purchaser shall have no obligation to
Seller to take any action or commence any proceedings to realize upon any
Receivable or to enforce any of its rights or remedies with respect thereto.
SECTION 3.04 Operation and Maintenance of Timeshare Project. (a) The
operation and management of the Timeshare Project has been delegated by the
owners associations responsible therefor, as of the date of this Agreement, to
the Seller or in the case of the Brigantine Inn Timeshare Project to Brigantine
Inn Management, Inc. a Subsidiary of Seller, and in the case of the Brigantine
Inn Villas Timeshare Project to Brigantine Preferred Properties, Inc., a
Subsidiary of Seller pursuant to the management agreements referred to in
Section 2.02(c)(xi) hereof. The Seller agrees that neither it nor Brigantine Inn
Management, Inc. nor Brigantine Preferred Properties, Inc. shall resign as
manager of the Timeshare Project or the Brigantine Inn or Brigantine Inn Villas
Timeshare Projects and shall use its best efforts to remain as such manager
until the termination of this Agreement, and shall at all times exercise that
degree of skill and attention that a good manager would exercise with respect to
comparable projects that it manages for itself or others and in a manner that
will cause the image and quality of the Timeshare Project to be maintained at a
level not less than that existing on the date of this Agreement.
(b) Without limiting the foregoing, and whether or not the
Seller is acting as manager for the Timeshare Project, if Seller
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shall determine that an owners association has allowed the liability coverage or
the physical damage insurance covering any Financed Property in the Timeshare
Project to lapse or has not obtained adequate insurance coverage, Seller shall
cause such association to obtain such insurance or shall obtain insurance at its
own expense sufficient to insure Purchaser against liability claims in at least
such amounts as exist on the date of this Agreement and to insure Purchaser's
interest in the Financed Property. Adequate insurance coverage shall mean
casualty and physical damage insurance as described above and extended coverage
in an amount sufficient to permit rebuilding of the Timeshare Project to at
least its condition on the date of this Agreement or, if the Timeshare Project
is not rebuilt, to result in payment to Purchaser as mortgagee of an amount not
less than the Principal Balance, Accrued Interest and other amounts owing on the
Receivables arising out of the Timeshare Project. Seller shall provide Purchaser
with evidence that adequate insurance coverage is in force with standard
mortgagee clauses in favor of Purchaser or naming Purchaser as additional
insured, as appropriate, annually during the term of this Agreement.
(c) Seller shall cause to be paid when due all Taxes which create or
could give rise to a Lien on the Financed Property in the Timeshare Project that
is prior to, or equal or coordinate with, the Lien granted by the related
Receivable. Seller's present policy is to purchase lien rights of owners
associations with respect to deficient assessments against interests in the
Timeshare Project or to loan or advance funds to the respective owners
association if required in order to maintain adequate funding for the operation
and maintenance of the Timeshare Project, and Seller agrees that during the term
of this Agreement to continue to purchase such rights or to make such loans or
advances in an amount sufficient to permit such associations to operate and
maintain the Timeshare Project as contemplated in this Section and to pay all
applicable Taxes. Seller, for itself and all of its affiliates, agrees that all
lien rights acquired as a result of any such purchase or loan or advance are
expressly subordinate and subject to the lien and security interest of Purchaser
in the related Financed Property. It is expressly acknowledged and agreed that
the proceeds of any single interest insurance or similar insurance or indemnity
with respect to any of the Receivables, if any, are conveyed to Purchaser
pursuant to Section 2.01 and Seller shall take or cause to be taken all action
necessary to preserve rights thereunder. If Seller determines that liability
insurance or physical damage insurance has lapsed with respect to any Financed
Property in the Timeshare Project or that the coverage is not adequate, Seller
will notify Purchaser of such determination. Seller shall cause any physical
damage insurance maintained on the Financed Property in the Timeshare Project
and other insurance maintained with respect to any Receivable to provide that
the loss payable thereunder shall be payable to Purchaser as its interest may
appear and that
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Purchaser is named as additional insured with respect to liability insurance.
(d) Seller for itself and all Subsidiaries managing a Timeshare Project
covenants and agrees that Seller will and will cause all Subsidiaries to use its
and their best efforts to remain in management of each project comprising the
Timeshare Project and further covenants and agrees that neither it nor any
Subsidiary shall voluntarily resign from its position as manager for each resort
comprising the Timeshare Project where it is so acting on the Closing Date. If
Seller or any of its Subsidiaries resigns from the management of a resort
comprising a Timeshare Project without the consent of Purchaser, Purchaser may,
at its discretion and option, deem all Receivables from the resort from which
Seller or its Subsidiary has resigned as Defaulted Receivables as of the next
Record Date.
SECTION 3.05 Maintenance of Liens in Financed Property. Seller shall
take such steps as are necessary to maintain perfection of the lien created by
each Receivable in the respective Financed Property. Purchaser hereby
authorizes, and the Seller hereby agrees, to take such steps as are necessary to
preserve and protect such lien on behalf of Purchaser.
SECTION 3.06 Covenants of Seller as Servicer. Seller, as servicer,
hereby makes the following covenants on which Purchaser will rely in purchasing
the Receivables:
(a) Security Interest to Remain in Force. The Financed Property
securing each Receivable shall not be released from the lien granted by the
Receivable in whole or in part, except as contemplated in Section 3.01 and
except that Seller, as servicer, may permit the release of the Financed Property
securing any Receivable as part of a transaction where the related Obligor is
entering into an upgrading or downgrading contract for the purchase of other
property owned by Seller provided that (i) the Receivable to which such Financed
Property relates shall be repurchased or replaced pursuant to Section 4.02 by
Seller as a Defaulted Receivable on the Report Date next following the month in
which such transaction is consummated and (ii) no Event of Transfer, or event or
condition which would notice or lapse of time, or both, could become such an
Event of Transfer shall have occurred and be existing on the date such
transaction is made.
(b) No Impairment. The Seller, as servicer, shall observe and perform,
or cause to be observed or performed, all contractual undertakings and legal
obligations to the Obligor under each Receivable, and shall not permit any
subordination or rescission of any Receivable or other impairment of the rights
of Purchaser in the Receivables in any other way, and shall take all action
necessary to secure all available rights of recourse, if any, with respect to
the Receivables against other third parties;
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(c) Amendments. The Seller, as servicer, shall not increase the number
of payments under a Receivable, nor increase the Amount Financed under a
Receivable, nor agree to any decrease in the Amount Financed or reduction in the
amount of any payments under a Receivable, nor grant or permit, except as
permitted pursuant to Section 3.06(a), any modification or adjustment with
respect to any Receivable; and
(d) Performance. The Seller, as servicer, shall observe and perform all
of its obligations and duties as servicer under this Agreement in conformity
with applicable law and the terms and conditions of this Agreement.
SECTION 3.07 Replacement Upon Breach. Seller and Purchaser, as the case
may be, shall inform the other party promptly, in writing, upon the discovery of
any breach by the Seller, as servicer, of its obligations under Section 3.06.
Unless the breach shall have been cured to the reasonable satisfaction of
Purchaser by the second Record Date following such discovery, Seller shall
replace pursuant to Section 4.02, any Receivable affected by such breach, as of
such Record Date, without recourse to or warranty by Purchaser.
SECTION 3.08 Servicing Expenses. The Seller shall be liable for all
expenses incurred by it in connection with its activities hereunder, including
taxes imposed, expenses incurred in connection with distributions and reports to
Purchaser and expenses incurred for the account of the Obligor in connection
with realizing upon Receivables as provided under Section 3.03. Seller shall pay
all fees and charges of the Custodian in connection with the Custodial Agreement
and the Agency Agreement and of the Trustee under the Trust Agreements. Seller,
as servicer, shall not be entitled to receive any compensation for its services
hereunder or otherwise retain any receipts or payments (from whatever source) on
the Receivables.
SECTION 3.09 Seller Certificate. On or before the Distribution Date in
each calendar month, Seller, as servicer, shall deliver to Purchaser a
certificate in form acceptable to Purchaser, certified as true and correct by
the President or any Vice President of the Seller containing information with
respect to the last Collection Period and all information necessary to make the
distributions under Article IV. Seller, as servicer, also shall specify in such
certificate (a) those Receivables which constitute Defaulted Receivables as of
the Record Date for such Collection Period and with each such certificate
delivered, those Receivables in respect of which the Seller, as servicer, has
knowledge that the Obligors have failed to pay applicable assessments or Taxes
when due; it being understood that the Seller shall not be required to undertake
title searches in this respect and (b) those Receivables which are to be
purchased or replaced by Seller as of the Record Date, pursuant to Section
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2.04, 2.O5 and 3.07. Upon request by Purchaser, Seller shall promptly provide to
Purchaser such further information pertinent to the Receivables or this
Agreement as Purchaser may reasonably request.
SECTION 3.10 Monthly Statement as to Compliance. The Seller shall
deliver to Purchaser, on or before the Report Date a certificate signed by the
President or any Vice President of Seller stating that (a) a review of the
activities of the Seller, as servicer, during the preceding calendar month and
of its performance under this Agreement has been made under such officer's
supervision and (b) to the best of such officer's knowledge, based on such
review, the Seller has fulfilled all its obligations under this Agreement
throughout such month, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof.
ARTICLE IV
Distributions, Replacements and Reassignments
Section 4.01 Distributions. On the Distribution Date (or in the case of
Section 4.01(e) not later than the Report Date) with respect to each Record
Date, the following distributions shall be made:
(a) By Agent to Purchaser pursuant to the Agency Agreement and to the
extent not previously paid thereunder (or by such Person that may then be
receiving such amounts if the Agency Agreement shall be terminated), an amount
equal to all Collected Interest together with all Collected Principal received
by Agent during the preceding Collection Period.
(b) By the Seller to Purchaser, an amount equal to the Repurchase
Amount of all Receivables to be repurchased as of such Record Date by the Seller
pursuant to Section 3.07, which are not replaced pursuant to Section 4.02.
(c) By Seller to Purchaser, an amount equal to the Repurchase Amount of
all Receivables to be repurchased as of such Record Date by such Seller pursuant
to Section 2.04, which are not replaced pursuant to Section 4.02.
(d) By Seller to Purchaser, an amount equal to the Repurchase Amount of
all Defaulted Receivables to be repurchased as of such Record Date by such
Seller pursuant to Section 2.05, which are not replaced pursuant to Section
4.02.
(e) By Purchaser to Seller, on or before each Report Date the
Receivables or amount in cash thereof which shall be
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withdrawn from the Reserve Account, equal to the amount, if any, by which the
Reserve Account Balance, as of such Record Date and after giving effect to
deposits and charges thereto pursuant to Article V, exceeds the Minimum Reserve
Account Amount as of such Record Date, but only if no Event of Transfer and no
event or condition which with notice or lapse of time, or both, could become an
Event of Transfer has occurred and is then continuing.
(f) By Seller to Purchaser, an amount with respect to such Record Date
equal to the amount, if any, by which the Minimum Reserve Account Amount as of
such Record Date exceeds the Reserve Account Balance as of such Record Date,
which shall be deposited in the Reserve Account pursuant to Section 5.04.
(g) By Seller to Purchaser, an amount equal to the amount payable to
Purchaser pursuant to Section 5.03, if applicable.
SECTION 4.02 Replacement of Receivables. (a) In lieu of repurchasing
Receivables pursuant to Section 3.06(a), 3.07, 2.04 and 2.05, and payment of the
related Repurchase Amount pursuant to Section 3.06 (a), 4.01(b), (c) and (d),
Seller may propose to transfer, assign and otherwise convey Replacement
Receivables to Purchaser as of the respective Record Date, in replacement for
Receivables otherwise required to be so repurchased. Purchaser shall not be
obligated to accept such proposal and may accept some or all of the proposed
Replacement Receivables. If Purchaser does not accept such proposal, or accepts
such proposal in part, Seller shall propose to transfer, assign and otherwise
convey additional Replacement Receivables to Purchaser as of the respective
Record Date, in replacement for Receivables otherwise required to be so
repurchased. Purchaser shall not be obligated to accept such additional proposal
and may accept some or all of the proposed Replacement Receivables.
If Purchaser does not accept after the additional offer of Replacement
Receivables, or accepts such proposal in part, the Seller shall repurchase for
cash all such Receivables not so replaced pursuant to Section 3.06(a) 3.07, 2.04
or 2.05, as the case may be. For purposes of determining the amount of the
payment, if any, to be made in respect of the repurchase of Receivables, Seller
shall receive a credit against the Repurchase Amount for Replacement Receivables
so assigned in an amount equal to the Principal Balance of the Replacement
Receivable as of such Record Date.
(b) Each request for replacement of Receivables pursuant to this
Section 4.O2 shall be made by Seller no later than the applicable Report Date
and shall be effected by a Replacement Request. If the Purchaser fails to notify
Seller of its acceptance, in whole or in part, of such offer to replace
Receivables prior to such Distribution Date, the Seller shall repurchase all
such receivables to be repurchased on such Distribution Date pursuant to Section
3.06 (a), 3.07, 2.04 or
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2.05, as the case may be. Such replacement shall be consummated by the execution
and delivery of the documentation described in Section 2.02(c)(iv) and (v), and
such other documents and completion of such other matters as the Purchaser may
reasonably request. To the extent that the Principal Balance as of such Record
Date of the Replacement Receivables to be assigned on any Distribution Date
exceeds the Principal Balance of the Receivables so replaced, as of such Record
Date, such excess shall be applied, upon request of the Seller, in replacement,
in whole or in part, for other Receivables pursuant to this Section 4.02 on
succeeding Distribution Dates.
SECTION 4.03 Manner of Payment: Net Distributions. All distributions to
be made to the Purchaser pursuant to Section 4.01 shall be made by wire transfer
of immediately available funds to BankBoston, N.A., 100 Federal Street, Boston,
Massachusetts 02110, ABA # 011000390, Account Name: BankBoston, N.A. PEC
Portfolio Collection Account #4, Account Number 606- 48765. As provided in
Section 3.09, Seller, as servicer, shall make a computation of the remittances
to be made pursuant to Section 4.01 above, and the remittances shall be made, on
a net basis, provided, however, that the Purchaser shall not be obligated to
make any distribution to the Seller if any Event of Transfer, or any event or
condition which with notice or lapse of time, or both, could become an Event of
Transfer shall have occurred and is continuing. Nonetheless, Seller, as
servicer, shall account for all of the above described amounts as if such
amounts were deposited and distributed separately. In addition to the deposits
and distributions to be made pursuant to Section 4.01, the Purchaser shall make
those deposits to and charges against the Reserve Account provided for in
Article V.
SECTION 4.04 Reassignments. Upon repurchase or replacement of a
Receivable, the Purchaser shall execute and deliver, without recourse or
warranty (except that its signatures are genuine or authorized and against its
actions that impair its good title to the instruments), any documents reasonably
requested by the Seller from time to time evidencing or confirming the
reassignment of the repurchased or replaced Receivable and the related Financed
Property and the release of such repurchased or replaced Receivable from any
UCC-1 financing statement filed in connection with the assignment of such
Receivable to Purchaser so long as (i) the form of the proposed document is
prepared at the expense of Seller and furnished to Purchaser, (ii) the form and
substance of the proposed document are satisfactory to Purchaser and its
counsel, and (iii) Purchaser and its counsel are afforded a reasonable time to
review and process the proposed document, which amount of time shall not in any
event be less than ten days.
ARTICLE V
Reserve Account
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SECTION 5.01 Establishment of Reserve Account. On or prior to the
Closing Date, Seller will establish by pledge and delivery to Custodian, cash
and/or Receivables acceptable to Purchaser in its sole discretion, in an amount
sufficient to equal the Minimum Reserve Account Amount. Such cash and/or
Receivables shall be placed in a custodial reserve account (referred to as the
"Reserve Account") for the benefit of Purchaser who shall have a security
interest in such Reserve Account. Such Reserve Account shall be established for
the benefit of Purchaser and shall be for the sole use of Purchaser until such
time as Purchaser shall have recovered and been repaid the purchase price, its
yield of 9.00% on the unreimbursed portion of the purchase price outstanding
from time to time from the Pool at the Initial Closing Date, such yield on the
unreimbursed portion of the purchase price outstanding from time to time from
the Pool at the Subsequent Closing Date as is agreed to between Purchaser and
Seller after Purchaser has had an opportunity to conduct due diligence on the
Pool offered and after Purchaser has obtained the necessary approvals for such
purchase, all reasonable costs and expenses incurred in connection with this
transaction and all sums due from Seller to Purchaser pursuant to a Purchase
Agreement of December 31, 1992 between The Oxford Finance Companies, Inc. and
Purchaser, a Purchase and Servicing Agreement of July 6, 1994 between Purchaser
and Seller or a Purchase and Servicing Agreement of August 31, 1995 between
Purchaser and Seller. Seller hereby grants to Purchaser a first priority lien on
and security interest in, as collateral security for the payment and performance
of the obligations of the Seller and the Custodian under the terms of this
Agreement, the Custodial Agreement and the Agency Agreement, the Reserve
Account, the cash and/or Receivables placed therein from time to time and any
investments thereof and proceeds of such investments. Purchaser may at any time
and from time to time, without notice to Seller (any requirement for such notice
being expressly waived by Seller) set off and apply against any and all of the
obligations of Seller hereafter existing under this Agreement, the Custodial
Agreement or the Agency Agreement any and all monies held in the Reserve Account
and all investments thereof and proceeds of such investments and any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Purchaser to or for the credit
or the account of Seller and any property of Seller from time to time in
possession of Purchaser, irrespective of whether or not Purchaser shall have
made any demand hereunder and although such obligations may be contingent and
matured. The rights of Purchaser under this Section 5.01 are in addition to
other rights and remedies (including other rights of set off) which Purchaser
may have.
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In order to deposit Receivables into the Reserve Account, Seller shall
execute a collateral assignment to Purchaser of such Receivables, together with
any necessary appropriately recorded collateral assignment of deeds of trust or
mortgages, and together with an appropriate UCC-1 filing, so as to perfect
Purchaser's security interest in such Receivables.
In determining the Reserve Account Balance at any time, Seller shall
receive credit for the aggregate Principal Balance of all Receivables
collaterally assigned to Purchaser which are not Defaulted Receivables at such
time. Provided the Reserve Account Balance is at least equal to the Minimum
Reserve Account Amount, Seller may remove Defaulted Receivables from the Reserve
Account without payment or substitution therefor.
Seller may at any time remove from the Reserve Account any Receivable
or Receivables which are not Defaulted Receivables and substitute therefor (a)
cash in the amount of the aggregate Principal Balance of such Receivable or
Receivables being removed from the Reserve Account or (b) a Receivable or
Receivables with an aggregate principal balance at least equal to the aggregate
principal balance of the Receivable or Receivables being removed from the
Reserve Account, which substitute Receivable or Receivables shall be acceptable
to Purchaser.
At such time as the Seller is permitted under this Agreement to remove
any Receivables from the Reserve Account, Purchaser shall promptly reassign such
Receivables to Seller and execute any necessary recordable assignments of deeds
of trust or mortgages and execute any UCC releases as are necessary to transfer
such Receivables back to Seller free and clear of Purchaser's security interest
therein. Seller shall also advise the Custodian and Agent under the Custodial
Agreement and Agency Agreement of such reassignment.
SECTION 5.02 Charges Against Reserve Account. If, on any Distribution
Date, Seller, Custodian or Agent shall fail to make any distribution, in whole
or in part, required to be made to Purchaser pursuant to Section 4.01(b), (c) or
(d) or Seller shall fail to replace Receivables as provided in Section 4.02, or
the Pool shall fail to equal the unreimbursed purchase price as of the preceding
Record Date, Purchaser shall charge against the Reserve Account as of the
preceding Record Date and withdraw from the Reserve Account any cash and/or
Receivables having a Principal Balance equal to the aggregate unpaid Repurchase
Amount of the affected Receivables for the preceding Collection Period or such
amount of Receivables necessary for Purchaser to have in its constructive
possession and control through Custodian a Pool equalling the unreimbursed
purchase price. Such Receivables withdrawn from the Reserve Account shall become
the property of Purchaser. So long as the Minimum Reserve Account Amount is
maintained by Seller, Seller may request and
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receive from Purchaser and from the Reserve Account any Defaulted Receivable.
SECTION 5.03 Other Charges Against the Reserve Account. As of each
Record Date, if an Obligor or an Obligor's representative or successor
successfully shall assert a claim (including the avoidance of a preferential
transfer under bankruptcy law) that results in a liability of Purchaser to such
Obligor, Seller shall, on each Distribution Date, pay to Purchaser an amount
equal to any loss incurred by Purchaser as of the Record Date due to such claim
pursuant to Section 4.01(g). Seller shall pursue reasonable remedies against any
necessary or proper parties, as appropriate, to recover the amount of any loss
to Purchaser caused by such claim. Nothing in this Section 5.03 shall limit or
impair any right of Purchaser to indemnification under this Agreement in
connection with any such loss.
SECTION 5.04 Other Deposits To and Charges Against Reserve Account. On
each Distribution Date, if payments of Collected Interest made to the Purchaser
for a Collection Period with respect to the Receivables exceed or are less than
an amount equal to the per annum yield specified in Section 5.01 computed, from
time to time, on the Pool as reduced by payments received during such Collection
Period by the Purchaser, then an amount equal to such excess shall be deposited
by Purchaser into, and the amount of any such deficiency shall be paid by Seller
to the Reserve Account, as the case may be. In addition, Seller shall pay the
additional amounts for deposit to the Reserve Account provided for in Section
4.01 (f), if any, and such amounts, together with any amounts paid by Guarantor
pursuant to the Guaranty Agreement shall be deposited by Purchaser into the
Reserve Account.
SECTION 5.05 Minimum Reserve Account Amount. As of each Record Date,
the Reserve Account Balance shall equal the Minimum Reserve Account Amount.
Seller shall deposit with Purchaser or with Custodian such additional
Receivables, acceptable to Purchaser in its sole discretion, valued at the then
present Principal Balance, as are necessary on or before each Record Date to
insure that at all times Seller shall maintain in the Reserve Account the
Minimum Reserve Account Amount but if any such Receivable is rejected by
Purchaser, Purchaser shall have the right to substitute cash in lieu thereof.
Purchaser shall have the right in its sole and absolute discretion to require
Seller to provide either a different type of replacement (land sale or
timeshare) contract or to make a cash payment or deposit to insure that the
Minimum Reserve Account Amount is in effect on each Record Date.
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SECTION 5.06 Termination of Reserve Account. If, after payment in full
of all of the Receivables sold to Purchaser by Seller and after satisfaction of
all obligations of the Seller (whether as Seller or as servicer) hereunder, any
monies or Receivables shall remain in the Reserve Account, Purchaser shall remit
any remaining balance of monies to Seller and assign any remaining Receivables
to Seller.
ARTICLE VI
Seller as Servicer
SECTION 6.01 Representations of Seller and of Seller as Servicer.
Seller for itself and as servicer make the following representations on which
Purchaser shall rely in purchasing the Receivables (or, except as noted in any
Replacement Request in accepting any assignment of Replacement Receivables
pursuant to Section 4.02). The representations shall speak as of the Closing
Date (or the Distribution Date in the case of Replacement Receivables assigned
pursuant to Section 4.02), and shall survive the sale, transfer and assignment
of the Receivables to Purchaser.
(i) Organization and Good Standing. Seller shall have been duly
organized and shall be validly existing as a corporation in good standing under
the laws of the State of Nevada with the power and authority to own its
respective properties and to conduct its respective business as such properties
shall be currently owned and such business is presently conducted, and Seller
had, at all relevant times, and shall have, all requisite power, authority, and
legal right to acquire and own the Receivables.
(ii) Due Qualification. Seller shall be duly qualified to do business
as a foreign corporation in good standing (to the extent the failure to so
qualify could have a material adverse effect on it or on the Receivables or the
transactions contemplated hereby) and shall have obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of property
or the conduct of its business, including the undertakings under this Agreement,
shall require such qualifications, licenses or approvals.
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(iii) Power and Authority. Seller shall have the power and authority to
execute and deliver this Agreement and to carry out its terms and Seller shall
have full power and authority to sell, transfer, assign and service the
Receivables and shall have duly authorized such sale, transfer, assignment,
servicing and deposit to and with Purchaser by all necessary corporate action;
and the execution, delivery, and performance of this Agreement shall have been
duly authorized by Seller by all necessary corporate action.
(iv) Valid Sale: Binding Obligations. This Agreement shall effect a
valid sale, transfer, and assignment of the Receivables and create in Purchaser
a valid and perfected first-priority lien on and security interest in the
Reserve Account and all monies therein, and investments and proceeds thereof, by
Seller, enforceable against creditors of and purchasers from Seller; and this
Agreement shall constitute a legal, valid, and binding obligation of Seller
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors rights in general and by general
principles of equity, regardless of whether such enforceability shall be
considered in a proceeding in equity or at law.
(v) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof shall not conflict with,
or result in any breach of, any of the terms and provisions of, nor constitute
(with or without notice or lapse of time) a default under, the articles or
certificate of incorporation, charter, or bylaws of Seller, or conflict with or
breach any of the material terms or provisions of, or constitute (with or
without notice or lapse of time) a default under, any indenture, agreement, or
other instrument to which Seller is a party or by which it or its property shall
be bound; nor result in the creation or imposition of any Lien upon any of their
respective properties pursuant to the terms of any such indenture, agreement, or
other instrument (other than this Agreement); nor violate any law or any order,
rule or regulation applicable to Seller of any court or of any federal or state
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over Seller or their respective properties; and no
governmental and nongovernmental consents, approvals, authorizations,
declarations, registrations or filings are or will be required on the part of
Seller in connection with the execution, delivery and performance of this
Agreement or the transactions contemplated hereby or as a condition to the
legality, validity or enforceability of this Agreement, except for filings
contemplated by Section 2.02 and routine filings required to maintain corporate
standing and currently effective governmental registrations, licenses and
permits.
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(vi) No Proceedings. There are no proceedings or investigations
pending, or threatened, before any court, regulatory body, administrative
agency, or other governmental instrumentality having jurisdiction over the
Seller or its properties: (a) asserting the invalidity of this Agreement or the
Receivables, (b) seeking to prevent the sale of the Receivables or the
consummation of any of the transactions contemplated by this Agreement, or (c)
seeking any determination or ruling that are expected to materially and
adversely affect the performance by Seller of its obligations under, or the
validity or enforceability of, this Agreement or the Receivables.
(vii) Location of Chief Executive Office. The chief executive office of
Seller is located at The PEC Building, 4310 Paradise Road, Las Vegas, Nevada
89109-6572.
(viii) Accuracy of Information. All factual information furnished by
Seller to Purchaser is, and all such factual information hereafter furnished by
Seller to Purchaser will be, true and accurate in all material respects.
(ix) No Finders or Brokers. Seller has not engaged any finder or broker
in connection with the transactions contemplated by this Agreement and no fees
or commissions are payable by Seller in connection herewith.
SECTION 6.02 Indemnities of Seller.
Seller shall indemnify, defend and hold harmless Purchaser from and
against any taxes that may at any time be asserted against Purchaser with
respect to the sale of the Receivables to Purchaser, including any Taxes
relating to any Financed Property, and any sales, gross receipts, general
corporation, tangible or intangible personal property, privilege, or license
taxes and including any such taxes imposed by the State of Nevada, or any
political subdivision or taxing authority thereof, on the Receivables or any
income therefrom, or on the Financed Property or on Purchaser as a result of the
purchase of the Receivables hereunder (but not including any taxes imposed on
the overall net income of Purchaser by the jurisdictions, or any political
subdivision or taxing authority of any such jurisdictions, in which Purchaser
has its principal office).
Seller shall defend, indemnify, and hold harmless Purchaser from and
against any and all costs, expenses, losses, damages, claims, and liabilities,
arising out of or resulting from the management, use, ownership, or operation of
any Financed Property by Seller or any Affiliate or other Person acting on its
behalf.
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Seller shall indemnify Purchaser for any and all costs, expenses,
losses, damages, claims, and liabilities of any kind whatsoever that may be
imposed on, incurred, or asserted against Purchaser as the result of any act or
omission attributable to the original Custodian or any successor Custodian
approved in writing by Seller (which approval shall not be unreasonably
withheld), in any way relating to the maintenance and custody by the Custodian
of the Custodian Receivable Files or arising from the transaction contemplated
by the Custodial Agreement or the Agency Agreement.
Seller shall indemnify, defend, and hold harmless Purchaser from and
against any and all other costs, expenses, losses, claims, damages, and
liabilities to the extent that such cost, expense, loss, claim, damage, or
liability arose out of, or was imposed upon Purchaser through, the purchase of
the Receivables or its participation in any of the transactions contemplated by
this Agreement, whether attributable to Seller, any Obligor or any other Person
(other than a successor Custodian or servicer which has not been approved in
writing by Seller, which approval shall not be unreasonably withheld) including
failure of Seller as servicer to provide notice of sale of any Financed Property
to the related Obligor and failure to comply with applicable laws in collecting
the Receivables or to acts or omissions of any successor Custodian which has
been approved in writing by the Seller as servicer (which approval shall not be
unreasonably withheld).
Indemnification under this Section shall include reasonable fees and
expenses of counsel and expenses of investigation and litigation, including fees
and expenses of counsel and other expenses incurred in investigating, or
preparing a defense of, any threatened litigation or claim asserted but shall
not include any cost, expense, loss, claim, damage or liability to the extent
attributable to the willful misconduct or gross negligence of Purchaser or to
acts or omissions of any successor Custodian or servicer which has not been
approved in writing by Seller (which approval shall not be unreasonably
withheld). If Seller shall have made any indemnity payments pursuant to this
Section 6.02 and Purchaser thereafter collects any of such amounts from others,
Purchaser shall promptly repay such amounts to the Seller without interest.
Without affecting the survival of any other provision of this Agreement, the
indemnities contained in this Section 6.02 shall survive any payment of the
amounts owing under, or any repurchase or replacement by Seller of any
Receivable and shall survive the termination of this Agreement under Article
VIII.
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SECTION 6.03 Protection of Title to the Receivables. Etc. (a) Seller
shall execute and file such assignments of agreements for deed and deeds of
trust, mortgages, financing statements and other documents and cause to be
executed, recorded and filed such continuation statements and shall take or
cause to be taken such other actions, all in such manner and in such places as
may be required by law and as otherwise requested by Purchaser to preserve,
maintain, and protect the interest of Purchaser under this Agreement in the
Receivables and in the proceeds thereof. Seller shall deliver (or cause to be
delivered) to Purchaser file-stamped copies of, or filing receipts for, any
document recorded or filed as provided above, as soon as available following
such filing.
(b) Seller shall not change its name, identity, or corporate structure
in any manner that would, could or might make any financing statement or
continuation statement filed pursuant to this Agreement seriously misleading
within the meaning of Section 9-402(7) of the UCC, unless it shall have given
Purchaser at least 60 days prior written notice thereof and shall have taken
such action as Purchaser may request under Section 6.03(a) in connection
therewith.
(c) Seller shall give Purchaser at least 60 days' prior written notice
of any relocation of their chief executive office if, as a result of such
relocation, the applicable provisions of the UCC would require the filing of any
amendment of any previously filed financing or continuation statement or of any
new financing statement and shall have taken such action as Purchaser may
request under Section 6.03(a) in connection therewith. Seller shall at all times
maintain its chief executive office, and the servicer shall at all times
maintain each office from which it shall service Receivables, within the United
States of America.
(d) Seller shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time distributed in respect of such Receivable.
(e) Seller shall if requested by Purchaser, place or cause the
Custodian to place, on such documents in any Custodian Receivable File or any
Servicer Receivable File or any folder or file cabinet containing such documents
or folders a notation that the related Receivable has been sold, transferred and
assigned to Purchaser pursuant to this Agreement and shall further obliterate
any such notations indicating any transfer, assignment, pledge or interest of
any other Person therein.
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Seller shall maintain its computer systems so that, from and after the time of
sale under this Agreement of the Receivables to Purchaser, Seller's and the
master computer records (including archives) of Seller and Seller as servicer
that shall refer to a Receivable indicate clearly that such Receivable is owned
by Purchaser. Indication of Purchaser's ownership of a Receivable shall be
deleted from or modified on the master computer system of Seller and Seller as
servicer when, and only when, the Receivable shall have been paid in full or
repurchased from Purchaser.
(f) If at any time Seller shall propose to sell, grant a security
interest in, or otherwise transfer any interest in any Receivables to any
prospective purchaser, lender, or other transferee, Seller shall give to such
prospective purchaser, lender, or other transferee computer tapes, records, or
print-outs (including any restored from archives) that, if they shall refer in
any manner whatsoever to any Receivable, shall indicate clearly that such
Receivable has been sold and is owned by Purchaser.
(g) Upon request, servicer shall furnish to Purchaser, promptly after
request, such further information pertinent to the Receivables or this Agreement
as Purchaser may request.
SECTION 6.04 Additional Covenants of Seller. (a) Seller shall not
create, incur or suffer to exist, or purport to create, incur or suffer to
exist, any Lien on the Receivables or the Reserve Account, except in favor of
Purchaser; (b) Seller shall take all actions necessary to assure that all owners
of any Financed Property in the Timeshare Project shall have the right to apply
for (subject to payment of applicable membership charges) exchange privileges
through Resort Condominiums International or another international exchange
organization acceptable to Purchaser, and Seller shall not cause or permit
(where it has a right to consent or object thereto) any change of the Trustee
under the Trust Agreements without the prior written consent of Purchaser, which
consent will not be unreasonably withheld; (c) Seller shall maintain all
licenses and permits and other authority required in connection with the
management of the Timeshare Project and the performance of their respective
obligations under this Agreement; (d) Seller as soon as available and in any
event within 60 days after the end of each fiscal quarter of Seller shall
furnish the consolidated balance sheet of the Seller and its respective
Subsidiaries as of the end of such quarter, and the related consolidated
statements of income and cash flows for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, all in reasonable detail and duly
certified (subject to the year-end audit adjustments) by the chief financial
officer of the
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Seller as having been prepared in accordance with generally accepted accounting
principles (except those relating to inclusion of footnotes), together with a
certificate of the chief financial officer of the Seller and the Guarantor,
respectively, stating (i) that no event or condition which, with notice or lapse
of time, or both, would constitute an Event of Transfer has occurred and is
continuing or, if an Event of Transfer has occurred and is continuing, a
statement setting forth the details thereof and the action which the Seller has
taken and proposes to take with respect thereto, and (ii) a computation (which
computation shall accompany such certificate and shall be in reasonable detail)
which shows compliance with subparagraphs (f) through (h) hereof; (e) Seller as
soon as available and in any event within 120 days after the end of each fiscal
year of the Seller shall furnish a copy of the consolidated balance sheet of the
Seller and its respective Subsidiaries as of the end of such fiscal year and the
related consolidated statements of income, shareholders' equity and cash flows
of the Seller and its respective Subsidiaries for such fiscal year, certified
without qualifications unacceptable to the Purchaser by Deloitte & Touche, or
other independent certified public accountants selected by the Seller and
acceptable to the Purchaser, together with a certificate of such accountants
stating (i) that they have reviewed this Agreement and stating further whether,
in the course of their review of such financial statements, they have become
aware of any event or condition which, with notice or lapse of time, or both,
would constitute an Event of Transfer hereunder, and if such an event or
condition then exists and is continuing, a statement setting forth the nature
and status thereof, and (ii) a computation (which computation shall accompany
such certificate and shall be in reasonable detail) which shows compliance with
subparagraphs (f) through (h) hereof; (f) Seller shall not permit or suffer
Consolidated Tangible Net Worth of the Seller and its Subsidiaries to be less
than $25,000,000 at any time; (g) Seller shall not permit or suffer to be less
than $5,000,000 at any time the aggregate of (i) cash and (ii) the outstanding
principal balance of receivables of the type comprising Receivables under the
Purchase Agreement, for which no payment of principal or interest is more than
sixty days past due in accordance with the Credit and Collection Policies and
which are not subject to any Lien, except Liens for Taxes not yet due and
payable in the case of Timeshare Receivables and Liens for Taxes that have not
been enforced by the applicable taxing authority in the case of Land
Receivables; (h) Seller shall not make any loan or permit the advance of any
funds or property or any other extension of credit to any Guarantor or any
entity substantially controlled by the shareholders of Guarantor if the
aggregate outstanding principal amount thereof would exceed $2,000,000 (the
limitation contained in this sub-section shall be interpreted consistently with
a similar covenant in the Purchase and Servicing Agreements between Purchaser
and Seller of July 6, 1994 and August 31, 1995), or make or extend any guaranty
or
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similar commitment on behalf of any Affiliate or subsidiary of Guarantor;
provided, however, that the foregoing shall not be deemed to impose any
limitation on (i) the payment of dividends or (ii) the making of any loan,
advance or extension of credit to any wholly-owned Subsidiary of the Seller;
provided, however, that notwithstanding the foregoing, neither the Seller nor
any of its Subsidiaries shall make any such loan, advance or extension of
credit, guaranty or similar commitment to Guarantor for the purpose, directly or
indirectly, of providing financing for any other Subsidiary or Affiliate of
Guarantor; and (i) Seller shall take such steps as are necessary to insure that
no material change in the management of Seller or Guarantor shall occur such
that at least three (3) of the following individuals shall at all times remain
member of the senior management group of Seller- Robert Nederlander, Jerome
Cohen, Don Mayerson and/or Herbert Hirsch.
SECTION 6.05 Reliance by Seller as Servicer. Seller as servicer and any
director or officer or employee or agent of Seller may rely in good faith on the
advice of counsel or on any document of any kind prima facie properly executed
and submitted by any Person respecting any matter arising under the Agreement.
Except as provided in this Agreement, Seller shall not be under any obligation
to appear in, prosecute, or defend any legal action that shall be unrelated to
its obligations under this Agreement, and that in its opinion may involve it in
any expense or liability, provided, however, that Seller may, with the express
prior written consent of Purchaser and at Seller's expense unless otherwise
agreed, undertake any reasonable action that it may deem necessary or desirable
in respect of this Agreement and the rights and duties of the parties to this
Agreement.
SECTION 6.06 Seller as Servicer Not To Resign: New Servicer. Seller as
servicer shall not resign from its obligations and duties under this Agreement
except upon determination that the performance of its duties shall no longer be
permissible under applicable law. Any such determination permitting the
resignation of the servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to Purchaser. No such resignation shall become effective until
Purchaser or a successor servicer shall have assumed the responsibilities and
obligations of the servicer in accordance with Section 7.02, unless otherwise
required by a binding order of any court, or governmental or administrative
entity.
ARTICLE VII
Transfer of Servicing
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SECTION 7.01 Events of Transfer. If any one of the following events or
conditions shall occur and be continuing:
(a) Any failure by Seller to deliver or pay when due to Purchaser any
proceeds or payment required to be so delivered or paid under the terms of this
Agreement or to deliver any certificate required to be delivered pursuant to
Section 3.09, if such failure shall continue unremedied for a period of three
Business Days after written notice of such failure is given to Seller by
Purchaser; or
(b) Failure on the part of the Seller to duly observe or to perform in
any material respect any other covenants or agreements set forth in this
Agreement or in the Custodial Agreement or Agency Agreement, which failure shall
continue unremedied for a period of 30 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to Seller by Purchaser; or
(c) Any material representation made by Seller in Section 6.01 shall
prove to have been incorrect in any material respect when made or deemed made;
then, and in each and every case, Purchaser, by notice in writing to Seller may
(i) terminate all of the rights and obligations of Seller as servicer under this
Agreement or (ii) defer the rights of Seller to receive any distribution
pursuant to Section 4.01(e) until termination of this Agreement pursuant to
Section 8.01, or (iii) any one or more of the foregoing. On or after the receipt
by the Seller as servicer of such written notice of termination, all authority
and power of the Seller as servicer under this Agreement, whether with respect
to the Receivables or otherwise, shall pass to and be vested in Purchaser
pursuant to this Section 7.01; and, without limitation, Purchaser shall be
hereby authorized and empowered to execute and deliver, on behalf of Seller 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 the Custodian Receivable Files or the Servicer Receivable Files,
or otherwise. Seller shall cooperate with the Purchaser in effecting the
termination of the responsibilities and rights of the Seller as servicer under
this Agreement, including the transfer to Purchaser for administration by it of
all monies and cash that shall at the time be held for deposit or shall
thereafter be received with respect to a Receivable. Without limiting the
generality of the foregoing, Seller at its own expense will deliver, and if
requested by Purchaser, will cause the Custodian to deliver, upon such
termination, to Purchaser all of the Custodian Receivable Files and Servicer
Receivable Files and such other memorialized data, documents and records related
thereto (including without limitation true copies
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<PAGE> 50
of any microfilms, computer tapes and data and computer memories and any
documentary evidence of title to any Financed Property or other documentary
evidence as is required to perfect a lien and security interest in such Financed
Property) as Purchaser may reasonably deem necessary to enable it to enforce its
rights thereunder and to protect its position as owner thereof and to administer
the Receivables as successor servicer. After any such termination and delivery,
neither Seller nor the Custodian if requested by Purchaser will hold or retain
any executed counterpart or other copy of any Receivable or related material
without clearly marking the same to indicate conspicuously that the same is not
the original and that transfer thereof does not transfer any rights against the
related Obligor or any other Person.
SECTION 7.02. Purchaser to Act; Appointment of Successor. Upon Seller
as servicer's, receipt of notice of termination pursuant to Section 7.01 or
resignation pursuant to Section 6.06, Purchaser shall be successor in all
respects to the Seller as servicer under this Agreement, and shall succeed to
all the rights, responsibilities, duties and liabilities relating thereto placed
on Seller as servicer by the terms and provisions of this Agreement. As
compensation therefor, Purchaser shall be entitled to receive from the proceeds
of the Receivables notwithstanding the provisions of Section 5.03 or any
provision of this Agreement to the contrary all costs and expenses of any kind
incurred directly or with others in connection therewith, which shall include
customary profit and overhead allocation if incurred directly by Purchaser.
Purchaser shall provide Seller with a statement thereof, which shall be
conclusive absent manifest error. However, receipt of such proceeds by Purchaser
shall not affect the right of Purchaser to receive or recover damages sustained
by reason of any breach of this Agreement by Seller or any payment which may
then be due under the terms of this Agreement to Purchaser. Notwithstanding the
above, Purchaser may appoint any Person as the successor to Seller as servicer
under this Agreement. In connection with such appointment, Purchaser may make
such arrangements for the reasonable compensation and payment of such successor
out of payments on Receivables or otherwise as it and such successor shall
agree. Purchaser and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
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SECTION 7.03 Waiver of Past Defaults. Purchaser may waive any default
by Seller in the performance of its obligations hereunder and its consequences.
Upon any such waiver of a past default, such default shall cease to exist, and
any Event of Transfer arising therefrom shall be deemed to have been remedied
for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived. No course of dealing on the part of Purchaser, nor
any delay or failure on the part of Purchaser in exercising any right, power or
privilege hereunder shall operate as a waiver of such right, power or privilege
or otherwise prejudice Purchaser's rights and remedies hereunder; nor shall any
single or partial exercise thereof preclude any further exercise thereof or the
exercise of any other right, power or privilege. No right or remedy conferred
upon or reserved to Purchaser under this Agreement is intended to be exclusive
of any other right or remedy, and every right and remedy shall be cumulative and
in addition to every other right or remedy granted thereunder or now or
hereafter existing under any applicable law.
ARTICLE VIII
Termination
SECTION 8.01 Termination. This Agreement and the respective rights and
obligations of Seller and Purchaser shall terminate, except for the indemnities
under Section 6.02 and the representations and warranties under Sections 2.03
and 6.01 which shall survive such termination, upon the payment in full of all
of the Receivables in accordance with their terms and the satisfaction of all
obligations of Seller to Purchaser hereunder and under a Purchase Agreement of
December 31, 1992 between The Oxford Finance Company and Purchaser, a Purchase
and Servicing Agreement of July 6, 1994 between Purchaser and Seller or a
Purchase and Servicing Agreement of August 31, 1995 between Purchaser and
Seller. The Seller shall promptly notify the Purchaser of any prospective
termination pursuant to this Section 8.01.
ARTICLE IX
Miscellaneous Provisions
SECTION 9.01 Amendment. This Agreement may be amended only by writing
executed on behalf of the Purchaser and Seller.
SECTION 9.02 Counterparts. For the purpose of
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facilitating the execution of this Agreement and for other purposes, this
Agreement may be executed simultaneously in any number of counterparts, each of
which counterparts shall be deemed to be an original, and all of which
counterparts shall constitute but one and the same instrument.
SECTION 9.03 Governing Law. The Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the
obligations, rights, and remedies of the parties under this Agreement shall be
determined in accordance with such laws, without giving effect to any conflicts
of laws principles. Seller further agrees that any legal action or proceeding
with respect to this Agreement, or the transactions contemplated hereby, may be
brought in any court of the Commonwealth of Massachusetts, or in any court of
the United States of America sitting in Massachusetts, and each of them hereby
submits to and accepts generally and unconditionally the jurisdiction of those
courts with respect to its person and property. Nothing in this paragraph shall
affect the right of Purchaser to bring any such action or proceeding against
Seller or its property in the courts of any other jurisdiction. Each of them
hereby irrevocably waives any objection to the laying of venue of any such
action or proceeding in the above described courts and further waives trial by
jury. To the extent that service of process by mail is permitted by applicable
law, such service shall be made by registered or certified mail, return receipt
requested, to the address and in the manner set forth in Section 9.04 and
Purchaser shall further use its best efforts to effect personal service.
SECTION 9.04 Notices. All demands, notices, and communications under
this Agreement shall be in writing, personally delivered or mailed by certified
mail, return receipt requested, and shall be deemed to have been duly given upon
receipt (a) in the case of Seller or Seller as servicer, to The PEC Building,
4310 Paradise Road, Las Vegas, Nevada 89109, Attention: Frederick H. Conte,
Executive Vice President, Telephone: (702) 737-3700, Facsimile: (702) 3694398,
with a copy to Jerome J. Cohen, President, 1125 N.E. 125th Street, Suite 206,
North Miami, Florida, 33161, Telephone: (305) 895-6500, Facsimile: (305)
899-1824, with a further copy to Mego Financial Corp., 4310 Paradise Road, Las
Vegas, Nevada 89109, Attention: Frederick H. Conte, Telephone: (702) 737-3700,
Facsimile: (702) 369-4398, or at such other address as shall be designated by
Seller or Seller as servicer by written notice to the Purchaser, (b) in the case
of Purchaser, at 100 Federal Street, Boston, Massachusetts 02110 Attention: Real
Estate Department-Amy Weinstock Telephone: 617-434-2979, Facsimile: (617) with a
copy to BankBoston, N.A., 115 Perimeter Center Place N.E., Suite 500, Atlanta,
Georgia 30346 Attention: John Pearson, Assistant Vice President, Facsimile:
(770) 390-8434 or to such other address as shall be designated by Purchaser by
written notice to Seller.
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SECTION 9.05 Severability of Provisions. If any 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.
SECTION 9.06 Officer's Certificates; Assignment. Certificates to be
provided by officers of Seller or the Guarantor pursuant to this Agreement or
the Guaranty Agreement shall be deemed given by such officer on behalf of such
corporation, and the officer or officers signing any such certificate shall not
incur personal liability therefor except to the extent that such liability would
attach under applicable law due to fraud, intentional misrepresentation or
intentional wrongdoing. This Agreement may not be assigned, in whole or in part,
by Seller without the prior written consent of Purchaser.
SECTION 9.07 Section References. All section references shall be to
Sections in this Agreement unless otherwise specified.
SECTION 9.08 Expenses. Seller agrees to pay, or reimburse Purchaser for
the payment of, on demand, the reasonable fees and expenses of counsel to
Purchaser, in connection with the preparation, execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, any
amendment or modification hereof and the administration of and compliance with
this Agreement and the transactions contemplated hereby, the occurrence of any
Event of Transfer or the enforcement of the obligations of Seller.
SECTION 9.09 Allocation of Collections. If an Obligor is obligated
under one or more Receivables and also under one or more other assets owned by
Seller or assigned by Seller to third parties, then any payment on any such
asset received from such Obligor shall, if identified by such Obligor as being
made with respect to a particular item or asset, be applied to such item, and
otherwise shall be allocated by the Seller as servicer to the Receivables before
allocation to any other amount due, including assessments required to be paid in
respect of any Financed Property in the Timeshare Project or escrows of any
payments in respect of Taxes in the case of the Land Receivables. Seller shall
not take any action to cause any Obligor to identify any payment to any
particular item or asset in reference to the Receivables.
SECTION 9.10 Non-Assumption by Purchaser of Obligations. No obligation
or liability to any Obligor under any of the Receivables is intended to be
assumed by Purchaser hereunder and
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any such assumption is, to the maximum extent permitted and valid under
applicable law, hereby expressly disclaimed.
SECTION 9.11 Prohibition On Use of Name. Seller and Guarantor are
prohibited from using the name of Purchaser or the name of any Affiliate of
Purchaser in connection with any of their respective activities, except as
required in Seller or Guarantor's dealings with governmental agencies (including
the Securities and Exchange Commission, Stock Exchanges and the National
Association of Securities Dealers), financing institutions and internal business
matters.
SECTION 9.12 Audits. Purchaser shall have the right to make periodic
audits of the Obligor files, Obligor documents, books and records of Seller and
Guarantor related to the Receivables at its discretion and at the expense of
Seller but such audit expense shall not exceed Six Thousand ($6,000) Dollars on
an annual basis provided Seller is not in breach of any provision of this
Agreement.
SECTION 9.13 Brokers. Purchaser and Seller represent and warrant to
each other that neither has engaged the services of any broker nor had
discussions with any party entitled to a finder's fee or commission in
connection with the purchase contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Purchase and Servicing
Agreement to be duly executed by their respective officers as of the day and
year first above written.
PREFERRED EQUITIES CORPORATION,
as Seller
/s/ RICHARD L. RODRIGUEZ
- ------------------------------------------------
By: Richard L. Rodriguez
Title: Vice President
PREFERRED EQUITIES CORPORATION, as Servicer
/s/ RICHARD L. RODRIGUEZ
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By: Richard L. Rodriguez
Title: Vice President
BANKBOSTON, N.A., A NATIONAL BANKING ASSOCIATION,
as Purchaser
/s/ JOHN T. PEARSON
- ------------------------------------------------
By: John T. Pearson
Title: Assistant Vice President
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<PAGE> 1
EXHIBIT 10.115
SECOND AMENDED AND RESTATED AND CONSOLIDATED
LOAN AND SECURITY AGREEMENT
BY THIS SECOND AMENDED AND RESTATED AND CONSOLIDATED LOAN AND
SECURITY AGREEMENT entered into as of the _____ day of May, 1997, between FINOVA
CAPITAL CORPORATION, a Delaware corporation ("Lender"), formerly known as
Greyhound Financial Corporation and successor-by-merger to Greyhound Real Estate
Finance Company, an Arizona corporation ("GREFCO"), having a business and
mailing address at 7272 East Indian School Road, Suite 410, Scottsdale, Arizona
85251, and PREFERRED EQUITIES CORPORATION, a Nevada corporation ("Borrower"),
having its principal place of business and mailing address at 4310 Paradise
Road, Las Vegas, Nevada 89109, hereby confirm and agree as follows:
RECITALS
A. GREFCO and Borrower entered into a Loan and Security
Agreement, dated as of February 1, 1988 which evidenced a loan from GREFCO to
Borrower (the "Original PEC Loan Agreement").
B. GREFCO and Borrower entered into an Amended and Restated Loan
and Security Agreement dated as of May 10, 1989 (the "Restated PEC Loan
Agreement") which amended and restated the Original PEC Loan Agreement in its
entirety.
C. The Restated PEC Loan Agreement was amended by an Amendment
Number One to Amended and Restated Loan and Security Agreement dated as of June
14, 1989 (the "First PEC Amendment"), by an Amendment No. 2 to Amended and
Restated Loan and Security Agreement dated as of April 16, 1990 (the "Second PEC
Amendment"), by an Amendment No. 3 to Amended and Restated Loan and Security
Agreement dated as of May 31, 1991 (the "Third PEC Amendment"), by an Amendment
No. 4 to Amended and Restated Loan and Security Agreement dated as of January
13, 1992 (the "Fourth PEC Amendment"), by an Amendment No. 5 to Amended and
Restated Loan and Security Agreement dated as of February 23, 1993 (the "Fifth
PEC Amendment"), by an Amendment No. 6 to Amended and Restated Loan and Security
Agreement dated as of June 28, 1993 (the "Sixth PEC Amendment"), by an Amendment
No. 7 to Amended and Restated Loan and Security Agreement dated as of January
24, 1994 (the "Seventh PEC Amendment"), by an Amendment No. 8 to Amended and
Restated Loan and Security Agreement dated as of April 15, 1994 (the "Eighth PEC
Amendment"), by an Amendment No. 9 to Amended and Restated Loan and Security
Agreement dated as of August 31, 1994 (the "Ninth PEC Amendment"), by an
Amendment No. 10 to Amended and Restated Loan and Security Agreement dated as of
January 26, 1995 (the "Tenth PEC Amendment"), by an Amendment No. 11 to Amended
and Restated Loan and Security Agreement dated as of September 22, 1995 (the
"Eleventh PEC Amendment"), by an Amendment No. 12 to Amended and Restated
<PAGE> 2
Loan and Security Agreement dated as of September 29, 1995 (the "Twelfth PEC
Amendment"), by an Amendment No. 13 to Amended and Restated Loan and Security
Agreement dated as of December 13, 1995 (the "Thirteenth PEC Amendment"), by an
Amendment No. 14 to Amended and Restated Loan and Security Agreement dated as of
June 5, 1996 (the "Fourteenth PEC Amendment"), and by an Amendment No. 15 to
Amended and Restated Loan and Security Agreement dated as of August 16, 1996
(the "Fifteenth PEC Amendment"). The Restated PEC Loan Agreement, as amended by
the First PEC Amendment, the Second PEC Amendment, the Third PEC Amendment, the
Fourth PEC Amendment, the Fifth PEC Amendment, the Sixth PEC Amendment, the
Seventh PEC Amendment, the Eighth PEC Amendment, the Ninth PEC Amendment, the
Tenth PEC Amendment, the Eleventh PEC Amendment, the Twelfth PEC Amendment, the
Thirteenth PEC Amendment, the Fourteenth PEC Amendment and the Fifteenth PEC
Amendment, is hereinafter collectively referred to as the "Existing PEC Loan
Agreement."
D. GREFCO and Vacation Spa Resorts, Inc., a Tennessee corporation
("VSR"), entered into a Loan and Security Agreement dated as of March 30, 1989
(the "Original VSR Loan Agreement") that evidenced a loan from GREFCO to VSR.
E. The Original VSR Loan Agreement was amended by an Amendment
Number One to Loan and Security Agreement and Promissory Note dated as of June
14, 1989 (the "First VSR Amendment"), an Amendment No. 2 to Loan and Security
Agreement dated as of April 16, 1990 (the "Second VSR Amendment"), an Amendment
No. 3 to Loan and Security Agreement dated as of May 31, 1991 (the "Third VSR
Amendment"), an Amendment No. 4 to Loan and Security Agreement dated as of
February 23, 1993 (the "Fourth VSR Amendment"), an Amendment No. 5 to Loan and
Security Agreement dated as of October 15, 1993 (the "Fifth VSR Amendment") and
an Amendment No. 6 to Loan and Security Agreement dated as of August 31, 1994
(the "Sixth VSR Amendment"), and an Amendment No. 7 to Loan and Security
Agreement dated as of August 16, 1996 (the "Seventh VSR Amendment"). The
Original VSR Loan Agreement, as amended by the First VSR Amendment, the Second
VSR Amendment, the Third VSR Amendment, the Fourth VSR Amendment, the Fifth VSR
Amendment, the Sixth VSR Amendment and the Seventh VSR Amendment, is hereinafter
collectively referred to as the "Existing VSR Loan Agreement."
F. GREFCO was a wholly-owned subsidiary of Lender. Pursuant to a
plan of liquidation, GREFCO was liquidated into Lender. Further, pursuant to
such plan of liquidation, GREFCO assigned all of GREFCO's rights under the
Existing PEC Loan Agreement and under the Existing VSR Loan Agreement to Lender.
G. Pursuant to that Agreement and Plan of Merger dated as of July
24, 1992 by and between Borrower and VSR, and those Articles of Merger of
Vacation Spa Resorts, Inc. with and into Preferred Equities Corporation dated as
of March 10, 1993, VSR was, effective March 11, 1993, merged into Borrower. As a
result of such merger, Borrower
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has succeeded to all rights and privileges of VSR and has become responsible and
liable for all liabilities and obligations of VSR.
H. Pursuant to that certain Assumption Agreement (With Consent
and Agreement of Guarantor) dated June 28, 1993 between Lender and Borrower,
Borrower acknowledged and agreed that it was irrevocably and unconditionally
liable for the repayment of the loan made pursuant to the Existing VSR Loan
Agreement and for the payment, performance and observance of all of the
obligations, covenants and representations and warranties of VSR as set forth in
the Existing VSR Loan Agreement and in the documents executed in connection
therewith as if Borrower was an original party to such agreement and documents.
I. Borrower and Lender have agreed to consolidate the Existing
PEC Loan Agreement and Existing VSR Loan Agreement (collectively the "Existing
Loan Agreement") and thereafter to further modify and amend and restate in its
entirety the Existing Loan Agreement, in accordance with the provisions of this
Second Amended and Restated and Consolidated Loan and Security Agreement. It is
the purpose and intent of Borrower and Lender that this Second Amended and
Restated and Consolidated Loan and Security Agreement shall set forth all
existing terms and conditions of the Loan described herein, and all previous and
prior terms, conditions and provisions of the Loan as set forth in the Existing
PEC Loan Agreement and the Existing VSR Loan Agreement are collectively merged
herein and all inconsistent or contrary provisions of the Existing PEC Loan
Agreement and/or the Existing VSR Loan Agreement shall be of no further force or
effect.
J. Additionally, Borrower has requested, and Lender has agreed to
fund (pursuant to the terms and conditions of this Agreement), Advances under
the Mortgage Loan Facility to finance the acquisition and renovation of an
Additional Project consisting of three (3) buildings located at 184 Winnick
Avenue, 190 Winnick Avenue and 196 Winnick Avenue in Las Vegas, Nevada, more
particularly described in EXHIBIT "I-P" attached hereto (the "Second Winnick
Building Addition"), and including eighteen (18) time-share units. Borrower has
also requested, and Lender has agreed, in accordance with and subject to the
conditions of this Agreement, to make Advances of the Receivables Loan, from
time to time, against Instruments or Contracts arising from the Second Winnick
Building Addition.
NOW, THEREFORE, in consideration of these recitals, the covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which consideration are hereby acknowledged, Lender
and Borrower agree as follows:
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ARTICLE I
DEFINITIONS
Except where the context shall clearly otherwise require a
different interpretation, all capitalized terms used throughout this Agreement
shall have the meaning indicated or assigned to them, whether set forth above or
below or elsewhere in this Agreement.
"ADDITIONAL PROJECT": shall mean the real property, together with
the buildings and improvements thereon, and interests and appurtenances thereto,
of any one or more additional time-share or lot projects which are specifically
approved by Lender pursuant to this Agreement .
"ADDITIONAL PROJECT DEVELOPER": shall mean Borrower or one or
more Subsidiaries of Borrower from which the Borrower has acquired receivables
which are to become Receivables Collateral for or arising from the sale of a
Unit or Lot in a Project.
"ADVANCE": shall mean the monies or funds advanced from time to
time by Lender to Borrower in accordance with the terms and conditions of this
Agreement.
"AGENCY AGREEMENT": shall mean that certain Agency Agreement,
dated as of February 1, 1988, among Lender, Borrower and Collection Agent,
together with all exhibits and schedules attached thereto and all renewals,
extensions, amendments, replacements, restatements, supplements or modifications
from time to time made thereto.
"AGREEMENT": shall mean this Second Amended and Restated and
Consolidated Loan and Security Agreement, together with all exhibits and
schedules attached hereto and all renewals, extensions, amendments,
replacements, restatements, supplements or modifications from time to time made
hereto or thereto.
"ALOHA BAY": shall mean that certain time-share resort facility
commonly known as Aloha Bay, consisting of thirty-two (32) time-share units
located in Pinellas County, Florida, as more particularly described in EXHIBIT
"I-A" attached hereto.
"ALOHA BAY MATURITY DATE": shall mean May 20, 1998.
"ALOHA BAY MORTGAGE": shall mean that certain Mortgage,
Assignment of Rents and Proceeds and Security Agreement dated as of September
22, 1995 and recorded against Aloha Bay on September 26, 1995 as Instrument No.
95-241270, Book 9117, Page 280, Official Records of Pinellas County, Florida,
together with any modifications, amendments or supplements from time to time
made thereto, whether now or hereafter existing.
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<PAGE> 5
"ALOHA BAY NOTE": shall mean that certain Promissory Note of
Borrower dated as of September 22, 1995 in the original principal amount of
$3,600,000.00 evidencing the Advances of the Loan made by Lender to Borrower
with respect to Aloha Bay, together with any modifications, amendments,
restatements or supplements from time to time made thereto, whether now or
hereafter existing.
"ALOHA BAY RELEASE FEES": shall have the meaning set forth in
PARAGRAPH 3.9 of this Agreement.
"ANNUAL SERVICE FEES": shall mean those fees due under the terms
and conditions of the Contracts or Instruments payable by Purchasers to any
Trustee or to any Association for providing hotel services, maintenance,
repairs, replacements, tax payments, hazard insurance, and the like.
"APPLICABLE TRUST": shall mean any Trust which has assigned to
Lender its right, title and interest in and to any Contract or Instrument.
"APPLICABLE USURY LAW": shall mean the usury law applicable
pursuant to the choice of law of the parties set forth in ARTICLE XI, PARAGRAPH
11.10 hereof.
"ASSIGNMENTS": shall mean and refer to the Assignment of
Instruments and the Assignment of Contracts delivered by Borrower and/or any
Trust with respect thereto to Lender concurrently with each Advance under the
terms of which Borrower unconditionally transfers and assigns, with full
recourse, and any Applicable Trust unconditionally transfers and assigns,
without recourse, all of Borrower's or such Trust's title and interest in and to
the Eligible Receivables described therein free and clear of all claims,
demands, liens and encumbrances of third parties, as collateral security for the
Loan, together with all documents and assignments issued in connection
therewith.
"ASSOCIATION (FOUNTAINS)": shall mean the Grand Flamingo
Fountains Owners Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATION (RENO)": shall mean the Reno Spa Resort Owners
Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATION (SUITES)": shall mean the Grand Flamingo Suites
Owners Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATION (TERRACES)": shall mean the Grand Flamingo Terraces
Owners Association, a Nevada nonstock, nonprofit corporation
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"ASSOCIATION (TERRACES FOUR)": shall mean the Grand Flamingo
Terraces Four Owners Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATION (TOWERS)": shall mean the Grand Flamingo Owners
Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATION (VILLAS)": shall mean the Grand Flamingo Villas
Owners Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATION (WINNICK)": shall mean the Grand Flamingo Winnick
Owners Association, a Nevada nonstock, nonprofit corporation.
"ASSOCIATIONS": shall mean the Association (Fountains), the
Association (Reno), the Association (Suites), the Association (Terraces), the
Association (Terraces Four), the Association (Towers), the Association (Villas)
and the Association (Winnick), collectively.
"BORROWER": shall mean Preferred Equities Corporation, a Nevada
corporation, with its principal place of business and mailing address at 4310
Paradise Road, Las Vegas, Nevada 89109.
"BORROWING BASE": shall mean, as of the date of any determination
thereof, an amount equal to the lesser of (a) 85% of the unpaid principal
balance payable under the Eligible Receivables, or (b) 90% of the then present
value assigned to the unmatured installments of principal and interest payable
under the Eligible Receivables, discounted at Lender's prevailing discount rate
calculated as set forth in PARAGRAPH 7.6(I)(C); provided, however, that the
maximum Borrowing Base allocable to Eligible Receivables arising from the sale
of Units in Project (Reno) shall not in any event exceed $4,000,000.00; and
provided, further, that the maximum Borrowing Base allocable to Eligible
Receivables arising from the sale of Lots shall not in any event exceed
$35,000,000.00 in the aggregate; and provided, further, that the maximum
Borrowing Base allocable to Eligible Receivables arising from Unsolidified Lot
Sales shall be equal to 65% of the unpaid principal balance of all Eligible
Receivables consisting of Receivables Collateral constituting Unsolidified Lot
Sales, not to exceed at any time, however, the lesser of (i) an amount equal to
ten percent (10%) of the total unpaid principal balance of all Eligible
Receivables consisting of Receivables Collateral which are not constituted of
Unsolidified Lot Sales if the Borrowing Base allocable to Eligible Receivables
arising from the sale of Unsolidified Lot Sales exceeds at any time the amount
of $2,500,000.00, or (ii) $3,500,000.00.
"CLOSING DATE": shall mean that date that all of the conditions
precedent described in ARTICLE XII below have been satisfied, which date shall
not occur later than May 15, 1997.
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"COLLECTION AGENT": shall mean Bank of America, N.T. & S.A., or
should such entity cease to act as collection agent under the Agency Agreement,
its successor as collection agent under the Agency Agreement.
"CONTRACT": shall mean a contract of sale, for a fee or right to
use interest in a Unit or a Lot in any portion of the Project, which is assigned
to Lender.
"CONTROL GROUP": shall mean:
(a) Guarantor and any successor thereof;
(b) Robert Nederlander, Jerome J. Cohen, Wilbur L. Ross,
Jr., Eugene I. Schuster, Herbert B. Hirsch, Don A. Mayerson, John E.
McConnaughy, Jr., or any of them; and
(c) Persons which beneficially own, directly or
indirectly, five percent (5%) or more of the outstanding capital stock
of any class or classes having by the terms thereof the ordinary voting
power to elect a majority of the directors of Guarantor or Borrower
(irrespective of whether at the time capital stock of any other class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency).
"CUSTODIAL AGREEMENT": shall mean that certain Custodial
Agreement, dated as of April 16, 1990, among Lender, Borrower, and Custodian,
substantially in the form of EXHIBIT "I-B" hereto, together with all exhibits
and schedules attached thereto and all renewals, extensions, amendments,
restatements, replacements, supplements or modifications from time to time made
thereto.
"CUSTODIAN": shall mean Bank of America, N.T. & S.A., on behalf
of Bank of New York, in its sole capacity as custodian under the Custodial
Agreement, or should such entity cease to act as custodian under the Custodial
Agreement, its successor as custodian under the Custodial Agreement.
"DOCUMENTS": shall mean the Receivables Note, the Ida Building
One Note, the Ida Building Two Note, the Office Note, the Aloha Bay Note, the
Winnick Building Addition Note, the Ida Building Addition Note, the Towers Note,
the Second Winnick Building Addition Note, the Guarantee, the Huerfano County
Deed of Trust, the Headquarters Deed of Trust, the FCFC Deed of Trust, the Ida
Building One Deed of Trust, the Ida Building Two Deed of Trust, the Aloha Bay
Mortgage, the Winnick Building Addition Deed of Trust, the Ida Building Addition
Deed of Trust, the Second Winnick Building Addition Deed of Trust, the
Assignments, the Contracts, the Instruments, the Agency Agreement, the Custodial
Agreement, the Oversight Agreement, this Agreement, and any and all other
documents and instruments executed in connection with the Loan, together
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with any and all renewals, extensions, amendments, restatements or replacements
thereof, whether now or hereafter existing.
"ELIGIBLE RECEIVABLES": shall mean Contracts and Instruments
which conform to the criteria and standards set forth in EXHIBIT "I-C" attached
hereto and by this reference incorporated herein; provided, however, that
Lender, in its sole discretion and upon terms and conditions satisfactory to
Lender, may waive specific criteria and/or standards with respect to certain
otherwise ineligible Instruments and Contracts; provided, however, that any such
waiver may be revoked, at any time, with respect to any such otherwise
ineligible Instruments or Contracts against which Advances are not outstanding.
An Instrument or Contract that has qualified as an Eligible Receivable shall
cease to be an Eligible Receivable upon the date of the occurrence of any of the
following: (a) any one installment due with respect to an Eligible Receivable
becomes more than fifty-nine (59) days past due, or (b) the Eligible Receivable
otherwise fails to continue to meet the requirements of an Eligible Receivable.
"EVENT OF DEFAULT": the meaning set forth in ARTICLE IX hereof.
"EXISTING PEC LOAN AGREEMENT": shall have the meaning set forth
in the Recitals to this Agreement.
"EXISTING VSR LOAN AGREEMENT": shall have the meaning set forth
in the Recitals to this Agreement.
"FCFC DEED OF TRUST": shall mean that certain Deed of Trust,
Assignment of Rents and Proceeds and Security Agreement dated as of June 5, 1996
and recorded against the FCFC Property on June 7, 1996 in Book 960607 as
Instrument No. 01797, Official Records of Clark County, Nevada, together with
any modifications, amendments or supplements from time to time made thereto,
whether now or hereafter existing.
"FCFC PROPERTY": shall mean that certain office building located
at 1500 East Tropicana, Las Vegas, Nevada, and legally described in EXHIBIT
"I-D" attached hereto.
"FCN": shall mean First Corporation of Nevada, a Nevada
corporation.
"FPSI": shall mean FINOVA Portfolio Services, Inc., an Arizona
corporation, a wholly owned subsidiary of Lender, formerly known as GFC
Portfolio Services, Inc.
"FOUNTAINS": shall mean that certain time-share resort facility
commonly known as Grand Flamingo Fountains, consisting of twelve (12) time-share
units and more particularly described on EXHIBIT "I-E" attached hereto.
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"GAAP": shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"GFC": shall mean GRAND FLAMINGO CORPORATION, a Nevada
corporation.
"GUARANTEE": shall mean that certain Amended and Restated
Guarantee and Subordination Agreement between Guarantor and Lender and dated as
of May 10, 1989.
"GUARANTOR": shall mean Mego Financial Corp., a New York
corporation (formerly named Mego Corp.).
"HEADQUARTERS BUILDING": shall mean that certain office building
located at 4310 Paradise Road, Las Vegas, Nevada, and more particularly
described in EXHIBIT "I-F" attached hereto.
"HEADQUARTERS DEED OF TRUST": shall mean that certain Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement, dated as of June
28, 1993, and recorded against the Headquarters Building on June 30, 1993 in
Book 930630, Instrument No. 02521, Official Records of Clark County, Nevada,
together with any and all amendments, supplements or modifications from time to
time made thereto, whether now or hereafter existing.
"Huerfano County Deed of Trust": shall mean that certain Deed of
Trust, Assignment of Rents and Security Agreement, dated as of February 1, 1988,
which was delivered by Borrower to Lender and recorded against that portion of
the Project located in Huerfano County, Colorado on February 2, 1988 at
Reception No. 968 in Book M, Page 312, Official Records of Huerfano County,
Colorado, together with any and all amendments, supplements or modifications
from time to time made thereto, whether now or hereafter existing.
"IDA BUILDING ADDITION": shall mean that certain time-share
resort facility located at 190 and 196 Ida Street, Las Vegas, Nevada, consisting
of twenty-four (24) time-share units and more particularly described in EXHIBIT
"I-G" attached hereto.
"IDA BUILDING ADDITION DEED OF TRUST": shall mean that certain
Deed of Trust, Assignment of Rents and Proceeds and Security Agreement dated as
of December 13, 1995 and recorded against the Ida Building Addition on March 25,
1996 in Book 960325, Instrument No. 01233, Official Records of Clark County,
Nevada, together with any and all
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<PAGE> 10
amendments, supplements or modifications from time to time made thereto, whether
now or hereafter existing.
"IDA BUILDING ADDITION INCENTIVE FEE": shall have the
meaning set forth in PARAGRAPH 7.16 of this Agreement.
"IDA BUILDING ADDITION MATURITY DATE": shall mean that date which
occurs twenty-four (24) months following the date that Lender makes the last
Advance under the Mortgage Loan Facility with respect to the Ida Building
Addition (or in the event there is no such day in the 24th month, on the last
day of such month).
"IDA BUILDING ADDITION NOTE": shall mean that certain Promissory
Note of Borrower dated December 13, 1995, executed and delivered to Lender in
the amount of $1,500,000.00, evidencing Advances of the Loan made under the
Mortgage Loan Facility with respect to the Ida Building Addition, together with
any modifications, amendments, restatements or supplements from time to time
made thereto, whether now or hereafter existing.
"IDA BUILDING ADDITION RELEASE FEE": shall have the meaning set
forth in PARAGRAPH 3.14 of this Agreement.
"IDA BUILDING ONE": shall mean that certain time-share resort
facility located at 170 and 178 Ida Street, Las Vegas, Nevada, consisting of 48
time-share units and more particularly described in EXHIBIT "I-H" attached
hereto.
"IDA BUILDING ONE DEED OF TRUST": shall mean that certain Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement [Ida Building
One] dated as of January 26, 1995 and recorded against Ida Building One on
January 31, 1995 in Book 950131, Instrument No. 01454, Official Records of Clark
County, Nevada, together with any and all amendments, supplements or
modifications from time to time made thereto, whether now or hereafter existing.
"IDA BUILDING ONE INCENTIVE FEE": shall have the meaning set
forth in PARAGRAPH 7.13 of this Agreement.
"IDA BUILDING ONE MATURITY DATE": shall mean January 31, 1998.
"IDA BUILDING ONE NOTE": shall mean that certain Promissory Note
of Borrower dated as of January 26, 1995, executed and delivered to Lender in
the amount of $2,999,700.00, evidencing the Advances of the Loan made under the
Mortgage Loan Facility with respect to Ida Building One, together with any
modifications, amendments, restatements or supplements from time to time made
thereto, whether now or hereafter existing.
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<PAGE> 11
"IDA BUILDING ONE RELEASE FEES": shall have the meaning set forth
in PARAGRAPH 3.12 of this Agreement.
"IDA BUILDING TWO": shall mean that certain time-share resort
facility located at 165, 171 and 177 Ida Street, Las Vegas, Nevada, consisting
of 18 time-share units more particularly described in EXHIBIT "I-I" attached
hereto.
"IDA BUILDING TWO DEED OF TRUST": shall mean that certain Deed of
Trust, Assignment of Rents and Proceeds and Security Agreement [Ida Building
Two] dated as of April 27, 1995 and recorded against Ida Building Two on May 26,
1995 in Book 950526, Instrument No. 01127, Official Records of Clark County,
Nevada, together with any and all amendments, supplements or modifications from
time to time made thereto, whether now or hereafter existing.
"IDA BUILDING TWO INCENTIVE FEE": shall have the meaning set
forth in PARAGRAPH 7.14 of this Agreement.
"IDA BUILDING TWO MATURITY DATE": shall mean January 31, 1998.
"IDA BUILDING TWO NOTE": shall mean that certain Promissory Note
of Borrower dated as of April 27, 1995, executed and delivered to Lender in the
amount of $1,755,000.00, evidencing the Advances of the Loan made under the
Mortgage Loan Facility with respect to Ida Building Two, together with any
modifications, amendments, restatements or supplements from time to time made
thereto, whether now or hereafter existing.
"IDA BUILDING TWO RELEASE FEES": shall have the meaning set forth
in PARAGRAPH 3.13 of this Agreement.
"INSTRUMENT": shall collectively mean a Purchaser Note, the
Purchaser Mortgage which secures same and all other documents, instruments or
other writings whatsoever which evidence or secure the obligations and
indebtedness of a Purchaser of a Lot or Unit in the Project, and which is
assigned to Lender.
"LICENSE AGREEMENT": shall have the meaning set forth in
PARAGRAPH 8.32 hereof.
"LOAN": shall mean the lines of credit and other loans extended
by Lender to Borrower in accordance with the terms of this Agreement in a
principal amount not to exceed at any time outstanding the Maximum Loan Amount.
"LOT": a lot in any Project as shown on the recorded subdivision
plat thereof.
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<PAGE> 12
"MAXIMUM LOAN AMOUNT": shall mean Seventy-five Million United
States Dollars (U.S. $75,000,000.00).
"MORTGAGE": shall mean a mortgage or deed of trust or other form
of indenture under the terms of which the Person executing and delivering such
Mortgage shall grant, convey, sell and assign to Lender a first lien upon real
property.
"MORTGAGE LOAN FACILITY": shall mean that portion of the Loan not
to exceed $15,000,000.00 under which Advances may be made to Borrower on a
revolving basis in order to finance Borrower's acquisition and refurbishment of
time-share resort facilities. The Advances outstanding under the Mortgage Loan
Facility as of the Closing Date include the Advances of the Loan evidenced by
the Ida Building One Note, the Ida Building Two Note, the Ida Building Addition
Note, the Winnick Building Addition Note, the Second Winnick Building Addition
Note (to the extent that any Advances are made under the Second Winnick Building
Addition Note as of the Closing Date) and the Towers Note, but do not include
the amounts outstanding under the Aloha Bay Note and the Office Note.
"MORTGAGE LOAN FACILITY BORROWING TERM": shall mean the period of
time during which Lender is committed to make Advances under the Mortgage Loan
Facility pursuant to this Agreement, which commitment shall terminate twelve
(12) months after the Closing Date.
"MORTGAGE LOAN FACILITY MATURITY DATE": shall mean, with respect
to any Additional Project funded under the Mortgage Loan Facility, the date
which shall occur two (2) years after the date on which the last Advance is made
with respect to such Additional Project.
"MORTGAGE LOAN FEE": shall mean a fee in an amount equal to
one-half percent (1/2%) of each of the Advances made by Lender to Borrower under
the Mortgage Loan Facility, which is due and payable in full by Borrower on the
date that each such Advance is made under the Mortgage Loan Facility.
"NOTES": shall mean the Receivables Note, the Aloha Bay Note, the
Office Note, the Ida Building One Note, the Ida Building Two Note, the Ida
Building Addition Note, the Winnick Building Addition Note, the Second Winnick
Building Addition Note, the Towers Note, any other Project Note and any
additional promissory notes executed by Borrower executed and delivered to
Lender with respect to the Loan pursuant to the terms and conditions of this
Agreement.
"OBLIGATIONS": shall mean each and every obligation, duty,
covenant, undertaking and condition which Borrower is required or has agreed to
perform under the Documents, and each and every other obligation of Borrower now
or hereafter owing to Lender.
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<PAGE> 13
"OFFICE NOTE": shall mean the Second Amended and Restated
Promissory Note [Headquarters and FCFC Property] dated as of June 5, 1996,
executed and delivered to Lender in the original principal amount of
$6,773,778.74, evidencing the Advances made with respect to the FCFC Property
and the Headquarters Building, together with any modifications, amendments,
restatements or supplements from time to time made thereto, whether now or
hereafter existing.
"OFFICE NOTE MATURITY DATE": shall mean July 1, 2003.
"OVERDUE RATE": shall mean the interest rate payable by Borrower
under the terms of the Note for delinquent monthly installments or in the event
that an Event of Default occurs.
"OVERSIGHT AGREEMENT": shall mean that certain Oversight and
Agency Agreement between Lender, Borrower and FPSI dated as of August 31, 1994,
as from time to time amended, renewed or restated.
"PERFORM", "PERFORMED" or "PERFORMANCE": shall mean the timely,
faithful and complete payment and performance of all Obligations by the
Borrower.
"PERMITTED ENCUMBRANCES": shall mean each and every restriction,
reservation and easement of record, inchoate mechanics' liens and inchoate liens
for taxes and assessments, which individually and in the aggregate do not render
title to the property which they encumber unmarketable.
"PERSON": shall mean any adult individual, partnership,
corporation, trust, unincorporated organization or other form of business entity
whatsoever, or any government or agency or political subdivision thereof.
"PROJECT": shall mean each of, or collectively, as the context
may require, the Winnick Building Addition, the Ida Building Addition, Aloha
Bay, Ida Building One, Ida Building Two, South Park Ranches, Suites Phase I,
Suites Phase II, Fountains, Winnick, the Second Winnick Building Addition,
Project (Reno), Project (Towers), Project (Villas), Project (Terraces-Phase 1),
Project (Terraces-Phase 2), any Additional Projects, and those certain real
estate developments which are owned by the Borrower or the Trustee, located in
Nye County and Clark County in the State of Nevada, and Huerfano County in the
State of Colorado, which are more particularly described in EXHIBIT "I-J"
hereto.
"PROJECT (RENO)": shall mean the real property together with the
buildings and improvements thereon, and interests and appurtenances thereto, and
commonly known as the "Reno Spa Resort Club," as more particularly described in
EXHIBIT "I-K" hereto.
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<PAGE> 14
"PROJECT (TERRACES-PHASE 1): shall mean the real property,
together with the buildings and improvements thereon, and interests and
appurtenances thereto, as more particularly described in EXHIBIT "I-L" hereto.
"PROJECT (TERRACES-PHASE 2): shall mean the real property,
together with the buildings and improvements thereon, and interests and
appurtenances thereto, as more particularly described in EXHIBIT "I-M" hereto.
"PROJECT (TOWERS)": shall mean the real property, together with
the buildings and improvements thereon, and interests and appurtenances thereto,
commonly known as the "Grand Flamingo Towers," as more particularly described in
EXHIBIT "I-N" hereto.
"PROJECT (VILLAS)": shall mean the real property, together with
the buildings and improvements thereon, and interests and appurtenances thereto,
commonly known as the "Grand Flamingo Villas," as more particularly described in
EXHIBIT "I-O" hereto.
"PROJECT INCENTIVE FEE": shall mean that Incentive Fee payable
with respect to each Additional Project for which Advances under the Mortgage
Loan Facility are made by Lender to Borrower, as more particularly described in
PARAGRAPH 7.19 of this Agreement.
"PROJECT NOTE": shall have the meaning set forth in PARAGRAPH
2.3.6 below.
"PROJECT RELEASE FEE": shall mean that release fee payable with
respect to each Additional Project under which Advances of the Mortgage Loan
Facility are made by Lender to Borrower, as more particularly described in
PARAGRAPH 3.17 of this Agreement.
"PURCHASER": shall mean a Person who buys a Lot or Unit in any
Project from Borrower or an Additional Project Developer.
"PURCHASER MORTGAGES": shall mean all deeds of trust, mortgages,
security agreements, financing statements, or other security instruments of
every type and nature on or affecting a Lot or Unit in any Project or any
interest therein and which secure the Contracts and Instruments assigned to
Lender or evidence any rights of Borrower or any Trust in or to such Contracts
or Instruments.
"PURCHASER NOTE": shall mean a promissory note executed and
delivered by a Purchaser to evidence such Person's indebtedness to Borrower with
respect to the purchase of a Lot or Unit by such Purchaser.
"RECEIVABLES BORROWING TERM": shall mean the period of time
during which Lender is committed to make Advances of the Receivables Loan under
this Agreement which commitment shall terminate on the first to occur of (a)
that date that is thirty-six (36) months
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<PAGE> 15
after the date of the first Advance under the Receivables Loan after the Closing
Date, or (b) May 31, 2000.
"RECEIVABLES COLLATERAL": shall mean:
(a) all right, title and interest of Borrower, Trustee,
any Co-Trustee or any other vendor in those certain Contracts and
Instruments, whether now existing or hereafter arising, which are, now
or hereafter, assigned, endorsed or delivered to Lender, or Lender's
agent, (and which have not been reassigned by Lender) pursuant hereto or
against which an Advance has been made (and replacements or
substitutions thereof), including, without limitation, all proceeds,
property, property rights, privileges and benefits arising out of, from
the enforcement of, or in connection with the Contracts, Instruments,
property rights or the policies of insurance referred to below,
including, without limitation, all cash, checks, notes, chattel paper,
drafts and other instruments for the payment of money, all property
returned by or reclaimed or repossessed from customers, all rights of
foreclosure, termination, dispossession, repossession, all documents,
instruments, accounts, contracts, liens and security instruments and all
guarantees relating to or arising out of the Contracts or Instruments
whether such guarantees are given by individuals, corporations or
partnerships or by any federal, state or local governmental or
quasi-governmental entities, all collateral, security deposits, tax
escrows and down payments (to the extent the same may be pledged under
applicable law), or other security securing the obligations of any
person under or relating to the Contracts or Instruments, all credit
balances in favor of Borrower on Lender's books, and all rights and
remedies of whatever kind or nature Borrower or any Trust may hold or
acquire for the purpose of securing or enforcing the Contracts or
Instruments, and all general intangibles relating to or arising out of
the Contracts or Instruments or policies of insurance referred to below;
provided, however, that the foregoing shall not include any Annual
Service Fees or proceeds thereof;
(b) subject to the prior rights, if any, of third parties,
all property rights relating to or arising out the Contracts or
Instruments, policies of insurance relating to or arising out of such
Contracts or Instruments (to the extent the same may be pledged under
the Trust Agreements), including, without limitation, all general
intangibles relating to or arising out of such policies of insurance,
and all collateral, security deposits and down payments (to the extent
the same may be pledged under applicable law), or other security
securing the obligations of any Purchaser under or relating to such
Contracts or Instruments;
(c) all proceeds of insurance (to the extent permitted by
applicable law, the Trust Agreements and any declaration of covenants,
conditions and restrictions), including, without limitation, property,
casualty and title insurance,
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<PAGE> 16
affecting such Contracts and Instruments or the portion of the Project
affected by such Contracts and Instruments or delivered in connection
therewith;
(d) all rights, if any, under escrow agreements and all
impound and/or reserve accounts pertaining to the foregoing;
(e) all files, books and records of Borrower pertaining to
any of the foregoing, including all records, ledgers, and computer
programs, discs or tapes, files, printouts, runs and other computer
prepared information indicating, summarizing, or evidencing such
Contracts and Instruments or related to any Project; and
(f) the proceeds from the foregoing.
"RECEIVABLES LOAN": shall mean that portion of the Loan not to
exceed $75,000,000.00, less the aggregate outstanding principal balance of (a)
all Advances made under the Mortgage Loan Facility, (b) the Aloha Bay Note, and
(c) the Office Note.
"RECEIVABLES LOAN FEE": shall mean that loan fee payable by
Borrower in consideration of Lender's execution of this Agreement and the
commitments made by Lender hereunder, in the amount of up to $250,000.00. A
portion of the Receivables Loan Fee in an amount equal to $180,000.00 shall be
paid by Borrower simultaneously with the first Advance under the Receivables
Loan after the Closing Date. The balance of the Receivables Loan Fee
($70,000.00) shall be paid if and when the outstanding principal balance of all
Advances of the Receivables Loan equals or exceeds $68,000,000.00.
"RECEIVABLES MATURITY DATE": shall mean the date which shall
occur (a) seven (7) years after the date on which the last Advance of the
Receivables Loan is made under the terms of this Agreement with respect to
Receivables Collateral secured by Units, and (b) ten (10) years after the date
on which the last Advance of the Receivables Loan is made under the terms of
this Agreement with respect to Receivables Collateral secured by Lots.
"RECEIVABLES NOTE": shall mean the "Second Amended and Restated
Promissory Note" evidencing the Receivables Loan, dated of even date herewith,
consolidating the indebtedness owed by Borrower under the Existing PEC Loan
Agreement and under the Existing VSR Loan Agreement, as further amended, renewed
and restated.
"RELEASE CONDITIONS": shall mean the satisfaction of each of the
following conditions:
(a) No Event of Default shall have occurred or be
continuing and no event shall then exist, which with notice, passage of
time or both would constitute an Event of Default;
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<PAGE> 17
(b) The Unit or Lot to be released must have been sold by
Borrower in the ordinary course of Borrower's business in a bona fide
arms-length transaction;
(c) The Purchaser of the Unit or Lot shall not be
affiliated with Borrower or with any of the Control Group;
(d) Lender shall have received a written request for such
release in which Borrower certifies as to compliance with items (a)
through (c) above, and further certifies that all other requirements for
such release have been satisfied;
(e) Borrower has paid all of Lender's out-of-pocket
expenses incurred in connection with such release and has submitted to
Lender all necessary documents for the same.
For the purposes hereof, a Person shall be deemed affiliated with Borrower or
the Control Group if it is a shareholder, officer, director, agent, employee,
salesman, broker or creditor of Borrower or the Control Group, or relative of
Borrower or the Control Group or of any of the foregoing, or any other Person
related to or affiliated with Borrower or the Control Group, including, without
limitation, the Guarantor and any independent contractors.
"SECOND WINNICK BUILDING ADDITION": shall have the meaning set
forth in Recital "J".
"SECOND WINNICK BUILDING ADDITION ADVANCES": shall mean those
Advances against the Maximum Loan Amount and the Mortgage Loan Facility in the
amount of up to $1,818,000.00 made or to be made by Lender to Borrower, the
proceeds of which are to be used to pay a portion of Borrower's costs in
acquiring and renovating the Second Winnick Building Addition.
"SECOND WINNICK BUILDING ADDITION DEED OF TRUST": shall mean that
certain Deed of Trust, Assignment of Rents and Proceeds and Security Agreement
dated of even date with this Agreement and to be recorded against the Second
Winnick Building Addition, together with any and all amendments, supplements or
modifications from time to time made thereto.
"SECOND WINNICK BUILDING ADDITION INCENTIVE FEE": shall have the
meaning set fort in PARAGRAPH 7.18 of this Agreement.
"SECOND WINNICK BUILDING ADDITION MATURITY DATE": shall mean that
date which occurs twenty-four (24) months following the date that Lender makes
the last Advance under the Mortgage Loan Facility with respect to the Second
Winnick Building Addition (or in the event there is no such day in the 24th
month, on the last day of such month).
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"SECOND WINNICK BUILDING ADDITION NOTE": shall mean that certain
Promissory Note of Borrower of even date with this Agreement, executed and
delivered to Lender in the amount of up to $1,818,000.00, evidencing the Second
Winnick Building Addition Advances.
"SECOND WINNICK BUILDING ADDITION RELEASE FEES": shall have the
meaning set forth in PARAGRAPH 3.16 of this Agreement.
"SECURITY": shall have the same meaning as set forth in Section
2(1) of the Securities Act of 1933, as amended.
"SECURITY INTEREST": a direct and exclusive first priority
security interest or lien which has been perfected under the Uniform Commercial
Code, or applicable real property law of the state(s) in which any such security
interest or lien must be perfected; provided, however, that with respect to any
portion of the Receivables Collateral not covered by the Uniform Commercial
Code, it shall mean a direct and exclusive first lien on such property which has
been perfected in the manner provided by law.
"SOUTH PARK RANCHES": shall mean that certain subdivision known
as South Park Ranches, located in Park County, Colorado, more fully described on
EXHIBIT "I-Q" attached hereto.
"SUBSIDIARIES": shall mean, with respect to any Person: (a) any
corporation in which such Person, directly or indirectly through its
Subsidiaries, owns more than fifty percent (50%) of the outstanding capital
stock of any other class or classes having by the terms thereof the ordinary
voting power to elect a majority of the directors of such corporation's stock
(irrespective of whether at the time the capital stock of any class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency); and (b) any partnership, association, joint
venture, or other entity in which such Person, directly or indirectly through
its Subsidiaries, has more than a fifty percent (50%) equity interest at the
time.
"SUITES PHASE I": shall mean that certain time-share resort
commonly known as Grand Flamingo Suites-Phase I located in Las Vegas, Nevada and
more fully described on EXHIBIT "I-R" attached hereto.
"SUITES PHASE II": shall mean that certain time-share resort
commonly known as Grand Flamingo Suites-Phase II located in Las Vegas, Nevada
and more fully described on EXHIBIT "I-S" attached hereto.
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"TERM": shall mean the duration of this Agreement commencing as
of the year and day first above written and terminating on the date Borrower has
performed all of the Obligations required of or agreed to by Borrower under the
Documents.
"TITLE COMPANY": shall mean a title insurance company acceptable
to Lender in its sole but reasonable discretion.
"TITLE POLICY": shall mean a Lender's policy of title insurance
issued by a Title Company insuring the validity and priority of the lien of each
Purchaser's Mortgage against a Lot or Unit of a Purchaser, which is to be
assigned to Lender by Borrower hereunder, as a first lien upon the Lot or Unit,
or in the event that a Lot or Unit is the subject of a Contract, a Lender's
policy of title insurance issued by the Title Company insuring the validity and
priority of the lien of Lender's Mortgage against such Lot or Unit, as a first
lien upon the Lot or Unit. The term "Title Policy" shall also mean, as the
context may require, a Lender's Policy of Title Insurance issued by a Title
Company insuring the validity and priority of the lien of Lender's Mortgage
recorded against any real property owned by Borrower as additional security for
the performance by Borrower of its Obligations under this Agreement.
"TOWERS ADVANCES": shall mean those Advances against the Maximum
Loan Amount and the Mortgage Loan Facility in the total amount of $1,286,126.00
made by Lender to Borrower, the proceeds of which were to be used to pay a
portion of Borrower's costs of the Towers Lobby Expansion.
"TOWERS CLUB": shall have the meaning set forth in PARAGRAPH 8.32
hereof.
"TOWERS LOBBY EXPANSION": shall mean the expansion, renovation
and refurbishment of the lobby area within the Towers Club.
"TOWERS NOTE": shall mean that Promissory Note of Borrower dated
as of December 13, 1995, as amended pursuant to that Amendment No. 1 to
Promissory Note [Towers Lobby] dated as of August 16, 1996, evidencing the
Towers Advances, as may be further amended, restated, supplemented, replaced or
modified from time to time after the date hereof.
"TOWERS NOTE PRINCIPAL REDUCTION FEE": shall have the meaning set
forth in SECTION 2.3.7.5.
"TRUST (RENO)": shall mean the trust established pursuant to the
Trust Agreement (Reno).
"TRUST (SUITES)": shall mean the trust established pursuant to
the Trust Agreement (Suites).
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"TRUST (TERRACES): shall mean the trust established pursuant to
the Trust Agreement (Terraces).
"TRUST (TOWERS)": shall mean the trust established pursuant to
the Trust Agreement (Towers).
"TRUST (VILLAS)": shall mean the trust established pursuant to
the Trust Agreement (Villas).
"TRUST AGREEMENT (RENO)": shall mean that certain Amended,
Restated and Consolidated Trust Agreement-Reno Spa Resort Club, dated as of
March 19, 1990, among Trustee (Reno), VSR and the Association (Reno), together
with all exhibits and schedules attached thereto and all renewals, extensions,
amendments, reinstatements, replacements, supplements or modifications from time
to time made thereto.
"TRUST AGREEMENT (SUITES)": shall mean that certain Trust
Agreement dated as of November 13, 1991, between the Trustee (Suites), and
Borrower, as trustor and beneficiary, together with all exhibits and schedules
attached thereto and all renewals, extensions, amendments, restatements,
replacements, supplements or modifications from time to time made thereto.
"TRUST AGREEMENT (TERRACES)": shall mean that certain Trust
Agreement dated as of December 8, 1989 between Valley Bank of Nevada and VSR,
together with all exhibits and schedules attached thereto and all renewals,
extensions, amendments, restatements, replacements, supplements or modifications
from time to time made thereto.
"TRUST AGREEMENT (TOWERS)": shall mean that certain Amended,
Restated and Consolidated Trust Agreement [Grand Flamingo Towers] dated as of
March 19, 1990, among Valley Bank of Nevada, VSR and Association (Towers),
together with all exhibits and schedules attached thereto and all renewals,
extensions, amendments, restatements, replacements, supplements or modifications
from time to time made thereto.
"TRUST AGREEMENT (VILLAS)": shall mean that certain Amended,
Restated and Consolidated Trust Agreement [Grand Flamingo Villas] dated as of
March 19, 1990, among Valley Bank of Nevada, VSR and Association (Villas),
together with all exhibits and schedules attached thereto and all renewals,
extensions, amendments, restatements, replacements, supplements or modifications
from time to time made thereto.
"TRUST AGREEMENTS": shall mean the Trust Agreement (Reno), the
Trust Agreement (Towers), the Trust Agreement (Terraces), the Trust Agreement
(Villas) and the Trust Agreement (Suites), collectively.
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"TRUST AGREEMENTS (LAS VEGAS)": shall mean the Trust Agreement
(Towers), the Trust Agreement (Villas), the Trust Agreement (Terraces) and the
Trust Agreement (Suites), collectively.
"TRUSTEE": shall mean the respective Trustee or Trustees under
each of the Trust Agreements or its successor as trustee or attorney-in-fact, as
applicable.
"TRUSTEE (RENO)": shall mean Bank of America, N.T. & S.A., a
national banking corporation (successor-in-interest to Valley Bank of Nevada),
in its capacity as Trustee of the Trust Agreement (Reno), its successors and
assigns.
"TRUSTEE (SUITES)": shall mean Bank of America, N.T. & S.A., a
national banking corporation, in its sole capacity as trustee under the Trust
Agreement (Suites), or should such entity cease to act as trustee under the
Trust Agreement (Suites), its successor as trustee under the Trust Agreement
(Suites).
"TRUSTEE (TERRACES)": shall mean Bank of America, N.T. & S.A., a
national banking association, in its sole capacity as trustee under the Trust
Agreement (Terraces), or should such entity cease to act as trustee under the
Trust Agreement (Terraces), its successor as trustee under the Trust Agreement
(Terraces).
"TRUSTEE (TOWERS)": shall mean Bank of America, N.T. & S.A., a
national banking association, in its sole capacity as trustee under the Trust
Agreement (Towers), or should such entity cease to act as trustee under the
Trust Agreement (Towers), its successor as trustee under the Trust Agreement
(Towers).
"TRUSTEE (VILLAS)": shall mean Bank of America, N.T. & S.A., a
national banking association, in its sole capacity as trustee under the Trust
Agreement (Villas), or should such entity cease to act as trustee under the
Trust Agreement (Villas), its successor as trustee under the Trust Agreement
(Villas).
"TRUSTS": shall mean the Trust (Reno), the Trust (Towers), the
Trust (Terraces), the Trust (Villas) and Trust (Suites), collectively.
"UNIT": shall mean a real property fee or right-to-use interest
in all or a portion of the Project or any Additional Project which permits the
purchaser or owner thereof the right to occupy a dwelling unit therein for a
one-week interval of time during the calendar year or in which such purchaser or
owner has an interest as a tenant-in-common in such dwelling unit and related
undivided interest in common elements appurtenant thereto, together with the
right to use such unit for a one-week period of time during any calendar year.
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"UNSOLIDIFIED LOT SALES": shall mean an Instrument or Contract
which arises out of the sale of a Lot by Borrower to a Purchaser where such
Purchaser has not personally inspected the Lot with a representative of Borrower
and where the Instrument or Contract provides a specific period of time after
the date of purchase (the "Rescission Period") within which the Purchaser may
cancel the Instrument or Contract as a result of the fact that the Purchaser had
not inspected the Lot prior to purchase. An Instrument or Contract shall cease
to be deemed to be an Unsolidified Lot Sale after the expiration of the
Rescission Period in the event that the Purchaser has not canceled or otherwise
rescinded the Instrument or Contract.
"UPGRADE": shall mean the process whereby a Purchaser has
arranged for the termination or modification of an existing Contract or
Instrument with respect to a certain Lot or Unit and has simultaneously entered
into a new or revised Contract or Instrument for the purchase of a more
expensive Lot or Unit. In no event shall an Upgrade mean rewriting of an
existing Contract or Instrument, or the entering into of a new Contract or
Instrument, so as to eliminate the default of the contract obligor thereunder.
"VSR": shall have the meaning set forth in the Recitals in this
Agreement.
"WINNICK": shall mean that certain time-share resort facility
commonly known as Grand Flamingo Winnick, consisting of twelve (12) time-share
units and more particularly described in EXHIBIT "I-T" attached hereto.
"WINNICK BUILDING ADDITION": shall mean that certain time-share
resort facility commonly known as Plaza, consisting of twenty-two (22)
time-share units and more particularly described in EXHIBIT "I-U" attached
hereto.
"WINNICK BUILDING ADDITION DEED OF TRUST": shall mean that
certain Deed of Trust, Assignment of Rents and Proceeds and Security Agreement
dated as of December 13, 1995 and recorded against the Winnick Building Addition
on March 25, 1996 in Book 960325, Instrument No. 01237, Official Records of
Clark County, Nevada, together with any and all amendments, supplements or
modifications from time to time made thereto, whether now or hereafter existing.
"WINNICK BUILDING ADDITION INCENTIVE FEE": shall have the meaning
set forth in PARAGRAPH 7.17 of this Agreement.
"WINNICK BUILDING ADDITION MATURITY DATE": shall mean February
28, 1999.
"WINNICK BUILDING ADDITION NOTE": shall mean that certain
Promissory Note of Borrower dated as of December 13, 1995, executed and
delivered to Lender in the amount of $2,100,000.00, evidencing the Advances of
the Loan made under the Mortgage
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Loan Facility made with respect to the Winnick Building Addition, together with
any modifications, amendments, restatements or supplements from time to time
made thereto, whether now or hereafter existing.
"WINNICK BUILDING ADDITION RELEASE FEES": shall have the meaning
set forth in PARAGRAPH 3.15 of this Agreement.
ARTICLE II
THE LOAN
2.1 THE LOAN. Subject to the terms and conditions of this
Agreement, Lender hereby agrees to make a Loan to Borrower in the amounts and
for the purposes hereinafter described. The Loan shall be constituted of the
Receivables Loan, the Mortgage Loan Facility, a $3,600,000.00 nonrevolving
mortgage loan previously made with respect to Aloha Bay (the "Aloha Bay Loan"),
and a $6,773,778.74 nonrevolving mortgage loan previously made with respect to
the Headquarters Building and the FCFC Property (the "Office Loan").
2.2 RECEIVABLES LOAN. Upon Borrower's request, subject to the
conditions precedent stated in ARTICLE V hereof and elsewhere in this Agreement,
Lender hereby agrees that the Receivables Loan will be disbursed to Borrower,
from time to time, in periodic advances, but in no event after the Receivables
Borrowing Term has expired, in amounts not to exceed those determined by
subtracting (a) the difference between the unpaid principal balance outstanding
under the Loan at the time of each Advance over the outstanding principal
balance of the aggregate of (i) Advances made under the Mortgage Loan Facility,
(ii) the Aloha Bay Loan, and (iii) the Office Loan, from (b) the Borrowing Base,
determined as of the date thereof after giving effect to all Eligible
Receivables then assigned to (and not reassigned by) Lender; provided, however,
that the outstanding principal amount of the Loan shall not exceed at any time
the Maximum Loan Amount, and; provided, further, that the principal amount of
any and all indebtedness of Borrower to Lender which is secured by Receivables
Collateral encumbering Lots shall not exceed $35,000,000.00.
2.2.1 Advances of the Receivables Loan will not be made
more frequently than once every month in amounts of not less than
$100,000.00.
2.2.2 No Advances under the Receivables Loan will be made
after the Receivables Borrowing Term has expired unless Lender, in its
sole discretion, shall agree in writing to make additional Advances.
2.2.3 Borrower shall use the proceeds of the Receivables
Loan for purposes of providing working capital to Borrower.
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2.2.4 Except as hereinafter set forth, payments of
principal and interest outstanding under the Receivables Loan shall be
made in accordance with the terms and provisions of the Receivables
Note.
2.2.5 Lender's obligation to make Advances of the
Receivables Loan, from time to time, against Instruments or Contracts
arising from the sale of Lots or Units in any Project is subject to and
conditioned upon such Instruments or Contracts qualifying as Eligible
Receivables and is furthermore subject to and conditioned upon the
satisfaction of all other conditions precedent to the making of the
Advance, as set forth in this Agreement. In connection therewith, but
without limiting the generality of the foregoing, Lender's obligation to
make Advances of the Receivables Loan against Instruments or Contracts
arising from the sale of Lots or Units in any Additional Project is
subject to Lender's receipt and approval of copies of the
registrations/consents to sell/public offering statements/prospectuses
and/or approvals thereof required to be issued by or used in all
jurisdictions in which such Lots or Units will be offered for sale.
2.2.6 Notwithstanding anything contained in this Agreement
or in any other agreement between Lender and Borrower, Lender shall have
no obligation, under any circumstances, to make any Advance of the
Receivables Loan with respect to any Eligible Receivable arising from
the sale of Lot 26, Filing 54, in South Park Ranches.
2.3 MORTGAGE LOAN FACILITY. Upon Borrower's request, and subject
to the conditions precedent stated in PARAGRAPH 5.2.2 hereof and elsewhere in
this Agreement, Lender hereby agrees that Advances under the Mortgage Loan
Facility will be disbursed to Borrower, from time to time, in periodic Advances,
but in no event after the Mortgage Loan Facility Borrowing Term has expired, in
amounts not to exceed ninety percent (90%) of the total bona fide out-of-pocket
costs and expenses incurred by Borrower in acquiring and renovating any Project
which has been approved by Lender (exclusive of any overhead of or profits to
Borrower or any of the Control Group (for the purposes of the foregoing, the
term "overhead" shall not be deemed to include reasonable and customary salaries
paid to employees of Borrower performing renovations with respect to such
Project)); provided, however, that the outstanding principal amount of all
Advances made under the Mortgage Loan Facility at any time shall not exceed
$15,000,000.00.
2.3.1 Advances under the Mortgage Loan Facility shall not
be made more frequently than once every month.
2.3.2 No Advances under the Mortgage Loan Facility will be
made after the Mortgage Loan Facility Borrowing Term has expired unless
Lender, in its sole discretion, shall agree in writing to make
additional Advances thereunder.
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2.3.3 Borrower shall use the proceeds of Advances made
under the Mortgage Loan Facility for the purposes of acquiring,
renovating and refurbishing Projects and Additional Projects which have
been approved by Lender. Lender and Borrower hereby acknowledge and
agree that Lender shall have no obligation to approve Additional
Projects for funding under the Mortgage Loan Facility unless Lender has
otherwise inspected and approved such Additional Project in its sole
discretion, and Borrower has agreed that, if so approved by Lender,
Lender shall have the right to elect to make Advances under the
Receivables Loan against Eligible Receivables arising from Instruments
or Contracts resulting from the sale of Units in such Additional
Project.
2.3.4 Advances under the Mortgage Loan Facility shall not
be made with respect to any Projects consisting of Lots.
2.3.5 Disbursements of any Advances requested by Borrower
under the Mortgage Loan Facility shall be made in accordance with
Lender's customary construction draw procedures and guidelines then in
effect with respect to construction loans, or as reimbursements for
amounts expended by Borrower as established by evidence satisfactory to
Lender.
2.3.6 Except as otherwise provided in this Agreement,
payments of principal and interest outstanding under any Advances made
under the Mortgage Loan Facility shall be made in accordance with the
terms and provisions of a separate promissory note to be executed by
Borrower and delivered to Lender at the time of the initial Advance made
by Lender under the Mortgage Loan Facility with respect to the
Additional Project (hereinafter, a "Project Note"). Unless otherwise
agreed by Lender and Borrower, the terms and conditions of each such
Project Note shall be as set forth in that form of Project Note attached
hereto as EXHIBIT 2.3.6. Each Project Note shall be in a principal
amount equal to the total amount of Advances under the Mortgage Loan
Facility available to Borrower with respect to such Additional Project,
shall accrue interest at an annual interest rate equal to Prime (as
defined in the Project Note) plus two percent (2%) per annum, subject to
adjustment on each Interest Rate Change Date (as described in the
Project Note). Each Project Note shall be repaid through the payment to
Lender of Project Release Fees and shall be paid in full as of the
applicable Mortgage Loan Facility Maturity Date. For purposes of this
Agreement, the Ida Building Addition Note, the Ida Building One Note,
the Ida Building Two Note, the Winnick Building Addition Note, the
Second Winnick Building Addition Note and the Towers Note shall be
deemed to be Project Notes. Notwithstanding the provisions of PARAGRAPH
7.3.1 of this Agreement, Borrower shall have no right to prepay any
Project Note other than as set forth in the respective Project Note.
Notwithstanding anything contained herein to the contrary, the
outstanding obligations of Borrower under the Aloha Bay Loan and the
Office Loan
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<PAGE> 26
shall not be part of the Mortgage Loan Facility and shall not reduce or
limit the total Advances available to Borrower under the Mortgage Loan
Facility.
2.3.7 EXISTING PROJECT NOTES.
2.3.7.1 IDA BUILDING ONE NOTE. Lender and Borrower
hereby agree that, notwithstanding any provision to the contrary
in this Agreement, the terms and conditions of the Ida Building
One Note and this PARAGRAPH 2.3.7.1 shall apply with respect to
repayment of the Ida Building One Note. Notwithstanding the
provisions of PARAGRAPH 7.3.1 of this Agreement, Borrower shall
have no right to prepay the Ida Building One Note, other than
through the application of Ida Building One Release Fees against
the principal balance thereof, as provided below. The principal
balance of the Ida Building One Note shall be repaid as follows:
At such time as Borrower conveys a Unit in Ida Building One to a
Purchaser, Borrower shall make a principal reduction payment to
Lender under the Ida Building One Note in an amount equal to the
Ida Building One Release Fee. Notwithstanding anything herein to
the contrary, if not sooner paid, the entire remaining balance of
the Ida Building One Note, together with all accrued and unpaid
interest and all other sums due and owing thereon, shall be due
and payable in full on the Ida Building One Maturity Date. Ida
Building One Release Fees paid to Lender in connection with the
release of Units from the Security Interests shall be applied
toward the next principal installment to become due under the Ida
Building One Note.
2.3.7.2 IDA BUILDING TWO NOTE. Lender and Borrower
hereby agree that, notwithstanding any provision to the contrary
in this Agreement, the terms and conditions of the Ida Building
Two Note and this PARAGRAPH 2.3.7.2 shall apply with respect to
repayment of the Ida Building Two Note. Notwithstanding the
provisions of PARAGRAPH 7.3.1 of this Agreement, Borrower shall
have no right to prepay the Ida Building Two Note, other than
through the application of Ida Building Two Release Fees against
the principal balance thereof, as provided below. The principal
balance of the Ida Building Two Note shall be repaid as follows:
At such time as Borrower conveys a Unit in Ida Building Two to a
Purchaser, Borrower shall make a principal reduction payment to
Lender under the Ida Building Two Note in an amount equal to the
Ida Building Two Release Fee. Notwithstanding anything herein to
the contrary, if not sooner paid, the entire remaining balance of
the Ida Building Two Note, together with all accrued and unpaid
interest and all other sums due and owing thereon, shall be due
and payable in full on the Ida Building Two Maturity Date. Ida
Building Two Release Fees paid to Lender in connection with the
release of Units from the Security Interests shall be
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applied toward the next principal installment to become due under
the Ida Building Two Note.
2.3.7.3 IDA BUILDING ADDITION NOTE. Lender hereby
agrees that Borrower shall continue to have the right to receive
Advances under the Mortgage Loan Facility with respect to the Ida
Building Addition provided that the Borrower satisfies the
following requirements for such Advances which are set forth in
EXHIBIT 5.2.2 in connection therewith: 15, 18, 19, 20 and 21, and
provides to Lender a Request for Advance and Certification as
described in PARAGRAPH 5.8 below. Borrower shall not be entitled
to receive any further Advances under the Mortgage Loan Facility
with respect to the Ida Building Addition after December 31,
1997. Lender and Borrower hereby agree that, notwithstanding any
provisions to the contrary in this Agreement, the terms and
conditions of the Ida Building Addition Note and this PARAGRAPH
2.3.7.3 shall apply with respect to the repayment of the Ida
Building Addition Note. Notwithstanding the provisions of
PARAGRAPH 7.3.1 of this Agreement, Borrower shall have the right
to prepay the Ida Building Addition Note only in the event and
upon the condition that Borrower (a) pays all sums due and
payable to Lender in connection with the Ida Building Addition
Note, (b) has given Lender at least thirty (30) days prior
written notice of the prepayment, and (c) pays to Lender at the
time of prepayment a prepayment premium equal to one percent (1%)
of the then unpaid principal balance of the Ida Building Addition
Note, together with any unpaid portion of the Ida Building
Addition Incentive Fee as described in PARAGRAPH 7.16 below.
Except as provided in the foregoing, Borrower shall have no right
to prepay the Ida Building Addition Note, other than through the
application of Ida Building Addition Release Fees against the
principal balance thereof, as provided below. The principal
balance of the Ida Building Addition Note shall be repaid as
follows: At such time as Borrower conveys a Unit in the Ida
Building Addition to a Purchaser, Borrower shall make a principal
reduction payment to Lender under the Ida Building Addition Note
in an amount equal to the Ida Building Addition Release Fee.
Notwithstanding anything herein to the contrary, if not sooner
paid, the entire remaining balance of the Ida Building Addition
Note, together with all accrued and unpaid interest and all other
sums due and owing thereon, shall be due and payable in full on
the Ida Building Addition Maturity Date. Ida Building Addition
Release Fees paid to Lender in connection with the release of
Units from the Security Interests shall be applied toward the
next principal installment to become due under the Ida Building
Addition Note.
2.3.7.4 WINNICK BUILDING ADDITION NOTE. Lender and
Borrower hereby agree that, notwithstanding any provisions to the
contrary in this Agreement, the terms and conditions of the
Winnick Building Addition
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Note and this PARAGRAPH 2.3.7.4 shall apply with respect to the
repayment of the Winnick Building Addition Note. Notwithstanding
the provisions of PARAGRAPH 7.3.1 of this Agreement, Borrower
shall have the right to prepay the Winnick Building Addition Note
only in the event and upon the condition that Borrower (a) pays
all sums due and payable to Lender in connection with the Winnick
Building Addition Note, (b) has given Lender at least thirty (30)
days prior written notice of the prepayment, and (c) pays to
Lender at the time of prepayment a prepayment premium equal to
one percent (1%) of the then unpaid principal balance of the
Winnick Building Addition Note, together with any unpaid portion
of the Winnick Building Addition Incentive Fee as described in
PARAGRAPH 7.17 below. Except as provided in the foregoing,
Borrower shall have no right to prepay the Winnick Building
Addition Note, other than through the application of Winnick
Building Addition Release Fees against the principal balance
thereof, as provided below. The principal balance of the Winnick
Building Addition Note shall be repaid as follows: At such time
as Borrower conveys a Unit in the Winnick Building Addition to a
Purchaser, Borrower shall make a principal reduction payment to
Lender under the Winnick Building Addition Note in an amount
equal to the Winnick Building Addition Release Fee.
Notwithstanding anything herein to the contrary, if not sooner
paid, the entire remaining balance of the Winnick Building
Addition Note, together with all accrued and unpaid interest and
all other sums due and owing thereon, shall be due and payable in
full on the Winnick Building Addition Maturity Date. Winnick
Building Addition Release Fees paid to Lender in connection with
the release of Units from the Security Interests shall be applied
toward the next principal installment to become due under the
Winnick Building Addition Note.
2.3.7.5 TOWERS NOTE. Lender and Borrower hereby
agree that, notwithstanding any provision to the contrary in this
Agreement, the terms and conditions of the Towers Note and this
PARAGRAPH 2.3.7.5 shall apply with respect to repayment of the
Towers Note. Notwithstanding the provisions of PARAGRAPH 7.3.1 of
this Agreement, Borrower shall have the right to prepay the
Towers Note only in the event and upon the condition that
Borrower (a) pays all sums due and payable to Lender in
connection with the Towers Note, (b) has provided Lender with at
least thirty (30) days prior written notice of the prepayment,
and (c) pays to Lender at the time of prepayment a prepayment
premium equal to one percent (1%) of the then unpaid principal
balance of the Towers Note. Except as provided in the foregoing,
Borrower shall have no right to prepay the Towers Note, other
than through the application of Towers Note Principal Reduction
Fees against the principal balance thereof, as hereinafter
provided. The principal balance of the Towers Note shall be
repaid as follows: At such time as Borrower conveys a Unit in Ida
Building One, Ida Building Two, the Winnick Building Addition or
the Ida
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Building Addition to a Purchaser at any time after (a) thirty
(30) days after the last Towers Advance is made to Borrower, or
(b) November 30, 1998, whichever occurs first, Borrower shall
make a principal reduction payment to Lender under the Towers
Note in an amount equal to $350.00 (the "Towers Note Principal
Reduction Fee"). The Towers Note Principal Reduction Fee shall be
paid to Lender simultaneously with the payment of the Ida
Building One Release Fee, Ida Building Two Release Fee, Winnick
Building Addition Release Fee or the Ida Building Addition
Release Fee, as the case may be, until the Towers Note is paid in
full, whereupon the Towers Note Principal Reduction Fee shall no
longer be required to be paid in connection with the
foregoing-described release fees. Notwithstanding anything herein
to the contrary, if not sooner paid, the entire remaining balance
of the Towers Note, together with all accrued and unpaid interest
and all other sums due and owing thereon, shall be due and
payable in full on the earlier of (i) that date which occurs
twenty-five (25) months following the date that Lender makes the
last Towers Advance (or in the event there is no such day in the
25th month, on the last day of such month), or (ii) November 30,
1998. Towers Note Principal Reduction Fees paid to Lender in
connection with the release of Units from the Security Interests
shall be applied toward the next principal installment to become
due under the Towers Note.
2.3.7.6 SECOND WINNICK BUILDING ADDITION NOTE.
Lender and Borrower hereby agree that, notwithstanding any
provisions to the contrary in this Agreement, the terms and
conditions of the Second Winnick Building Addition Note and this
PARAGRAPH 2.3.7.6 shall apply with respect to the repayment of
the Second Winnick Building Addition Note. Notwithstanding the
provisions of PARAGRAPH 7.3.1 of this Agreement, Borrower shall
have the right to prepay the Second Winnick Building Addition
Note only in the event and upon the condition that Borrower (a)
pays all sums due and payable to Lender in connection with the
Second Winnick Building Addition Note, (b) has given Lender at
least thirty (30) days prior written notice of the prepayment,
and (c) pays to Lender at the time of prepayment a prepayment
premium equal to one percent (1%) of the then unpaid principal
balance of the Second Winnick Building Addition Note, together
with any unpaid portion of the Second Winnick Building Addition
Incentive Fee as described in PARAGRAPH 7.18 below. Except as
provided in the foregoing, Borrower shall have no right to prepay
the Second Winnick Building Addition Note, other than through the
application of Second Winnick Building Addition Release Fees
against the principal balance thereof, as provided below. The
principal balance of the Second Winnick Building Addition Note
shall be repaid as follows: At such time as Borrower conveys a
Unit in the Second Winnick Building Addition to a Purchaser,
Borrower shall make a principal reduction payment to Lender under
the Second Winnick Building Addition Note in an
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amount equal to the Second Winnick Building Addition Release Fee.
Notwithstanding anything herein to the contrary, if not sooner
paid, the entire remaining balance of the Second Winnick Building
Addition Note, together with all accrued and unpaid interest and
all other sums due and owing thereon, shall be due and payable in
full on the Second Winnick Building Addition Maturity Date.
Second Winnick Building Release Fees paid to Lender in connection
with the release of Units from the Security Interests shall be
applied toward the next principal installment to become due under
the Second Winnick Building Addition Note.
2.4 OFFICE LOAN. Borrower hereby acknowledges that it has
received all Advances of the Loan that it has requested and/or shall ever be
entitled to under the Office Loan. Lender and Borrower hereby agree that,
notwithstanding any provisions to the contrary in this Agreement, the terms and
conditions of the Office Note shall apply with respect to the repayment of the
Office Loan. All Obligations of Borrower arising under or evidenced by the
Office Note, if not sooner paid, shall be due and payable in full on the Office
Note Maturity Date. Notwithstanding the provisions of PARAGRAPH 7.3.1 of this
Agreement, Borrower shall have no right to prepay the Office Note other than as
set forth in the Office Note.
2.5 ALOHA BAY LOAN. Borrower hereby acknowledges that it has
received all Advances of the Loan that it has requested and/or shall ever be
entitled to under the Aloha Bay Loan. Lender and Borrower hereby agree that,
notwithstanding any provisions to the contrary in this Agreement, the terms and
conditions of the Aloha Bay Note and this PARAGRAPH 2.5 shall apply with respect
to the repayment of the Aloha Bay Loan. Notwithstanding the provisions of
PARAGRAPH 7.3.1 of this Agreement, Borrower shall have no right to prepay the
Aloha Bay Note, other than through the application of Aloha Bay Release Fees
against the principal balance thereof, as provided below. The principal balance
of the Aloha Bay Note shall be repaid as follows: At such time as Borrower
conveys a Unit in Aloha Bay to a Purchaser, Borrower shall make a principal
reduction payment to Lender under the Aloha Bay Note in an amount equal to the
Aloha Bay Release Fee. Notwithstanding anything herein to the contrary, if not
sooner paid, the entire remaining balance of the Aloha Bay Note, together with
all accrued and unpaid interest and all other sums due and owing thereon, shall
be due and payable in full on the Aloha Bay Maturity Date. Aloha Bay Release
Fees paid to Lender in connection with the release of Units from the Security
Interests shall be applied toward the next principal installment to become due
under the Aloha Bay Note.
2.6 All Advances of the Loan, whether made under the Receivables
Loan and evidenced by the Receivables Note, or made under the Mortgage Loan
Facility and evidenced by a Project Note, or made under the Aloha Bay Loan and
evidenced by the Aloha Bay Note or made under the Office Loan and evidenced by
the Office Note, shall be deemed to be a single Loan.
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ARTICLE III
SECURITY FOR THE LOAN
3.1 (a) As security for Borrower's Performance of all Obligations
owed to Lender under the Documents, Borrower and Trustees hereby grant,
transfer and assign to Lender a Security Interest in and to all of
Borrower's right, title and interest in and to all of the following:
(i) all Receivables Collateral, whether now existing or
hereafter arising;
(ii) all Purchaser Mortgages, whether now existing or
hereafter arising;
(iii) all Title Policies, whether now existing or
hereafter arising, insuring any of the Purchaser Mortgages; and
(iv) the proceeds from the foregoing; and
Lender's Security Interest in such Receivables Collateral shall
be absolute, continuing and applicable to all existing and future
Advances and shall secure the repayment of the Loan and the
Performance of all Obligations throughout the Term of the Loan.
(b) As further security for Borrower's payment and
Performance of all Obligations owed to Lender under the Documents,
Borrower hereby grants, transfers and assigns to Lender a Security
Interest in and to all of Borrower's right, title and interest in and to
all of the following:
(i) All right, title and interest of Borrower in and to
all of the Trusts, whether such interest be as trustor,
beneficiary, or otherwise;
(ii) All distributions not distributed prior to an Event
of Default, property, property rights, privileges, contract
rights, accounts, general intangibles, and benefits of Borrower
arising out of or from any of the Trusts or any such trust
corpus;
(iii) The proceeds from the foregoing; and
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(iv) Borrower's rights as "declarant," "developer,"
"owner" or otherwise under the governing documents or restrictive
covenants affecting any Project, if any, including, without
limitation, owners' association charters or articles or
certificates of incorporation, bylaws and rules and regulations
related thereto, whether now or hereafter existing (collectively,
"Project Documents");
provided, however, that in the event that (A) the Receivables Borrowing
Term shall expire or the Loan shall reach the Maximum Loan Amount, and
(B) Lender shall not agree to extend the Receivables Borrowing Term or
increase the Maximum Loan Amount, as applicable, for such period or for
such amount as Borrower shall request, upon terms and conditions
substantially similar to those provided in this Agreement, and (C)
Borrower and another lender shall enter into financing arrangements
which provide for such additional borrowing term or loan amount and
pursuant to which Borrower, the Trustee, the Trusts or any of them
grants a Security Interest in, or otherwise assigns, their respective
right, title and interest in and to any of the Trusts in which Lender
has a Security Interest, Lender agrees to enter into such intercreditor
agreements, in form and substance reasonably satisfactory to Lender, as
shall be necessary to share with such other lender, on a pari passu
basis, Lender's Security Interest in the right, title and interest of
Borrower, the Trustee or any of the Trusts, as applicable, in and to
such Trusts and to consent to a senior assignment to such lender of any
receivables collateral, other than any of the Receivables Collateral,
with respect to any Project. Except as expressly provided in this
Agreement, or in any other Document, Lender's Security Interest in the
Collateral described in this paragraph or any other collateral given
pursuant to or in connection with this Agreement shall be absolute,
continuing and applicable to all existing and future Advances and shall
secure the repayment of the Loan and the Performance of all Obligations
throughout the Term of the Loan.
3.2 At or prior to the time each Advance under the Receivables
Loan is made hereunder, Borrower shall have delivered, or caused to have been
delivered, to Lender (a) an executed Assignment of the Eligible Receivables that
enter into the Borrowing Base calculation against which the Advance is to be
made; (b) the original Purchaser Notes or Contracts executed by the Purchaser;
(c) the recorded Purchaser Mortgage; and (d) the Title Policy insuring the
Purchaser Mortgage as a first lien upon the Lot or Unit acquired by the Person
executing the Purchaser Note; provided, however, that the delivery of items (b),
(c) and (d) may be made only once during any calendar month.
3.3 Each Purchaser Note shall be duly endorsed "Pay to the order
of FINOVA Capital Corporation".
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3.4 (a) During the Receivables Borrowing Term, if an Eligible
Receivable which comprises a part of the Receivables Collateral shall
cease to qualify as, or is otherwise determined not to be an Eligible
Receivable, and without such Eligible Receivable the principal amount of
the Receivables Loan shall exceed the Borrowing Base, Borrower shall,
within thirty (30) days thereafter, pay the Lender an amount equal to
that portion of the Receivables Loan, together with interest, costs, and
expenses, if any, attributable to such ineligible Receivables Collateral
or shall replace such ineligible Receivables Collateral with other
Eligible Receivables which have value equal to or greater than that
attributable to the ineligible Receivables Collateral being replaced.
(b) Following the Receivables Borrowing Term, if an Eligible
Receivable which comprises a part of the Receivables Collateral shall
cease to qualify as, or is otherwise determined not to be an Eligible
Receivable, and without such Eligible Receivable the principal amount of
the Receivables Loan shall exceed the Borrowing Base, Borrower shall,
within thirty (30) days thereafter, pay to Lender an amount equal to
that portion of the Receivables Loan, together with interest, costs, and
expenses, if any, attributable to such ineligible Receivables Collateral
or shall replace such ineligible Receivables Collateral with other
Eligible Receivables which have value equal to or greater than that
attributable to the ineligible Receivables Collateral being replaced.
3.5 Concurrently with the delivery of the replacement Eligible
Receivables to Lender, Borrower will deliver to Lender all of the items which
Borrower is required to deliver to Lender pursuant to PARAGRAPH 5.2.1 hereof,
together with a Borrower's certificate in form and substance identical to
EXHIBIT "3.5" attached hereto.
3.6 Upon substitution of the Eligible Receivables for the
ineligible Receivables Collateral, or payment of an amount equal to that portion
of the Loan, together with interest, costs, and expenses, if any, attributable
to such ineligible Receivables Collateral, in accordance with PARAGRAPH 3.4
hereof, Lender shall release, reassign and/or endorse, as applicable, to
Borrower, without recourse or warranty of any kind (other than that Lender has
not made any prior assignment of, and has not created any rights of third
parties with respect to, such ineligible Receivables Collateral), the replaced
ineligible Receivables Collateral and all Purchaser Mortgages securing such
replaced Receivables Collateral, and terminate its Security Interest therein and
in the Lots or Units which are the subject thereof, provided that no Event of
Default, and no act or event which after the giving of notice or the lapse of
time, or both, would constitute an Event of Default, has occurred and is
continuing. The release, reassignment and/or endorsement instrument shall be
prepared by Borrower and submitted to Lender unless Lender otherwise specifies
in its sole discretion. Said instrument must be in form and substance reasonably
satisfactory to Lender.
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Upon Borrower's written request, Lender agrees to release those
Contracts and Instruments, and any and all property rights incidental thereto,
which Borrower demonstrates to the reasonable satisfaction of Lender:
(a) have been paid in full by the obligor(s) thereunder; or
(b) provided no Event of Default, and no act or event which
after the giving of notice or the lapse of time, or both, would
constitute an Event of Default, has occurred and is continuing, have
been replaced with Eligible Receivables which have an aggregate value
equal to or greater than that attributable to the Receivables Collateral
being released; or
(c) during the Receivables Borrowing Term, provided no Event
of Default, and no act or event which after the giving of notice or the
lapse of time, or both, would constitute an Event of Default, has
occurred and is continuing, following the release of such Receivables
Collateral, the principal amount of the Receivables Loan outstanding
hereunder shall not be in excess of the Borrowing Base; or
(d) following the Receivables Borrowing Term, provided no
Event of Default, and no act or event which after the giving of notice
or the lapse of time, or both, would constitute an Event of Default, has
occurred and is continuing, following the release of such Eligible
Receivables, the principal amount outstanding under the Receivables Loan
shall not be in excess of the Borrowing Base.
3.7 Provided that there is no Event of Default, and no act or
event which after the giving of notice or the lapse of time, or both, would
constitute an Event of Default, has occurred and is continuing, under any other
agreement between Borrower and Lender, Lender shall release, reassign and/or
endorse, as applicable, all of the Receivables Collateral and all Purchaser
Mortgages securing the Receivables Collateral, and terminate its Security
Interest therein and in the Lots or Units which are the subject thereof, upon
the payment, in full, of all of Borrower's indebtedness to Lender arising under
this Agreement. Any release, reassignment and/or endorsement made pursuant to
this PARAGRAPH 3.7 shall be made without recourse or warranty of any kind (other
than the warranties contemplated by PARAGRAPH 3.6 of this Agreement).
3.8 Notwithstanding anything contained herein to the contrary,
Lender agrees that it will not disturb the rights of any Purchaser; provided,
however, that nothing herein is intended or shall be construed to abrogate or
restrict any rights or remedies against a Purchaser or with respect to a
Purchaser's Contract in the event that a Purchaser is in default under such
Contract.
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3.9 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the Aloha Bay Mortgage, subject
to the limitations contained therein. At such time as all principal, interest
and other sums payable under the Aloha Bay Note have been paid in full, Lender
shall, upon the request of Borrower, release and terminate the Aloha Bay
Mortgage and any accompanying UCC Financing Statements and related Security
Interests, provided that there does not then exist an Event of Default or any
act or event which with notice or passage of time, or both, would constitute an
Event of Default. All instruments effecting such release and termination shall
be prepared by Borrower and submitted to Lender unless Lender otherwise
specifies in its sole discretion. Such instruments shall be in form and
substance reasonably satisfactory to Lender. Lender also hereby agrees that it
will release from the effect of the Security Interest granted herein and in the
Aloha Bay Mortgage, and from the effect of any UCC Financing Statements, Units
in Aloha Bay which are sold by Borrower to Purchasers upon (a) the payment to
Lender of a release fee (the "Aloha Bay Release Fee") equal to $2,900.00 per
Unit, (b) the payment of an incentive fee (as provided in PARAGRAPH 7.15 below)
in the amount of $20.00 per Unit until such time as Borrower has repaid the
Aloha Bay Note in full, and thereafter in the amount of $2,900.00 per Unit until
such time as Borrower has paid to Lender a total incentive fee as to Aloha Bay
of $32,640.00, all as provided in PARAGRAPH 7.15 below, and (c) the satisfaction
of the Release Conditions. Upon the release of a Unit from the Aloha Bay
Mortgage, such release shall also constitute a release from the lien of the
Aloha Bay Mortgage, and from the lien of Lender's Security Interest, of any
Purchaser Notes or Purchaser Mortgages subsequently arising from the sale of
such Unit; provided, however, that, notwithstanding the foregoing, such
Purchaser Notes and Purchaser Mortgages shall continue to be subject to Lender's
Security Interest to the extent that such Purchaser Notes or Purchaser Mortgages
constitute Receivables Collateral. Payments of interest due under the Aloha Bay
Note shall not be credited against any Aloha Bay Release Fees.
3.10 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the Headquarters Deed of Trust.
At such time as the outstanding principal balance of the Office Note has been
reduced, either through ordinary payments of principal as required under the
Office Note or through prepayments of principal, to $4,273,778.74, or less,
Lender shall, upon the request of Borrower, release and terminate the
Headquarters Deed of Trust and any accompanying UCC Financing Statements and
related Security Interests, provided that there does not then exist an Event of
Default or any act or event which with notice or passage of time, or both, would
constitute an Event of Default, and provided, further, that Borrower has
satisfied all other conditions precedent to such release as set forth in the
Headquarters Deed of Trust. All instruments effecting such release and
termination shall be prepared by Borrower and submitted to Lender unless Lender
otherwise specifies in its sole discretion. Such instruments shall be in form
and substance reasonably satisfactory to Lender.
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3.11 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the FCFC Deed of Trust. At such
time as the outstanding principal balance of the Office Note has been reduced,
either through ordinary payments of principal as required under the Office Note
or through prepayments of principal, to $2,273,778.74, or LESS, Lender shall,
upon the request of Borrower, release and terminate the FCFC Deed of Trust and
any accompanying UCC Financing Statements and related Security Interests,
provided that there does not then exist an Event of Default or any act or event
which with notice or passage of time, or both, would constitute an Event of
Default, and provided, further, that Borrower has satisfied all other conditions
precedent with respect to such release as set forth in the FCFC Deed of Trust.
All instruments effecting such release and termination shall be prepared by
Borrower and submitted to Lender unless Lender otherwise specifies in its sole
discretion. Such instruments shall be in form and substance reasonably
satisfactory to Lender.
3.12 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the Ida Building One Deed of
Trust. At such time as all principal, interest and other sums payable under the
Ida Building One Note have been paid in full, Lender shall, upon the request of
Borrower, release and terminate the Ida Building One Deed of Trust and any
accompanying UCC Financing Statements and related Security Interests, provided
that there does not then exist an Event of Default or any act or event which
with notice or passage of time, or both, would constitute an Event of Default.
All instruments effecting such release and termination shall be prepared by
Borrower and submitted to Lender unless Lender otherwise specifies in its sole
discretion. Such instruments shall be in form and substance reasonably
satisfactory to Lender. Lender also hereby agrees that it will release from the
effect of the Security Interest granted herein, and in the Ida Building One Deed
of Trust and from the effect of any accompanying UCC Financing Statements, Units
in Ida Building One which are sold by Borrower to Purchasers upon (a) the
payment to Lender of a release fee (the "Ida Building One Release Fee") equal to
$1,650.00 per Unit, (b) the payment of the Ida Building One Incentive Fee (as
provided in PARAGRAPH 7.13 below) in the amount of $20.00 per Unit until such
time as Borrower has repaid the Ida Building One Note in full, and thereafter in
the amount of $1,650.00 per Unit until such time as Borrower has paid to Lender
a total Ida Building One Incentive Fee as to Ida Building One of $48,960.00, all
as provided in PARAGRAPH 7.13 below, (c) if applicable, the payment to Lender of
the Towers Note Principal Reduction Fee, and (d) the satisfaction of the Release
Conditions. Upon the release of a Unit from the Ida Building One Deed of Trust,
such release shall also constitute a release from the lien of the Ida Building
One Deed of Trust, and from the lien of Lender's Security Interest, of any
Purchaser Notes or Purchaser Mortgages subsequently arising from the sale of
such Unit; provided, however, that, notwithstanding the foregoing, such
Purchaser Notes and Purchaser Mortgages shall continue to be subject to Lender's
Security Interest to the extent that such Purchaser Notes or Purchaser Mortgages
constitute
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Receivables Collateral. Payments of interest due under the Ida Building One Note
shall not be credited against any Ida Building One Release Fees.
3.13 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the Ida Building Two Deed of
Trust. At such time as all principal, interest and other sums payable under the
Ida Building Two Note have been paid in full, Lender shall, upon the request of
Borrower, release and terminate the Ida Building Two Deed of Trust and any
accompanying UCC Financing Statements and related Security Interests, provided
that there does not then exist an Event of Default or any act or event which
with notice or passage of time, or both, would constitute an Event of Default.
All instruments effecting such release and termination shall be prepared by
Borrower and submitted to Lender unless Lender otherwise specifies in its sole
discretion. Such instruments shall be in form and substance reasonably
satisfactory to Lender. Lender also hereby agrees that it will release from the
effect of the Security Interests granted herein and in the Ida Building Two Deed
of Trust, and from the effect of any accompanying UCC Financing Statements,
Units in Ida Building Two which are sold by Borrower to Purchasers upon (a) the
payment to Lender of a release fee (the "Ida Building Two Release Fee") equal to
$2,550.00 per Unit, (b) the payment of the Ida Building Two Incentive Fee (as
provided in PARAGRAPH 7.14 hereof) in the amount of $20.00 per Unit until such
time as Borrower has repaid the Ida Building Two Note in full, and thereafter in
the amount of $2,550.00 per Unit until such time as Borrower has paid to Lender
a total Ida Building Two Incentive Fee as to Ida Building Two of $18,360.00, all
as provided in PARAGRAPH 7.14 hereof, (c) if applicable, the payment to Lender
of the Towers Note Principal Reduction Fee, and (d) the satisfaction of the
Release Conditions. Upon the release of a Unit from the Ida Building Two Deed of
Trust, such release shall also constitute a release from the lien of the Ida
Building Two Deed of Trust, and from the lien of Lender's Security Interest, of
any Purchaser Notes or Purchaser Mortgages subsequently arising from the sale of
such Unit; provided, however, that, notwithstanding the foregoing, such
Purchaser Notes and Purchaser Mortgages shall continue to be subject to Lender's
Security Interest to the extent that such Purchaser Notes or Purchaser Mortgages
constitute Receivables Collateral. Payments of interest due under the Ida
Building Two Note shall not be credited against any Ida Building Two Release
Fees.
3.14 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the Ida Building Addition Deed
of Trust. At such time as all principal, interest and other sums payable under
the Ida Building Addition Note have been paid in full, Lender shall, upon the
request of Borrower, release and terminate the Ida Building Addition Deed of
Trust and any accompanying UCC Financing Statements and related Security
Interests provided that there does not then exist an Event of Default or any act
or event which with notice or passage of time, or both, would constitute an
Event of Default. All instruments effecting such release and termination shall
be prepared by Borrower and submitted to Lender unless Lender otherwise
specifies in its sole discretion. Such
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instruments shall be in form and substance reasonably satisfactory to Lender.
Lender also hereby agrees that it will release from the effect of the Security
Interests granted herein and in the Ida Building Addition Deed of Trust, and
from the effect of any accompanying UCC Financing Statements, Units in the Ida
Building Addition which are sold by Borrower to Purchasers upon (a) the payment
to Lender of a release fee (the "Ida Building Addition Release Fee") equal to
$1,650.00 per Unit, (b) the payment of the Ida Building Addition Incentive Fee
(as provided in PARAGRAPH 7.16 below) in the amount of $20.00 per Unit until
such time as Borrower has repaid the Ida Building Addition Note in full, and
thereafter in the amount of $1,650.00 per Unit until such time as Borrower has
paid to Lender a total Ida Building Addition Incentive Fee as to Ida Building
Addition of $24,480.00, all as provided in PARAGRAPH 7.16 below, (c) if
applicable, the payment to Lender of the Towers Note Principal Reduction Fee,
and (d) the satisfaction of the Release Conditions. Upon the release of a Unit
from the Ida Building Addition Deed of Trust, such release shall also constitute
a release from the lien of the Ida Building Addition Deed of Trust, and from the
lien of Lender's Security Interest, of any Purchaser Notes or Purchaser
Mortgages subsequently arising from the sale of such Unit; provided, however,
that, notwithstanding the foregoing, such Purchaser Notes and Purchaser
Mortgages shall continue to be subject to Lender's Security Interest to the
extent that such Purchaser Notes or Purchaser Mortgages constitute Receivables
Collateral. Payments of interest due under the Ida Building Addition Note shall
not be credited against any Ida Building Addition Release Fees.
3.15 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender the Winnick Building Addition
Deed of Trust. At such time as all principal, interest and other sums payable
under the Winnick Building Addition Note have been paid in full, Lender shall,
upon the request of Borrower, release and terminate the Winnick Building
Addition Deed of Trust and any accompanying UCC Financing Statements and related
Security Interests provided that there does not then exist an Event of Default
or any act or event which with notice or passage of time, or both, would
constitute an Event of Default. All instruments effecting such release and
termination shall be prepared by Borrower and submitted to Lender unless Lender
otherwise specifies in its sole discretion. Such instruments shall be in form
and substance reasonably satisfactory to Lender. Lender also hereby agrees that
it will release from the effect of the Security Interests granted herein and in
the Winnick Building Addition Deed of Trust, and from the effect of any UCC
Financing Statements, Units in the Winnick Building Addition which are sold by
Borrower to Purchasers upon (a) the payment to Lender of a release fee (the
"Winnick Building Addition Release Fee") equal to $2,500.00 per Unit, (b) the
payment of the Winnick Building Addition Incentive Fee (as provided in PARAGRAPH
7.17 below) in the amount of $20.00 per Unit until such time as Borrower has
repaid the Winnick Building Addition Note in full, and thereafter in the amount
of $2,500.00 per Unit until such time as Borrower has paid to Lender a total
Winnick Building Addition Incentive Fee as to Winnick Building Addition of
$22,440.00, all as provided in PARAGRAPH 7.17 below, (c) if applicable, the
payment to Lender of the Towers Note Principal Reduction Fee, and (d) the
satisfaction of the Release Conditions. Upon the
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release of a Unit from the Winnick Building Addition Deed of Trust, such release
shall also constitute a release from the lien of the Winnick Building Addition
Deed of Trust, and from the lien of Lender's Security Interest, of any Purchaser
Notes or Purchaser Mortgages subsequently arising from the sale of such Unit;
provided, however, that, notwithstanding the foregoing, such Purchaser Notes and
Purchaser Mortgages shall continue to be subject to Lender's Security Interest
to the extent that such Purchaser Notes or Purchaser Mortgages constitute
Receivables Collateral. Payments of interest due under the Winnick Building
Addition Note shall not be credited against any Winnick Building Addition
Release Fees.
3.16 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused to be
executed and recorded for the benefit of Lender, or will cause to be recorded as
soon as possible after the Closing Date, the Second Winnick Building Addition
Deed of Trust. At such time as all principal, interest and other sums payable
under the Second Winnick Building Addition Note have been paid in full, Lender
shall, upon the request of Borrower, release and terminate the Second Winnick
Building Addition Deed of Trust and any accompanying UCC Financing Statements
and related Security Interests provided that there does not then exist an Event
of Default or any act or event which with notice or passage of time, or both,
would constitute an Event of Default. All instruments effecting such release and
termination shall be prepared by Borrower and submitted to Lender unless Lender
otherwise specifies in its sole discretion. Such instruments shall be in form
and substance reasonably satisfactory to Lender. Lender also hereby agrees that
it will release from the effect of the Security Interests granted herein and in
the Second Winnick Building Addition Deed of Trust, and from the effect of any
accompanying UCC Financing Statements, Units in the Second Winnick Building
Addition which are sold by Borrower to Purchasers upon (a) the payment to Lender
of a release fee (the "Second Winnick Building Addition Release Fee") equal to
$2,645.00 per Unit, (b) the payment of the Second Winnick Building Addition
Incentive Fee (as provided in PARAGRAPH 7.18 below) in the amount of $20.00 per
Unit until such time as Borrower has repaid the Second Winnick Building Addition
Note in full, and thereafter in the amount of $2,645.00 per Unit until such time
as Borrower has paid to Lender a total Second Winnick Building Addition
Incentive Fee as to Second Winnick Building Addition of $18,360.00, all as
provided in PARAGRAPH 7.18 below, (c) if applicable, the payment to Lender of
the Towers Note Principal Reduction Fee, and (d) the satisfaction of the Release
Conditions. Upon the release of a Unit from the Second Winnick Building Addition
Deed of Trust, such release shall also constitute a release from the lien of the
Second Winnick Building Addition Deed of Trust, and from the lien of Lender's
Security Interest, of any Purchaser Notes or Purchaser Mortgages subsequently
arising from the sale of such Unit; provided, however, that, notwithstanding the
foregoing, such Purchaser Notes and Purchaser Mortgages shall continue to be
subject to Lender's Security Interest to the extent that such Purchaser Notes or
Purchaser Mortgages constitute Receivables Collateral. Payments of interest due
under the Second Winnick Building Addition Note shall not be credited against
any Second Winnick Building Addition Release Fees.
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3.17 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower will cause to be
executed and recorded for the benefit of Lender a Mortgage with respect to each
Additional Project under which Advances of the Mortgage Loan Facility are made
by Lender to Borrower. At such time as all principal, interest and other sums
payable under a Project Note have been paid in full, Lender shall, upon the
request of Borrower, release and terminate the Mortgage recorded with respect to
such Project and any accompanying UCC Financing Statements and related Security
Interests, provided that there does not then exist an Event of Default or any
act or event which with notice or passage of time, or both, would constitute an
Event of Default. All instruments effecting such release and termination shall
be prepared by Borrower and submitted to Lender unless Lender otherwise
specifies in its sole discretion. Such instruments shall be in form and
substance reasonably satisfactory to Lender. Lender also hereby agrees that it
will release from the effect of the Security Interests granted herein, and from
the effect of any such Mortgage or accompanying UCC Financing Statements filed
and recorded with respect thereto, Units in the Project which are sold by
Borrower to Purchasers upon (a) the payment to Lender of a release fee (the
"Project Release Fee") equal to a specific amount per Unit which is agreed to by
Lender and Borrower at the time of the initial Advance under the Mortgage Loan
Facility with respect to such Project, (b) the payment of the Project Incentive
Fee (as provided in PARAGRAPH 7.19 below) in an amount equal to $20.00 per Unit
in such Project until such time as Borrower has repaid the respective Project
Note in full, and thereafter in the amount of the Project Release Fee per Unit
until such time as the Borrower has paid to Lender a total Project Incentive Fee
as to the Project equal in amount to $20.00 multiplied by the number of Units in
such Project, and (c) the satisfaction of the Release Conditions. Upon the
release of a Unit from the Mortgage recorded with respect to such Project, such
release shall also constitute a release from the lien of such Mortgage, and from
the lien of Lender's Security Interest, of any Purchaser Notes or Purchaser
Mortgages subsequently arising from the sale of such Unit; provided, however,
that, notwithstanding the foregoing, such Purchaser Notes and Purchaser
Mortgages shall continue to be subject to Lender's Security Interest to the
extent that such Purchaser Notes or Purchaser Mortgages constitute Receivables
Collateral. The Project Release Fee applicable to each Project with respect to
which Advances under the Mortgage Loan Facility are made shall be set forth in
the Mortgage to be recorded with respect to such Project. Payments of interest
due under the Project Note shall not be credited against any Project Release
Fees.
3.18 No release of a Unit or release or satisfaction of any
Mortgage provided by Borrower as additional security for the Loan shall impair
or affect Lender's remaining Security Interests or any term or provision of this
Agreement.
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ARTICLE IV
ADDITIONAL SECURITY
4.1 As additional security for Borrower's Performance of all
Obligations owed to Lender under the Documents, Borrower has caused the
Guarantee to be executed and delivered to Lender.
ARTICLE V
ADVANCES
5.1 Lender shall have no obligation to make any Advance hereunder
until such time as all of the conditions precedent set forth in the following
paragraphs and elsewhere in this Agreement have been satisfied, at Borrower's
sole expense, as determined by Lender in its sole discretion.
5.2 Borrower shall have delivered to Lender the following in form
and substance satisfactory to Lender, and when required, in recordable form:
5.2.1 RECEIVABLES ADVANCES. With respect to Advances of the
Receivables Loan, Borrower shall have delivered, or caused to be
delivered, to Lender the following:
(a) At least five (5) business days prior to the date
of such Advance, copies of the Eligible Receivables against which
such Advance is to be made, including, without limitation,
Contracts, Purchaser Notes, Purchaser Mortgages, Title Policies
insuring such Purchaser Mortgages, and, upon the request of
Lender, all other documents and exhibits, including, without
limitation, any advertising materials, which have been or are
being used by Borrower in connection with the Project or the sale
of Eligible Receivables therein;
(b) The items described in EXHIBIT "5.2.1" attached
hereto; and
(c) Such other items as Lender requests which are
reasonably necessary to evaluate the request for the Advance and
the satisfaction of the conditions precedent thereto.
5.2.2 ADVANCES UNDER MORTGAGE LOAN FACILITY. With respect to
Advances under the Mortgage Loan Facility, Borrower shall have
delivered, or caused to be delivered, to Lender the following:
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(a) The items described in EXHIBIT "5.2.2" attached hereto;
(b) The Mortgage Loan Fee payable with respect to the
Advance; and
(c) Such other items as Lender requests which are reasonably
necessary to evaluate the request for the Advance under the Mortgage
Loan Facility and the satisfaction of the conditions precedent thereto.
5.3 No material adverse change shall have occurred in any portion
of the Project or in Borrower's or Guarantor's business or financial condition
since the date of the latest financial and operating statements given to Lender
by or on behalf of Borrower or Guarantor, except as previously disclosed to and
permitted, in writing, by Lender.
5.4 There shall have been no materially adverse changes in the
warranties and representations made by Borrower and/or Guarantor in the
Documents, except as previously disclosed to and permitted, in writing, by
Lender.
5.5 Neither an Event of Default nor an act or event which after
notice and/or lapse of time or both would constitute an Event of Default shall
have occurred and be continuing.
5.6 The interest rate applicable to the Advance (before giving
effect to any savings clause) will not exceed the maximum contract rate
permitted by the Applicable Usury Law.
5.7 All indebtedness (subject to PARAGRAPH 8.24 hereof, other
than indebtedness for reasonable salaries in the normal course of business) owed
by Borrower to any shareholder or affiliate of Borrower shall be, upon the
occurrence and continuation of an Event of Default, subordinated to indebtedness
owed by Borrower to Lender in a form satisfactory to Lender.
5.8 Advances shall be requested in writing on Lender's standard
"Request for Advance and Certification" form by Borrower by those officers or
agents of Borrower named in authorizing resolutions of Borrower from time to
time delivered to Lender and which are in form and substance satisfactory to
Lender.
5.9 Advances may be disbursed by checks or drafts payable to
Borrower; after Borrower's written request, by wire transfer to Borrower's
account, as designated in writing by Borrower from time to time; or, at the
option of Lender after Borrower's written
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request, to others, either severally or jointly with Borrower, for the credit or
benefit of Borrower.
5.10 Lender shall have no obligation to make any Advance unless
at least two of the following Persons, or, in the event of the death,
incapacity, retirement, or requested disassociation for just cause of any of
such Persons, any substitute therefor reasonably satisfactory to Lender, shall
remain engaged in the active management of Borrower on a nonexclusive
nonfull-time basis and shall perform duties substantially similar to those
presently performed by such Persons in their present executive offices: Mr.
Jerome J. Cohen, Mr. Herbert B. Hirsch and Mr. Don A. Mayerson.
5.11 Although Lender shall have no obligation to make an Advance
unless and until all of the conditions thereto set forth herein have been
satisfied, Lender may, at its sole discretion, make Advances prior to that time
without waiving or releasing any of the Obligations, but Borrower shall continue
to be required to strictly perform all such Obligations.
5.12 Lender shall have no obligation to make any Advance against
any Eligible Receivables arising from any Additional Project or the sale of any
Units or Lots therein until:
(a) Borrower shall have delivered to Lender the following
loan documents duly executed in form and substance satisfactory to
Lender, and when required such loan documents shall be in recordable
form:
(i) A favorable opinion from counsel to the Borrower, in
form and substance satisfactory to Lender, as to such matters as
Lender may reasonably require; and
(ii) A certificate from the President, a Vice President
or the Treasurer of Borrower, in form satisfactory to Lender, as
to such matters as Lender may reasonably require.
(b) Borrower shall have delivered, or caused to be
delivered, to Lender the following additional items:
(i) Maps or surveys of the Additional Project certified
by a licensed engineer or surveyor, acceptable to Lender, showing
the dimensions of the Additional Project, together with a
certificate from the President, a Vice President or the Treasurer
of Borrower, satisfactory to Lender, that the Additional Project
complies with all applicable laws, rules, regulations, and public
and private restrictions affecting the use of the Additional
Project;
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(ii) Evidence that the Additional Project is not located
within a special flood hazard area or evidence, satisfactory to
Lender, that the Additional Project is insured, upon such terms
and in such amounts as shall be satisfactory to Lender, against
risks or physical damage caused by flooding;
(iii) Copies of any trust agreement relating to the
Additional Project, which shall be in form and substance
satisfactory to Lender;
(iv) An Environmental Certificate with Representations,
Covenants and Warranties, with respect to the Additional Project
in form and substance acceptable to Lender.
(c) Lender shall have made a site inspection of the
Additional Project and the Additional Project shall not have been
determined by Lender to be unsatisfactory.
(d) All sales and promotional documents and project
documents relating to the Additional Project and the related Receivables
Collateral shall have been submitted to Lender and shall not have been
determined by Lender to be unsatisfactory.
(e) Lender shall have given Borrower written notice
confirming the satisfaction of the conditions set forth in SUBPARAGRAPHS
(c) AND (d) of this PARAGRAPH 5.12.
5.13 If Lender is requested to accept an assignment from Borrower
of any Receivables Collateral arising from the sale of one or more Units or Lots
in an Additional Project and the Receivables Collateral was originated as a
result of any sales by an Additional Project Developer other than Borrower,
then:
(a) All covenants, conditions, restrictions and other
terms of this Agreement which refer to the Borrower, other than
provisions providing for or requiring payment of money to Lender,
shall be deemed to include reference to the Additional Project
Developer to the extent such covenants, conditions, restrictions
and other terms concern or relate to the sale of the Units or
Lots which generated such Receivables Collateral, the performance
of obligations of the seller to Purchasers of such Units or Lots
and/or the preservation, protection, collection, verification
and/or value of such Receivables Collateral;
(b) Borrower shall cause the Additional Project Developer
which originated the Receivables Collateral to perform, observe
and comply with all covenants, conditions, restrictions and other
terms of this Agreement which concern or relate to such
Receivables Collateral and/or the Additional Project in question;
and
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(c) Borrower shall, upon written request of Lender and as
may be deemed necessary or desirable by Lender on a case-by-case
basis, cause the Additional Project Developer to make and enter
into any direct undertakings with Lender that Lender may deem
necessary or appropriate to assure the preservation, protection,
collection, verification and/or value of such Receivables
Collateral.
None of the provisions of this PARAGRAPH 5.13 or any direct undertaking to
Lender contemplated by subparagraph (c) above is intended or shall be construed
to modify, waive, release or otherwise abrogate any provision of this Agreement
or of the other Documents which imposes any obligation or liability on Borrower.
ARTICLE VI
HAZARDOUS WASTES
6.1 Neither the Borrower nor, to the best knowledge of the
Borrower, any other Person has ever caused or permitted any Hazardous Material
to be placed, held, located or disposed of on, under or at any Project or any
part thereof or from any Project in violation of law into the atmosphere or any
watercourse, body of water, or wetlands or any other real property legally or
beneficially owned (or any interest or estate in which is owned) by the Borrower
(including, without limitation, any property owned by a land trust the
beneficial interest in which is owned, in whole or in part, by the Borrower),
and neither any Project, any part thereof, nor any other real property legally
or beneficially owned (or any interest or estate in which is owned) by the
Borrower (including, without limitation, any property owned by a land trust the
beneficial interest in which is owned, in whole or in part, by the Borrower) has
ever been used (whether by the Borrower or, to the best knowledge of the
Borrower, by any other Person) as a treatment, storage or disposal (whether
permanent or temporary) site for any Hazardous Material. For purposes of this
Agreement, "Hazardous Material" means and includes any hazardous substance or
any pollutant or contaminant defined as such in (or for purposes of) the
Comprehensive Environmental Response, Compensation, and Liability Act, any
so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, or
any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree, regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect, asbestos or
any substance or compound containing asbestos, or any other hazardous, toxic or
dangerous, waste, substance or material.
6.2 Borrower will not place, hold, locate or dispose of on, under
or at the Project or any part thereof or from the Project into the atmosphere or
any watercourse, body of water or wetlands or any other real property legally or
beneficially owned (or any interest or estate in which is owned) by the Borrower
(including, without limitation, any property owned by a land trust the
beneficial interest in which is owned, in whole or in part, by the
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Borrower) any Hazardous Material in violation of law, nor will Borrower permit
or cause any other Person to do any of the aforesaid.
6.3 Borrower hereby indemnifies the Lender and agrees to hold the
Lender harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims or any and every kind whatsoever, including
reasonable attorneys' fees, paid, incurred or suffered by, or asserted against,
the Lender for, with respect to, or as a direct or indirect result of, the
presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, discharging or release from, any Project or from any Project into or
upon the land, the atmosphere, or any watercourse, body of water or wetland of
any Hazardous Material (including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other Federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability or standards of conduct concerning any
Hazardous Material).
ARTICLE VII
NOTES: MAINTENANCE OF BORROWING BASE;
PAYMENTS; SERVICING AND COLLECTION
7.1 The Receivables Loan shall be evidenced by the Receivables
Note and shall be repaid in immediately available funds according to the terms
thereof and such provisions of this Agreement as are applicable. Advances made
under the Mortgage Loan Facility with respect to any Additional Project shall be
evidenced by a separate Project Note in a form acceptable to Lender, executed
and delivered simultaneously with the initial Advance under the Mortgage Loan
Facility with respect to an approved Additional Project and payable to Lender
upon the terms and conditions contained therein and in this Agreement, as
applicable. The Advances made under the Mortgage Loan Facility with respect to
Ida Building One, Ida Building Two, Ida Building Addition, Winnick Building
Addition, Towers and the Second Winnick Building Addition shall continue to be
evidenced by the Ida Building One Note, the Ida Building Two Note, the Ida
Building Addition Note, the Winnick Building Addition Note, the Towers Note and
the Second Winnick Building Addition Note, respectively. The Obligations of
Borrower to Lender under the Aloha Bay Note shall continue to be evidenced and
governed by the Aloha Bay Note, and the Obligations of Borrower under the Office
Note shall continue to be evidenced and governed by the Office Note.
7.2 If at any time the aggregate outstanding principal amount of
the Receivables Loan shall exceed the Borrowing Base, for any reason whatsoever
(including, without limitation, the termination or modification of an existing
Contract or Instrument with respect to a certain Lot or Unit, and the
simultaneous entering into of a new or revised
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Contract or Instrument for the purchase of a less expensive Lot or Unit),
Borrower shall immediately notify Lender of such fact and make a mandatory
prepayment, without premium or penalty, in the amount necessary (including
accrued interest) to reduce the outstanding principal amount of the Receivables
Loan to the existing Borrowing Base. If a mandatory prepayment is required,
Borrower shall have the right, in lieu of payment to eliminate all, or any part,
of the excess borrowing and thereby avoid the obligation to make a mandatory
prepayment by (a) promptly notifying Lender in writing of Debtor's intention to
assign new Eligible Receivables so as to increase the Borrowing Base to the
required amount and (b) promptly effecting the assignment of the new Eligible
Receivables, but in no event later than five (5) business days after the
Borrowing Base deficiency occurred. Such assignment shall be made in compliance
with the conditions precedent stated in ARTICLE V hereof. Any mandatory
prepayments to be made by Debtor pursuant to this PARAGRAPH 7.2 will not affect
any other Obligation of Borrower arising under the other provisions of this
Agreement or the Receivables Note.
7.3 Provided (a) Borrower pays all sums then due and payable to
Lender in connection with the Loan, and (b) Borrower has given Lender at least
thirty (30) days prior written notice of the prepayment and paid to Lender at
the time of prepayment a prepayment premium equal to a percentage, as set forth
in the schedule below, of the then unpaid principal balance of the Loan,
Borrower shall have the option to prepay the Loan in full, but not in part. The
prepayment premium schedule is as follows:
MONTHS PREMIUM
1 - 18 3%
19 - 36 2%
37 - 54 1%
55 or thereafter 0%
If there should occur a casualty to or condemnation of any Project or an
acceleration of maturity following an Event of Default and such occurrence
results in prepayment of the Loan, a prepayment premium will be required in the
amount specified above. Notwithstanding anything contained herein to the
contrary, there shall be no prepayment premium if prepayment is occasioned
solely by reason of: (i) a payment or prepayment of a Contract or Instrument by
the obligor(s) thereunder; (ii) a reduction of the outstanding principal balance
of the Loan with the proceeds of a sale of any Contract or Instrument to Lender;
or (iii) a mandatory partial prepayment made in order for the Receivables Loan
to be in conformance with the Borrowing Base.
7.3.1 Notwithstanding anything contained in this Agreement to
the contrary, and except as may be specifically set forth in any Project
Notes, the Aloha Bay Note or the Office Note, Borrower shall have the
right to make one or more partial prepayments of the Loan from time to
time during the Receivables Borrowing
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Term so long as: (a) each such partial prepayment, equals or exceeds the
minimum sum of $2,000,000.00; (b) the aggregate outstanding principal
balance of the Loan is not reduced to an amount less than $35,000,000.00
as a result thereof; (c) Borrower pays to Lender, at the time of such
prepayment, a prepayment premium equal to one percent (1%) of the amount
of the partial prepayment; and (d) Borrower has given Lender at least
thirty (30) days prior written notice of each such prepayment; provided,
however, that any payments or prepayments referred to in items (i), (ii)
and (iii) of PARAGRAPH 7.3 hereof shall not be subject to any prepayment
premium.
7.3.2 For purposes of determining the month in which any full
prepayment occurs pursuant to PARAGRAPH 7.3 hereof, the elapsed time of
the Loan shall be measured from the earlier to occur of: (a) the date of
the first Advance under the Receivables Loan which is made after the
Closing Date, or (b) May 7, 1997. In the event Lender and Borrower agree
to renew or extend the Borrowing Term under this Agreement subsequent to
the date of this Agreement, the elapsed time of the Loan shall be
measured from the date of the first Advance to Borrower on or after the
date of the most recent such renewal or extension of the Borrowing Term
for the purposes of determining the year in which any full prepayment
occurs pursuant to PARAGRAPH 7.3 hereof.
7.4 The Collection Agent, as agent for Lender, shall collect the
payments on the Eligible Receivables used in making the Borrowing Base
computations or otherwise constituting part of the Receivables Collateral and
remit them to Lender according to the terms of the Agency Agreement; and
Borrower will immediately forward all such payments received by it to the
Collection Agent for Lender.
7.5 Notwithstanding the terms of the Agency Agreement, Borrower's
obligation to make the payments called for in the Documents will not be deemed
satisfied nor will Borrower be credited for such payments until Lender actually
receives such payments from Collection Agent in New York, New York, or such
other place as Lender shall designate from time to time.
7.6 For the purpose of determining the adequacy of such payments,
Borrower will furnish to Lender, at Borrower's sole cost and expense, no later
than the 15th calendar day of each month commencing with the full calendar month
following the date hereof, a report meeting the following requirements:
(i) shows as of the end of the prior month with respect to
the Receivables Collateral which is used in making Borrowing Base
computations or otherwise constitutes part of the Receivables
Collateral:
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(A) all payments received during the prior month on
the Receivables Collateral, allocated as between principal,
interest, late charges, taxes, and the like,
(B) the closing balance as of the end of the prior
month on each of the Receivables Collateral,
(C) The present value of the cash flow (if required
by Lender) discounted at a rate equal to the greater of: (1)
Prime plus two percent (2%); or (2) twelve percent (12%) per
annum (for purposes of this clause, "Prime" shall have the same
meaning as defined in the Receivables Note), and
(D) extensions, refinances, prepayments, and other
similar adjustments;
(ii) itemizes the Receivables Collateral which is used in
making Borrowing Base computations or otherwise constitutes part of the
Receivables Collateral to show delinquencies of 30, 60, 90 and in excess
of 90 days; and
(iii) reconciles the prior month's aggregate ending balance
of Receivables Collateral to the current month's aggregate ending
balance of Receivables Collateral, reflecting all changes to the
principal balance payable under the Receivables Collateral (i.e., new
accounts funded against or used as replacements of ineligible
Receivables Collateral, principal payments and Receivables Collateral
released due to cash-outs or replacements).
7.7 On the basis of such reports, Lender will compute the amount,
if any, which was due and payable by Borrower on the last day of the preceding
month and will notify Borrower as soon as possible of any amount due.
7.8 If such reports are not timely received, Lender may estimate
the amount which was due and payable; and, in such event, Borrower will pay upon
demand the amount estimated by Lender to be due and payable.
7.9 If payment is made on the basis of Lender's estimate and
thereafter reports required by this paragraph are received by Lender, the
estimated payment amount shall be adjusted by an additional payment or a refund
to the correct amount, as the reports may indicate; such additional amount to be
paid by Borrower upon demand and such refund to be made by Lender within five
(5) business days after receipt by Lender of a written request therefor by
Borrower. In addition, at each calendar quarter, Borrower will deliver to Lender
a current list of the names, addresses and phone numbers of the Purchasers
related to Eligible Receivables added or deleted since the last quarter.
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7.10 Lender shall have the exclusive right at any time and from
time to time in its sole discretion to substitute a successor or successors to
any Collection Agent acting under the Agency Agreement.
7.11 Subject to Lender's rights upon the occurrence of an Event
of Default, all proceeds from the Receivables Collateral (except payments which
are identified by Purchasers as tax or maintenance and other assessment payments
and are required to be so treated by Borrower) which are received during the
Term hereof shall be applied FIRST to the payment of all costs, fees and
expenses which Borrower is required to pay by the Documents, SECOND to accrued
and unpaid interest due on the Receivables Note, THIRD to the unpaid principal
balance of the Receivables Note, AND THEN to the other Obligations in such order
and manner as Lender may determine; provided, however, that so long as no Event
of Default has occurred and is continuing, such proceeds shall not be applied to
any amounts of principal outstanding under any Project Note, the Aloha Bay Note
or the Office Note. Except as applied for the benefit of Borrower pursuant to
the foregoing, unless and until all such Obligations have been Performed,
Borrower shall have no right to any portion of the proceeds of the Receivables
Collateral (except payments which are identified by Purchaser as tax or
maintenance or other assessment payments and are required to be so treated by
Borrower).
7.12 To the extent not previously paid in accordance with
PARAGRAPH 7.11 hereof, Borrower will pay, or cause to be paid, when due all
payments required to be made pursuant to the Receivables Note or the other
Documents notwithstanding the fact that the future proceeds from the Receivables
Collateral shall be sufficient for that purpose; and all amounts payable by
Borrower under the Receivables Note, or the other Documents, shall be paid
without notice (except as otherwise expressly provided therein), demand,
counterclaim, set-off deduction, recoupment or defense, and without abatement,
suspension, deferment, diminution or pro-ration by reason of any circumstance or
occurrence whatsoever, Borrower's obligation to make such payments being
absolute and unconditional.
7.13 As additional consideration to Lender, Borrower shall pay to
Lender an Ida Building One Incentive Fee (the "Ida Building One Incentive Fee")
equal to $48,960.00 (less any amounts received by Lender and applied toward
payment of such fee prior to the date of this Agreement) with respect to the
Units sold in Ida Building One or released from the Ida Building One Deed of
Trust. The Ida Building One Incentive Fee shall be paid in installments of
$20.00 per Unit sold or released in Ida Building One until such time as the
Borrower has repaid the Ida Building One Note in full. Thereafter, the Ida
Building One Incentive Fee shall be paid in installments of $1,650.00 per Unit
sold or released in Ida Building One until the entire Ida Building One Incentive
Fee is paid in full. Payments of the Ida Building One Incentive Fee, in
installments of $20.00 per Unit, shall be made together with Ida Building One
Release Fees described in PARAGRAPH 3.12 above, until the Ida Building One Note
is repaid in full; thereafter, payments of the Ida Building One Incentive Fee,
in installments of $1,650.00 per Unit, shall be made at the earlier of the
conveyance to a
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Purchaser of each sold Unit in Ida Building One or the release of such Unit from
the Ida Building One Deed of Trust. The Ida Building One Incentive Fee shall be
in addition to the principal and interest payments due under the Ida Building
One Note. The Ida Building One Incentive Fee may be prepaid in whole or in part
at any time. The Ida Building One Incentive Fee payable pursuant to this
subparagraph is the same Incentive Fee payable under Paragraph 6.1 of the Ida
Building One Deed of Trust.
7.14 As additional consideration to Lender, Borrower shall pay to
Lender an Ida Building Two Incentive Fee (the "Ida Building Two Incentive Fee"),
equal to $18,360.00 (less any amounts received by Lender and applied toward
payment of such fee prior to the date of this Agreement) with respect to the
Units sold in Ida Building Two or released from the Ida Building Two Deed of
Trust. The Ida Building Two Incentive Fee shall be paid in installments of
$20.00 per Unit sold or released in Ida Building Two until such time as the Ida
Building Two Note is paid in full. Thereafter, the Ida Building Two Incentive
Fee shall be paid in installments of $2,550.00 per Unit sold or released in Ida
Building Two until the entire Ida Building Two Incentive Fee Two is paid in
full. Payments of the Ida Building Two Incentive Fee, in installments of $20.00
per Unit, shall be made together with Ida Building Two Release Fees described in
PARAGRAPH 3.13 above, until the Ida Building Two Note is repaid in full;
thereafter, payments of the Ida Building Two Incentive Fee, in installments of
$2,550.00 per Unit, shall be made at the earlier of the conveyance to a
Purchaser of each sold Unit in Ida Building Two or the release of such Unit from
the Ida Building Two Deed of Trust. The Ida Building Two Incentive Fee described
herein shall be in addition to the principal and interest payments due under the
Ida Building Two Note. The Ida Building Two Incentive Fee may be prepaid in
whole or in part at any time. The Ida Building Two Incentive Fee payable
pursuant to this subparagraph is the same Incentive Fee payable under Paragraph
6.1 of the Ida Building Two Deed of Trust.
7.15 As additional consideration to Lender, Borrower shall pay to
Lender an Aloha Bay Incentive Fee (the "Aloha Bay Incentive Fee"), equal to
$32,640.00 (less any amounts received by Lender and applied toward payment of
such fee prior to the date of this Agreement) with respect to the Units sold in
Aloha Bay or released from the Aloha Bay Mortgage. The Aloha Bay Incentive Fee
shall be paid in installments of $20.00 per Unit sold or released in Aloha Bay
until such time as the Borrower has repaid the Aloha Bay Note in full.
Thereafter, the Aloha Bay Incentive Fee shall be paid in installments of
$2,900.00 per Unit sold or released in Aloha Bay until the entire Aloha Bay
Incentive Fee is paid in full. Payments of the Aloha Bay Incentive Fee, in
installments of $20.00 per Unit, shall be made together with Aloha Bay Release
Fees described in PARAGRAPH 3.9 above, until the Aloha Bay Note is repaid in
full; thereafter, payments of the Aloha Bay Incentive Fee, in installments of
$2,900.00 per Unit, shall be made at the earlier of the conveyance to a
Purchaser of each sold Unit in Aloha Bay or the release of such Unit from the
Aloha Bay Mortgage. The Aloha Bay Incentive Fee described herein shall be in
addition to the principal and interest payments due under the Aloha Bay Note.
The Aloha Bay Incentive Fee may be prepaid in whole or in part at any time. The
Aloha Bay Incentive Fee payable pursuant to
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this subparagraph is the same Incentive Fee payable under Paragraph 6.1 of the
Aloha Bay Mortgage.
7.16 As additional consideration to Lender, Borrower shall pay to
Lender an Ida Building Addition Incentive Fee (the "Ida Building Addition
Incentive Fee"), equal to $24,480.00 (less any amounts received by Lender and
applied toward payment of such fee prior to the date of this Agreement) with
respect to the Units sold in the Ida Building Addition or released from the Ida
Building Addition Deed of Trust. The Ida Building Addition Incentive Fee shall
be paid in installments of $20.00 per Unit sold or released in the Ida Building
Addition until such time as the Ida Building Addition Note is paid in full.
Thereafter, the Ida Building Addition Incentive Fee shall be paid in
installments of $1,650.00 per Unit sold or released in the Ida Building Addition
until the entire Ida Building Addition Incentive Fee Addition is paid in full.
Payments of the Ida Building Addition Incentive Fee, in installments of $20.00
per Unit, shall be made together with Ida Building Addition Release Fees
described in PARAGRAPH 3.14 above, until the Ida Building Addition Note is
repaid in full; thereafter, payments of the Ida Building Addition Incentive Fee,
in installments of $1,650.00 per Unit, shall be made at the earlier of the
conveyance to a Purchaser of each sold Unit in the Ida Building Addition or the
release of such Unit from the Ida Building Addition Deed of Trust. The Ida
Building Addition Incentive Fee described herein shall be in addition to the
principal and interest payments due under the Ida Building Addition Note. The
Ida Building Addition Incentive Fee may be prepaid in whole or in part at any
time. The Ida Building Addition Incentive Fee payable pursuant to this
subparagraph is the same Incentive Fee payable under Paragraph 6.1 of the Ida
Building Addition Deed of Trust.
7.17 As additional consideration to Lender, Borrower shall pay to
Lender a Winnick Building Addition Incentive Fee (the "Winnick Building Addition
Incentive Fee"), equal to $22,440.00 (less any amounts received by Lender and
applied toward payment of such fee prior to the date of this Agreement) with
respect to the Units sold in Winnick Building Addition or released from the
Winnick Building Addition Deed of Trust. The Winnick Building Addition Incentive
Fee shall be paid in installments of $20.00 per Unit sold or released in the
Winnick Building Addition until such time as the Borrower has repaid the Winnick
Building Addition Note in full. Thereafter, the Winnick Building Addition
Incentive Fee shall be paid in installments of $2,500.00 per Unit sold or
released in the Winnick Building Addition until the entire Winnick Building
Addition Incentive Fee is paid in full. Payments of the Winnick Building
Addition Incentive Fee, in installments of $20.00 per Unit, shall be made
together with Winnick Building Addition Release Fees described in PARAGRAPH 3.15
above, until the Winnick Building Addition Note is repaid in full; thereafter,
payments of the Winnick Building Addition Incentive Fee, in installments of
$2,500.00 per Unit, shall be made at the earlier of the conveyance to a
Purchaser of each sold Unit in the Winnick Building Addition or the release of
such Unit from the Winnick Building Addition Deed of Trust. The Winnick Building
Addition Incentive Fee described herein shall be in addition to the principal
and interest payments due under the Winnick Building Addition Note. The Winnick
Building Addition Incentive Fee may be prepaid in whole or in part at
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any time. The Winnick Building Addition Incentive Fee payable pursuant to this
subparagraph is the same Incentive Fee payable under Paragraph 6.1 of the
Winnick Building Addition Deed of Trust.
7.18 As additional consideration to Lender, Borrower shall pay to
Lender a Second Winnick Building Addition Incentive Fee (the "Second Winnick
Building Addition Incentive Fee"), equal to $18,360.00 with respect to the Units
sold in the Second Winnick Building Addition or released from the Second Winnick
Building Addition Deed of Trust. The Second Winnick Building Addition Incentive
Fee shall be paid in installments of $20.00 per Unit sold or released in the
Second Winnick Building Addition until such time as the Borrower has repaid the
Second Winnick Building Addition Note in full. Thereafter, the Second Winnick
Building Addition Incentive Fee shall be paid in installments of $2,645.00 per
Unit sold or released in the Second Winnick Building Addition until the entire
Second Winnick Building Addition Incentive Fee is paid in full. Payments of the
Second Winnick Building Addition Incentive Fee, in installments of $20.00 per
Unit, shall be made together with the Second Winnick Building Addition Release
Fees described in PARAGRAPH 3.16 above until the Second Winnick Building
Addition Note is repaid in full; thereafter, payments of the Second Winnick
Building Addition Incentive Fee, in installments of $2,645.00 per Unit, shall be
made at the earlier of the conveyance to a Purchaser of each sold Unit in the
Second Winnick Building Addition or the release of such Unit from the Second
Winnick Building Addition Deed of Trust. The Second Winnick Building Addition
Incentive Fee described herein shall be in addition to the principal and
interest payments due under the Second Winnick Building Addition Note. The
Second Winnick Building Addition Incentive Fee may be prepaid in whole or in
part at any time. The Second Winnick Building Addition Incentive Fee payable
pursuant to this subparagraph is the same Incentive Fee payable under Paragraph
6.1 of the Second Winnick Building Addition Deed of Trust.
7.19 As additional consideration to Lender, Borrower shall pay to
Lender a Project incentive fee (the "Project Incentive Fee") with respect to
each Additional Project for which Advances under the Mortgage Loan Facility are
made by Lender to Borrower, which Project Incentive Fee shall be in an amount
equal to $20.00 multiplied by the number of Units contained within such
Additional Project. The Project Incentive Fee shall be paid in installments of
$20.00 per Unit sold or released in the Additional Project until such time as
the Borrower has repaid the Project Note with respect to such Additional Project
in full. Thereafter, the Project Incentive Fee payable with respect to such
Additional Project shall be paid in installments equal to the amount of the
Project Release Fee payable with respect to such Additional Project per Unit
sold or released until the entire Project Incentive Fee payable with respect to
such Additional Project is paid in full. Payments of the Project Incentive Fee,
in installments of $20.00 per Unit, shall be made together with the Project
Release Fees described in PARAGRAPH 3.17 above until the Project Note executed
and delivered with respect to such Additional Project is repaid in full;
thereafter, payments of the Project Incentive Fee with respect to such
Additional Project, in installments equal to the Project Release Fee applicable
thereto, shall be made at the earlier of the conveyance to a
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Purchaser of each sold Unit in the Additional Project or the release of such
Unit from the Mortgage recorded with respect to such Additional Project. The
Project Incentive Fee described herein shall be in addition to the principal and
interest payments due under the Project Note executed and delivered by Borrower
with respect to such Additional Project. The Project Incentive Fee may be
prepaid in whole or in part at any time.
ARTICLE VIII
BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 General Representations and Warranties of Borrower: Borrower
warrants and represents the truth and accuracy of each of the following
warranties and representations, both on the date hereof and on the dates of each
transaction made pursuant to this Agreement. Each of the warranties and
representations shall inure to the benefit of Lender, its successors and
assigns.
8.2 (a) Except as expressly permitted by PARAGRAPH 8.15 hereof,
Borrower is, and will continue to be during the Term hereof, duly
organized, validly existing and in good standing under the laws of the
State of Nevada and is, and will continue to be during the Term hereof,
qualified to do business and in good standing in each jurisdiction in
which it is selling Lots or Units or where the location or nature of its
properties used or its business makes such qualification necessary
(except where failure to do so would not adversely affect Lender's
ability to realize upon the Receivables Collateral or any other security
for the Performance of the Obligations or materially adversely affect
the business or financial condition of Borrower or the ability of
Borrower to complete Performance of the Obligations). Borrower has, and
will continue to have, powers adequate for making and Performing under
the Documents, for undertaking and Performing the Obligations, and for
carrying on its business and owning its properties.
(b) Borrower and the Applicable Trusts have good right and
power to grant the Security Interest in the Receivables Collateral and
other security for the Obligations and to execute and deliver this
Agreement and the other Documents and, in the case of Borrower, to
Perform the Obligations. All action necessary and required by Borrower's
and the Applicable Trusts' governing documents and all applicable laws
for the obtaining of the Loan and for the execution and delivery of this
Agreement and all other Documents executed and delivered in connection
with the Loan has been duly and effectively taken; and this Agreement is
and shall be, and all other Documents are and shall be, legal, valid,
binding and enforceable against Borrower and the Applicable Trusts, to
the extent they are parties thereto, in accordance with their respective
terms, and do not violate the usury laws of the State of Arizona,
Colorado, Florida or Nevada, as applicable. The execution, delivery and
Performance of the provisions of this Agreement and all of the other
Documents will
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not violate, constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties
or assets of Borrower or the Applicable Trusts pursuant to, the terms of
any provision of: any law, regulation, judgment, decree, order,
franchise or permit applicable to Borrower or the Applicable Trusts; the
governing documents of Borrower or any of the Applicable Trusts; or any
contract or other agreement or instrument to which Borrower or any
Applicable Trust is a party or by which Borrower or the Applicable
Trusts or Borrower's or the Applicable Trusts' properties or assets are
bound. No consent of any government or agency thereof, or any other
person, firm or entity not a party hereto is or will be required as a
condition to the execution, delivery, Performance or enforceability of
the Documents.
(c) So long as any Applicable Trust continues to have an
interest in any Receivables Collateral or in any Project, such
Applicable Trust is, and will continue to be, duly created and validly
existing under the laws of its state of creation, and each Applicable
Trust has, and will continue to have during the Term hereof, all
requisite power, authority and rights adequate for executing and
delivering the Documents, to the extent it is a party thereto, for
undertaking and performing the obligations undertaken by it, and for
carrying on its business and owning its properties.
8.3 (a) Except as specifically set forth in EXHIBIT 8.3(a)
attached hereto, there is no action, litigation or other proceeding
pending or, to Borrower's knowledge, threatened before any arbitration
tribunal, court, governmental agency or administrative body against
Borrower or any of the Applicable Trusts, which, if adversely
determined, might adversely affect Lender's ability to realize upon the
Receivables Collateral or any other security for the Performance of the
Obligations, or materially and adversely affect any Project, the
business or financial condition of Borrower or any of the Applicable
Trusts, or the ability of Borrower to complete Performance of the
Obligations; or which questions the validity of the Documents.
(b) If Borrower, any of the Applicable Trusts or Guarantor
becomes a party to any action, litigation or other proceeding which
asserts a material claim against Borrower, any of the Applicable Trusts
and/or Guarantor, or Borrower or any of the Applicable Trusts receives a
notice of noncompliance or becomes the subject of an investigation by a
governmental agency or administrative body with respect to any portion
of the Project, then Borrower will, within ten (10) days after it
obtains knowledge thereof, notify Lender of such action, litigation,
proceeding, notice or investigation and the particulars thereof.
Thereafter, if requested by Lender, Borrower will report to Lender with
respect to the status of such matter and the particulars thereof.
Borrower shall pay, or cause the payment of, any judgment or decree for
money damages or a fine or penalty against Borrower or any of the
Applicable Trusts in excess of $100,000.00; provided, however, that such
payment
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shall not be required hereby so long as the same is being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted and an adequate reserve or bond or other appropriate
provision, if any, shall have been made therefor as required to be in
conformity with GAAP. Nothing herein is intended to or shall be
construed to limit any right of Borrower to exercise any rights or
remedies against any third parties that may be liable for payments of or
contributions to any such money damages, fines or penalties.
8.4 (a) Before Lender shall be obligated to make Advances of the
Receivables Loan against Eligible Receivables arising from the sale of
Lots or Units in jurisdictions other than the State in which the Project
from which such Lot or Unit arose is located and those other
jurisdictions which are listed in EXHIBIT 8.4(a) hereto, Borrower will
provide Lender with evidence, satisfactory to Lender, that Borrower has
complied with all laws of such jurisdiction governing the proposed
conduct of Borrower.
(b) Except for violations which do not individually or in the
aggregate affect Lender's ability to realize upon the Receivables
Collateral or any other security for the Performance of the Obligations
or do not materially and adversely affect the business or financial
condition of Borrower or the Applicable Trusts or the ability of
Borrower to complete Performance of the Obligations, Borrower and the
Applicable Trusts have complied, and will comply, with all laws and
regulations of the United States, the State, County, if any, and
municipal jurisdiction in which Lots or Units have been sold or offered
for sale.
(c) Without limiting the generality of any other
representation or warranty contained herein, the use and occupancy of
any Project will not violate any private covenant or restriction or any
zoning, use or similar law, ordinance or regulation affecting the use or
occupancy of any Project which violation might materially and adversely
affect the business or financial condition of Borrower or any of the
Applicable Trusts or the ability of Borrower to complete Performance of
the Obligations.
8.5 (a) Each Contract or Instrument at the time it is assigned to
Lender in connection with the Receivables Loan and this Agreement shall
be an Eligible Receivable. Borrower and the Applicable Trusts have
performed all of their obligations to Purchasers required to be
performed at the time any Eligible Receivable has been delivered to
Lender or its agent. Borrower further warrants and guarantees the value
and enforceability of the Receivables Collateral.
(b) Except for Upgrades, Borrower, without the prior written
consent of Lender, will not cancel or materially modify, or consent to
or acquiesce in any cancellation or material modification to, or solicit
the prepayment of any Contract
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or Instrument used in making Borrowing Base computations or which
otherwise constitutes part of the Receivables Collateral; or waive the
timely performance of the obligations of the Purchaser thereunder;
provided, however, that so long as no Event of Default, and no act or
event which after the giving of notice or the lapse of time, or both,
would constitute an Event of Default, has occurred and is continuing:
(i) Borrower and/or the Applicable Trusts may solicit the prepayment of
such Contract or Instrument and accept less than the entire remaining
principal balance as payment in full thereon so long as the amount to be
received on such Contract or Instrument is at least equal to 85% of the
unpaid principal balance payable under such Contract or Instrument, (ii)
Borrower and/or the Applicable Trusts may terminate or, subject to
subparagraph (d) hereof, modify a Contract or Instrument with respect to
a certain Lot or Unit and simultaneously enter into a new or revised
Contract or Instrument for the purchase of a less expensive Lot or Unit
so long as no deficiency in the Borrowing Base will occur as a result of
such termination or modification; provided, however, that in no event
shall such termination or modification occur so as to eliminate the
default of the contract obligor thereunder, and (iii) notwithstanding
clause (ii) above, Borrower may modify ineligible Receivables Collateral
in the ordinary course of Borrower's business. Borrower and the
Applicable Trusts will not pay or advance directly or indirectly for the
account of any Purchaser any sum owing by the Purchaser under any of the
Eligible Receivables used in making Borrowing Base computations or which
otherwise constitute part of the Receivables Collateral.
(c) Borrower at all times will fulfill and will cause its
affiliates, agents and independent contractors and the Applicable Trusts
at all times to fulfill in all material respects all obligations of any
nature whatsoever to Purchasers under all Eligible Receivables which are
used in making Borrowing Base computations or otherwise constitute part
of the Receivables Collateral.
(d) To the extent that copies have been requested by Lender,
true and complete copies of the Eligible Receivables and other
agreements and disclosures required by applicable law and exhibits
thereto which have been and are being used by Borrower in connection
with the Project and the sale or offering for sale of Lots or Units
therein have been delivered to Lender. To the extent that Lender has
requested copies thereof, such documents are the only ones which have
been used in connection with the Project and the sale of Lots or Units
therein. Borrower and the Applicable Trusts, without the prior written
consent of the Lender, will not materially modify the form of any such
documents, unless required by law.
(e) Borrower will maintain, or will cause to be maintained,
in good condition and repair all amenities and common areas which have
been promised or represented as being available to Purchasers and all
such promised roads and off-site improvements which have not been
dedicated to or accepted by the responsible governmental authority or
utility. Borrower will maintain, or will cause the
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Applicable Trusts to maintain, a reasonable reserve to assure compliance
with the terms of the foregoing sentence.
8.6 SUBJECT ONLY TO THE PROVISIONS OF PARAGRAPH 3.8 HEREOF,
LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY, OBLIGATION OR LIABILITY
TO PURCHASERS, LENDER'S RELATIONSHIP BEING THAT ONLY OF A CREDITOR WHO HAS
TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A COLLATERAL ASSIGNMENT FROM
BORROWER OF RECEIVABLES COLLATERAL. EXCEPT AS REQUIRED BY LAW, OR ANY
GOVERNMENTAL AGENCY, BORROWER WILL NOT, AT ANY TIME, USE THE NAME OR MAKE
REFERENCE TO LENDER WITH RESPECT TO ANY PROJECT, OR THE SALE OF INSTRUMENTS,
CONTRACTS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN CONSENT OF LENDER.
8.7 Borrower will undertake the collection of amounts delinquent
under each Eligible Receivable which is used in making Borrowing Base
computations or otherwise constituting part of the Receivables Collateral, will
bear the entire expense of such collection work, and will diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Eligible Receivable
or to otherwise realize upon any Eligible Receivable.
8.8 Borrower will maintain a secure place in its offices at the
address specified above proper and accurate books, records, ledgers, computer
tapes, disks and records correspondence and other papers relating to the
Receivables Collateral. Lender may notify the appropriate Purchasers of the
existence of Lender's interest as assignee in the Receivables Collateral and
request from such Purchasers any information relating to the Receivables
Collateral. Borrower will cooperate with Lender in giving such notice and will
do so under its letterhead if requested.
8.9 Except for the sales of Lots or Units and the granting of
deeds to Purchasers who are entitled thereto under their respective contracts of
sales, Borrower and the Applicable Trusts, without the prior written consent of
Lender, will not: (a) sell, convey, pledge, hypothecate, encumber or otherwise
transfer any security for the Performance of the Obligations; (b) permit or
suffer to exist any liens, security interests or other encumbrances on any
security for the Performance of the Obligations, except for the Permitted
Encumbrances and liens and Security Interests expressly granted to Lender or as
otherwise contemplated by PARAGRAPH 3.1 hereof; or (c) amend any of the Trust
Agreements; provided, however, that nothing contained herein shall be construed
to restrict or otherwise limit the Applicable Trusts or any Trustee from
fulfilling their respective obligations under the terms and provisions of the
Trust Agreements; and provided, further, that Borrower shall have the right to
terminate any Trust Agreement, or replace any Trustee under an Applicable Trust,
so long as such termination or Trustee replacement does not adversely affect any
Security
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Interest of Lender under this Agreement (except for the Security Interest in the
Applicable Trust) or Borrower's financial condition at the time of such
termination or Trustee replacement.
8.10 Borrower shall perform, and shall cause the Trustee of any
Applicable Trust to perform, all of their respective now existing and hereafter
arising obligations to any Purchasers. Furthermore, Borrower shall perform, and
shall cause the Trustee of any Applicable Trust to perform, all of their
respective now existing and hereafter arising obligations under the Trust
Agreements. Borrower will not be in default in Performance of its Obligations
hereunder as a result of a wrongful act or omission of any Trustee while
Borrower is diligently pursuing appropriate legal proceedings for injunctive
relief against any Trustee and/or taking steps to replace any Trustee. Borrower
shall perform all of its obligations under any agreement between Borrower and
any Trustee relating to the payment of compensation to such Trustee for its
services rendered and expenses incurred in connection with the administration of
the Trustee's duties under the Applicable Trust.
8.11 (a) Borrower will keep or cause to be kept insured against
risks of physical damage the improved common areas in any Project and
other amenities which have been promised or represented as being
available to Purchasers for use by them under policies of "all-risk"
insurance in an amount not less than the full insurable value on a
replacement cost basis. All such insurance shall be without cost or
expense to Lender and shall provide for thirty (30) days notice to
Lender of cancellation or material change. Borrower will further insure,
or cause to be insured, against such other risks with respect to any
Project and Receivables Collateral as Lender may from time to time
reasonably require.
(b) Borrower will maintain such other insurance with
respect to its business and properties as is normally maintained by
prudent persons engaged in similar businesses or owning similar property
similarly situated.
8.12 (a) This Agreement and the other Documents, certificates,
financial statements and written materials furnished to Lender by or on
behalf of Borrower in connection with the transactions contemplated
hereby do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
contained herein not misleading. Other than trends in the national
economy, of which Borrower expresses no opinion, there is no fact known
to Borrower which materially and adversely affects or in the future may
(so far as Borrower can now foresee) materially adversely affect the
Receivables Collateral or any other security for the Performance of the
Obligations or the business or financial condition of Borrower, the
Applicable Trusts or any Project which has not been set forth in this
Agreement or in the other Documents, certificates, financial statements
or written materials furnished to Lender in connection with the
transactions contemplated hereby; provided, however, that Lender
acknowledges that Borrower
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may, after the date hereof, elect to terminate one or more of the
Applicable Trusts. In connection with any such termination, however,
Borrower hereby represents that Lender's Security Interests (except for
the Security Interest in the Applicable Trust) shall not be adversely
affected by any such termination, nor shall any such termination
adversely affect the financial condition of Borrower.
(b) The fact that Lender's representatives may have made
certain examinations and inspections or received certain information
pertaining to the Receivables Collateral or any Project and the proposed
operation thereof does not in any way affect or reduce the full scope
and protection of the warranties, representations and Obligations
contained herein, which have induced Lender to enter into this
Agreement.
8.13 (a) Borrower will maintain a standard, modern system of
accounting and will keep and maintain all books and records in
accordance with GAAP on a consistent basis.
(b) On or before the 15th day of each month, Borrower will
furnish or cause to be furnished to Lender (i) the reports of Collection
Agent and Borrower required pursuant to PARAGRAPH 7.6 hereof, and (ii) a
sales report for the prior month showing the number of sales of Lots or
Units and the aggregate dollar amount thereof, including down payments.
(c) Borrower will furnish or cause to be furnished to
Lender, as soon as the same are available and, in any event, within one
hundred twenty (120) days of each fiscal year and within sixty (60) days
after the end of each interim quarterly fiscal period of the subject, a
copy of the current financial statements of the Borrower and the
Guarantor. Such financial statements shall contain a balance sheet as of
the end of the relevant fiscal period and statements of income and of
changes in financial position for such fiscal period (together, in each
case, with the comparable figures for the corresponding period of the
previous fiscal year), all in reasonable detail, prepared in accordance
with generally accepted accounting principles consistently applied
throughout the period involved and with prior periods and, in the case
of an audited statement, in accordance with generally accepted auditing
standards; provided, however, that interim quarterly statements shall be
subject to change as resulting from year-end adjustments and additions
of appropriate footnotes. All financial statements required pursuant
hereto shall be certified to, as the case may be, by the chief financial
officer of the subject of such statements; provided, however, that if
the statement is an annual statement, the financial statement shall be
audited by a nationally recognized firm of certified public accountants
reasonably satisfactory to Lender. Together with such financial
statements, Borrower will deliver to Lender (i) if such financial
statements shall have been audited, a certificate from the auditors
stating that in making the examination necessary for the audit they
obtained no
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knowledge of any default by Borrower in the Performance of any of the
Obligations, or if they shall have obtained knowledge of any such
default, specifying the same; and (ii) a certificate signed by the chief
financial officer of Borrower stating that there exists no Event of
Default and no condition, event or act, which with notice or lapse of
time or both, would become an Event of Default or, if any such Event of
Default or any such condition, event or act exists, specifying the
nature and period of existence thereof and what action Borrower proposes
to take with respect thereto.
(d) Promptly upon receipt thereof, Borrower will deliver
copies of each other report submitted to Borrower or Guarantor by
independent public accountants in connection with any annual, interim,
or special audit or examination made by them of the books, records or
financial statements of Borrower or Guarantor.
(e) Promptly upon their becoming available, to the extent
requested by Lender, Borrower will deliver copies of each financial
statement, report, notice, or proxy statement sent by Borrower, any of
the Applicable Trusts or Guarantor to stockholders generally, or to any
governmental organization or authority in connection with the
Borrower's, any of the Applicable Trusts' or Guarantor's business,
including, without limitation, any report or notice sent to the United
States Department of Housing and Urban Development and all departments
and agencies of the States of Colorado, Nevada, Florida and Illinois and
the Canadian Provinces of British Columbia and Ontario, and each regular
or periodic report and any registration statement, prospectus or written
communication (other than transmittal letters) in respect thereof filed
by Borrower, any of the Applicable Trusts or Guarantor with, or received
by Borrower, any of the Applicable Trusts or Guarantor in connection
therewith from, any securities exchange or the Securities and Exchange
Commission or any successor agency.
(f) To the extent requested by Lender, Borrower will deliver
to Lender from time to time, as available, and promptly upon amendment
or effective date, current price lists, sales literature,
registrations/consents to sell, and other items, data or information
requested by Lender which relate to any Project or any portion thereof.
(g) Immediately upon becoming aware of the existence of an
Event of Default, or a condition or event which after the giving of
notice or the lapse of time, or both, would constitute an Event of
Default, Borrower will deliver to Lender written notice specifying
therein the nature of the Event of Default, condition or event, as
applicable, and the action Borrower is taking or proposes to take with
respect thereto.
(h) Immediately upon becoming aware that the holder of any
obligation or of any indebtedness or other Security of Borrower, any of
the Applicable
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Trusts or Guarantor has given notice or has taken action with respect to
a claimed default or event of default by Borrower, any of the Applicable
Trusts or Guarantor thereunder, Borrower will deliver to Lender written
notice specifying the notice given or action taken by such holder and
the nature of the claimed default or event of default and what action
Borrower, such Applicable Trust or Guarantor, as the case may be, is
taking or proposes to take with respect thereto.
(i) Immediately upon becoming aware of any developments or
other information which may materially and adversely affect the
properties, business, prospects, profits or condition (financial or
otherwise) of Borrower, any of the Applicable Trusts or Guarantor or the
ability of any of them to perform this Agreement, Borrower will deliver
telephonic or telegraphic notice specifying the nature of such
development or information and such anticipated effect.
(j) So long as the same shall be pertinent to the Loan, any
Project, the Documents or any transactions contemplated therein,
Borrower will at its expense (i) permit Lender and its representatives
at all reasonable times to inspect, audit and copy, as appropriate, any
Project or any portion thereof, Borrower's facilities, activities, books
of account, logs and records, (ii) cause its employees, agents and
accountants to give their full cooperation and assistance in connection
with any such visits of inspection or financial conferences and (iii)
make available such further information concerning its business and
affairs as Lender may from time to time reasonably request; provided,
however, that Borrower shall not be liable for the resulting costs of
Lender's staff salaries.
(k) Borrower will furnish or cause to be furnished to
Lender, as soon as the same are available, and in any event within one
hundred twenty (120) days following the end of each fiscal year of the
subject, a copy of the financial statements for each of the
Associations. Such financial statements shall contain a balance sheet as
of the end of the fiscal year, and a statement of income and of cash
flows for such fiscal year (together, in each case, with comparable
figures for the corresponding period of the previous fiscal year), all
in reasonable detail, prepared in accordance with GAAP, consistently
applied, throughout the period involved and consistent with prior
periods and, in the case of an audited statement, with generally
accepted auditing standards. All financial statements required pursuant
hereto shall be certified to, as the case may be, by the chief financial
officer of the subject of such statements; provided, however, that if
the statement is an annual statement and audited statements of the
subject have been previously prepared, the statements shall be certified
by a nationally recognized firm of accountants reasonably satisfactory
to Lender.
8.14 Borrower will cause any and all indebtedness (subject to
PARAGRAPH 8.24 hereof, other than indebtedness for reasonable salaries in the
normal course
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of business) owing by it to its shareholders, directors or officers, as the case
may be, Guarantor, or any member of the Control Group to be, upon the occurrence
and continuation of an Event of Default, subordinated in all aspects to the
Obligations.
8.15 Borrower will not, and will not permit any of the Applicable
Trusts to, without Lender's prior written consent: (a) sell, lease, transfer or
dispose of all or substantially all of its assets to another entity; or (b)
consolidate with or merge into another entity, permit any other entity to merge
into it or consolidate with it, or permit any transfer of the ownership of, or
power to control, Borrower. Notwithstanding the foregoing, the Applicable Trusts
shall be permitted to transfer title to any Projects or Units or Lots and/or
other assets therein to Borrower in connection with any termination of such
Trust, so long as Lender's Security Interest (other than in the Applicable
Trust) and Borrower's financial condition are not adversely affected thereby.
8.16 Neither Borrower nor any of the Applicable Trusts are in
default of any payment on account of indebtedness for borrowed money or of any
repurchase obligations in connection with a receivables purchase financing, or
in violation of or in default under any material term in any material agreement,
instrument, order, decree or judgment of any court, arbitration or governmental
authority to which it is a party or by which it is bound.
8.17 Borrower and each of the Applicable Trusts have filed all
tax returns and paid all taxes, assessments, levies and penalties, if any, in
respect thereof required to be filed by it or paid by it to any governmental or
quasi-governmental authority or subdivision; provided, however, that the
foregoing items need not be paid while being contested in good faith and by
appropriate proceedings (in the written opinion of Borrower's independent
counsel, which shall be submitted to Lender, in any case involving over
$50,000.00); and provided, further, that adequate accounting reserves (in the
written opinion of Borrower's independent accountants, which shall be delivered
to Lender) have been established with respect thereto, and provided, further,
that any of Borrower's or the Applicable Trusts' title to, and its right to use,
its properties shall not be materially and adversely affected thereby. All real
estate taxes and assessments have been paid which are due and owing in
connection with the common areas of any Project and other amenities which have
been promised or represented as being available to Purchasers for use by them.
Borrower will use its best efforts to provide to Lender not more than thirty
(30) days after such taxes and assessments would become delinquent if not paid
evidence that all such taxes and assessments on the Project common areas have
been paid in full.
8.18 Borrower will pay to Lender on demand all out-of-pocket
costs and expenses (excluding Lender's staff salaries) incurred or to be
incurred by Lender in connection with the initiation, documentation and closing
of the Loan, the making of Advances hereunder, the protection of the security
for the Performance of the Obligations, or the enforcement of the Obligations
against Borrower or Guarantor, including, without limitation, travel costs, all
attorneys' fees, all filing and recording fees, all charges for
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consumer credit reports, all revenue and documentary stamp and intangible taxes,
and all fees and expenses of Collection Agent to perform the services
contemplated hereunder and under the terms of the Agency Agreement, and all fees
and expenses of the Custodian to perform the services contemplated hereunder and
under the terms of the Custodial Agreement.
8.19 Borrower will INDEMNIFY, SAVE AND HOLD HARMLESS, and defend
Lender, its successors, assigns and shareholders (including corporate
shareholders), and the directors, officers, employees, agents and servants of
the foregoing, from any and all losses, costs, expenses (including, without
limitation, court costs and attorneys' fees), demands, claims, suits,
proceedings (whether civil or criminal), orders, judgments, penalties, fines and
other sanctions arising from or brought in connection with (a) any Project, the
security for the Performance of the Obligations, Lender's status by virtue of
the Assignments, creation of Security Interests, the terms of the Documents or
the transactions related thereto, or any act or omission of Borrower, Collection
Agent or Custodian, or the employees or agents of either of them, whether actual
or alleged, including, without limitation, violations of Regulation Z of the
Board of Governors of the Federal Reserve System or any other law, rule or
regulation relating to the Receivables Collateral and sales of Lots or Units,
and (b) any and all brokers' commissions or finders' fees or other costs of
similar type, or claims by any broker, agent or other party in connection with
the transactions contemplated by this Agreement. On written request by a Person
covered by the above agreement of indemnity, Borrower will undertake, at its own
cost and expense, on behalf of such indemnitee, using counsel satisfactory to
the indemnitee, the defense of any legal action or proceeding to which such
Person shall be a party, provided that such action or proceeding shall result
from, or grow or arise out of any of the events set forth in this paragraph.
Lender represents and warrants to Borrower that Lender has no knowledge of
broker involvement in the transactions contemplated by the Documents.
8.20 Borrower will not directly or indirectly invest all or any
part of the proceeds of the Loan in any investment security subject to the
margin requirements of Regulation "G".
8.21 Borrower will execute or cause to be executed all documents
and do or cause to be done all acts necessary for Lender to perfect and to
continue the perfection of the Security Interest of Lender in the Receivables
Collateral, the Applicable Trusts or the other security for the Performance of
the Obligations or otherwise to effect the intent and purposes of the Documents.
Borrower will prosecute or defend any action involving the priority, validity or
enforceability of the Security Interest granted to Lender; provided, however,
that, at Lender's option, Lender may do so at Borrower's expense.
8.22 Borrower is fully familiar with all of the terms and
conditions of the Documents and is not in default thereunder. No act or event
has occurred which after notice and/or lapse of time would constitute such a
default or an Event of Default.
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8.23 FINANCIAL COVENANTS. Borrower hereby covenants and agrees to
comply with the financial covenants hereinafter set forth in this PARAGRAPH 8.23
during the entire Term of the Loan, which financial covenants shall be tested on
a semiannual basis, upon the expiration of the second fiscal quarter and fourth
fiscal quarter of Borrower. The compliance of Borrower with respect to the
financial covenants set forth below shall be confirmed by Borrower's delivery to
Lender of a certification in the form attached hereto as EXHIBIT 8.23, which
certification shall be signed by a duly-authorized officer of Borrower and shall
be delivered to Lender within sixty (60) days after the expiration of each
second fiscal quarter and within one hundred twenty (120) days after the
expiration of each fourth fiscal quarter of Borrower:
(a) Tangible Net Worth. Until the full and complete
Performance of all of Borrower's Obligations under the Loan, the
Consolidated Tangible Net Worth of Borrower and its Subsidiaries shall
be, at all times, not less than $20,000,000.00 (the "Tangible Net Worth
Base"); provided, however, that the Tangible Net Worth Base shall be
increased each fiscal quarter by an amount equal to fifty percent (50%)
of the consolidated net income (if any) of Borrower and its
Subsidiaries, commencing with Borrower's fiscal quarter ending November
30, 1997; and provided, further, that the Tangible Net Worth Base shall
not be increased to more than $25,000,000.00. In the event that Borrower
and its Subsidiaries do not realize any net income for any fiscal
quarter, or if there is a net loss for such quarter, the Tangible Net
Worth Base applicable to the next successive fiscal quarter shall remain
unchanged and shall not in any event be reduced or decreased. For
purposes of this PARAGRAPH 8.23, "Consolidated Tangible Net Worth" shall
mean, on the date of determination thereof, the consolidated net worth
of Borrower and its Subsidiaries, as determined in accordance with GAAP,
after deducting the value of patents, trademarks, goodwill and other
intangible assets, the value of assets treated as "questionable" by the
accounting firm which shall have prepared Borrower's most recent
financial statement, and after deducting all amounts due Borrower from
its affiliates or from Guarantor (provided that the deduction for any
amounts owed to Borrower from Mego Mortgage shall include only amounts
which are owed in excess of $1,000,000.00). It is agreed that intangible
assets shall not include deferred selling expenses determined in
accordance with GAAP or interest-only strip securities and other related
mortgage securities, both of which shall be deemed to be tangible
assets. For the purposes of determining the quarterly increases in the
Tangible Net Worth Base, the net income of Borrower and its Subsidiaries
shall be determined in accordance with GAAP.
(b) Consolidated Debt to Consolidated Tangible Net Worth.
The ratio of consolidated total liabilities of Borrower and its
Subsidiaries to the Consolidated Tangible Net Worth of Borrower and its
Subsidiaries shall not, at any time, be greater than 4:1.
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(c) Dividends. Borrower will not declare or pay any
dividends so long as any Event of Default, or any failure by Borrower or
Guarantor to make any payment when due, has occurred and is continuing.
(d) Marketing Costs to Net Sales. On the final day of
Borrower's second (2nd) fiscal quarter and fourth (4th) fiscal quarter
for each of Borrower's fiscal years, the ratio of the total of
Borrower's costs and expenses for commissions and selling relating to
retail lot sales and time-share sales (exclusive of any fees payable by
Borrower to Hospitality Franchise Systems, Inc.) ("Marketing Costs") for
the immediately preceding four (4) fiscal quarters to the total of
Borrower's processed sales of retail lots and time-share interests for
the same period (each net of cancellations of such sales) ("Net Sales")
shall not be greater than 1.1:2; provided, however, that a breach of
this covenant shall not be an Event of Default, but in the event that
there are two (2) consecutive occurrences of a breach of this covenant
or in the event a breach of this covenant continues without cure for a
period in excess of sixty (60) days after the end of any test quarter,
Lender shall have no further obligation to make any Advances hereunder,
including, without limitation, any Receivables Advances or any Advances
under the Mortgage Loan Facility until such breach is cured.
8.24 Borrower will not directly or indirectly make or permit any
of its Subsidiaries to make loans to any member of the Control Group of Borrower
(other than to the Guarantor or any Subsidiaries of Borrower), or to any member
of the Control Group of Guarantor, including, without limitation, and in any
event, loans to any one or more of Messrs. Robert Nederlander, Jerome J. Cohen,
Eugene I. Schuster, Herbert B. Hirsch and Don A. Mayerson, which in the
aggregate exceed $1,000,000.00 outstanding at any time. Borrower will not
directly or indirectly provide or permit any of its Subsidiaries to provide
compensation for services rendered, including, without limitation, consulting
fees, management fees, salaries, bonuses or any other nondividend compensation,
to members of the Control Group for services rendered which in the aggregate
exceeds $1,500,000.00 per annum. The compliance of Borrower with respect to the
foregoing covenant shall be confirmed on a semiannual basis by Borrower's
delivery to Lender of the certification described in PARAGRAPH 8.23 above within
sixty (60) days after the expiration of each second fiscal quarter and within
one hundred twenty (120) days after the expiration of each fourth fiscal quarter
of Borrower.
8.25 Borrower and its Subsidiaries will not have or incur any
nontax sharing indebtedness (as hereinafter defined) to Guarantor, its
successors or assigns, which results in the aggregate outstanding principal
balance of all nontax sharing indebtedness of Borrower and its Subsidiaries to
Guarantor exceeding the sum of $2,000,000.00 in the aggregate. As used herein,
the term "nontax sharing indebtedness" means all indebtedness other than amounts
payable to Guarantor pursuant to tax sharing arrangements among Guarantor and
its Subsidiaries. The compliance of Borrower with respect to the foregoing
covenant shall be
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confirmed on a semiannual basis by Borrower's delivery to Lender of the
certification described in PARAGRAPH 8.23 above within sixty (60) days after the
expiration of each second fiscal quarter and within one hundred twenty (120)
days after the expiration of each fourth fiscal quarter of Borrower.
8.26 The representations, warranties and covenants contained in
this ARTICLE VIII are in addition to, and not in derogation of, the
representations and warranties elsewhere contained herein in the other
Documents.
8.27 Except as disclosed to and permitted, in writing, by Lender,
the representations and warranties contained in this Agreement are continuing
and shall be deemed to be made and reaffirmed prior to the making of each
Advance under this Agreement.
8.28 To the extent that Borrower reacquires any Units in a
Project owned by an Applicable Trust following their sale to Purchasers,
Borrower shall reconvey the same to the Trustee under such Applicable Trust
promptly upon such reacquisition, but only to the extent such reconveyance is
required under the Applicable Trust and, if so, then such Units shall be
reconveyed to the Trustee under such Applicable Trust subject only to those
matters to which such Units were subject to immediately prior to their transfer
to the Purchaser thereof and to nondelinquent ad valorem taxes for the current
year.
8.29 Borrower shall not, without the prior written consent of
Lender, sell Units under a Land Sales Contract. For purposes hereof, a Land
Sales Contract shall mean a contract for deed, contract to convey, agreement for
sale or any similar contract pursuant to which Borrower has conveyed to
Purchaser equitable title in the Unit and under which the Borrower is obligated
to convey to the Purchaser the remainder of Borrower's title, whether legal or
equitable, on payment in full of all monies due under the contract. Land Sales
Contract do not include purchase contracts or similar executory contracts which
are intended to control the rights and obligations of parties pending a closing
of a sale or purchase transaction, including, without limitation, the "Grand
Flamingo Suites Purchase Agreement" a copy of which was previously delivered to
Lender.
8.30 Borrower shall give to Lender, as soon as is reasonably
possible following the giving or receipt thereof, copies of any nonroutine
notices given to or received by any Trustee.
8.31 On or before June 30 and December 31 of each year during the
Term, Borrower shall give to Lender a current report concerning the status of
the litigation matters described in the attached EXHIBIT "8.31".
8.32 Borrower shall (a) maintain or cause to be maintained, in
full force and effect during the Term, a license agreement (the "License
Agreement") providing for access
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by Purchasers of Units in each of Suites Phase II, Fountains, Winnick, Ida
Building One, Ida Building Two, Winnick Building Addition, Ida Building Addition
and Second Winnick Building Addition to common recreational areas and facilities
and other amenities of the Grand Flamingo Towers Resort Club (the "Towers
Club"), or (b) provide or cause to be provided to such Purchasers, alternate
recreational areas and facilities and other amenities reasonably equivalent to
those provided by the Towers Club pursuant to the License Agreement, as
originally executed, in the event the License Agreement is terminated prior to
the expiration of the Term.
8.33 (a) Borrower represents and warrants that each Trustee under
any Applicable Trust is lawfully seized of a good and marketable title
in fee simple in the Project which is the subject of the Applicable
Trust and the buildings and other improvements erected thereon, and that
such Project is free from liens, claims, restrictions or encumbrances,
except for such liens, claims, restrictions or encumbrances as are
approved by Lender.
(b) Borrower does hereby warrant and shall forever defend
the title of any Project owned by an Applicable Trust against the claims
of all Persons whatsoever, subject to the right, title and interest of
the Trustee of the Applicable Trust, Purchasers, Persons claiming by,
through or under the Trustee of the Applicable Trust or Purchasers and
to matters approved by Lender.
8.34 Throughout the Term, Borrower shall permit FPSI to oversee
all of the servicing activities with respect to Receivables Collateral that are
pledged by Borrower to Lender, which oversight functions shall be performed by
FPSI pursuant to the Oversight Agreement. Lender shall cause FPSI to waive any
fee otherwise payable to it as a result of such oversight activities; however,
Borrower shall have the responsibility for reimbursing FPSI for any actual
out-of-pocket costs and expenses incurred by it to the extent provided in the
Oversight Agreement.
ARTICLE IX
DEFAULTS
9.1 The occurrence of any of the following events or conditions
shall constitute an Event of Default by Borrower under the Documents:
(a) Lender fails to receive from Borrower when due and
payable (i) any amount that Borrower is obligated to pay on any Note
executed by Borrower pursuant to the terms of this Agreement, or (ii)
any other payment due under the Documents; and such failure shall
continue for five (5) days after notice thereof to Borrower, except for
the payment of the final installment due under any of the Notes, for
which no grace period is allowed;
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(b) any representation or warranty of Borrower contained in
the Documents or in any certificate furnished under the Documents proves
to be, in any material respect, false or misleading as of the date
deemed made;
(c) there is a default in the Performance of the Obligations
set forth in PARAGRAPHS 3.3, 8.9 OR 8.15 hereof;
(d) there is a default in the Performance of any other
Obligations or a violation of any term, covenant or provision of the
Documents (other than a default or violation referred to elsewhere in
this PARAGRAPH 9.1 or under PARAGRAPH 8.23(d) hereof) and such default
or violation continued unremedied (i) for a period of five (5) days
after notice thereof to Borrower in the case of a default or violation
of PARAGRAPHS 8.8, 8.12 OR 8.13 hereof or any other default or violation
which can be cured by the payment of money alone, or (ii) for a period
of thirty (30) days after notice to Borrower in the case of any other
default or violation;
(e) an "Event of Default," as defined elsewhere herein or in
any of the other Documents, occurs, or an act or event occurs under any
of the Documents, whether or not denominated as an "Event of Default,"
which expressly entitles Lender to accelerate any of the Obligations
and/or exercise its other remedies upon the occurrence of an Event of
Default hereunder;
(f) any material default by Borrower or any of the
Applicable Trusts under any other agreement evidencing, guaranteeing, or
securing borrowed money or a receivables purchase financing has occurred
permitting the acceleration of such indebtedness or repurchase
obligations, which accelerated payment or repurchase obligations are in
excess of $100,000.00 in the aggregate;
(g) any final, nonappealable judgment or decree for money
damages or for a fine or penalty against Borrower or any of the
Applicable Trusts which is not paid and discharged or stayed within
thirty (30) days thereafter and when aggregated with all other
judgment(s) or decree(s) that have remained unpaid and undischarged or
unstayed for such period is in excess of $100,000.00;
(h) any party holding a lien or security interest in the
Receivables Collateral or any other security for the Performance of the
Obligations or a lien on any common areas or other amenities in any
Project commences proceedings for foreclosure or similar sale thereof
and such sale or proceeding is not discharged in full or stayed within
thirty (30) days after commencement thereof;
(i) (i) Borrower, any of the Applicable Trusts or Guarantor
becomes insolvent or unable to pay its debts when due or generally fails
to pay its
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debts when due; (ii) Borrower, any of the Applicable Trusts or Guarantor
files a petition in any bankruptcy, reorganization, winding-up or
liquidation proceeding or other proceeding analogous in purpose or
effect relating to such entity; applies for or consents to the
appointment of a receiver, trustee or other custodian for the
bankruptcy, reorganization, winding-up or liquidation of such entity;
makes an assignment for the benefit of creditors; or admits in writing
that it is unable to pay its debts; (iii) any court order or judgment is
entered confirming the bankruptcy or insolvency of Borrower, any of the
Applicable Trusts or Guarantor or approving any reorganization,
winding-up or liquidation of such entity or a substantial portion of its
assets; (iv) there is instituted against Borrower, any of the Applicable
Trusts or Guarantor any bankruptcy, reorganization, winding-up or
liquidation proceeding or other proceeding analogous in purpose or
effect and the same is not dismissed within sixty (60) days after the
institution thereof; or (v) a receiver, trustee or other custodian is
appointed for any part of the Receivables Collateral or any Project or
all or a substantial portion of the assets of Borrower, any of the
Applicable Trusts or any Guarantor;
(j) Performance by Borrower, any of the Applicable Trusts or
Guarantor of any material obligation under any Document or the
Guarantee, as the case may be, is rendered unenforceable in any material
respect, or the Guarantor repudiates, rescinds, limits or annuls its
Guarantee;
(k) there occurs a material adverse change in any Project or
in the business or financial condition of Borrower, any of the
Applicable Trusts or Guarantor or in the Receivables Collateral or any
other security for the Performance of the Obligations, which change is
not enumerated in this PARAGRAPH 9.1 and as the result of which Lender
in good faith deems the prospect of Performance of the Obligations
impaired or its security therefor imperiled;
(l) Borrower is in default of that license agreement between
Borrower and Hospitality Franchise Systems, Inc. dated as of April 18,
1995, as amended, modified, restated or replaced, to the extent such
default has a material and adverse effect on any Project.
9.2 At any time after an Event of Default has occurred and while
it is continuing, Lender shall have the right to do any one or more of the
following:
(a) cease to make further Advances;
(b) declare all Notes evidencing the Loan, together with
prepayment premiums and all other sums owing by Borrower to Lender in
connection with the Documents, immediately due and payable without
notice, presentment, demand or protest, which are hereby waived by
Borrower;
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(c) with respect to the Receivables Collateral, (i)
institute collection actions against all Persons obligated therein, (ii)
enter into modification agreements and make extension agreements with
respect to payments and other performances, (iii) release Persons liable
for the payment and performance thereof or the securities for such
payment and performance, and (iv) settle and compromise disputes with
respect to payments and performances claimed due thereon, all without
notice to Borrower, without being called to account therefor by Borrower
and without relieving Borrower from Performance of the Obligations; and
(d) proceed to protect and enforce its rights and remedies
under this Agreement or any other Documents and to foreclose or
otherwise realize upon its security for the Performance of the
Obligations, or to exercise any other rights and remedies available to
it at law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not intended to
limit the rights and powers granted elsewhere herein.
9.3 Notwithstanding anything contained in the Documents to the
contrary, Lender shall have the right to cease to make further Advances at any
time that a condition or event which after the giving of notice or the lapse of
time, or both, would constitute an Event of Default, has occurred and is
continuing.
9.4 Notwithstanding anything in the documents to the contrary,
while an Event of Default exists, any cash received and retained by Lender in
connection with the Receivables Collateral may be applied to payment of the
Obligations in the manner provided in PARAGRAPH 9.6 hereof.
9.5 (a) Pursuant to its rights under PARAGRAPH 9.2 hereof,
following an Event of Default, and subject to the terms and conditions
hereof, Lender may sell, assign and deliver the Receivables Collateral
and any and all other security for the Obligations, or any part thereof,
at public or private sale, conducted in a commercially reasonable manner
by an officer, or agent of, or auctioneer or attorney for, Lender at
Lender's place of business or elsewhere, for cash, upon credit or future
delivery, and at such price or prices as Lender shall reasonably
determine, and Lender may be the purchaser of any or all of the
Receivables Collateral or any other security for the Obligations so
sold. Lender may, in its reasonable discretion, at any such sale,
restrict the prospective bidders or purchasers as to number, nature of
business and investment intention, and, without limitation, may require
that the Persons making such purchases represent and agree to the
satisfaction of Lender that they are purchasing the Receivables
Collateral or any other security for the Obligations for their account,
for investment, and not with a view to the distribution or resale of any
thereof. Lender shall have no obligation to delay sale of any
Receivables Collateral or any other
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security for the Obligations to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities
laws. Private sales made without registration shall not be deemed to
have been made in a commercially unreasonable manner by virtue of any
terms less favorable to the seller resulting from the private nature of
such sales.
In view of the fact that federal and state securities or other
laws may impose certain restrictions on the method by which a sale of
Receivables Collateral or any other security for the Obligations may be
effected after an Event of Default, Borrower agrees that upon the
occurrence and continuation of an Event of Default, Lender may, from
time to time, attempt to sell all or any part of the Receivables
Collateral or any other security for the Obligations by a private
placement restricting the bidder and prospective purchasers, and in so
doing, Lender may solicit offers to buy the Receivables Collateral or
any other security for the Obligations, or any part of it for cash, from
a limited number of purchasers deemed by Lender, in its reasonable
judgment, to be respectable parties who might be interested in
purchasing the Receivables Collateral or any other security for the
Obligations, and if Lender, solicits such offers from not less than
three (3) such investors, then the acceptance by Lender of the highest
offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposition of such collateral. Lender shall give Borrower at
least fifteen (15) days prior written notice, which 15-day notice shall
be deemed to be reasonable (notwithstanding provisions of subparagraph
(b) below), of the day on or after which any such private placement is
to be made.
(b) Without prejudice to the right of Lender to make such sale
within such shorter period as may be reasonable under the circumstances,
foreclosure sale of all or any part of the Receivables Collateral and
any and all other security for the Obligations shall be deemed held
pursuant to reasonable notice if held:
(i) Forty-five (45) days after notice is given, based upon
default consisting of insolvency, bankruptcy or other default of
a nature which cannot be corrected by Borrower, or default for
which no grace period is specified herein; or
(ii) Sixty (60) days after notice of an act, circumstance or
event which, if uncorrected, after expiration of any applicable
grace period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required
under this Agreement, such grace period shall be deducted from the
60-day notice of foreclosure sale specified in item (ii) above, so that
the maximum period between notice to Borrower of an act, circumstance or
event which, if uncorrected after elapse of any applicable grace period,
would constitute an Event of Default and the foreclosure sale
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of the Receivables Collateral and any and all other security for the
Obligations based upon such Event of Default shall in no event be
required to exceed sixty (60) days.
(c) At any sale following an Event of Default, the Receivables
Collateral and any and all other security for the Obligations may be
sold as an entirety or in partial interests. Lender shall not be
obligated to make any sale pursuant to any notice previously given. In
case of any sale of all or any part of the Receivables Collateral or any
other security for the Obligations on credit or for future delivery, the
Receivables Collateral or any other security for the Obligations so sold
may be retained by Lender until the selling price is paid by the
purchaser thereof, but Lender shall not incur any liability in case of
the failure of such purchaser to take up and pay for the collateral so
sold; and in case of any such failure, such Receivables Collateral or
such other security for the Obligations may again be sold under and
pursuant to and in compliance with the provisions hereof.
(d) In connection with sales made following an Event of Default,
Lender may, in the name and stead of Borrower or in its own name, make
and execute all conveyances, assignments and transfers of the
Receivables Collateral sold pursuant to this Agreement; and Lender is
hereby appointed Borrower's attorney-in-fact for this purpose.
Nevertheless, Borrower will, if so requested by Lender, ratify and
confirm any sale or sales by executing and delivering to Lender, or to
such purchaser or purchasers, all such instruments as may, in the
judgment of Lender, be advisable for that purpose.
(e) The receipt by Lender of the purchase money paid at any sale
made following an Event of Default shall be a sufficient discharge
therefor to any purchaser of the Receivables Collateral or any portion
thereof, and no such purchaser, after paying such purchase money and
receiving such receipt, shall be bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be
answerable for any loss, misapplication or nonapplication of any such
purchase money, or any part thereof, or be bound to inquire as to the
authorization, necessity, expediency or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default
shall hold the Receivables Collateral and such other security for the
Obligations so sold absolutely free from every claim or right of
Borrower, including, without limitation, any equity or right of
redemption of Borrower, which Borrower hereby specifically waives to the
extent Borrower may lawfully do so. Lender, its employees and agents
shall after such sale be fully discharged from any liability or
responsibility in any matter relating to the Receivables Collateral and
such other security that is sold and resulting from any action or
inaction on the part of such purchaser or any successor-in-interest of
such purchaser.
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9.6 The proceeds of any sale of all or any part of the
Receivables Collateral and such other security for the Obligations shall be
applied in the following order or priorities; first, to the payment of all costs
and expenses of such sale, including, without limitation, reasonable
compensation to Lender and its agents, attorneys' fees, and all other expenses,
liabilities and advances incurred or made by Lender, its agents and attorneys,
in connection with such sale, and any other unreimbursed expenses for which
Lender may be reimbursed pursuant to the Documents; second, to the payment of
the Obligations, in such order and manner as Lender shall in its discretion
determine, with no amounts applied to payment of principal until all interest
has been paid; and third, to the payment to Borrower, its successors or assigns,
or to whomsoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
9.7 Lender may, at its option, and without any obligation to do
so (but subject to any prior notice requirements, if any, contained in any
Mortgage with respect to the exercise of any similar rights of Lender under such
Mortgage), pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Borrower if Borrower fails
to do so; and for such purposes Lender may use the proceeds of the Receivables
Collateral or any other security for the Obligations and is hereby appointed
Borrower's attorney-in-fact. All amounts expended by Lender in so doing or in
exercising its remedies hereunder following an Event of Default shall become
part of the Obligations secured hereby, shall be immediately due and payable by
Borrower to Lender upon demand therefor, and shall bear interest at the Overdue
Rate from the dates of such expenditures until paid. Exercise by Lender of its
option under this paragraph will not cure any default of Borrower.
9.8 No remedy herein or in any other Document conferred on or
reserved to Lender is intended to be exclusive of any other remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder, under any other Document or now or hereafter
existing at law or in equity. Notwithstanding anything herein to the contrary,
in any nonjudicial, public or private sale or sales under the Uniform Commercial
Code or applicable real property law or in any judicial foreclosure and sale of
the Receivables Collateral or any other security for the Obligations, the
Receivables Collateral or any other security for the Obligations may be sold in
any manner whatsoever not prohibited by law. No delay or omission to exercise
any right or power shall be construed to be a waiver of any default or
acquiescence therein or a waiver of any right or power; and every such right and
power may be exercised from time to time and as often as may be deemed
expedient. Lender's acceptance of any performance due hereunder which does not
comply strictly with the terms hereof shall not be deemed to be a waiver of any
right of Lender to strict Performance by Borrower. Acceptance of past due
amounts or partial payments shall not constitute a waiver of full and timely
payment of the Obligations. No Event of Default, declaration of the unpaid
principal of the Loan to be immediately due and
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payable or exercise of any other right to remedy upon default shall stay, waive,
or otherwise affect Lender's right to receive payments on and other proceeds of
the Receivables Collateral.
9.9 Borrower, for itself and for all who may claim through or
under it, hereby expressly waives and releases all right to have the Receivables
Collateral or any other security for the Performance of the Obligations, or any
part thereof, marshaled on any foreclosure, sale or other enforcement hereof.
9.10 While an Event of Default exists, Borrower will, on the
request of Lender, assemble the Receivables Collateral not already in Lender's
possession and make it available to Lender at a time and place reasonably
convenient to Lender.
ARTICLE X
POWER OF ATTORNEY
For the purpose of enabling Lender to protect and preserve its
Security Interest in the Receivables Collateral, the Applicable Trusts and all
other security for the Obligations and its rights and remedies under this
Agreement and the Documents, Borrower does hereby constitute and appoint Lender,
and its successors and assigns, to be Borrower's true and lawful
attorney-in-fact upon the occurrence of an Event of Default, and during the
continuance thereof, to perform any act, take any action, execute and sign any
document, statement, instrument or other writing, and to do and perform any and
all deeds and things in the name, place, and stead of Borrower, which Lender in
its discretion shall determine necessary or required to protect and preserve its
Security Interest in the Receivables Collateral, the Applicable Trusts or any
other security for the Obligations and its rights and remedies under this
Agreement and the Documents, or which Borrower is required or obligated to
perform under the terms of this Agreement or the Documents.
ARTICLE XI
CONSTRUCTION AND GENERAL TERMS
11.1 All monies payable under the Project Notes, the Aloha Bay
Note or the Office Note shall be paid to Lender at the address first set forth
in this Agreement. All payments to be made under the Receivables Note shall be
made to the Collection Agent.
11.2 This Agreement and the other Documents exclusively and
completely state the rights and obligations of Lender and Borrower with respect
to the Loan. No modification, variation, termination, discharge or abandonment
hereof and no waiver of any of the provisions or conditions shall be valid
unless in writing and signed by duly authorized representatives of Lender and
Borrower or successors, transferees or assigns of either, subject, however, to
the limitations on assignment hereby by Borrower. This Agreement
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supersedes any and all prior agreements or understandings, written or oral,
between Borrower and Lender (other than in the other Documents) concerning this
transaction.
11.3 The powers and agency hereby granted by Borrower are coupled
with an interest and are irrevocable and are granted as cumulative to the
remedies for collection of the indebtedness secured hereby provided by law.
11.4 This Agreement may be executed simultaneously in any number
of identical copies each of which shall constitute an original for all purposes.
11.5 Any notice required or permitted to be given hereunder shall
be in writing and shall be (a) personally delivered to the party being notified
by courier or overnight courier, (b) transmitted by legible facsimile
transmission so long as a hard copy of such notice is simultaneously sent by the
notifying party by courier or overnight courier, or (c) transmitted by postage
prepaid, certified or registered mail to such party at its address after its
signature on the signature page hereof or such other address as the party being
notified may have otherwise designated in a notice given as provided in this
paragraph. Such notice shall be deemed to be effective, unless actual receipt is
expressly elsewhere specified herein, upon (x) the date of receipt or (y) the
date five (5) days after posting if transmitted by mail, whichever shall first
occur.
11.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein and no Person shall
be deemed a third party beneficiary of this Agreement.
11.7 If any one or more of the provisions contained in this
Agreement shall be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
11.8 Time is of the essence in the Performance of the
Obligations.
11.9 All headings are inserted for convenience only and shall not
affect any construction or interpretation of this Agreement. The provisions of
this Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of words and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words "hereof", "hereto", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular paragraph, clause or other subdivision hereof; and reference to a
numbered or lettered subdivision of an Article,
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or paragraph shall include relevant matter within the Article or paragraph which
is applicable to but not within such numbered or lettered subdivision.
11.10 THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED AND SHALL BE
PERFORMED IN THE STATE OF ARIZONA. THE PROVISIONS OF THIS AGREEMENT AND ALL
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ARIZONA AND TO
THE EXTENT THEY PREEMPT SUCH LAWS, THE LAWS OF THE UNITED STATES. BORROWER (A)
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF THE
COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS,
JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT FOR ARIZONA, FOR THE
PURPOSES OF SUIT, ACTION OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF BROUGHT BY LENDER AND (B) WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT TO ASSERT
BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING
ANY CLAIM THAT BORROWER IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER.
11.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Documents in no event shall
this Agreement or the Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law. If (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the
Obligations or (b) the maturity of the Obligations is accelerated in whole or in
part, or (c) all or part of the principal or interest of the Obligations shall
be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received in connection with the Obligations would
exceed the maximum contract rate permitted by the Applicable Usury Law then in
any such event (1) the provisions of this paragraph shall govern and control,
(2) neither Borrower nor any other Person now or hereafter liable for the
payment hereof will be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum contract rate permitted by the
Applicable Usury Law, (3) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal amount of the
Obligations of Borrower or refunded to Borrower, at Lender's option, and (4) the
effective rate of interest will be automatically reduced to the maximum contract
rate permitted by the Applicable Usury Law. Without limiting the generality of
the foregoing, to the extent permitted by the Applicable Usury Law: (x) all
calculations of the rate of interest which are made for the purpose of
determining whether such rate would
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exceed the maximum contract rate permitted by the Applicable Usury Law shall be
made by amortizing, prorating, allocating and spreading during the period of the
full stated term of the Obligations, all interest at any time contracted for,
charged or received from Borrower or otherwise in connection with the
Obligations; and (y) in the event that the effective rate on the Obligations
should at any time exceed the maximum contract rate permitted by the Applicable
Usury Law, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law, shall be paid to
Lender from time to time, if and when the effective interest rate on the
Obligations otherwise falls below the maximum contract rate permitted by the
Applicable Usury Law, to the extent that interest paid to the date of
calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Should the maximum contract rate permitted by
the Applicable Usury Law be increased at any time hereafter because of a change
in the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all Obligations regardless of when incurred; but, again
to the extent not prohibited by the Applicable Usury Law, should the maximum
contract rate permitted by the Applicable Usury Law be decreased because of a
change in the law, such decreases shall not apply to the Obligations regardless
if resulting from an advance of the Loan made after the effective date of such
decrease.
11.12 This Agreement is an amendment, restatement and
consolidation in full of the Existing PEC Loan Agreement and the Existing VSR
Loan Agreement and all matters formerly governed by the Existing PEC Loan
Agreement and the Existing VSR Loan Agreement shall now be governed by this
Agreement. This Agreement shall not, however, constitute a waiver of any
existing default or breach of a covenant and shall have no retroactive effect
whatsoever; provided, however, that any and all written waivers given heretofore
are hereby extended to the date hereof. Within thirty (30) days after the
Closing Date, Lender shall return to Borrower the original Amended and Restated
Promissory Note executed and delivered by Borrower to Lender pursuant to the
terms of the Existing PEC Loan Agreement and the original Amended and Restated
Promissory Note executed by VSR and delivered to Lender pursuant to the terms of
the Existing VSR Loan Agreement. In addition, upon Lender's receipt of written
confirmation from Title Company, satisfactory to Lender in its sole discretion,
that all Purchaser Mortgages for each Lot in the Project encumbered by the
Huerfano Deed of Trust have been reconveyed, Lender shall execute and deliver to
Borrower for recording in the Official Records of Huerfano County, Colorado, a
Full Release and Reconveyance of the Huerfano County Deed of Trust.
ARTICLE XII
CONDITIONS PRECEDENT
Lender's obligations under this Agreement and its further
obligations to make any Advances described in this Agreement are subject to the
following conditions precedent,
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all of which must be satisfied on or prior to the Closing Date (unless otherwise
hereinafter specifically provided):
1. Borrower shall have delivered to Lender the following executed
documents, all in form satisfactory to Lender:
(a) This Agreement;
(b) The Receivables Note;
(c) From the Guarantor of the Loan, a "Consent of Guarantor"
in a form acceptable to Lender;
(d) From each of the Trustees under any Trust, an
Acknowledgment and Consent in the form attached hereto, which
shall be executed and delivered to Lender within thirty (30) days
after the Closing Date;
(e) An opinion from Borrower's counsel and an opinion from
Guarantor's counsel, each of which counsel shall be acceptable to
Lender, with respect to such matters as Lender shall require;
(f) A corporate resolution of Borrower in form and substance
acceptable to Lender;
(g) A corporate resolution of Guarantor in form and
substance acceptable to Lender;
(h) A First Amendment to Promissory Note with respect to the
Ida Building One Note;
(i) A First Amendment to Promissory Note with respect to the
Ida Building Two Note;
(j) A First Amendment to Promissory Note with respect to the
Ida Building Addition Note;
(k) A First Amendment to Promissory Note with respect to the
Winnick Building Addition Note;
(l) A Second Amendment to Promissory Note with respect to
the Towers Note;
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(m) A Fifth Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement with respect to the
Headquarters Deed of Trust;
(n) A Fourth Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement with respect to the Ida
Building One Deed of Trust;
(o) A Third Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement with respect to the Ida
Building Two Deed of Trust;
(p) A Third Modification of Mortgage, Assignment of Rents
and Proceeds and Security Agreement with respect to the Aloha Bay
Mortgage;
(q) A Second Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement with respect to the
Winnick Building Addition Deed of Trust;
(r) A Second Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement with respect to the Ida
Building Addition Deed of Trust;
(s) A Second Modification of Deed of Trust, Assignment of
Rents and Proceeds and Security Agreement with respect to the
FCFC Deed of Trust;
(t) Such other documents or instruments required by Lender
to fully perfect the liens and Security Interests of Lender
described or contemplated herein;
(u) Such other items as Lender may require.
2. Borrower shall have obtained and delivered to Lender, at
Borrower's expense, appropriate date-down endorsements to the existing
Title Policies issued in favor of Lender with respect to each of the
Headquarters Deed of Trust, the FCFC Deed of Trust, the Ida Building One
Deed of Trust, the Ida Building Two Deed of Trust, the Ida Building
Addition Deed of Trust, the Winnick Building Addition Deed of Trust and
the Aloha Bay Mortgage, which endorsements shall insure that such
Mortgages continue to be first and prior liens on the property which are
the subject matters thereof subject only to such additional exceptions
as may be approved by Lender and
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notwithstanding the effect of the recordation of the modifications
described in PARAGRAPHS 1(m), 1(n), 1(o), 1(p), 1(q), 1(r) OR 1(s)
above.
3. Lender shall have received evidence that, as of the Closing
Date, there has been no material adverse change in the financial
condition of Borrower or Guarantor from the financial statements and
other documents most recently submitted to Lender.
4. Lender shall have received, reviewed and approved current
lien, tax lien, litigation and judgment searches with respect to the
each of Borrower and Guarantor. In connection therewith, Borrower shall
have delivered to Lender, and Lender shall have reviewed and approved to
its satisfaction, an updated report and analysis with respect to all
litigation matters involving Borrower and Guarantor.
5. Lender shall have received, reviewed and approved such
documents or other evidence as Lender shall require to establish that
any and all indebtedness owed by Borrower to Heller Financial and
Textron Financial is currently paid and Borrower is in good standing and
in compliance with all of its obligations to Heller Financial and
Textron Financial.
6. Lender shall have received, reviewed and approved to its
satisfaction management letters written by Deloitte & Touche to
Guarantor and Borrower with respect to their 1996 fiscal year, together
with any responses to such management letters by Borrower or Guarantor.
7. Lender shall have received, reviewed and approved to its
satisfaction financial statements for Guarantor and Borrower for the
fiscal quarter ending November 30, 1996. In addition, as a condition
subsequent, Borrower shall have delivered to Lender not later than June
1, 1997, and Lender shall have reviewed and approved to its reasonable
satisfaction, financial statements for Guarantor and Borrower for the
fiscal quarter ending February 28, 1997. The failure of Borrower to
deliver such financial statements as of June 1, 1997 shall be deemed to
be an Event of Default under this Agreement.
8. Borrower shall have paid all closing costs, title company
charges, recording fees and taxes, appraisal fees and expenses, survey
fees, travel expenses, architect/engineer inspection fees and expenses,
fees and expenses of Lender's counsel, and all other costs and expenses
incurred by Lender in connection with the preparation and closing of
this Agreement.
9. Lender's obligation to make the Second Winnick Building
Addition Advances under the Mortgage Loan Facility is subject to the
satisfaction by Borrower of the additional conditions precedent and
conditions subsequent set forth in EXHIBIT "12.10" attached hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by Persons duly authorized on the day and year first above
written.
"BORROWER" "LENDER"
PREFERRED EQUITIES CORPORATION, FINOVA CAPITAL CORPORATION,
a Nevada corporation a Delaware corporation
By: /s/ DENAY R. MIDDLETON By: /s/ KEVIN WALSH
--------------------------------- --------------------------------
Name: Denay R. Middleton Name: Kevin Walsh
------------------------------- ------------------------------
Title: Vice President Title: Vice President
------------------------------ -----------------------------
WITNESSED: ATTEST:
/s/ Elaine H. Holley /s/ [SIG]
- ------------------------------------ -----------------------------------
Asst. Secretary
/s/ [SIG]
- ------------------------------------ WITNESSED:
/s/ SHARON WILLIAMS
-----------------------------------
/s/ PATRICIA H. STEINER
-----------------------------------
Send notices to: Send notices to:
Preferred Equities Corporation FINOVA Capital Corporation
4310 Paradise Road 7272 East Indian School Road
Las Vegas, Nevada 89109 Suite 410
Attn: President Scottsdale, Arizona 85251
Attn: Vice President - Group Counsel
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<PAGE> 83
With a copy to: With a copy to:
Mr. Jerome J. Cohen FINOVA Capital Corporation
1125 N.E. 125th Street 7272 East Indian School Road
Suite 206 Suite 410
North Miami, Florida 33161 Scottsdale, Arizona 85251
Attn: Vice President - Operations
Management
-83-
<PAGE> 84
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
BEFORE ME, the undersigned authority, a Notary Public in and for
the County and State aforesaid, on this day personally appeared DONALD R.
MIDDLETON, known to me to be the VICE PRESIDENT of PREFERRED EQUITIES
CORPORATION, a Nevada coarporation, who acknowledged to me that the same was the
free act and deed of such corporation and that s/he being authorized by proper
authority to do so, executed the same on behalf of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 16th day of May,
1997.
/s/ Sandra M. Ulright
--------------------------------------
NOTARY SEAL: Notary Public
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
BEFORE ME, the undersigned authority, a Notary Public in and for
the County and State aforesaid, on this day personally appeared KEVIN WALSH,
known to me to be the VICE PRESIDENT of FINOVA CAPITAL CORPORATION, a Delaware
orporation, who acknowledged to me that the same was the free act and deed of
such corporation and that s/he being authorized by proper authority to do so,
executed the same on behalf of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 21st day of May,
1996.
/s/ [SIG]
--------------------------------------
NOTARY SEAL: Notary Public
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<PAGE> 85
LIST OF EXHIBITS
Exhibit "I-A" - Legal description of Aloha Bay
Exhibit "I-B" - Copy of Custodial Agreement
Exhibit "I-C" - Conditions of Eligible Receivables
Exhibit "I-D" - Legal description of FCFC Property, 1500 East
Tropicana, Las Vegas, Nevada
Exhibit "I-E" - Legal description of Grand Flamingo Fountains, Las
Vegas, Nevada
Exhibit "I-F" - Legal description of Headquarters Building, 4310
Paradise Road, Las Vegas, Nevada
Exhibit "I-G" - Legal description of Ida Building Addition, 190 and
196 Ida Street, Las Vegas, Nevada
Exhibit "I-H" - Legal description of Ida Building One, 170 and 178
Ida Street, Las Vegas, Nevada
Exhibit "I-I" - Legal description of Ida Building Two, 165, 171 and
177 Ida Street, Las Vegas, Nevada
Exhibit "I-J" - Legal description of portions of the Project located
in Huerfano County, Colorado
Exhibit "I-K" - Legal description of Project (Reno), also known as
Reno Spa Resort Club
Exhibit "I-L" - Legal description of Project (Terraces - Phase I)
Exhibit "I-M" - Legal description of Project (Terraces - Phase II)
Exhibit "I-N" - Legal description of Project (Towers)
Exhibit "I-O" - Legal description of Project (Villas)
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Exhibit "I-P" - Legal description of Second Winnick Building Addition,
184, 190 and 196 Winnick Avenue, Las Vegas, Nevada
Exhibit "I-Q" - Legal description of South Park Ranches, Park County,
Colorado
Exhibit "I-R" - Legal description of Grand Flamingo Suites - Phase I,
Las Vegas, Nevada
Exhibit "I-S" - Legal description of Grand Flamingo Suites - Phase II,
Las Vegas, Nevada
Exhibit "I-T" - Legal description of Grand Flamingo Winnick, Las
Vegas, Nevada
Exhibit "I-U" - Legal description of Winnick Building Addition, also
known as Courtyard, Las Vegas, Nevada
Exhibit 2.3.6 - Form of Project Note
Exhibit 3.5 - Request for Advance and Certification by Borrower
Exhibit 5.2.1 - List of Requirements for Receivables Advances
Exhibit 5.2.2 - List of Requirements for Advances Under Mortgage Loan
Facility
Exhibit 8.3(a) - Litigation Schedule
Exhibit 8.4(a) - List of States in Which Lots and Units Are Sold by
Borrower
Exhibit 8.23 - Certification of Financial Covenants
Exhibit 8.31 - List of Current Litigation Matters
Exhibit 12.10 - List of Additional Conditions Precedent and Subsequent
With Respect to Funding of Second Winnick Building
Addition
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<PAGE> 1
EXHIBIT 10.116
[RCI LOGO]
OWNERS ASSOCIATION AGREEMENT
This OWNERS ASSOCIATION AGREEMENT ("Agreement") is made and entered
into at Indianapolis, Indiana, by and between RESORT CONDOMINIUMS
INTERNATIONAL, INC., an Indiana corporation having offices and its principal
place of business at One RCI Plaza, 3502 Woodview Trace, Indianapolis, Indiana,
U.S.A. ("RCI"), , an owners association comprised of
the owners of Timeshare Interests at the Resort, having its principal place of
business at 4310 Paradise Road, Las Vegas, Nevada 89109-6597, ("Association").
RECITALS
A. RCI makes available the RCI Exchange Program to individuals who purchase or
acquire Timeshare Interests in RCI Affiliated Resorts.
B. Association represents owners of Timeshare Interests at the resort
project(s) described as follows: Name, location and street address of each
Resort project affiliated hereby:
(use additional sheets if necessary)
C. Association has submitted to RCI an Application for Affiliation, a copy of
which is incorporated by reference herein in its entirety, and desires the
Resort to become an RCI Affiliated Resort, and for Association to offer to
Purchasers and owners of Timeshare Interests in the Resort the opportunity to
become RCI Members and to be eligible to participate in the RCI Exchange
Program.
D. RCI desires the Resort to become an RCI Affiliated Resort and for
Association to perform services and duties associated with the RCI Exchange
Program in accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and obligations
contained in this Agreement, the parties hereby agree as follows:
ARTICLE I -- DEFINITIONS
For the purposes of this Agreement, the terms listed below shall,
unless the context otherwise requires, bear the following meanings:
1.1 APPLICATION FOR AFFILIATION: The Association's Application for Resort
Affiliation, including any attachments thereto, which is required to be
submitted by Association to RCI in connection with this Agreement.
1.2 CONFIRMED EXCHANGE: RCI's written or oral notification to the Resort
and RCI Member or Exchange Guest that accommodations at the Resort or another
resort have been reserved for use by the RCI Member or Exchange Guest.
1.3 ENROLLMENT APPLICATION: The form of application from time to time
prescribed by RCI for the enrollment of Purchasers in the RCI Exchange Program.
1.4 EXCHANGE GUEST(S): Person(s) who have received a Confirmed Exchange to
the Resort from RCI.
1.5 MARKS: Those trademarks set forth below, or other trademarks as may be
included and licensed by RCI to Association from time to time.
<PAGE> 2
1.6 PRESALE: That status where the Resort or a Unit at the Resort is under
construction, renovation or refurbishment and is considered by RCI to be not
ready for occupancy by an Exchange Guest(s).
1.7 PROSPECTIVE PURCHASER: Prospective purchasers of a Timeshare Interest
or other interest at the Resort or any other RCI Affiliated Resort.
1.8 PURCHASERS: Persons who purchase Timeshare Interests in the Resort,
including persons who are already RCI Members at time of purchase.
1.9 RCI AFFILIATED RESORTS: Resorts subject to resort affiliation
agreements with RCI, including those resorts described in Recital B.
1.10 RCI EXCHANGE PROGRAM: RCI's program of facilitating the exchange of
Timeshare Interests.
1.11 RCI PROCEDURES MANUAL: Any manual(s) of policies and/or procedures for
Associations as published and amended by RCI from time to time.
1.12 RCI SUBSCRIBING MEMBERS OR RCI MEMBERS: Purchasers whose Enrollment
Applications are accepted by RCI and who comply with the Terms and Conditions
of RCI Membership.
1.13 RCI SUBSCRIPTION FEE: The annual fee from time to time payable by RCI
Members in respect of RCI's directory, magazine(s) or other publications and
such other benefits incident to the subscription.
1.14 RCI TERMS AND CONDITIONS: Those terms and conditions of RCI membership
contained in RCI's Endless Vacation Special Resort Edition magazine as amended
from time to time by RCI in its discretion.
1.15 RESELLERS: Any brokers, marketers, marketing companies or management
companies engaged by Association.
1.16 RESORT: The resort project(s) or other lodging or vacation
accommodation(s): (1) described in Recital B and (2) all subsequent buildings or
phases of the resort project(s) or other lodging or vacation accommodation(s)
which meet RCI standards.
1.17 TIMESHARE INTERESTS: Possessory, occupancy or usage rights in
timeshare resorts or other lodging or vacation accommodation(s), whole-owner
condominiums or similar vacations ownership plans.
1.18 UNIT: A unit of accommodation of movable or immovable property
designed for separate occupancy in connection with the use of a Timeshare
Interest.
ARTICLE 2 -- RCI'S DUTIES AND OBLIGATIONS
2.1 PROVIDE EXCHANGE PROGRAM. RCI shall make the RCI Exchange Program
available to RCI Subscribing Members and perform its functions with respect to
the RCI Exchange Program in accordance with its obligations under this
Agreement, the RCI Terms and Conditions of Membership and the RCI Procedures
Manual.
2.2 PROCESS ENROLLMENT APPLICATIONS. RCI shall process, promptly and
fairly, Enrollment Applications and will notify Association if RCI rejects an
Enrollment Application.
2.3 FEES. If an Enrollment Application is rejected by RCI or is canceled
by the Purchaser as a result of the Purchaser's cancellation or recission of a
contract to purchase a Timeshare Interest, RCI will refund fees previously
remitted to RCI which correspond to such rejected or canceled Enrollment
Application in accordance with the procedures set forth in the RCI Procedures
Manual.
2.4 MATERIALS. RCI, will provide to Association a sufficient quantity of
forms as required by RCI to administer the RCI Exchange Program at no charge.
Association may order and shall pay RCI's published rates for additional
materials such as the Endless Vacation Special Resort Edition, the RCI
Disclosure Guide to Vacation Exchange and other materials to distribute as may
be required by law.
ARTICLE 3 -- ASSOCIATION'S OBLIGATIONS
3.1 ENROLLMENT APPLICATION AND FEES. If Association or its Resellers offer
Timeshare Interests in the Resort to Purchasers or Prospective Purchasers, it
agrees it shall on a weekly basis and no later than thirty (30) days after a
Purchaser's date of purchase:
3.1.1 submit to RCI a fully completed Enrollment Application for each
new Purchaser;
3.1.2 pay to RCI in a form acceptable to RCI and without setoff or
deduction, a sum equal to the number of Purchasers since the
last payment was made multiplied by the applicable fee(s)
required for each Purchaser; and
3.1.3 submit a sales report in a form prescribed by RCI.
3.2 PROMOTION OF EXCHANGE PROGRAM. Association shall, in a manner that
complies with the terms of this Agreement and the RCI Procedures Manual,
promote RCI and the RCI Exchange Program to owners of Timeshare Interests in
the Resort. Such efforts shall include but not be limited to:
3.2.1 distributing or arranging for the distribution of the Endless
Vacation Special Resort Edition magazine to all new Purchasers
at the Resort;
3.2.2 making the Endless Vacation Special Resort Edition magazine and
Enrollment Applications available to all Purchasers and owners
of Timeshare Interests in the Resort; and
3.2.3 encouraging continued membership in the RCI Exchange Program.
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3.3 MINIMUM PERFORMANCE REQUIREMENT. Association acknowledges that if its
enrolled membership is not more than one hundred (100), it is not economically
viable for RCI to maintain the Affiliation, and this Agreement is likewise
terminable at the sole option and discretion of RCI upon sixty (60) days notice
to Association.
3.4 PHOTOGRAPHS, NAMES AND LOGOS. Association agrees to provide to RCI at
least two (2) photographs or representative images of the Resort. Association
agrees that these images, along with the name(s) and logo(s) of the Resort, are
for non-exclusive use by RCI or its licensees, at RCI's sole discretion, for
the promotion of the RCI Exchange Program. Association represents and warrants
to RCI that: (a) Association owns, has acquired or licensed the trademark and
copyright rights in and to such images, names and logos and (b) Association has
obtained, and has on file at its office, releases or consents from or for every
person, entity or thing as may be required by law or otherwise for the
reproduction of each such photograph or image as contemplated herein. Further,
Association hereby releases, discharges and agrees to indemnify and hold RCI
harmless from and against any and all liability, demand, claim, cost, expense,
loss or damage (including attorneys' fees) caused by or arising from the
reproduction and distribution of such images or use of such images, names or
logos. This indemnification and hold harmless provision shall survive the
termination of this Agreement for all applicable statutes of limitation.
3.5 MANAGEMENT DUTIES. Association agrees:
3.5.1 on RCI's request, to promote new services and benefits provided
by RCI to RCI Members;
3.5.2 to perform services and other duties associated with the
operation of the RCI Exchange Program in accordance with the RCI
Procedures Manual and other materials furnished to it by RCI
from time to time;
3.5.3 to maintain high qualitative and managerial standards throughout
the Resort (including maintenance of an efficient and effective
reservations system) and in particular to maintain high
standards of hospitality, service, cleanliness, maintenance and
appearance and a comprehensive maintenance program;
3.5.4 to operate its business in a commercially reasonable fashion
that will enable it to meet its obligations;
3.5.5 to honor all Confirmed Exchanges at the Resort;
3.5.6 to provide all RCI Members and Exchange Guests with the services
and facilities referred to in the Application for Affiliation
and this Agreement;
3.5.7 to provide all RCI Members and Exchange Guests with the same
rights and privileges at the same rates afforded generally to
Purchasers at the Resort;
3.5.8 to act in a reasonable and co-operative manner to satisfy any
complaints;
3.5.9 to the extent permissible by law, to submit to RCI upon RCI's
request, not to exceed once annually, a report containing the
name, current billing address and current ownership information
for each Purchaser at the Resort. This report shall be current
as of one month prior to the date such report is submitted to
RCI;
3.5.10 not to require Exchange Guests staying at the Resort to attend
a sales presentation;
3.5.11 to collect any bed tax, transient occupancy tax or other local
rate tax or charge on use or occupancy of the Resort's
accommodations from owners of the Timeshare Interests at the
Resort, unless the imposition of such tax is precluded by law,
in which case to collect the applicable taxes from Exchange
Guests;
3.5.12 to provide RCI with Certificates of Insurance reflecting: (1)
those property and casualty coverages in effect as described in
Section 5.3.3 and (2) naming RCI as an additional insured under
such general liability policy as required by Section 5.3.3; and
3.5.13 to inform RCI before the appointment or replacement of any
management and/or maintenance company relating to the Resort
(whose appointment shall not, for the avoidance of doubt, affect
the Association's obligations of management and maintenance of
the Resort).
3.6 CHANGE IN INFORMATION. Association agrees to immediately notify RCI of
any change in any information set forth in the Application for Affiliation or
of any other fact or circumstances affecting the operation of the RCI Exchange
Program with respect to the Resort.
3.7 NON-INTERFERENCE. During the term of this Agreement and following its
termination, Association shall not in any manner:
3.7.1 encourage any Purchaser or any other timeshare owner or RCI
Member, to modify, amend, rescind, contravene or cancel their
RCI membership;
3.7.2 encourage any owners association, club, developer or RCI
Affiliated Resort to modify, amend, rescind, contravene or
cancel its affiliation agreement with RCI; or
3.7.3 interfere or facilitate interference in any respect with the
contractual relationship between RCI (including any RCI
subsidiary, parent, associated or affiliated company or other
entity in which RCI or its principal holds a controlling
ownership interest) and any party contracting with RCI.
3.8 NON-DISCLOSURE. During the term of this Agreement and after its
termination, Association agrees that it shall not use for its own benefit
(other than as permitted under this Agreement) or disclose to any third party,
directly or indirectly, any information with respect to: (a) the terms of this
Agreement or this Agreement's prior drafts or documents used in this Agreement's
negotiations, (b) any proposals produced by RCI and distributed to Association,
(c) any RCI proprietary information (including but not limited to any trade
secrets, any confidential business information not readily available to the
general public, or any confidential information regarding the operation of the
RCI Exchange Program) to which it may be privy, (d) RCI membership numbers or
exchange activity of any RCI Member or
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Exchange Guest, or (e) the names, addresses or telephone numbers of RCI
Members. However, disclosure of the terms of this Agreement may be permitted
where such disclosure is required by law, provided that Association gives RCI
at least twenty (20) days written notice prior to such disclosure.
Notwithstanding the above, Association agrees that direct or indirect
disclosure of any of the above information to any other exchange company,
timeshare or vacation ownership developer or timeshare owners association is
expressly prohibited by this Section under any circumstances.
3.9 DENIAL OF ACCESS.
3.9.1 If Association fails to honor a Confirmed Exchange into the
Resort or if an Exchange Guest is otherwise denied access to a
unit at the Resort for which that Exchange Guest has a Confirmed
Exchange, then Association shall immediately and at its own
expense secure alternative accommodations of similar size and
quality for the same time period for the Exchange Guest and
shall reimburse RCI for any costs incurred by RCI in connection
with such failure to honor the Confirmed Exchange or such denial
of access.
3.9.2 Neither Association nor RCI shall have any obligation to secure
alternate accommodations for an Exchange Guest arriving at the
Resort during an interval other than that for which the Exchange
Guest has been confirmed by RCI.
ARTICLE 4 -- RELATIONSHIP OF THE PARTIES
4.1 REPRESENTATION OF RELATIONSHIP. Association shall fully and accurately
describe the RCI Exchange Program and Association's relationship with RCI to
Prospective Purchasers, Purchasers and owners of Timeshare Interests in the
Resort. To this end, Association:
4.1.1 shall not misrepresent in any way the RCI Exchange Program to
Purchasers, Prospective Purchasers or owners of Timeshare
Interests in the Resort, nor make any representation which could
lead to any confusion on the part of any Purchaser, Prospective
Purchaser or owner of Timeshare Interests in the Resort as to
the RCI Exchange Program or the services and benefits offered in
connection therewith;
4.1.2 shall deliver, in writing and in easily readable print, and
prior to the execution of any contract for purchase, the
following or substantially similar language to Prospective
Purchasers or Purchasers:
RCI conducts an exchange program made available to purchasers at
this resort. No joint venture, partnership or contract of
agency exists between RCI and the owners association of this
resort; however the owners association of this resort is a party
to an agreement with RCI through which the owners association
submits applications on behalf of purchasers to become members
of RCI's Exchange Program. RCI's responsibility for
representations concerning the RCI Exchange Program is limited
to those representations made in materials supplied by RCI.
While it is anticipated that the owners association of this
resort and RCI will maintain an ongoing relationship, there is
no assurance that the agreement between the owners association
of this resort and RCI will continue. Similarly, RCI makes no
representations as to the continued viability of this resort.
Your decision to purchase should be based primarily upon the
benefits to be gained from ownership and use of your timeshare
interests in the resort and not upon the RCI Exchange Program.
4.1.3 shall not amend, summarize, change or modify any material
supplied by RCI without RCI's prior written consent, or delete,
alter or obscure any proprietary notice or legend contained
thereon.
4.1.4 shall not use the name, photograph or image of any other RCI
Affiliated Resort or any other resort or hotel in any material
to be used in a sales presentation. Further, those names,
photographs and images may not be used in any other manner
without obtaining the prior written consent of: (a) RCI, (b) the
owner of such other RCI Affiliated Resort or other resort,
hotel, or other lodging or vacation accommodation (c) the owner
of the copyright in the photograph or image, and (d) any other
person whose permission is legally required to use such name,
photograph or image. SEE ATTACHED ADDENDUM
4.1.5 shall not offer the RCI Exchange Program as an investment, in
conjunction with the sale of a security, through an emphasis on
any profit or appreciation, or in connection with any rental
pool; and
4.1.6 shall not promote the RCI Exchange Program or other services
available from RCI as the main or principal reason for purchase
of any Timeshare Interest nor represent Association's
affiliation to the RCI Exchange Program as a warranty or
indication of the Association's or Resort's status or condition.
4.2 ACKNOWLEDGEMENT. Association acknowledges that:
4.2.1 RCI has the right to accept or reject any Enrollment
Application submitted to it; and
4.2.2 It shall have each Purchaser at the Resort who chooses not to
become an RCI Member acknowledge in writing that he understands
that he does not become an RCI Member unless an appropriate
Enrollment Application is tendered to and accepted by RCI and
the appropriate fees are received by RCI.
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4.3 APPOINTMENT OF RESELLERS. Association will insure that Resellers do
not make any representations related to RCI or the RCI Exchange Program in
connection with the sale of Timeshare Interests in the Resort unless and until
the Association requests and receives RCI's approval to sublicense to the
particular Reseller(s) the right to use the RCI Marks and RCI materials for the
sole purpose of promoting the RCI Exchange Program and obtaining RCI Enrollment
Application Forms on the Association's behalf. RCI will grant such approval
only upon fulfillment of the following conditions:
4.3.1 Association gives RCI at least thirty (30) days prior written
notice of its intent to engage the Reseller for the above
purposes;
4.3.2 Association provides RCI with its thirty (30) day notice a copy
of its proposed agreement with the Reseller, which agreement
shall contain the same trademark provisions as contained in this
Agreement, including but not limited to those in Section 4.3.5
and Article 6 herein;
4.3.3 Association provides RCI with its thirty (30) day notice a
Reseller's Acknowledgement in the form required by RCI from time
to time;
4.3.4 Association acknowledges and agrees that RCI may, at any time
during the thirty (30) day notice period referred to above: (a)
request additional information regarding the Reseller from
Association; and (b) refuse at its sole discretion to grant
Association's request for approval to sublicense to Reseller the
right to use the RCI Marks and RCI materials for the sole
purpose of promoting the RCI Exchange Program and obtaining RCI
Enrollment Application Forms on the Association's behalf. If
notice of refusal from RCI is not given during such thirty (30)
day period, Association may grant the Reseller a sublicense as
described herein;
4.3.5 Association acknowledges and agrees that immediately on
termination of this Agreement, the Reseller shall cease using
RCI Marks and RCI materials, cease promoting the RCI Exchange
Program, and further cease obtaining RCI Enrollment Application
Forms. Association shall notify all Resellers in writing of
such termination and Association shall collect all RCI
materials, all materials bearing one or more of the RCI Marks,
and all RCI Enrollment Application Forms held by or on behalf of
all Resellers. Association agrees that it will promptly notify
RCI in writing of the Reseller's cessation of the previously
authorized activities and will certify to RCI that it has
collected all such materials from the Reseller. Association
shall be liable to RCI for all acts or omissions of the
Reseller arising out of any such failure to timely cease such
activities and any damages which RCI may suffer as a result of
Reseller's activities following termination will be covered
under the Association's obligation to indemnify RCI as set forth
in this Agreement.
4.3.6 Association acknowledges and agrees that, RCI, in addition to
any other rights it may enjoy under this Agreement hereby
reserves the right to require termination of the Reseller in the
event Reseller engages in any act or omission which would
constitute a breach of this Agreement if committed by
Association.
4.4 RESPONSIBILITIES OF ASSOCIATION. Association acknowledges and agrees
that, the appointment of Resellers notwithstanding, it is and remains at all
times directly and primarily responsible for (a) the submission to RCI of RCI
Enrollment Applications and fees; (b) the content and correctness of RCI
Enrollment Applications; (c) all acts or omissions or Resellers; and (d)
ensuring that any and all Resellers fully comply with the terms of this
Agreement.
ARTICLE 5 -- ACKNOWLEDGEMENTS, REPRESENTATIONS AND WARRANTIES
5.1 ACKNOWLEDGEMENTS. Association acknowledges and agrees that:
5.1.1 it will offer the RCI Exchange Program only to Purchasers or
owners of Timeshare Interests in the Resort(s) identified in
Recital B;
5.1.2 it will not offer the RCI Exchange Program to Purchasers or
owners of Timeshare Interests at any other resort without
entering into a separate Agreement with RCI for such resort or
adding such resort to this Agreement by Addendum;
5.1.3 RCI memberships are available to natural persons, and if a
Timeshare Interest is purchased by a corporation, partnership or
other business entity, RCI membership must be in the name of the
natural person authorized by such entity to utilize the
purchased Timeshare Interest;
5.1.4 through the RCI Exchange Program, RCI has the right to confirm
any individuals into Units at the Resort which have been
deposited with RCI provided, however, such Exchange Guests
comply with the rules and regulations of the Resort;
5.1.5 the RCI Terms and Conditions, including but not limited to the
services and benefits provided by RCI to RCI Members, exchange
privileges, the practices, procedures and priorities for
effecting exchanges and the fees payable by RCI Members govern
the relationship between RCI and RCI Members, and may be changed
by RCI from time to time in its discretion;
5.1.6 the use of RCI Guest Certificates is personal to RCI Members and
no commercial use of RCI Guest Certificates may be made by
Purchasers, Association, or any or Association's officers,
directors, employees, sales representatives, brokers or agents;
5.1.7 RCI has the right to inspect the Resort and the sales records of
Association with respect to the Resort upon reasonable notice
and during regular business hours;
5.1.8 Association shall not assign or sublicense any or all or its
rights under this Agreement to any person without RCI's prior
written approval and any such attempted assignment of sublicense
shall be null and void;
5.1.9 RCI may assign its rights and duties under this Agreement or any
Enrollment Application or agreement with an RCI Member in which
case this Agreement shall remain in full force and effect; and
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5.1.10 except for sales in the ordinary course of business to
Purchasers for use other than a commercial use, it will not
transfer any interest in the Resort unless the transferee agrees
to be bound by the terms and conditions of this Agreement in the
same manner as the Association hereunder.
5.2 ACKNOWLEDGEMENT OF RELATIONSHIP. Association hereby acknowledges that:
5.2.1 it has no power to bind RCI in any manner;
5.2.2 Association and Resort are independent and outside the control
of RCI and that nothing in this Agreement creates a relationship
of agency, employment, partnership or joint venture between RCI
and the Association;
5.2.3 the product(s) of Association (including but not limited to
Timeshare Interests) are separate and distinct from the services
offered through the RCI Exchange Program; and
5.2.4 it is not relying on RCI or the RCI Exchange Program for the
sale of its product(s).
5.3 REPRESENTATIONS AND WARRANTIES. Association represents and warrants to
RCI that:
5.3.1 the statements made by it in the Application for Affiliation are
not misleading and are true and correct in all material respects
and that all the facilities referred to in the Application for
Affiliation will be available to Exchange Guests in the manner
described in the Application for Affiliation;
5.3.2 it owns or has the legal right to convey Timeshare Interests to
Purchasers;
5.3.3 it maintains with a reputable insurer property and casualty
insurance to cover loss or damage to the Resort, as well as
general liability insurance naming RCI as an additional insured
in an amount sufficient to cover its risk;
5.3.4 it has thoroughly examined the RCI Exchange Program as set forth
in the RCI Procedures Manual and other materials furnished to it
by RCI and that it is familiar with the operation of the RCI
Exchange Program;
5.3.5 except as previously disclosed in writing to RCI, there is no
litigation, proceeding, claim, complaint, investigation or
similar action pending or threatened against it which would
materially and adversely affect the performance of its
obligations or the continued operation of the Resort;
5.3.6 by entering into this Agreement, it will not be in breach of the
provisions of any other agreement, lease, charter, by-law or any
other instrument or obligation;
5.3.7 it is in compliance with all applicable laws, rules and
regulations; and
5.3.8 the execution of this Agreement has been duly authorized by all
necessary actions, the persons executing this Agreement are
authorized to do so and this Agreement constitutes its legal and
binding obligation.
The representations and warranties contained herein are of a continuing nature,
and unless otherwise disclosed to RCI in writing, shall be considered reaffirmed
by Association with each submission of Enrollment Applications.
ARTICLE 6 -- TRADEMARKS
6.1 LICENSE. Upon the terms and conditions of this Agreement, and the
policies and procedures established by RCI from time to time governing the use
of the Marks, RCI grants to Association a non-exclusive license to use the
Marks only on and in connection with its services in promotion the RCI Exchange
Program, submitting Enrollment Applications of Purchasers at the Resort to RCI,
and coordinating activities and performing services associated with the
operation of the RCI Exchange Program at the Resort. Association shall not use
or permit use of the Marks, in whole or in part, on or in connection with any
other business, including but not limited to travel related services, financing
services, reservation services, resort management services or resort rental
enterprises. Except as expressly provided herein at Section 4.3, Association
shall not permit or authorize any other person or entity or any kind to use the
Marks in any manner.
6.2 ACKNOWLEDGEMENT. Association acknowledges that: (a) RCI is the owner
in the Unites Sates and various other countries of the Marks, and (b) RCI has
the right to exclude others from using the Marks or any variant or combination
of the Marks determined to be confusingly similar to the Marks. Association
shall not register or attempt to register the Marks or any other trademark or
tradename confusingly similar to one or more of the Marks in its own name or
that of any person or entity. Further, Association shall not contest to the
validity of the Marks or any registration of the Marks by RCI.
6.3 QUALITY AND CONTROL. RCI has the right to control all uses of the
Marks. Association agrees to maintain such quality standards for its services,
in connection with which the Marks are used, equal to the quality of services of
RCI. Association may use the Marks on its promotional materials, advertising
and owner communications only as prescribed by RCI policies and procedures in
the RCI Procedures Manual and other materials furnished to Association from time
to time. Association agrees to comply with all requests of RCI with respect to
the appearance and use of the Marks, including any requests to change the form
or style of the Marks. Association shall at all times consistently use the Marks
so as to ensure that RCI's rights are adequately preserved. Association agrees
to promptly submit to RCI one copy of all printed or visual material bearing one
or more of the Marks for prior written approval. RCI reserves the right to
withdraw approval should it be determined, in RCI's sole discretion, that such
materials misrepresent or do not accurately reflect RCI or the RCI Exchange
Program. Association shall not do anything itself, or aid or assist any other
party to do anything which would infringe, violate, damage, dilute, harm or
contest the rights or RCI in and to the Marks. In addition, Association
confirms that all use of the Marks by it or any of its approved sublicensees
shall inure to RCI's benefit. Association shall at any time execute any
documents reasonably required by RCI to confirm RCI's ownership of all rights in
and to the Marks.
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ARTICLE 7 -- TERMINATION & REMEDIES
7.1 GENERAL RIGHTS OF TERMINATION. Either party may terminate
participation in this Agreement:
7.1.1 In the event of a breach of any of the terms, conditions,
covenants, representations or warranties contained in this
Agreement, following written notice to the other party stating
the grounds for such termination, unless the breaching party
cures the asserted breach to the reasonable satisfaction of the
party giving such notice within thirty (30) days of the date of
notice;
7.1.2 Immediately by giving the other party written notice if the
other party commits a breach of any of the provisions of this
Agreement which breach is incapable of cure; or
7.1.3 by giving the other party hereto at least 180 days written
notice prior to the expiration of the initial term or any
renewal term of its intent to terminate this Agreement at the
end of such term.
7.2 RCI'S RIGHT OF TERMINATION. Without prejudice to any other rights of
termination RCI may have under this Agreement, RCI may terminate its
participation in this Agreement with respect to any or all of the Resorts
listed in Recital B:
7.2.1 immediately upon written notice to the Association in the event
the Association: (a) becomes insolvent as defined in the Uniform
Commercial Code or makes an assignment for the benefit of its
creditors; (b) initiates a proceeding, whether voluntarily or
involuntarily, under any chapter or part of the Federal
Bankruptcy Code; (c) is a party to a proceeding for the
reorganization or for the adjustment of any of its debts under
any act or law, for the relief of debtors now or hereafter
existing; (d) has a receiver or trustee appointed for it or for
a substantial part of any of its assets; or (e) is a party to
any proceeding seeking its dissolution or its full or partial
liquidation;
7.2.2 immediately upon written notice to the Association if any
Reseller commits any act or omission which would constitute a
breach of this agreement if committed by Association which, if
capable of remedy, has not been remedied within thirty (30) days
notice from RCI;
7.2.3 immediately upon written notice to the Association if the
Association transfers a controlling interest in the Resort
without RCI's prior written consent;
7.2.4 immediately upon written notice to the Association if the
Association attempts to assign or sublicense all or any portion
of its rights and duties under this Agreement without RCI's
prior written approval;
7.2.5 immediately upon written notice to the Association if the
Association is in fundamental or material breach of a term of
this Agreement or engages in fraudulent, deceptive or dishonest
conduct in connection with this Agreement (whether or not
capable of remedy);
7.2.6 upon written notice to Association of not less than six (6)
months in the event the Association enters into any agreement or
arrangement other than with RCI that provides for internal or
external exchange services to owners of Timeshare Interests in
the Resort. In any event, Association agrees to provide RCI
with ninety (90) days written notice prior to entering into such
agreement or arrangement;
7.2.7 immediately upon written notice to Association if any
representation or warranty contained herein is not true at the
time it is made or considered reaffirmed;
7.2.8 immediately upon written notice Association if any
representation or warranty contained herein ceases to be true
during the term of this Agreement and any renewals thereto; and
7.2.9 as provided for elsewhere in this Agreement.
7.3 ASSOCIATION'S ACKNOWLEDGEMENTS.
7.3.1 RCI's exercise of its right to terminate pursuant to this
Agreement shall in no way limit or impair its right to seek
other legal or equitable remedies in connection with a breach by
Association.
7.3.2 Termination of this Agreement for whatever reason shall not in
any way affect the right of RCI to receive fees that have
accrued and remain unpaid.
7.4 OBLIGATIONS UPON TERMINATION. Upon termination of this Agreement:
7.4.1 RCI and Association shall honor all Confirmed Exchanges and
exchange privileges of Exchange Guests that are confirmed or
accrued prior to termination;
7.4.2 RCI and Association shall honor all Confirmed Exchanges and
exchange privileges of RCI Members who are owners of Timeshare
Interests in the Resort that are confirmed or accrued prior to
termination of this Agreement;
7.4.3 RCI at its sole discretion, may allow RCI Members who are owners
of Timeshare Interests in the Resort to participate in the RCI
Exchange Program following termination of this Agreement
provided that the Resort maintains high qualitative and
managerial standards. Association agrees to honor all present
and future Confirmed Exchanges or exchange privileges of
Purchasers, owners of Timeshare Interests in the Resort and
Exchange Guests;
7.4.4 Association shall immediately discontinue promoting, selling,
marketing or offering the RCI Exchange Program in any form to
Purchasers, Prospective Purchasers or owners of Timeshare
Interests in the Resort;
7.4.5 Association shall immediately cease using and thereafter abstain
from using all RCI videos and other materials bearing any of the
RCI Marks, and return the same to RCI within fifteen (15) days
after termination of this Agreement;
7
<PAGE> 8
7.4.6 Association shall immediately cease using and thereafter abstain
from using the Marks and any name or mark similar thereto; and
7.4.7 Association shall immediately ensure that the agreement with any
RCI approved Reseller is correspondingly immediately terminated
with respect to any activities related to RCI and/or use of the
Marks, as detailed in Article 4 herein.
7.5 SUSPENSION. Upon breach by Association, RCI may, without prejudice to
its right to terminate this Agreement, suspend operation of the RCI Exchange
Program at the Resort or impose such conditions or limitations thereon as RCI
deems necessary or appropriate from time to time.
7.6 EQUITABLE RELIEF. Association acknowledges that damages cannot
adequately compensate RCI for a breach of any of the provisions of this
Agreement, and, therefore, the parties agree that RCI shall be entitled to a
remedy of specific performance of injunctive relief, as appropriate, in the
event of a breach or threatened breach of any such provisions by Association,
in addition to any other appropriate legal or equitable remedies.
7.7 WAIVER. Upon the termination of this Agreement, Association hereby
expressly waives any claim for a refund of any applicable fees remitted during
the term of this Agreement.
7.8 LIMITATIONS. Failure to cease using any one or more of the Marks by
Association or its Resellers following termination of this Agreement shall
entitle RCI to liquidated damages from the Association in the amount of One
Thousand Dollars (US$1,000) per day, which Association agrees is reasonable.
This liquidated damages remedy shall be in addition to any other remedies,
legal or equitable available to RCI.
ARTICLE 8 -- GENERAL
8.1 TERM. This Agreement shall become effective on the date it is executed
by RCI in Indianapolis, Indiana, U.S.A. and shall be for an initial term of
five (5) years. Thereafter, this Agreement will automatically renew for
additional five (5) year terms, until such time as notice of intent to
terminate is given by either party pursuant to Section 7.1; provided, however,
that Association is in compliance with this Agreement at the expiration of the
initial term and subsequent renewal terms.
8.2 NOTICES. All notices and other communications made pursuant to this
Agreement shall be in writing and shall be deemed to have been given if mailed
by registered or certified mail, return receipt requested, or transmitted by
facsimile with printed confirmation of receipt together with mailing of an
original, to the appropriate party(ies) at the following address (or such other
address as shall be specified by notice given pursuant to this Section 8.2):
(a) if to Association:
4310 Paradise Road
Las Vegas, Nevada 89109
(b) if to RCI:
RESORT CONDOMINIUMS INTERNATIONAL, INC.
One RCI Plaza
3502 Woodview Trace
P.O. Box 80229
Indianapolis, Indiana 46280-0229
U.S.A.
Attention: Legal Services
8.3 LEGAL AND BINDING OBLIGATION. Association and the individual executing
this Agreement on behalf of Association, respectively, represent and warrant to
RCI that this Agreement has been duly and validly executed and delivered by
Association and constitutes a legal, valid, binding and enforceable agreement
of Association.
8.4 OBLIGATIONS BINDING ON REAL ESTATE. Association agrees that their
obligations under this Agreement shall run with real estate comprising the
Resort and shall be binding upon any transferee of (or successor to) an
interest in the Resort which operates such interest for commercial purposes.
8
<PAGE> 9
8.5 INDEMNIFICATION. Association agrees to indemnify and hold RCI harmless
from and against any and all claims, demands, obligations, deficiencies,
judgments, damages, suits, losses, penalties, expenses, costs (including
reasonable attorneys' fees) and liabilities of any kind, type or nature
whatsoever directly or indirectly resulting from, arising out of or in
connection with:
8.5.1 any inaccuracy in a representation or warranty or any breach of
any of its obligations in this Agreement;
8.5.2 a failure to observe policies and procedures established by RCI;
8.5.3 the wrongful denial of access to a Unit to any Exchange Guest;
8.5.4 any death or personal injury or damage to or loss of property
sustained by Exchange Guests while at the Resort;
8.5.5 any acts or omissions by any of its respective directors,
officers, partners, employees, representatives, agents, brokers,
salesmen, independent contractors, or associates which would
constitute a breach of this Agreement if committed by
Association;
8.5.6 any acts or omissions of Reseller or Reseller's directors,
officers, partners, employees, representatives, agents, salesmen
or associates which would constitute a breach of this Agreement
if committed by Association; and
8.5.7 alleged or actual infringement of any trademark, copyright,
trade secret, patent, publicity rights, privacy rights, moral
rights or false advertising or unfair competition (but excluding
any such actions on RCI Marks).
8.6 SEVERABILITY. If any provision of this Agreement is declared by any
judicial or other competent authority to be void, voidable, illegal or
otherwise unenforceable or indications of the same are received by either of
the parties from any relevant competent authority, the parties shall amend the
provision in such reasonable manner as achieves the intention of the parties
without illegality or, at the discretion of RCI, such provision may be severed
from this Agreement and the remaining provisions of this Agreement shall remain
in full force and effect; provided, however, that if, in RCI's judgment, the
effect of such declaration is to defeat the original intention of the parties,
RCI shall be entitled to terminate this Agreement by thirty (30) days' notice
to the Association.
8.7 GENERAL. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement. The Recitals are hereby incorporated in this
Agreement. All references in this Agreement to particular Recitals and
Sections are references to Recitals and Sections of this Agreement. If there
is any difference or conflict between the English text of this Agreement and
any translation, the English text shall prevail. Failure of any party to
insist on strict compliance with the provisions of this Agreement shall not
constitute waiver of that party's right to demand later compliance with the
same or other provisions of this Agreement. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement. This Agreement and
Association's Application for Affiliation and all attachments thereto
constitute the entire understanding and agreement between the parties
concerning the subject matter of this Agreement. This Agreement may be
modified only by a writing executed by the parties with the same formality with
which this Agreement has been executed. All understandings between the parties
are merged into this Agreement, and there are no representations, warranties,
covenants, obligations, understandings or agreements, oral or otherwise, in
relation thereto between the parties other than those incorporated herein.
This Agreement is for the exclusive benefit of Association and RCI; nothing
herein shall be construed to create a third-party beneficiary of any Purchaser,
RCI Member or other individual or entity. Association acknowledges that this
Agreement has been executed, made and entered into in Indianapolis, Indiana,
U.S.A., and consents to the personal jurisdiction of the courts of the State of
Indiana. This Agreement shall in all respects be interpreted and construed in
accordance with and governed by the laws of the State of Indiana, U.S.A., and
any action at law or in equity under this Agreement shall be submitted
exclusively to the jurisdiction of the courts of Marion County, Indiana,
U.S.A., unless RCI determines it its sole discretion that, because of the
injunctive or other equitable relief sought by it, the action should be brought
in a jurisdiction in which Association or the Resort are located. This
Agreement and all of its provisions shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
9
<PAGE> 10
("Association")
By: /s/ FREDERICK H. CONTE
----------------------------------
Frederick H. Conte, President
AGREED TO AND ACCEPTED THIS 12th DAY OF APRIL, 1997
RESORT CONDOMINIUMS INTERNATIONAL, INC.
By: /s/ JOHN B. REINHARDT
----------------------------------
John B. Reinhardt, Vice President
10
<PAGE> 11
ADDENDUM TO RCI OWNERS ASSOCIATION AGREEMENT
This Addendum to the RCI Owners Association Agreement ("Addendum") is
made and entered into on 12th day of April 1997, by and between ("Association")
and RESORT CONDOMINIUMS INTERNATIONAL, INC. ("RCI")
WHEREAS, RCI and Association desire to amend certain provisions
contained in the RCI Owners Association Agreement ("Agreement") executed
contemporaneously herewith.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. The Agreement is hereby specifically incorporated as part hereof. In
all respects other than as specifically herein modified, the terms and
conditions of the Agreement shall continue in full force and effect.
2. To the extent any conflict of terms and conditions exist between this
Addendum and the Agreement, then the terms and conditions of this
Addendum shall supersede and control.
3. Capitalized terms as used herein, unless otherwise defined, have the
same definition as used in the Agreement.
4. Preferred Equities Corporation ("PEC") will comply to Article 4.1.4 with
the exception of PEC's internal resorts. PEC reserves the present and
future right to use our own resorts, even though RCI affiliated, in any
material to be used in a sales presentation or any other manner without
obtaining the prior written consent of RCI.
IN WITNESS WHEREOF, the parties have executed this Addendum to RCI
Owners Association Agreement as of the day and year first above written.
("Association")
By: [SIG]
----------------------------------------
Frederick H. Conte, President
RESORT CONDOMINIUMS INTERNATIONAL, INC. ("RCI")
By: [SIG]
----------------------------------------
John B. Reinhardt, Senior Vice President
<PAGE> 12
The following schedule relates to Exhibit 10.116 and sets forth the names of all
Homeowners Associations that have the identical contract agreements as this
exhibit (10.116) in all respects except for the name for the association. The
other associations which have the same Resort Condominiums International, Inc.
agreements are as follows:
Aloha Bay Condominium Homeowner's Association
Brigantine Inn Condominium Association, Inc.
Brigantine Villas Condominium Association, Inc.
The Grand Flamingo Fountains Owners Association
The Grand Flamingo Plaza Owners Association
The Grand Flamingo Suites Owners Association
The Grand Flamingo Terraces Owners Association
Grand Flamingo Terraces IV Owners Association
The Grand Flamingo Towers Owners Association
The Grand Flamingo Villas Owners Association
The Grand Flamingo Winnick Owners Association
Hilltop Resort Owners Association, Inc.
Pine Grove Condominium Owners Association
Reno Spa Resort Owners Association
RVS - Orlando Condominium Association, Inc.
Association of Owners of White Sands Waikiki Resort Club
<PAGE> 1
EXHIBIT 10.117
EXECUTION COPY
================================================================================
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser,
and
MEGO MORTGAGE CORPORATION,
as Seller,
LOAN PURCHASE AGREEMENT
================================================================================
Dated as of November 1, 1996
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Obligations of Seller Upon Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Payment of Purchase Price for the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.2 Limitation on Liability of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI.
TERMINATION
Section 6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.6 Further Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.7 Intention of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7.8 Successors and Assigns; Assignment of Purchase Agreement . . . . . . . . . . . . . . . . . . . . 12
Section 7.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.10 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
EXHIBITS AND SCHEDULES
Schedule I Schedule of Loans
ii
<PAGE> 4
LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated as
of November 1, 1996, between Mego Mortgage Corporation ("Mego" or the "Seller")
and FINANCIAL ASSET SECURITIES CORP., ("FASCO" and together with any assignee
of FASCO, the "Purchaser").
W I T N E S S E T H
WHEREAS, the Seller is the owner of a pool of (i) fixed-rate
home improvement and home equity loans and retail installment sale contracts
(the "Mortgage Loans") secured by first and junior mortgages, deeds of trust
and security deeds on certain residential and investment properties (the
"Properties") and (ii) fixed-rate home improvement loans and retail installment
sale contracts unsecured by an interest in real property (the "Unsecured Loans"
and together with the Mortgage Loans, the "Loans") as listed on Schedule I
hereto referred to below and the Related Documents thereto (as defined below);
WHEREAS, a predominate portion all of the Loans will be
partially insured under the FHA Title I program (the "FHA Loans") and the
remaining Loans are home improvement or home equity loans that have been
originated by the Seller and are not insured under the FHA Title I program;
WHEREAS, the parties hereto desire that the Seller sell all
its right, title and interest in and to the Loans and the Related Documents to
the Purchaser pursuant to the terms of this Purchase Agreement; and
WHEREAS, pursuant to the terms of a Pooling and Servicing
Agreement, dated as of November 1, 1996 (the "Pooling and Servicing
Agreement"), among FASCO, as depositor (the "Depositor"), Mego, as Seller,
servicer (the "Servicer") and claims administrator (the "Claims
Administrator"), Norwest Bank Minnesota, N.A., as master servicer (the "Master
Servicer"), and First Trust of New York, National Association, as trustee (the
"Trustee") and contract of insurance holder (the "Contract of Insurance
Holder"), the Purchaser will sell, transfer, assign and otherwise convey to the
Trustee for the benefit of the Holders of the Certificates and the Certificate
Insurer (each as defined herein), all its right, title and interest in and to
the Loans and this Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not
defined herein have the meanings assigned thereto in the Pooling and Servicing
Agreement.
Registration Statement. The Purchaser's registration
statement on Form S-3 (No. 33-99018), in the form in which it became effective
under the Securities Act of 1933, as amended, on December 11, including any
documents incorporated by reference therein.
1
<PAGE> 5
Base Prospectus. The prospectus, dated December 11, 1996,
attached to the Prospectus Supplement relating to the Class A Certificates.
ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Loans. The Seller, concurrently with
the execution and delivery of this Purchase Agreement, does hereby sell,
assign, set over, and otherwise convey to the Purchaser, without recourse other
than as expressly provided herein and in the Pooling and Servicing Agreement,
and with respect to the FHA Loans, in accordance with the requirements for
transfer of an insured loan under Title I and 24 CFR Section 201.32(c), all of
its right, title and interest in, to and under the following, whether now
existing or hereafter acquired and wherever located: (i) as of the Cut-Off
Date, the Loans delivered to the Trustee on the Closing Date, including the
related Principal Balance and all payments and collections on account thereof
received on or with respect to such Loans after the Cut-Off Date (including
amounts due prior to the Cut-Off Date but received thereafter), (ii) the rights
to the FHA Insurance reserves attributable to the FHA Loans as of the Cut-Off
Date under Title I, (iii) the Files, (iv) the Insurance Policies and any
proceeds from any Insurance Policies, (v) the Mortgages and security interests
in Properties which secure the Mortgage Loans, (vi) any and all documents or
electronic records relating to the Loans, (vii) all proceeds of any of the
foregoing.
Section 2.2 [Reserved].
Section 2.3 Obligations of Seller Upon Sale. In
connection with any transfer pursuant to Section 2.1 hereof, the Seller further
agrees, at its own expense, on or prior to the Closing Date (a) to indicate in
its books and records that the Loans have been sold to the Purchaser pursuant
to this Purchase Agreement and (b) to deliver to the Purchaser a computer file
containing a true and complete list of all Loans specifying for each Loan, as
of the Cut-Off Date, (i) its account number and (ii) its Principal Balance.
Such file, which forms a part of Exhibit B to the Pooling and Servicing
Agreement, shall also be marked as Schedule I to this Purchase Agreement and is
hereby incorporated into and made a part of this Purchase Agreement.
The Seller agrees to prepare, execute and file UCC-1 financing
statements with the County Clerk of Cobb (which shall have been filed on or
before the Closing Date with respect to the Loans describing the Loans and
naming the Seller as debtor and, the Purchaser as secured party (and indicating
that such loans have been assigned to the Trustee) all necessary continuation
statements and any amendments to the UCC-1 financing statements required to
reflect a change in the name or corporate structure of the Seller or the filing
of any additional UCC-1 financing statements due to the change in the principal
office of the Seller, as are necessary to perfect the sale of the Trustee's
interest in each Loan and the proceeds thereof.
In connection with any conveyance by the Seller, the Seller
shall on behalf of the Purchaser deliver to, and deposit with the Trustee, as
assignee of the Purchaser, on or before the Closing Date the following
documents or instruments with respect to each Loan
2
<PAGE> 6
(the "Related Documents"); provided, that the documents or instruments listed
in clause (f) below may be held in the custody of the Seller on behalf of the
Trustee.
With respect to each Loan:
(a) The original Note, showing a complete chain
of endorsements or assignments from the named payee to the Trust and
endorsed without recourse to the order of the Trustee which latter
endorsement may be executed with a facsimile signature;
(b) If such Loan is a Mortgage Loan, the original
Mortgage with evidence of recording indicated thereon (except that a
true copy thereof certified by an appropriate public official may be
substituted); provided, however, that if the Mortgage with evidence of
recording thereon cannot be delivered concurrently with the execution
and delivery of this Purchase Agreement solely because of a delay
caused by the public recording office where such Mortgage has been
delivered for recordation, there shall be delivered to the Trustee a
copy of such Mortgage certified as a true copy in an Officer's
Certificate, which Officer's Certificate shall certify that such
Mortgage has been delivered to the appropriate public recording office
for recordation, and there shall be promptly delivered to the Trustee
such Mortgage with evidence of recording indicated thereon upon
receipt thereof from the public recording official (or a true copy
thereof certified by an appropriate public official may be delivered
to the Trustee);
(c) If such Loan is a Mortgage Loan, an original
assignment of the Mortgage to the Trustee, in recordable form. Such
assignment may be a blanket assignment, to the extent that blanket
assignments are effective under applicable law, for Mortgages covering
Properties situated in the same county. If the assignment of Mortgage
is in blanket form, an assignment of Mortgage need not be included in
the individual File;
(d) If such Loan is a Mortgage Loan, all original
intermediate assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Trustee,
with evidence of recording thereon (or true copies thereof certified
by appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with
evidence of recording thereon cannot be delivered concurrently with
the execution and delivery of this Purchase Agreement solely because
of a delay caused by the public recording office where such
assignments of Mortgage have been delivered for recordation, there
shall be delivered to the Trustee a copy of each such assignment of
Mortgage certified as a true copy in an Officer's Certificate, which
Officer's Certificate shall certify that each such assignment of
Mortgage has been delivered to the appropriate public recording office
for recordation, and there shall be promptly delivered to the Trustee
such assignments of Mortgage with evidence of recording indicated
thereon upon its receipt thereof from the public recording official
(or true copies thereof certified by an appropriate public official
may be delivered to the Trustee);
(e) An original of each assumption or
modification agreement, if any, relating to such Loan; and
3
<PAGE> 7
(f) (i) If such Loan is an FHA Loan, an original or
copy of a notice signed by the Obligor acknowledging HUD insurance,
(ii) an original or copy of truth-in-lending disclosure, (iii) an
original or copy of the credit application, (iv) an original or copy
of the consumer credit report, (v) an original or copy of verification
of employment and income, or verification of self-employment income,
(vi) if such Loan is an FHA Loan and a Mortgage Loan, an original or
copy of evidence of the Obligor's interest in the Property, (vii) an
original or copy of contract of work or written description with cost
estimates, (viii) if such Loan is an FHA Loan either (A) an original
or copy of the completion certificate or an original or copy of notice
of non-compliance, if applicable or (B) an original or copy of report
of inspection of improvements to the Property or an original or copy
of notice of non-compliance, if applicable, (ix) if such Loan is a
Mortgage Loan, to the extent not included in (iii), an original or a
copy of a written verification that the Obligor at the time of
origination was not more than 30 days delinquent on any senior
mortgage or deed of trust on the Property, (x) (A) if such Loan is an
FHA Loan for which an appraisal is required pursuant to the applicable
regulations, an original or a copy of an appraisal of the Property as
of the time of origination of such FHA Loan or (B) if such Loan is a
Non-FHA Loan and secured by a Mortgage (1) if the original principal
balance is greater than $25,000 but less than $50,000, a copy of the
HUD-1A Closing Statement indicating the sale price, or an existing
Uniform Residential Appraisal Report, or a Drive-By Appraisal
documented on Freddie Mac form 704, or a tax assessment, or (2) if the
original principal balance exceeds $50,000, a full Uniform Residential
Appraisal Report prepared by a national appraisal firm, (xi) an
original or a copy of a title search as of the time of origination
with respect to the Property, and (xii) if such Loan is an FHA Loan,
any other documents required for the submission of a claim with
respect to such FHA Loan to the FHA.
With respect to any documents referred to clauses (b) and (d)
above that are not delivered to the Trustee because of a delay caused by the
public recording office, such documents shall be delivered to the Trustee in
accordance with the terms of such clauses by the Seller if such documents are
received by it or by the Purchaser if such documents are received by it.
The Seller further hereby confirms to the Purchaser that, as
of the Closing Date it has caused the portions of the Seller's electronic
ledger relating to the Loans to be clearly and unambiguously marked to indicate
that the Loans have been sold to the Purchaser.
The Purchaser hereby acknowledges its acceptance of all right,
title and interest to the Loans and other property, now existing and hereafter
created, conveyed to it pursuant to Section 2.1 hereof.
The parties hereto intend that each of the transactions set
forth herein be a sale by the Seller to the Purchaser of all the Seller's
right, title and interest in and to the Loans and other property described
above. In the event the transactions set forth herein are deemed not to be a
sale, the Seller hereby grants to the Purchaser a security interest in all of
the Seller's right, title and interest in, to and under the Loans and other
property described above, whether now existing or hereafter created, to secure
all of the Seller's obligations hereunder; and this Purchase Agreement shall
constitute a security agreement under applicable law.
4
<PAGE> 8
Section 2.4 Payment of Purchase Price for the Loans.
(a) In consideration of the sale of the Loans from the Seller to the Purchaser
on the Closing Date, the Purchaser agrees to pay to the Seller on the Closing
Date by transfer of immediately available funds, an amount equal to
$66,905,578.21 (before deducting expenses payable by the Seller to the
Purchaser) (the "Purchase Price").
(b) Within 60 days of the Closing Date, the Seller, at its
own expense, shall cause the Trustee to record each assignment of Mortgage in
favor of the Trustee (which may be a blanket assignment if permitted by
applicable law) in the appropriate real property or other records; provided,
however, the Trustee need not record any assignment which relates to a Loan in
any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel
delivered by the Seller (at the Seller's expense) to the Trustee and the
Certificate Insurer, the recordation of such assignment is not necessary to
protect the Trustee's, the Certificate Insurer's and the Certificateholders'
interest in the related Loan. With respect to any assignment of Mortgage as to
which the related recording information is unavailable within 60 days following
the Closing Date, such assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Trustee shall be required to retain a copy of
each assignment of Mortgage submitted for recording. In the event that any
such assignment of Mortgage is lost or returned unrecorded because of a defect
therein, the Seller shall promptly prepare a substitute assignment of Mortgage
or cure such defect, as the case may be, and thereafter the Trustee shall be
required to submit each such assignment of Mortgage for recording.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties. (a)
The Seller represents and warrants to the Purchaser as of the Cut-Off Date and
the Closing Date that:
(i) The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware with full power and authority to own its properties and
conduct its business as such properties are presently owned and such
business is presently conducted;
(ii) The Seller has full power and authority to
execute, deliver and perform, and to enter into and consummate all
transactions required of it by this Purchase Agreement and each other
Transaction Document to which it is a party; has duly authorized the
execution, delivery and performance of this Purchase Agreement and
each other Transaction Document to which it is a party; has duly
executed and delivered this Purchase Agreement and each other
Transaction Document to which it is a party; when duly authorized,
executed and delivered by the other parties hereto, this Purchase
Agreement and each other Transaction Document to which it is a party
will constitute a legal, valid and binding obligation of the Seller
enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies,
5
<PAGE> 9
regardless of whether such enforceability is considered in a
proceeding in equity or at law;
(iii) Neither the execution and delivery of this
Purchase Agreement or any of the other Transaction Documents to which
the Seller is a party, the consummation of the transactions required
of it herein or under any other Transaction Document, nor the
fulfillment of or compliance with the terms and conditions of this
Purchase Agreement or any of the other Transaction Documents will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Seller's charter or by-laws or any legal restriction
or any material agreement or instrument to which the Seller is now a
party or by which it is bound, or which would adversely affect the
creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any
of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Seller or its
property is subject;
(iv) There is no action, suit, proceeding,
investigation or litigation pending against the Seller or, to its
knowledge, threatened, which, if determined adversely to the Seller,
would materially adversely affect the sale of the Loans, the
execution, delivery or enforceability of this Purchase Agreement or
any other Transaction Document, or which would have a material adverse
affect on the financial condition of the Seller;
(v) No consent, approval, authorization or order
of any court or governmental agency or body is required for: (a) the
execution, delivery and performance by the Seller of, or compliance by
the Seller with, this Purchase Agreement, (b) the sale of the Loans or
(c) the consummation of the transactions required of it by this
Purchase Agreement;
(vi) The Seller is not in default with respect to
any order or decree of any court or any order, regulation or demand of
any federal, state, municipal or governmental agency, which default
might have consequences that would materially and adversely affect the
condition (financial or other) or operations of the Seller or its
properties or might have consequences that would materially and
adversely affect its performance hereunder;
(vii) The Seller received fair consideration and
reasonably equivalent value in exchange for the sale of the Loans to
the Purchaser;
(viii) The Seller is a non-supervised lender in good
standing under 24 CFR Section 202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR part
201; and
(ix) The Seller has transferred the Loans without
any intent to hinder, delay or defraud any of its creditors.
6
<PAGE> 10
(b) The Seller further represents and warrants to
the Purchaser that with respect to the Loans as of the Closing Date each of the
representations and warranties contained in Section 2.03(b) of the Pooling and
Servicing Agreement are true and correct.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1(b) shall survive delivery of the
respective Files to the Trustee on behalf of the Purchaser. In the event that
(a) any of the representations and warranties of the Seller in Section 2.03(b)
of the Pooling and Servicing Agreement are determined to be untrue in a manner
that materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer in any Loan with respect to which such
representation or warranty is made and (b) the Seller shall fail to cure such
breach within the time period specified in Section 2.04 of the Pooling and
Servicing Agreement, the Seller shall be obligated to repurchase or substitute
the affected Loan(s) in accordance with the provisions of Section 2.04 of the
Pooling and Servicing Agreement.
With respect to representations and warranties made by Mego
pursuant to this Section 3.1(b) that are made to the Seller's best knowledge,
if it is discovered by any of the Depositor, the Seller, the Trustee or the
Certificate Insurer that the substance of such representation and warranty is
inaccurate and such inaccuracy materially and adversely affects the value of
the related Loan, notwithstanding the Seller's lack of knowledge, such
inaccuracy shall be deemed a breach of the applicable representation and
warranty.
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller. The Seller hereby
covenants that except for the transfer hereunder, the Seller will not sell,
pledge, assign or transfer to any other Person, or grant, create, incur, assume
or suffer to exist any lien on, any Loan, or any interest therein; and the
Seller will defend the right, title and interest of the Trust, as assignee of
the Purchaser, in, to and under the Loans, against all claims of third parties
claiming through or under the Seller.
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification. The Seller agrees to
indemnify and hold harmless the Purchaser from and against any loss, liability,
expense, damage, claim or injury (other than those resulting solely from
defaults on the Loans) arising out of or based on this Agreement including,
without limitation, in connection with the origination or prior servicing of
the Loans by reason of any acts, omissions, or alleged acts or omissions
arising out of activities of the Seller, originator or prior servicer,
including reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided that the Seller shall not indemnify the Purchaser if such loss,
liability, expense, damage or injury is due to the Purchaser's willful
misfeasance, bad faith or negligence or by reason of the Purchaser's reckless
disregard of its obligations
7
<PAGE> 11
hereunder. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
Section 5.2 Limitation on Liability of the Seller.
None of the directors or trustees or officers or employees or agents of the
Seller shall be under any liability to the Purchaser, it being expressly
understood that all such liability is expressly waived and released as a
condition of, and as consideration for, the execution of this Purchase
Agreement; provided, however, that this provision shall not protect any such
Person against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder. Except as expressly provided herein and in the Pooling and
Servicing Agreement, the Seller shall not be under any liability to the Trust,
the Trustee or the Certificateholders. The Seller and any director or officer
or employee or agent of the Seller may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising hereunder.
Section 5.3 Indemnification (a) The Seller agrees to indemnify and
hold harmless the Purchaser, the directors of the Purchaser and each person, if
any, who controls the Purchaser within the meaning of Section 15 of the
Securities Act of 1933 (the "Act") or Section 20 of the Securities Exchange Act
of 1934 (the "Exchange Act"), from and against any and all losses, claims,
damages, liabilities or judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action,
suit or proceeding or any claim asserted) arising out of (i) any untrue
statement or alleged untrue statement of a material fact contained under any of
the captions "Property of the Trust," "Mego Mortgage Corporation," "The Title I
Loan Program and the Contract of Insurance" and "Description of the Loans" in
the Prospectus Supplement or caused by any 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 in which they
were made, not misleading or (ii) any information concerning the Seller, the
Loans or the Seller's operations based on any untrue statement or alleged
untrue statement of a fact contained in any information provided by the Seller
to the Purchaser, or any material omission from the information purported to be
provided thereby, and disseminated to any Rating Agency, the Certificate
Insurer, KPMG Peat Marwick LLP or prospective investors (directly or indirectly
through available information systems) in connection with the issuance,
marketing or offering of the Class A Certificates. This indemnity agreement
will be in addition to any liability which the Seller may otherwise have
pursuant to this Agreement.
(b) The Purchaser agrees to indemnify and hold harmless the
Seller and each person, if any, who controls the Seller within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities caused by (A) any untrue
statement or alleged untrue statement of a material fact contained in (i) the
Prospectus Supplement under the caption "Description of the Certificates," (ii)
the Base Prospectus or (iii) the Registration Statement (other than the
information with respect to the Seller contained in the Prospectus Supplement)
or (B) any omission or alleged omission to state a material fact, in the case
of the Registration Statement (other than the information with respect to the
Seller contained in the Prospectus Supplement), required to be stated therein
or necessary to make the statements therein not misleading, and in the case of
the section of the Prospectus Supplement specified in clause (A) (i) of this
sentence and the Base Prospectus, necessary in order to make the statements
made therein, in the light of the
8
<PAGE> 12
circumstances under which they were made, not misleading. This indemnity
agreement will be in addition to any liability which the Purchaser may have
pursuant to Agreement.
(c) In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (hereinafter called the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (hereinafter called the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
action or proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (1) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (2) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
any indemnified party and each person, if any, who controls such indemnified
party within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act, and it is also understood that expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for any indemnified
party and any director, officer and control person of the indemnified party,
such firm shall be designated in writing by such indemnified party. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in this Section 5.3
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnified party
on the one hand and the indemnifying party on the other from the sale of the
Loans or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the indemnified party on the one hand and the indemnifying party on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. For purposes of the
9
<PAGE> 13
foregoing, the benefit received by the Seller from the sale of the Loans shall
be deemed to equal the amount of the gross proceeds received by the Seller from
such sale, and the benefit received by the Purchaser for such sale shall be
deemed to equal the Formula Amount (as defined below). The relative fault of
the Purchaser on the one hand and the Seller on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Purchaser or by the Seller and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Seller and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 5.3(d) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5.3(d), in no
event shall the Purchaser be required to contribute any amount in excess of
$583,808.78. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
ARTICLE VI.
TERMINATION
Section 6.1 Termination. The respective obligations
and responsibilities of the Seller and the Purchaser created hereby shall
terminate, except for the Seller's and Purchaser's indemnity obligations as
provided herein, upon the termination of the Trust as provided in Article IX of
the Pooling and Servicing Agreement.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment. This Purchase Agreement may be
amended from time to time by the Seller and the Purchaser, with the consent of
the Certificate Insurer, by written agreement signed by the Seller and the
Purchaser.
Section 7.2 Governing Law. This Purchase Agreement
shall be governed by and construed in accordance with the laws of the State of
New York and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
Section 7.3 Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by registered mail, postage
prepaid, addressed as follows:
10
<PAGE> 14
(a) if to the Seller:
Mego Mortgage Corporation
1000 Park Wood Circle
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President
or, such other address as may hereafter be furnished to the Purchaser in
writing by the Seller.
(b) if to FASCO
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Charles A. Forbes
or such other address as may hereafter be furnished to the Seller in writing by
the Purchaser.
Section 7.4 Severability of Provisions. If any one or
more of the covenants, agreements, provisions of terms of this Purchase
Agreement shall be held invalid for any reason whatsoever, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Purchase Agreement and shall
in no way affect the validity of enforceability of the other provisions of this
Purchase Agreement.
Section 7.5 Counterparts. This Purchase Agreement may
be executed in one or more counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed to be
an original and such counterparts, together, shall constitute one and the same
agreement.
Section 7.6 Further Agreements. The Purchaser and the
Seller each agree to execute and deliver to the other such amendments to
documents and such additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this Purchase Agreement
or in connection with the offering of securities representing interests in the
Loans.
Without limiting the generality of the foregoing, as a further
inducement for the Purchaser to purchase the Loans from the Seller, the Seller
will cooperate with the Purchaser in connection with the sale of any of the
securities representing interests in the Loans. In that connection, the Seller
will provide to the Purchaser any and all information and appropriate
verification of information, whether through letters of its auditors and
counsel or otherwise, as the Purchaser shall reasonably request and will
provide to the Purchaser such additional representations and warranties,
covenants, opinions of counsel, letters from auditors, and certificates of
public officials or officers of the Seller as are reasonably required in
connection with such transactions and the offering of securities rated "Aaa"
and "AAA" by Moody's Investors Service, Inc. and Standard & Poor's Rating
Services, respectively.
11
<PAGE> 15
Section 7.7 Intention of the Parties. It is the
intention of the parties that the Purchaser is purchasing, and the Seller is
selling, the Loans rather than pledging the Loans to secure a loan by the
Purchaser to the Seller. Accordingly, the parties hereto each intend to treat
the transaction for federal income tax purposes and all other purposes as a
sale by the Seller, and a purchase by the Purchaser, of the Loans. The
Purchaser will have the right to review the Loans and the related Files to
determine the characteristics of the Loans which will affect the federal income
tax consequences of owning the Loans and the Seller will cooperate with all
reasonable requests made by the Purchaser in the course of such review.
Section 7.8 Successors and Assigns; Assignment of
Purchase Agreement. The Agreement shall bind and inure to the benefit of and
be enforceable by the Seller, the Purchaser and the Trustee. The obligations
of the Seller under this Purchase Agreement cannot be assigned or delegated to
a third party without the consent of the Purchaser, which consent shall be at
the Purchaser's sole discretion, except that the Purchaser acknowledges and
agrees that the Seller may assign its obligations hereunder to any Person into
which the Seller is merged or any corporation resulting from any merger,
conversion or consolidation to which the Seller is a party or any Person
succeeding to the business of the Seller. The parties hereto acknowledge that
FASCO is acquiring the Loans for the purpose of contributing them to the Trust
that will issue the Certificates representing undivided interests in such
Loans. As an inducement to FASCO to purchase the Loans, the Seller
acknowledges and consents to the assignment by FASCO to the Trustee of all of
FASCO's rights against the Seller pursuant to this Purchase Agreement and to
the enforcement or exercise of any right or remedy against the Seller pursuant
to this Purchase Agreement by the Trustee under the Pooling and Servicing
Agreement. Such enforcement of a right or remedy by the Trustee shall have the
same force and effect as if the right or remedy had been enforced or exercised
by FASCO directly.
Section 7.9 Survival. The representations and
warranties set forth in Article III and the provisions of Article V shall
survive the purchase of the Loans hereunder.
Section 7.10 Third-Party Beneficiaries. This Purchase
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Except as otherwise
provided in this Section 7.10 no other Person shall have the right or
obligation hereunder. Upon issuance of the Policies (as defined in the Pooling
and Servicing Agreement), this Purchase Agreement shall also inure to the
benefit of the Certificate Insurer. Without limiting the generality of the
foregoing, all covenants and agreements in this Purchase Agreement which
expressly confer rights upon the Certificate Insurer shall be for the benefit
of and run directly to the Certificate Insurer, and the Certificate Insurer
shall be entitled to rely on and enforce such covenants to the same extent as
if it were a party to this Purchase Agreement. The Certificate Insurer may
disclaim any of its rights and powers under this Purchase Agreement (but not
its duties and obligations under the Policies) upon delivery of a written
notice to the Trustee.
12
<PAGE> 16
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
this Loan Purchase Agreement to be duly executed on their behalf by
their respective officers thereunto duly authorized as of the day and
year first above written.
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser
By:
----------------------------------
Name: Kari Skilbred
Title: Vice President
MEGO MORTGAGE CORPORATION,
as Seller
By:_________________________________
Name: James L. Belter
Title: Executive Vice President
<PAGE> 17
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 17th day of December, 1996 before me, a Notary Public in and
for said State, personally appeared Kari Skilbred, known to me to be a Vice
President of FINANCIAL ASSET SECURITIES CORP., the corporation that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
___________________________
Notary Public
<PAGE> 18
STATE OF )
) ss.:
COUNTY OF )
On the ____th day of December, 1996 before me, a Notary Public in and
for said State, personally appeared James L. Belter, known to me to be the
Executive Vice President of MEGO MORTGAGE CORPORATION, the company that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
____________________________
Notary Public
<PAGE> 19
SCHEDULE I
Loan Schedule
See Exhibit B to Pooling and Servicing Agreement
<PAGE> 1
EXHIBIT 10.118
EXECUTION COPY
--------------------------------
FINANCIAL ASSET SECURITIES CORP.
as Depositor,
MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims Administrator,
NORWEST BANK MINNESOTA, N.A.,
as Master Servicer
AND
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
as Trustee and Contract of Insurance Holder
POOLING AND SERVICING AGREEMENT
(Mego Mortgage Home Loans)
Dated as of November 1, 1996
-------------------------
Home Loan Asset-Backed Certificates,
Series 1996-3
(Issuable in Classes)
-------------------------
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TABLE OF CONTENTS
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ARTICLE I
Definitions
Section 1.01. Defined Terms................................................ 1
Section 1.02. Rules of Interpretation...................................... 31
Section 1.03. Interest Calculations........................................ 31
ARTICLE II
Transfer and Assignment of Loans;
Issuance of Certificates
Section 2.01. Transfer and Assignment of Loans............................. 32
Section 2.02. Acceptance by Trustee........................................ 35
Section 2.03. Representations and Warranties of Mego....................... 37
Section 2.04. Defective Loans.............................................. 45
Section 2.05. Representations and Warranties of the Depositor.............. 48
Section 2.06. Execution, Countersignature and Delivery of Certificates..... 49
ARTICLE III
Administration and Servicing of Loans;
Claims Administration
Section 3.01. Servicing Standard........................................... 51
Section 3.02. Servicing Arrangements....................................... 52
Section 3.03. Servicing Record............................................. 53
Section 3.04. Annual Statement as to Compliance; Notice of Master
Servicer Termination Event................................... 57
Section 3.05. Annual Independent Accountants' Report; Servicer Review
Report....................................................... 57
Section 3.06. Access to Certain Documentation and Information Regarding
Loans........................................................ 59
Section 3.07. [Reserved]................................................... 59
Section 3.08. Advances..................................................... 59
Section 3.09. Reimbursement of Interest Advances and Foreclosure
Advances..................................................... 60
Section 3.10. Modifications, Waivers, Amendments and Consents.............. 61
Section 3.11. Due-On-Sale; Due-on-Encumbrance.............................. 61
Section 3.12. Claim for FHA Insurance and Foreclosure...................... 62
Section 3.13. Sale of Foreclosed Properties................................ 67
Section 3.14. Management of Real Estate Owned.............................. 68
Section 3.15. Inspections.................................................. 69
Section 3.16. Maintenance of Insurance..................................... 69
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Section 3.17. Release of Files............................................. 70
Section 3.18. Certain Tax Matters.......................................... 71
Section 3.19. Filing of Continuation Statements............................ 71
Section 3.20. Fidelity Bond................................................ 72
Section 3.21. Errors and Omissions Insurance............................... 72
ARTICLE IV
Distributions to Certificateholders
Section 4.01. General Provisions Relating to Distributions to
Certificateholders........................................... 73
Section 4.02. Distributions to Certificateholders.......................... 73
Section 4.03. Collection Accounts and FHA Premium Accounts and the FHA
Reserve Fund................................................. 74
Section 4.04. Distribution Accounts........................................ 75
Section 4.05. Distributions................................................ 75
Section 4.06. FHA Premium Accounts......................................... 79
Section 4.07. General Provisions Regarding the Accounts; Eligible Accounts. 80
Section 4.08. Statements to Certificateholders............................. 81
Section 4.09. [Reserved]................................................... 82
Section 4.10. Claims Under the Policies.................................... 82
ARTICLE V
The Certificates
Section 5.01. The Certificates............................................. 84
Section 5.02. Registration of Transfer and Exchange of Certificates........ 84
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates............ 87
Section 5.04. Persons Deemed Owners........................................ 88
Section 5.05. Trustee to Make Payments From Trust Only..................... 88
ARTICLE VI
The Master Servicer
Section 6.01. Liability of the Master Servicer............................. 89
Section 6.02. Merger or Consolidation of, or Assumption of, the Master
Servicer..................................................... 89
Section 6.03. Limitation on Liability of the Master Servicer and Others.... 90
Section 6.04. Master Servicer Not to Resign; Expenses; Assignment.......... 90
Section 6.05. Master Servicer May Own Certificates......................... 91
Section 6.06. Representations and Warranties of the Master Servicer........ 91
Section 6.07. General Covenants of the Master Servicer..................... 93
ARTICLE VII
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Master Servicer Termination Events
Section 7.01. Master Servicer Termination Events; Waiver................... 95
Section 7.02. Consequences of a Master Servicer Termination Event.......... 96
Section 7.03. Appointment of Successor..................................... 97
Section 7.04. Notification to Certificateholders........................... 98
Section 7.05. Waiver of Past Defaults...................................... 98
ARTICLE VIII
Concerning the Trustee
Section 8.01. Duties of the Trustee and Contract of Insurance Holder...... 99
Section 8.02. Certain Matters Affecting the Trustee....................... 100
Section 8.03. Trustee Not Liable for Certificates or Loans................ 102
Section 8.04. Trustee May Own Certificates................................ 102
Section 8.05. Trustee's Fees and Expenses; Indemnification................ 103
Section 8.06. Eligibility Requirements for Trustee........................ 103
Section 8.07. Resignation and Removal of the Trustee...................... 103
Section 8.08. Successor Trustee........................................... 104
Section 8.09. Merger or Consolidation of the Trustee...................... 105
Section 8.10. Appointment of Co-Trustee or Separate Trustee............... 105
Section 8.11. Appointment of Custodians................................... 106
Section 8.12. Certain Tax Matters......................................... 107
Section 8.13. Representations and Warranties of the Trustee............... 109
Section 8.14. Streit Act.................................................. 111
Section 8.15. Rights to Direct Trustee.................................... 111
Section 8.16. Reports to the Securities and Exchange Commission........... 111
ARTICLE IX
Termination
Section 9.01. Termination................................................. 112
ARTICLE X
Miscellaneous Provisions
Section 10.01. Amendment................................................... 115
Section 10.02. Recordation of Agreement.................................... 116
Section 10.03. Rights of Certificateholders................................ 116
Section 10.04. GOVERNING LAW............................................... 117
Section 10.05. Notices..................................................... 117
Section 10.06. Severability of Provisions.................................. 119
Section 10.07. Waiver of Notice............................................ 120
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Section 10.08. Access to List of Holders................................... 120
Section 10.09. Third-Party Beneficiaries................................... 120
Section 10.10. The Certificate Insurer..................................... 120
Section 10.11. Consent to Jurisdiction..................................... 121
Section 10.12. Trial by Jury Waived........................................ 121
Section 10.13. Separate Counterparts....................................... 121
ARTICLE XI
Class R Certificate Transfer Restrictions
Section 11.01. Restrictions on Transfer.................................... 122
ARTICLE XII
Concerning the Contract of Insurance Holder
Section 12.01. Compliance with Title I and Filing of FHA Claims............ 125
Section 12.02. Regarding the Contract of Insurance Holder.................. 126
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Exhibit A: Form of Servicing Agreement
Exhibit B: Loan Schedule
Exhibit C-1: Form of Class A Certificate
Exhibit C-2: Form of Class S Certificate
Exhibit D: Form of Class R Certificate
Exhibit E-1: Form of Master Servicer Certificate -- Group I
Exhibit E-2: Form of Master Servicer Certificate -- Group II
Exhibit F-1: Form of Monthly Statement to the Certificateholders -- Group I
Exhibit F-2: Form of Monthly Statement to the Certificateholders -- Group II
Exhibit G: Underwriting Guidelines
Exhibit H: [Reserved]
Exhibit I: Form of "qualified institutional buyer" Transferee's Certificate
Exhibit J: Form of "accredited investor" Transferee's Certificate
Exhibit K: Form of Transferor's Certificate
Exhibit L: Form of Transfer Affidavit for the Class R Certificate
Exhibit M: Depository Agreement
Exhibit N-1: Form of Policy-Group 1 Certificates
Exhibit N-2: Form of Policy-Group 2 Certificates
</TABLE>
(iv)
<PAGE> 6
POOLING AND SERVICING AGREEMENT, dated as of November 1, 1996,
among MEGO MORTGAGE CORPORATION ("Mego", the "Seller", the "Servicer" and the
"Claims Administrator", as applicable), FINANCIAL ASSET SECURITIES CORP., as
Depositor (the "Depositor"), FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as
Trustee and Contract of Insurance Holder (in each respective capacity, the
"Trustee" and the "Contract of Insurance Holder") and NORWEST BANK MINNESOTA,
N.A., as Master Servicer (the "Master Servicer").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, Mego,
as Seller, Servicer and Claims Administrator, the Depositor, the Master
Servicer, the Trustee, and the Contract of Insurance Holder agree as follows for
the benefit of each of them, the Certificate Insurer and for the benefit of the
Holders from time to time of Home Loan Asset-Backed Certificates, Series 1996-3
issued hereunder:
ARTICLE I
Definitions
Section 1.01. Defined Terms. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accountant's Report. As defined in Section 3.05(a).
Accounts. The Distribution Accounts, the FHA Premium Accounts and
the Collection Accounts.
Acquisition Date. With respect to any Foreclosed Property, the
first day on which such Foreclosed Property is considered to be acquired by the
Trust within the meaning of Treasury Regulation Section 1.856-6(b)(1) (i.e., the
first day on which the Trust is treated as the owner of such Foreclosed Property
for federal income tax purposes).
Additional Trustee Fee. With respect to each Distribution Date
and Loan Group, the excess of $542, with respect to the Group I Loans, and $292,
with respect to the Group II Loans, over the Trustee Fee received by the Trustee
in respect of such Loan Group on such Distribution Date.
Aggregate Class A Certificate Balance. With respect to any date
of determination and Certificate Group, the aggregate of the Class A Certificate
Balances as of such date for all Classes of Class A Certificates of such
Certificate Group.
Aggregate Interest Distribution. With respect to any Distribution
Date and Certificate Group, the aggregate of the Class Interest Distributions
for each Class of Certificates in such Certificate Group.
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<PAGE> 7
Aggregate Principal Balance. With respect to any date of
determination and Loan Group, the sum of the Principal Balances for all Loans in
such Loan Group.
Agreement. This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
Amount Available. With respect to any Distribution Date, the
related Determination Date and each Certificate Group, an amount equal to the
sum of (i) the Collected Amount for the related Loan Group in respect of such
Distribution Date, plus (ii) Insured Payments for such Certificate Group, if
any, received by the Trustee with respect to such Distribution Date.
Annual Default Percentage (Three Month Average). With respect to
any Determination Date and Loan Group I, the average of the percentage
equivalents of the fractions for each of the three immediately preceding Due
Periods, the numerator of which is the product of (i) the aggregate of the
Principal Balances of all Loans in Loan Group I that became Credit Support
Multiple Defaulted Loans during such Due Period immediately prior to such Loans
in Loan Group I becoming Credit Support Multiple Defaulted Loans times (ii) 12,
and the denominator of which is the Aggregate Principal Balance of the Loans in
Loan Group I as of the end of such Due Period.
Anticipated Termination Date. The Distribution Date next
following the Monthly Cut-Off Date specified in a Notice of Termination
delivered to the Trustee pursuant to Section 9.01(d), or the Distribution Date
specified in a Notice of Termination delivered to the Trustee by the Master
Servicer pursuant to Section 9.01(e), as the case may be.
BIF. The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act of
1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Certificate. Any of the Class A Certificates, which
shall be registered in the name of the Depository or its nominee, the ownership
of which is reflected on the books of the Depository or on the books of a person
maintaining an account with such Depository (directly or as an indirect
participant in accordance with the rules of such Depository).
Business Day. Any day other than a Saturday, a Sunday or a day on
which the Certificate Insurer and banking institutions in the City of New York
or the City in which the Corporate Trust Office is located or the city in which
the Master Servicer's or Servicer's servicing operations are located are
authorized or obligated by law, executive order or government decree to be
closed.
Calendar Month. The period from and including the first day of a
calendar month to and including the last day of such calendar month.
Certificate. Any one of the Home Loan Asset-Backed Certificates,
Series 1996- 3 executed by the Trustee on behalf of the Trust and countersigned
by the Trustee.
2
<PAGE> 8
Certificate Group. Each of the Group I Certificates and the Group
II Certificates.
Certificate Insurer. MBIA Insurance Corporation, a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
Certificate Insurer Default. The existence and continuance of any
of the following:
(a) the Certificate Insurer fails to make a payment
required under a Policy in accordance with its terms; or
(b) (i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the
Certificate Insurer in an involuntary case or proceeding under
any applicable United States federal or state bankruptcy,
insolvency, rehabilitation, reorganization or other similar law
or (B) a decree or order adjudging the Certificate Insurer a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, rehabilitation, arrangement, adjustment
or composition of or in respect of the Certificate Insurer under
any applicable United States federal or state law, or appointing
a custodian, receiver, liquidator, rehabilitator, assignee,
trustee, sequestrator or other similar official of the
Certificate Insurer or of any substantial part of its property,
or ordering the winding-up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period
of 60 consecutive days; or (ii) the commencement by the
Certificate Insurer of a voluntary case or proceeding under any
applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Certificate Insurer to the entry of a decree
or order for relief in respect of the Certificate Insurer in an
involuntary case or proceeding under any applicable United
States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Certificate Insurer,
or the filing by the Certificate Insurer of a petition or answer
or consent seeking reorganization or relief under any applicable
United States federal or state law, or the consent by the
Certificate Insurer to the filing of such petition or to the
appointment of or the taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Certificate Insurer or of any substantial part
of its property, or the making by the Certificate Insurer of an
assignment for the benefit of its creditors, or the failure by
the Certificate Insurer to pay debts generally as they become
due, or the admission by the Certificate Insurer in writing of
its inability to pay its debts generally as they become due, or
the taking of corporate action by the Certificate Insurer in
furtherance of any such action.
Certificate Owner. With respect to any Class A Certificate held
in book-entry form, the Person who is the beneficial owner of such Certificate,
as reflected on the books of the Clearing Agency (directly as a Depository
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
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<PAGE> 9
Certificate Rate. As to each Class of Senior Certificates, the
per annum rate set forth as follows: Class IA-1: 6.50%, Class IA-2: 6.84%, Class
IA-3: 7.23%, Class IIA: 6.98%, Class IS: 0.45% and Class IIS: 0.50%; provided,
however, with respect to any Distribution Date after the first Distribution Date
and each Class of Group IA Certificates, if the Maximum Rate for such
Distribution Date is less than the rate designated to such Class in the
immediately preceding clause, the Certificate Rate for such Distribution Date
shall be the Maximum Rate.
Certificate Register and Certificate Registrar. The register
established, and the registrar appointed, pursuant to Section 5.02.
Certificateholder or Holder. The Person in whose name a
Certificate of any Class is registered in the Certificate Register.
Civil Relief Act. The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
Civil Relief Act Interest Shortfall. With respect to any
Distribution Date and Loan Group, for any Loan in such Loan Group as to which
there has been a reduction in the amount of interest collectible thereon for the
most recently ended Due Period as a result of the application of the Civil
Relief Act, the amount by which (i) interest collectible on such Loan during
such Due Period is less than (ii) one month's interest on the Principal Balance
of such Loan at the Loan Rate for such Loan before giving effect to the
application of the Civil Relief Act.
Claims Administrator. Mego Mortgage Corporation, a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.
Class. With respect to each of the Class IA-1, Class IA-2, Class
IA-3, Class IIA, Class IS, Class IIS and Class R, all of the Certificates of
such Class.
Class A Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-1 and designated as a Class A Certificate pursuant
to Section 5.01.
Class A Certificate Balance. With respect to a Class of the Group
IA Certificates as of any date of determination, the Initial Class A Certificate
Balance for such Class, reduced by the sum of all Class A Principal
Distributions and Class A Guaranteed Principal Distribution Amounts previously
distributed with respect to such Class and with respect to a Class of the Group
IIA Certificates as of any date of determination, the Initial Class A
Certificate Balance for such Class, reduced by the sum of all Class A Principal
Distributions and Class A Guaranteed Principal Distribution Amounts previously
distributed with respect to such Class and all Insurance Default Amounts
previously calculated as of such date of determination. Payments in respect of
Loss Carryforward Amounts to holders of the Class of IIA Certificates pursuant
to Section 4.05(b)(ix) shall not reduce the Class A Certificate Balance of such
Class.
Class A Guaranteed Principal Distribution Amount. With respect to
any Distribution Date and Certificate Group, the positive excess, if any, of (i)
the Aggregate Class A Certificate Balance for such Certificate Group as of such
Distribution Date (taking into
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<PAGE> 10
account distributions on such Distribution Date pursuant to clause (viii) of
Section 4.05(a) in the case of the Group I Certificates and clause (viii) of
Section 4.05(b) in the case of the Group II Certificates) over (ii) the
Aggregate Principal Balance of the Loans in the related Loan Group as of the end
of the related Due Period; provided, that on the Final Scheduled Distribution
Date for the related Certificate Group, the Class A Guaranteed Principal
Distribution Amount for such Certificate Group shall equal the amount referred
to in clause (i) of this definition for such Distribution Date.
Class A Monthly Principal Amount. With respect to any
Distribution Date and Certificate Group, the amount equal to the sum of the
following amounts (without duplication) with respect to the immediately
preceding Due Period: (i) that portion of all Payments received on Loans in the
related Loan Group allocable to principal, including all full and partial
principal prepayments (excluding such payments in respect of such Loans that
became Defaulted Loans on or prior to the end of the preceding Due Period), (ii)
the Principal Balance as of the end of the immediately preceding Due Period of
each Loan in the related Loan Group that became a Defaulted Loan for the first
time during the such Due Period, (iii) the portion of the Purchase Price
allocable to principal of all Defective Loans in the related Loan Group with
respect to such Due Period and the portion of the purchase amount, if any, set
forth in 9.01(d) allocable to principal with respect to the Loans in the related
Loan Group, (iv) any Substitution Adjustments deposited to the related
Distribution Account pursuant to Section 2.04(d) on the previous Determination
Date, and (v) only with respect to the Group I Certificates, the amount of
Distributable Excess Spread, if any, in respect of such Distribution Date.
Class A Principal Distribution. With respect to any Distribution
Date and Certificate Group (other than the related Final Scheduled Distribution
Date), (a) in the case of the Group I Certificates, the sum of the related Class
A Monthly Principal Amount for such Distribution Date and any outstanding
related Class A Principal Shortfall as of the close of business on the preceding
Distribution Date and (b) in the case of the Group IIA Certificates, the related
Class A Monthly Principal Amount for such Distribution Date; provided, however,
that the Class A Principal Distribution for each Certificate Group shall not
exceed the Aggregate Class A Certificate Balance of such Certificate Group. The
"Class A Principal Distribution" on the Final Scheduled Distribution Date for a
Certificate Group will equal the remaining Aggregate Class A Certificate Balance
of such Certificate Group as of such Distribution Date.
Class A Principal Shortfall. As of the close of any Distribution
Date and any Class of Group IA Certificates, the excess of the sum of the
related Class A Monthly Principal Amount and any outstanding Class A Principal
Shortfall for such Certificate Group from the preceding Distribution Date, over
the amount in respect of principal that is actually distributed to such Group IA
Certificates on such preceding Distribution Date.
Class Interest Distribution. With respect to any Distribution
Date and each Class of Senior Certificates, the sum of (i) the applicable Class
Monthly Interest Amount for such Class on such Distribution Date and (ii) the
applicable Class Interest Shortfall for such Class on such Distribution Date.
Class Interest Shortfall. With respect to any Class of Senior
Certificates and any Distribution Date, the sum of (a) the excess of the related
Class Monthly Interest Amount for
5
<PAGE> 11
the preceding Distribution Date and any outstanding Class Interest Shortfall
with respect to such Certificates on such preceding Distribution Date, over the
amount in respect of interest that is actually distributed to the related Class
of Senior Certificateholders on such preceding Distribution Date plus (b)
interest on such excess, to the extent permitted by law, at the applicable
Certificate Rate from such preceding Distribution Date through the current
Distribution Date.
Class Monthly Interest Amount. With respect to any Distribution
Date and each Class of Senior Certificates, 30 days of interest at the
applicable Certificate Rate for such Class, on, with respect to the Class A
Certificates, the related Class A Certificate Balance as of the close of
business on the immediately preceding calendar month, or, with respect to each
Class of Class S Certificates, the related Class S Notional Amount for such
Distribution Date, in each case reduced by an amount equal to such Class' pro
rata share (based on the amount of interest to which such Class would have
otherwise been entitled) of the sum of (i) the Civil Relief Act Interest
Shortfall and (ii) the Net Prepayment Interest Shortfall, if any, for such
Distribution Date.
Class R Certificate. Any Certificate substantially in the form
attached hereto as Exhibit D and designated as a Class R Certificate pursuant to
Section 5.01.
Class S Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-2 and designated as Class S pursuant to Section
5.01.
Class IS Notional Amount. As to any Distribution Date and the
Class IS Certificates, the Aggregate Principal Balance of the Loans in Loan
Group I as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (i.e., if the
Distribution Date is June 25, the first day of the calendar month preceding the
calendar month of such Distribution Date is May 1), or in the case of the first
Distribution Date, the Initial Loan Group I Principal Balance.
Class IIS Notional Amount. As to any Distribution Date and the
Class IIS Certificates, the Aggregate Principal Balance of the Loans in Loan
Group II as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (i.e., if the
Distribution Date is June 25, the first day of the calendar month preceding the
calendar month of such Distribution Date is May 1), or in the case of the first
Distribution Date, the Initial Loan Group II Principal Balance.
Class Vote. As long as Certificates of any Class of Senior
Certificates is Outstanding, a determination by the Holders of Outstanding
Certificates of such Class representing more than 50% of the aggregate of the
Voting Rights of such Class (or such higher percentage for such Classes as shall
be specified in the applicable provisions hereunder) with respect to which votes
are cast on the issue on or prior to 30 days after receipt of notice given as
provided in Section 10.05(b), and after all the Classes of Senior Certificates
are no longer Outstanding, by the Holders of Outstanding Class R Certificates
representing more than 50% of the Residual Interests of such Class R
Certificates; provided, that the Certificate Insurer shall be deemed to have
100% of the Voting Rights so long as no Certificate Insurer Default exists.
6
<PAGE> 12
Clearing Agency. An organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
Closing Date. December 17, 1996.
Code. The Internal Revenue Code of 1986, as it may be amended
from time to time, and any successor statutes thereto.
Collateral Performance Percentages. The Annual Default Percentage
(Three Month Average), the Pool Annual Default Percentage (Three Month Average),
the 30+ Delinquency Percentage (Rolling Three Month), the 60+ Delinquency
Percentage (Rolling Three Month), the Pool 60+ Delinquency Percentage (Rolling
Three Month) and the Cumulative Default Percentage.
Collected Amount. With respect to any Determination Date, the
Distribution Date and each Loan Group, the sum of the amount on deposit in the
Distribution Account for the related Certificate Group on such Determination
Date plus the amounts required to be deposited into the related Distribution
Account pursuant to Sections 2.04(d), 4.03(b) and 4.03(d) in respect of the
related Loan Group and Distribution Date.
Collection Account. As to each Loan Group, each of the accounts
denominated as a Collection Account and maintained or caused to be maintained by
the Trustee as described in Section 4.03.
Contract of Insurance. The contract of insurance under Title I
covering the Loans held under the name First Trust of New York, National
Association, or any successor thereto, as Contract of Insurance Holder
hereunder.
Contract of Insurance Holder. First Trust of New York, National
Association, its successors in interest, and any successor thereto pursuant to
the terms of this Agreement.
Corporate Trust Office. The office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
located on the Closing Date at First Trust of New York, National Association,
180 East 5th Street, St. Paul, Minnesota 55101, Attention: Structured Finance.
Credit File. With respect to any Loan, all of the related
documents listed in Section 2.01(b)(A)(vi) and any additional documents required
to be added thereto pursuant to this Agreement.
Credit Support Multiple Defaulted Loan. A Loan with respect to
which (a) a claim has been submitted to the FHA in respect of such Loan pursuant
to the Contract of Insurance, (b) foreclosure proceedings have been commenced on
the related Property, (c) any portion of a Monthly Payment is more than 180
calendar days past due and unpaid by the Obligor; or (d) the Servicer has
determined in accordance with customary servicing practices, that the Loan is
uncollectible.
7
<PAGE> 13
Cumulative Default Percentage. As of any Determination Date and
Group I Loans, the aggregate of the Principal Balances of all Credit Support
Multiple Defaulted Loans of the Group I Loans (immediately prior to such Loans
becoming Credit Support Multiple Defaulted Loans) as of the prior Monthly
Cut-Off Date since the Closing Date, divided by the aggregate of the Initial
Loan Group I Principal Balance.
Custodial Agreement. Any agreement entered into between the
Trustee and a Custodian pursuant to Section 8.11.
Custodian. As of the Closing Date, the Trustee, and as of any
subsequent date of determination, any Person (other than Mego, the Depositor,
the Master Servicer or any of their respective affiliates) with whom the Trustee
has entered into a Custodial Agreement pursuant to Section 8.11 in effect as of
the date of determination.
Cut-Off Date. With respect to any Loan, either the opening of
business on November 1, 1996, or, if such Loan is originated on or after
November 1, 1996, such Loan's date of origination.
Defaulted Loan. A Loan with respect to which: (i) a claim has
been paid or finally rejected pursuant to the Contract of Insurance, (ii) the
Property has been repossessed and sold, or (iii) any portion of a Monthly
Payment is more than 180 calendar days past due (without giving effect to any
grace period).
Defective Loan. A Loan required to be purchased or repurchased
pursuant to Section 2.04.
Deficiency Amount. As to any Distribution Date and Certificate
Group, an amount equal to the sum of (a) the amount by which the Aggregate
Interest Distribution for such Distribution Date and Certificate Group exceeds
the amount on deposit in the related Distribution Account available to be
distributed therefor on such Distribution Date and (b) the Class A Guaranteed
Principal Distribution Amount for such Certificate Group for such Distribution
Date.
Denomination. With respect to the Class A Certificates, the
portion of the Initial Class A Certificate Balance represented by such
Certificate as specified on the face thereof.
Depository. The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & Co., as the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.
Depository Agreement. The agreement entered among the Depositor,
the Trustee, and the Depository, in connection with the issuance of the Class A
Certificates, substantially in the form of Exhibit M.
Depository Participant. A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
8
<PAGE> 14
Determination Date. Except as provided in the next sentence, with
respect to any Distribution Date, the fifth Business Day preceding such
Distribution Date. The first such Determination Date will be December 24, 1996.
Directly Operate. With respect to any Foreclosed Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such Foreclosed Property, the holding of such Foreclosed Property
primarily for sale, the performance of any construction work thereon, or any use
of such Foreclosed Property in a trade or business conducted by the Trust, in
each case other than through an Independent Contractor; provided, however, that
the Trustee (or the Master Servicer on behalf of the Trustee) shall not be
considered to Directly Operate a Foreclosed Property solely because the Trustee
(or the Master Servicer on behalf of the Trustee) establishes rental terms,
chooses tenants, enters into or renews leases, deals with taxes and insurance,
or makes decisions as to repairs or capital expenditures with respect to such
Foreclosed Property.
Distributable Excess Spread. As to any Distribution Date and the
Group I Certificates, the lesser of (i) the amount of Excess Spread for such
Distribution Date and (ii) the portion of Excess Spread required to be
distributed pursuant to 4.05(a)(x) such that the Overcollateralization Amount
for such Distribution Date is equal to the Required OC Amount for such
Distribution Date.
Distribution Account. As to each Certificate Group, the account
established and maintained by the Trustee pursuant to Section 4.04 for such
Certificate Group.
Distribution Date. Except as provided in the next sentence, the
twenty-fifth (25th) day of the month or, if such twenty-fifth (25th) day is not
a Business Day, the immediately following Business Day. The first such
Distribution Date will be December 30, 1996.
Due Date. With respect to any Monthly Payment, the date on which
such Monthly Payment is required to be paid pursuant to the related Note.
Due Period. With respect to any Determination Date or
Distribution Date, the calendar month immediately preceding such Determination
Date or Distribution Date, as the case may be.
Early Termination Notice Date. Any date on which each of the Loan
Group I Principal Balance and the Loan Group II Principal Balance are less than
10% of the Initial Loan Group I Principal Balance and the Initial Loan Group II
Principal Balance, respectively.
Eligible Account. (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution
acceptable to the Certificate Insurer (so long as a Certificate Insurer Default
shall not have occurred and be continuing), or (ii) a segregated direct deposit
account maintained with a depository institution or trust company organized
under the laws of the United States of America, or any of the States thereof, or
the District of Columbia, having a certificate of deposit, short term deposit or
commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by Moody's
and (so long as a Certificate Insurer Default shall not have occurred and be
continuing) acceptable to the Certificate Insurer.
9
<PAGE> 15
Eligible Investments. Any one or more of the following types of
investments:
(a) Direct obligations of the United States of America (including
obligations issued or held in book-entry form on the books of the Department of
the Treasury, and interests in such direct obligations) or obligations the
principal of and interest on which are unconditionally guaranteed by the United
States of America.
(b) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped by
the agency itself):
1. U.S. Export-Import Bank (Eximbank)
A. Direct obligations or fully guaranteed certificates of
beneficial ownership
2. Farmers Home Administration (FmHA)
A. Certificates of beneficial ownership
3. Federal Financing Bank
4. FHA Debentures (FHA)
5. General Services Administration
A. Participation certificates
6. U.S. Maritime Administration
A. Guaranteed Title XI financing
7. HUD
A. Project Notes
B. Local Authority Bonds
C. New Communities Debentures - U.S. government guaranteed
debentures
D. U.S. Public Housing Notes and Bonds - U.S. government
guaranteed public housing notes and bonds
(c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies that are rated by both Rating Agencies in one of the top two
long-term rating categories (stripped securities are only permitted if they have
been stripped by the agency itself):
1. Federal Home Loan Bank System
A. Senior debt obligations
2. FHLMC
A. Participation Certificates
B. Senior debt obligations
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<PAGE> 16
3. FNMA
A. Mortgage-backed securities and senior debt obligations
4. Student Loan Marketing Association
A.Senior debt obligations
5. Resolution Funding Corp. obligations
6. Farm Credit System
A. Consolidated systemwide bonds and notes
(d) Money market funds registered under the Investment Company
Act of 1940, as amended, whose shares are registered under the Securities Act,
and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm and a rating by
Moody's of Aaa.
(e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1. The collateral must be held by a
third party and the Certificateholders must have a perfected first security
interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts
or money market deposits which are fully insured by FDIC, including BIF and
SAIF.
(g) Investment agreements, including guaranteed investment
contracts, acceptable to the Certificate Insurer and each Rating Agency.
(h) Commercial paper rated "Prime - 1" by Moody's and "A-1" or
better by Standard & Poor's.
(i) Bonds or notes issued by any state or municipality which are
rated by Moody's and Standard & Poor's in one of the two highest rating long
term categories assigned by such agencies.
(j) Federal funds or bankers acceptances with a maximum term of
one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by S&P.
(k) Repurchase agreements provide for the transfer of securities
from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm will
repay the cash plus a yield to the Trust in exchange for the securities at a
specified date.
Repurchase agreements ("repos") must satisfy the following
criteria or be approved by the Certificate Insurer.
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<PAGE> 17
1. Repos must be between the Trust and a dealer bank or
securities firm
A. Primary dealers on the Federal Reserve reporting dealer
list which are rated A or better by Standard & Poor's
and P-1 by Moody's, or
B. Banks rated "A" or above by Standard & Poor's and P-1
by Moody's.
2. The written repo contract trust must include the following:
A. Securities which are acceptable for transfer are:
(1) Direct U.S. governments, or
(2) Federal agencies backed by the full faith and
credit of the U.S. government (or FNMA or FHLMC)
other than mortgage backed securities.
B. The term of the repo may be up to 30 days
C. The collateral must be delivered to the Trustee or
third party acting as agent for the Trustee
before/simultaneous with payment (perfection by
possession of certificated securities).
D. Valuation of Collateral
(1) The securities must be valued weekly,
marked-to-market at current market price plus
accrued interest.
(a) The value of collateral must be equal to 104% of
the amount of cash transferred by the Trust to
the dealer bank or security firm under the repo
plus accrued interest. If the value of securities
held as collateral slips below 104% of the value
of the cash transferred by municipality, then
additional cash and/or acceptable securities must
be transferred. If, however, the securities used
as collateral are FNMA or FHLMC, then the value
of collateral must equal 105%.
3. Legal opinion which must be delivered to the Trustee:
a. Repo meets guidelines under state law for legal
investment of public funds.
Eligible Servicer. A Person that (i) is servicing a portfolio of
Title I mortgage loans, (ii) is legally qualified to service, and is capable of
servicing, the Loans and has all licenses required to service Title I mortgage
loans, (iii) has demonstrated the ability
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<PAGE> 18
professionally and competently to service a portfolio of FHA insured mortgage
loans similar to the Loans with reasonable skill and care, (iv) has a net worth
calculated in accordance with generally accepted accounting principles of at
least $500,000 and (v) if other than Mego, is acceptable to the Certificate
Insurer.
Excess Claim Amount. With respect to any Distribution Date, an
amount equal to (A) 90% of the excess of (x) claims paid under the Contract of
Insurance in respect of the FHA Loans over (y) the Trust Designated Insurance
Amount less (B) the amount deposited to the FHA Reserve Fund on previous
Distribution Dates.
Excess Spread. With respect to any Distribution Date, the
positive excess, if any, of (x) the Collected Amount for the Group I Loans with
respect to such Distribution Date over (y) the amount required to be distributed
pursuant to priorities (i) through (ix) of Section 4.05(a) on such Distribution
Date.
Exemption. An individual Prohibited Transactions Exemption
granted to an underwriter by the Department of Labor which provides relief from
certain of the prohibited transaction provisions of ERISA with respect to the
purchase, holding, and subsequent resale by an ERISA Plan of certificates in
pass-through trusts that meet the conditions and the requirements of such
exemption.
FASIT. A "financial asset securitization investment trust" within
the meaning of Section 860L of the Code.
FDIC. The Federal Deposit Insurance Corporation and any successor
thereto.
FHA. The Federal Housing Administration and any successor
thereto.
FHA Insurance. Insurance issued by FHA pursuant to Title I of the
National Housing Act of 1934, as amended.
FHA Insurance Coverage Insufficiency. At the time of a
prospective claim for reimbursement under the Contract of Insurance for an FHA
Loan pursuant to Section 3.12, the amount by which the sum of all claims
previously paid by the FHA in respect of such FHA Loans and the amount expected
to be received in respect of such prospective claim for such FHA Loan exceeds
the Trust Designated Insurance Amount.
FHA Insurance Coverage Reserve Account. The account established
by the FHA pursuant to the Contract of Insurance which is adjusted and
maintained under Title I (see 24 C.F.R. 201.32(a)).
FHA Insurance Payment Amount. With respect to any Distribution
Date and with respect to an FHA Loan for which an insurance claim has been made
by the Contract of Insurance Holder or the Claims Administrator and paid by the
FHA or rejected, in part, by the FHA, an amount equal to the sum of such of the
following as are appropriate: (i) the amount, if any, received from the FHA,
(ii) with respect to claims rejected in part, the amount, if any, received from
Mego or the Master Servicer pursuant to Section 3.12 and (iii) the amount
received from the sale of FHA Pending Claims sold pursuant to Section 9.01(d).
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<PAGE> 19
FHA Loans. The Loans designated as FHA Loans on the Loan
Schedule.
FHA Pending Claims. As defined in Section 9.01(d).
FHA Premium Account. The Eligible Accounts established and
maintained by the Trustee pursuant to Section 4.06(a).
FHA Premium Account Deposit. With respect to any Distribution
Date and Loan Group, an amount equal to the greater of (i) 1/12 times .75% times
the aggregate Principal Balance of all FHA Loans in such Loan Group other than
Invoiced Loans as of the first day of the calendar month preceding the month of
such Distribution Date (or the aggregate Principal Balance of such Loans as of
the applicable Cut-Off Date with respect to the first Distribution Date) and
(ii) the positive excess, if any, of (A) the projected amount of premium and
other charges due under the Contract of Insurance for the next succeeding Due
Period over (B) the balance in the FHA Premium Account as of the related
Determination Date.
FHA Reserve Amount. As to each FHA Loan, 10% of the Initial
Principal Balance thereof.
FHA Reserve Fund. The account which is an Eligible Account
denominated as the FHA Reserve Fund to be established by the Trustee pursuant to
Section 4.03(d) hereof.
File. With respect to any Loan, the related documents listed in
Section 2.01(b)(A) and any additional documents required to be added thereto
pursuant to this Agreement.
Final Date. The later of:
(i) two years after the last insurance claim with respect to
a Loan filed with the FHA was certified for payment by FHA, or
(ii) the final settlement date with respect to any insurance
claim for a Loan rejected by the FHA.
Final Residual Distribution Amount. With respect to the
Distribution Date which coincides with the Termination Date, all amounts, if
any, remaining in each Distribution Account and each FHA Premium Account and all
other assets, if any, held by the Trust after all payments required to be made
pursuant to Section 4.05 have been made or provided for on such Distribution
Date.
Final Scheduled Distribution Date. The Distribution Date in
November 2022.
FHLMC. The Federal Home Loan Mortgage Corporation.
FNMA. The Federal National Mortgage Association.
Foreclosed Loan. As of any date of determination, any Mortgage
Loan, other than a Mortgage Loan for which a claim is pending under the Contract
of Insurance, that has
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<PAGE> 20
been discharged as a result of (i) the completion of foreclosure or comparable
proceedings; (ii) the Trustee's acceptance of the deed or other evidence of
title to the related Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition by the Trustee of title to the related
Property by operation of law.
Foreclosed Property. With respect to any Mortgage Loan, any
Property acquired by the Trust as a result of:
(i) the completion of foreclosure or comparable proceedings
with respect to the related Mortgage Loan;
(ii) the Trustee's acceptance of the deed or other evidence
of title to the related Property in lieu of foreclosure or other
proceeding with respect to the related Loan; or
(iii) the acquisition by the Trustee of title thereto by
operation of law.
Foreclosure Advances. As defined in Section 3.08(b).
GNMA. The Government National Mortgage Association.
Grantor Trust. A trust classified as a grantor trust under
subpart E, Part I of subchapter J of the Code.
Grantor Trust Pool. The pool of assets consisting of the Group II
Loans which shall be classified as a grantor trust under subpart E, Part I of
subchapter J of the Code.
Grantor Trust Provisions. Those Sections of the Code and Treasury
Regulations relating to trusts classified as grantor trusts under subpart E,
Part I of subchapter J of the Code.
Group I Certificates. Each of the Class IA-1, Class IA-2, Class
IA-3, Class IS Certificates and Class R Certificates.
Group II Certificates. The Class IIA Certificates and the Class
IIS Certificates.
Group IA Certificates. The Class IA-1 Certificates, the Class
IA-2 Certificates and the Class IA-3 Certificates.
Group IIA Certificates. The Class IIA Certificates.
Group I Loan. As of any date of determination, each of the FHA
Loans that are Mortgage Loans and certain Mortgage Loans that are Non-FHA Loans,
in each case identified as a Group I Loan on the Loan Schedule.
Group I Reserve Fund. As defined in the Insurance Agreement.
Group II Loan. As of any date of determination, each of the FHA
Loans that are unsecured and certain Mortgage Loans that are Non-FHA Loans, in
each case identified as a Group II Loan on the Loan Schedule.
Group II Reserve Fund. As defined in the Insurance Agreement.
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<PAGE> 21
HUD. The United States Department of Housing and Urban
Development and any successor thereto.
Indemnification Agreement. The Indemnification Agreement dated
December 11, 1996, among the Certificate Insurer, the Underwriter and Mego, as
the same may be amended from time to time.
Independent. When used with respect to any specified Person, such
Person (i) is in fact independent of Mego, the Master Servicer, the Depositor or
any of their respective affiliates, (ii) does not have any direct financial
interest in or any material indirect financial interest in any of Mego, the
Master Servicer, the Depositor or any of their respective affiliates and (iii)
is not connected with any of Mego, the Master Servicer, the Depositor or any of
their respective affiliates, as an officer, employee, promoter, underwriter,
trustee, partner, director or Person performing similar functions; provided,
however, that a Person shall not fail to be Independent of Mego, the Master
Servicer, the Depositor or any of their respective affiliates merely because
such Person is the beneficial owner of 1% or less of any class of securities
issued by Mego, the Master Servicer, the Depositor or any of their respective
affiliates, as the case may be.
Independent Accountants. A firm of nationally recognized
certified public accountants which is Independent.
Independent Contractor. Either (i) any Person (other than the
Master Servicer) that would be an "independent contractor" with respect to the
Trust within the meaning of Section 856(d)(3) of the Code if the Trust were a
real estate investment trust except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35 percent or more of any Class of Certificates), provided that the
Trust does not receive or derive any income from such Person and the
relationship between such Person and the Trust is at arm's length, all within
the meaning of Treasury Regulation section 1.856-4(b)(5) or (ii) any other
Person (including the Master Servicer) if the Master Servicer has delivered to
the Trustee an Opinion of Counsel to the effect that the taking of any action in
respect of any Foreclosed Property by such Person, subject to any conditions
therein specified, that is otherwise herein contemplated to be taken by an
Independent Contractor will not cause such Foreclosed Property to cease to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code (determined without regard to the exception applicable for purposes of
Section 860D(a) of the Code), or cause any income realized in respect of such
Foreclosed Property to fail to qualify as rents from real property within the
meaning of Section 856(d) of the Code.
Initial Class A Certificate Balance. With respect to the Class
IA-1 Certificates: $19,630,000, the Class IA-2 Certificates: $10,790,000, the
Class IA-3 Certificates: $9,101,458, and the Class IIA Certificates:
$27,199,925.
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<PAGE> 22
Initial Loan Group I Principal Balance. $40,062,299.05.
Initial Loan Group II Principal Balance. $27,199,925.48.
Initial Principal Balance. With respect to any Loan, the
outstanding principal balance thereof at the opening of business on the Cut-Off
Date for such Loan, after giving effect to all payments of principal received
prior thereto.
Insurance Agreement. The Insurance Agreement, dated as of
November 1, 1996, as supplemented and amended from time to time among the
Certificate Insurer, the Trustee, the Contract of Insurance Holder, the
Depositor, the Master Servicer, the Servicer, the Seller and Claims
Administrator.
Insurance Default Amount. For any Distribution Date, the Class A
Guaranteed Principal Distribution Amount or portion thereof, if any, for such
Distribution Date in respect of the Group II Certificates not distributed to the
holders of the Group IIA Certificates pursuant to Section 4.05(b)(x) on such
Distribution Date.
Insurance Policies. With respect to any Property, any related
title or other insurance policy other than the Contract of Insurance or the
Policies.
Insurance Proceeds. With respect to any Property, all amounts
collected in respect of Insurance Policies and not required to be applied to the
restoration of the related Property or paid to the related Obligor.
Insurance Record. The record established and maintained by the
Master Servicer (in a manner consistent with the Title I provisions set forth in
24 C.F.R. Section 201.32) setting forth the FHA insurance coverage attributable
to the FHA Loans hereunder. To the extent consistent with adjustments pursuant
to Title I to the FHA Insurance Coverage Reserve Account, the Insurance Record
shall be reduced by the amount of claims approved for payment by the FHA with
respect to any FHA Loan or Related Series Loan after the date of transfer of the
related FHA reserve account to the Contract of Insurance.
Insured Payment. As defined in the related Policy.
Interest Advance. As defined in Section 3.08(a).
Interested Person. As of any date of determination, the Master
Servicer, the Depositor, Mego, or any registered Holder of a Class R Certificate
on the date of determination, or any of their respective affiliates.
Investment Order. With respect to amounts on deposit in an
Account, a written order with respect to the Eligible Investments in which the
amounts in such Account are to be invested, signed in the name of Mego by a
Responsible Officer of Mego.
Invoiced Loan. An FHA Loan with respect to which the related
Obligor is required to pay the premium on FHA Insurance with respect to such FHA
Loan.
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<PAGE> 23
Late Payment Rate. For any Distribution Date, the lesser of (i)
the rate of interest, as it is publicly announced by Citibank, N.A., as its
prime rate (any change in such prime rate of interest to be effective on the
date such change is announced by Citibank, N.A.) plus 2% and (ii) the maximum
rate permissible under any applicable law limiting interest rates. The Late
Payment Rate shall be computed on the basis of a year of 365 days calculating
the actual number of days elapsed.
Legal File. With respect to any Loan, the related documents
listed in Section 2.01(b)(A)(i)-(v) and any additional documents required to be
added thereto pursuant to this Agreement.
Loan. Either a Group I Loan or a Group II Loan, as the context
requires, or collectively, the Group I Loans and the Group II Loans.
Loan Group. Either Loan Group I or Loan Group II as applicable.
Loan Group I. The loan group comprised of Group I Loans.
Loan Group II. The loan group comprised of Group II Loans.
Loan Group I Principal Balance. For any date of determination,
the aggregate of the Principal Balances of all Group I Loans as of such date.
Loan Group II Principal Balance. For any date of determination,
the aggregate of the Principal Balances of all Group II Loans as of such date.
Loan Rate. With respect to any Loan, the fixed rate of interest
per annum set forth in the related Note (not including any amounts payable as
premium for FHA Insurance with respect to Invoiced Loans).
Loan Schedule. The schedule of Loans included in the Trust as of
the Closing Date, specifying with respect to each such Loan the information set
forth on Exhibit B attached hereto.
Loss Carryforward Amount. For any Distribution Date, the
aggregate of all Insurance Default Amounts calculated on prior Distribution
Dates, minus the sum of the amounts distributed to the holders of the Group II
Certificates pursuant to Section 4.05(b)(xi) on all prior Distribution Dates.
Master Servicer. Norwest Bank Minnesota, N.A., a national banking
association, its successors in interest or any successor master servicer
appointed as herein provided.
Master Servicer Certificate. As defined in Section 4.01(c).
Master Servicer Fee. With respect to any Distribution Date and
Loan Group, 1/12 times 0.08% times the Aggregate Principal Balance of such Loan
Group as of the opening of business on the first day of the month preceding the
month of such Distribution
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<PAGE> 24
Date (or, with respect to the first Distribution Date, the Initial Loan Group I
Principal Balance or Initial Loan Group II Principal Balance, as applicable).
Master Servicer Termination Event. Any event specified in Section
7.01.
Master Servicing Officer. Any officer of the Master Servicer
responsible for the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers furnished to the
Trustee by the Master Servicer, as such list may from time to time be amended.
Maturity Date. With respect to any Loan and as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Note.
Maximum Rate. With respect to any Distribution Date and the Group
IA Certificates, a rate equal to the quotient of (a) the excess of (i) the
aggregate of the Monthly Payments of the Group I Loans allocable to interest due
during the related Due Period net of the portion thereof allocable to Master
Servicer Fees and Servicer Fees on the Group I Loans over (ii) the sum of the
amounts required to be distributed for such Distribution Date pursuant to
subsections (i), (iv)-(vi) of Section 4.05(a) and (b) one-twelfth of the
Aggregate Class A Certificate Balance of the Group I Certificates (prior to
giving effect to distributions made on such Distribution Date).
Monthly Cut-Off Date. The last day of any calendar month, and
with respect to any Distribution Date, the last day of the calendar month
immediately preceding such Distribution Date.
Monthly Payment. With respect to any Loan and any Due Period, the
payment of principal and interest due in such Due Period from the Obligor
pursuant to the related Note (as amended or modified, if applicable, pursuant to
Section 3.10). The Monthly Payment related to a Determination Date or a
Distribution Date shall be the Monthly Payment due in the next preceding Due
Period.
Moody's. Moody's Investors Service, Inc., or any successor
thereto.
Mortgage. With respect to any Mortgage Loan, the mortgage, deed
of trust or other instrument creating a mortgage lien (and in a title theory
state the document conveying title to the Property as security for the related
Loan) on the related Property.
Mortgage Loan. As of any date of determination, each of the
Loans, secured by an interest in a Property, transferred and assigned to the
Trustee pursuant to Section 2.01(a).
Mortgagee or Obligee. With respect to any Loan as of any date of
determination, the holder of the related Note and any related Mortgage as of
such date.
Mortgagor or Obligor. With respect to any Loan, the obligor(s) on
the related Note.
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<PAGE> 25
Net Loan Rate. With respect to each Loan, the related Loan Rate
less the rate at which the Servicer Fee is calculated.
Net Prepayment Interest Shortfall. As to any Distribution Date
and Loan Group, the amount by which aggregate Prepayment Interest Shortfalls for
the Loans in such Loan Group during the preceding Due Period exceed the Servicer
Fee for such Loan Group for such Distribution Date.
Non-FHA Loans. The Loans designated as Non-FHA Loans on the Loan
Schedule. Each Non-FHA Loan is a Mortgage Loan.
Nonrecoverable Advances. With respect to any Loan, (i) any
Interest Advance previously made and not reimbursed in the case of Loan Group I,
pursuant to Section 4.05(a)(iii), or in the case of Loan Group II, Section
4.05(b)(iii), or (ii) an Interest Advance proposed to be made in respect of a
Loan which, in the good faith business judgment of the Master Servicer, as
evidenced by an Officer's Certificate delivered to the Certificate Insurer, Mego
and the Trustee no later than the Business Day following such determination,
would not be recoverable ultimately from the Payments in respect of that Loan.
Note. With respect to any Loan, the note (or notes), retail
installment sale contract or other instrument evidencing the indebtedness under
such Loan.
Notice of Termination. Notice given to the Trustee by the Master
Servicer pursuant to Section 9.01(e), or by Mego pursuant to Section 9.01(d).
Obligee. See Mortgagee.
Obligor. See Mortgagor.
OC Floor. The product of 1% times the Initial Loan Group I
Principal Balance, which product is equal to $400,622.99.
OC Multiple. As to any Distribution Date and the Group I Loans,
the highest OC Multiple based upon the data set forth in the Master Servicer's
Certificate for such Distribution Date as set forth in the following chart:
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<PAGE> 26
<TABLE>
<CAPTION>
30+ Day 60+ Day Annual Default
Delinquency Delinquency %
Percentage Percentage (Rolling (3 Month Average)
OC (Rolling 3 Month) 3 Month) for
Multiple Loan Group I Loan Group I Loan Group I
-------- ----------------- ------------------- -----------------
<S> <C> <C> <C>
1.00 0.00% to 7.99% 0.00% to 3.49% 0.00% to 4.99%
1.25 8.00% to 8.99% 3.50% to 4.99% 5.00% to 5.99%
1.50 9.00% to 11.99% 5.00% to 6.99% 6.00% to 6.99%
2.50 **=12.00% **=7.00% **=7.00%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE DEFAULT PERCENTAGE
LOAN GROUP I
------------------------------------------------------------------------
Months* Months 0 Months
012 024 Maturity
-------- ----------------- ------------------- -----------------
<S> <C> <C> <C>
2.50 **5.0% **8.0% **12.0%
</TABLE>
- ----------
* Month 0 is November, 1996.
** Greater Than
OC Reduction Date. shall be the later of (i) the Distribution
Date occurring in December 1999 and (ii) the Distribution Date on which the
Aggregate Principal Balance of the Group I Loans for such Distribution Date is
equal to or less than one-half of the Initial Loan Group I Principal Balance.
Officer's Certificate. A certificate signed by (i) any Master
Servicing Officer or (ii) the Chairman of the Board, the Vice Chairman of the
Board, the President, a Vice President, an Assistant Vice President, the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or Mego, as the case may be, as required by this
Agreement.
Opinion of Counsel. A written opinion of counsel (who is
acceptable to the Certificate Insurer and the Rating Agencies), who may be
employed by Mego, the Master Servicer, the Depositor or any of their respective
affiliates.
Other Fees. With respect to any Distribution Date, (i) amounts in
respect of fees and expenses due to any provider of services to the Trust,
except the Trustee, the Master Servicer, the Servicer, the Claims Administrator,
the Contract of Insurance Holder and also except any Person, the fees of which
are required by this Agreement to be paid by the Master Servicer, the Servicer,
the Claims Administrator, the Contract of Insurance Holder or the
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<PAGE> 27
Trustee, but including such amounts payable to the successor Master Servicer
pursuant to Section 7.03(c); (ii) any taxes assessed against the Trust; (iii)
the reasonable transition expenses of a successor Master Servicer incurred in
acting as successor Master Servicer; and (iv) expenses of either the Trustee or
the Master Servicer incurred pursuant to Section 8.01(e).
Outstanding. With respect to any Class of Certificates as of any
date of determination, all Certificates of such Class theretofore executed,
countersigned and delivered pursuant to this Agreement except:
(i) Certificates theretofore cancelled by the Certificate
Registrar or delivered to the Certificate Registrar for cancellation;
(ii) Certificates or portions thereof for which the amount
of the final distribution to be made thereon has been previously
deposited with the Trustee in trust for the Holders of such
Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed, countersigned and delivered pursuant
to this Agreement; and
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided
for in Section 5.03;
provided, however, that, in determining whether the Holders of the requisite
percentage of any Class of Certificates have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates
owned by Mego, the Depositor, any Holder of a Class R Certificate or any
affiliate of any of the foregoing shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Certificates which the Trustee knows to be so owned
shall be so disregarded; provided further that in the event that 100% of any
Class of Senior Certificates are owned by Mego, the Depositor or any affiliate
of any of the foregoing, such certificates shall be deemed to be Outstanding;
provided, further, that Certificates to which payments are made under the
related Policy shall be deemed to be Outstanding and the Certificate Insurer
shall be deemed to be the Holder of such Certificate to the extent so paid.
Overcollateralization Amount. As of any Distribution Date the
amount, if any, by which the sum of the Aggregate Principal Balance of the Group
I Loans as of the end of the related Due Period exceeds the Aggregate Class A
Certificate Balance of the Group I Certificates after giving effect to
distributions of principal to be made on such Distribution Date.
Ownership Interest. Any record or beneficial ownership interest
in any Class R Certificate.
Payment. With respect to any Loan or the related Foreclosed
Property and any Determination Date, all amounts received or collected by or on
behalf of the Master Servicer during the preceding Due Period in respect of such
Loan or Foreclosed Property from whatever source, including without limitation,
amounts received or collected from, or representing:
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<PAGE> 28
(i) the related Obligor;
(ii) the application to amounts due on such Loan (or, in the
case of any Foreclosed Property, to amounts previously due on the
related Foreclosed Loan) of any related Insurance Proceeds, any
related condemnation awards or settlements or any payments made by any
related guarantor or third-party credit-support provider;
(iii) FHA Insurance Payment Amounts with respect to such
Loan;
(iv) the operation or sale of the related Foreclosed
Property;
(v) the Purchase Price with respect to such Loan; or
(vi) amounts deposited into the related Distribution Account
pursuant to Section 9.01(d).
Percentage Interest. As to any Class A Certificate, the
percentage interest obtained by dividing the Denomination of such Certificate by
the aggregate of the Initial Class A Certificate Balance of all Certificates of
such Class. As to any Class S Certificate or Class R Certificate, the percentage
interest set forth on the face of such Certificate.
Permitted Transferee. Any Person other than (i) the United
States, any state or any political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality that is a corporation if all of its activities are
subject to tax and a majority of its board of directors is not selected by any
such governmental unit), (ii) a foreign government, international organization
or any agency or instrumentality of either of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (iii) an organization (except certain farmers' cooperatives
described in Code Section 521) exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by Section 511 of the Code on unrelated business
taxable income) on any excess inclusions (as defined in Code Section 860E(c)(1))
with respect to any Class R Certificate, (iv) rural electric and telephone
cooperatives described in Code Section 1381(a)(2)(c), (v) any other Person so
designated by the Trustee based upon an Opinion of Counsel that the holding of
an ownership interest in a Class R Certificate by such Person may cause the
Trust or any Person having an ownership interest in any Class R Certificate,
other than such Person, to incur a liability for any tax imposed under the Code
that would not otherwise be imposed but for the transfer of an ownership
interest in a Class R Certificate to such Person and (vi) a Person that is not a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source unless
such person provides the Trustee with a duly completed Internal Revenue Service
Form 4224. The terms "United States," "state" and "international organization"
shall have the meanings set forth in Code Section 7701 or successor provisions.
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<PAGE> 29
Person. Any individual, corporation, limited liability company,
partnership, joint venture association, joint-stock company, trust,
unincorporated organization or government or any agency or government or any
agency or political subdivision thereof.
Plan of Complete Liquidation. With respect to the REMIC Pool, a
written plan adopted by the Trustee, as attorney-in-fact for the
Certificateholders of the Group I Certificates, authorizing and instructing the
Trustee to liquidate the REMIC Pool within the meaning of Section 860F(a)(4) of
the Code by (i) selling all the Loans and Foreclosed Properties then held by the
REMIC Pool on the terms specified therein, and (ii) making a final distribution
to Certificateholders of the Group I Certificates of the cash proceeds of such
sale and of all other cash then held by the REMIC Pool (less amounts retained to
meet any expenses of, and any claims against, the REMIC Pool), all in accordance
with the provisions of Section 9.01. With respect to the Grantor Trust Pool, a
written plan adopted by the Trustee, as attorney-in-fact for the
Certificateholders, authorizing and instructing the Trustee to liquidate the
Grantor Trust Pool by (i) selling all the Group II Loans then held by the
Grantor Trust Pool on the terms specified therein, and (ii) making a final
distribution to Certificateholders of the Group II Certificates of the cash
proceeds of such sale and of all other cash then held by the Grantor Trust Pool
(less amounts retained to meet any expenses of, and any claims against, the
Grantor Trust Pool), all in accordance with the provisions of Section 9.01.
Policies. With respect to the Group I Certificates (other than
the Class R Certificates), the certificate guaranty insurance policy number
22640 and with respect to the Group II Certificates, the certificate guaranty
insurance policy number 22641, each dated as of the Closing Date, as set forth
in Exhibit N-1 and N-2, respectively, issued by the Certificate Insurer to the
Trustee for the benefit of Senior Certificateholders.
Pool Annual Default Percentage (Three Month Average). With
respect to any Determination Date, the average of the percentage equivalents of
the fractions determined for each of the three immediately preceding Due Periods
the numerator of which is the product of (i) the aggregate of the Principal
Balances of all Loans that became Credit Support Multiple Defaulted Loans during
such Due Period immediately prior to such Loans becoming Credit Support Multiple
Defaulted Loans times (ii) 12, and the denominator of which is the Aggregate
Principal Balance of the Loans as of the end of such Due Period.
Pool 60+ Delinquency Percentage (Rolling Three Month). With
respect to any Determination Date, the average of the percentage equivalents of
the fractions determined for each of the three immediately preceding Due Periods
the numerator of each of which is equal to the aggregate Principal Balance of
Loans that are 60+ Day Delinquent Loans as of the end of such Due Period and the
denominator of which is the Aggregate Principal Balance of the Loans as of the
end of such Due Period.
Preference Amount. As defined in the related Policy.
Premium. The premium payable to the Certificate Insurer in
accordance with Section 3.02 of the Insurance Agreement.
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Prepayment Interest Shortfall. As to any Loan and Principal
Prepayment, the amount by which one month's interest at the related Loan Rate
(or such lower rate as may be in effect from a Loan because of the application
of the Civil Relief Act) minus the rate at which the Servicing Fee is calculated
on such Principal Prepayment exceeds the amount of interest paid by the
Mortgagor in connection with such Principal Prepayment.
Principal Balance. With respect to any Loan, and for any date of
determination, the Initial Principal Balance of such Loan reduced by all amounts
previously received or collected in respect of principal on such Loan on or
subsequent to the Cut-Off Date for such Loan; provided, that with respect to any
Defaulted Loan, the Principal Balance shall be zero immediately after the Due
Period in which such Loan becomes a Defaulted Loan.
Principal Prepayment. Any payment or other receipt of principal
in full due on a Loan made by an Obligor which is received in advance of the
scheduled Maturity Date of such Loan.
Property. With respect to any Mortgage Loan, any fee interest in
the residential property subject to the lien of the related Mortgage.
Prospectus Supplement. The prospectus supplement, dated December
11, 1996, relating to the Group IA Certificates and Group IIA Certificates.
Purchase Agreement. The loan purchase agreement entered into
between Mego, as Seller, and the Depositor, as purchaser, dated as of November
1, 1996.
Purchased Loan. As of any Monthly Cut-Off Date and Loan Group,
any Loan (including any Defaulted Loan) in such Loan Group that became subject
to purchase or repurchase pursuant to Section 2.04(b) or Section 3.12, and in
each case, as to which the Purchase Price has been deposited in the related
Distribution Account by Mego or the Master Servicer, as applicable.
Purchase Price. With respect to a Loan, means the Principal
Balance of such Loan as of the date of purchase, plus unpaid accrued interest at
the related Loan Rate to the last day of the month in which such purchase occurs
(without regard to any Interest Advance that may have been made with respect to
such Loan).
Rating Agency. Each of Moody's and Standard & Poor's, so long as
such rating agency maintains ratings on any of the Senior Certificates; and if
either Moody's or Standard & Poor's no longer maintains ratings on the Senior
Certificates, such other nationally recognized statistical rating organization
specified by Mego and (so long as a Certificate Insurer Default shall not have
occurred and be continuing) acceptable to the Certificate Insurer.
Record Date. With respect to any Distribution Date, the last day
of the month (or if such last day is not a Business Day, the Business Day
immediately preceding such last day) preceding the month of such Distribution
Date.
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Reimbursement Amount. As of any Distribution Date and Certificate
Group, the sum of (x) (i) Insured Payments previously received by the Trustee
and not previously re-paid to the Certificate Insurer, in the case of the Group
I Certificates, pursuant to Section 4.05(a)(ix) or, in the case of the Group II
Certificates, pursuant to Section 4.05(b)(ix) hereof plus (ii) interest accrued
on such Insured Payment not previously repaid calculated at the Late Payment
Rate from the date the Trustee received such Insured Payment and (y) (i) the
amount of any Premium in respect of such Certificate Group not paid on the date
due and (ii) interest on such amount at the Late Payment Rate. The Certificate
Insurer shall notify the Trustee and Depositor of the amount of any
Reimbursement Amount.
Rejected Claim. With respect to any FHA Loan, a claim for payment
made to the FHA under the Contract of Insurance that has been finally rejected
after all appeals with FHA have been exhausted for any reason (including a
rejection of a previously paid claim and a demand by the FHA of a return of the
FHA Insurance Payment Amount for the related FHA Loan) other than a refusal or
rejection due to clerical error in computing the claim amount or because the
amount of the FHA Insurance Coverage Reserve Account as shown in the Insurance
Record is zero.
Related Series. Means (i) the Trust, (ii) Mego Mortgage FHA Title
I Loan Trust 1996-2, (iii) Mego Mortgage FHA Title I Loan Trust 1996-1, and (iv)
each of the subsequent series of trusts, of which the Trustee is the trustee and
the Certificate Insurer is the certificate insurer, to which Related Series
Loans are sold directly or indirectly by Mego, established pursuant to pooling
and servicing agreements.
Related Series Loans. Means FHA Title I loans related to a
Related Series which: (i) are sold by Mego, directly or indirectly, to a trust
and (ii) the Title I insurance coverage attributable to which is made available
to cover claims with respect to the FHA Loans and the Related Series Loans in
each other Related Series by virtue of terms relating to the administration of
the FHA Insurance Coverage Reserve Account substantially similar to the terms
hereof.
REMIC. A "real estate mortgage investment conduit," as defined in
the REMIC Provisions.
REMIC Pool. The pool of assets consisting of the Group I Loans
for which an election shall be made to be treated as a REMIC under the REMIC
Provisions.
REMIC Provisions. Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations (either proposed, temporary or final) and related
revenue rulings and procedures, as the foregoing may be in effect from time to
time.
Required OC Amount. With respect to each Distribution Date, the
greater of (a) the OC Floor or (b) the product of (i) the OC Multiple for such
Distribution Date and (ii)(x) if such Distribution Date is prior to the OC
Reduction Date, the product of 3.75% and the Initial Group I Principal Balance,
or (y) if such Distribution Date is on or after the OC Reduction Date, the
lesser of (A) the product of 3.75% times the Initial Loan Group I Principal
Balance and (B)
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the product of 7.50% times the Aggregate Principal Balance of the Group I Loans
as of such Distribution Date, or such lower amount as may be established by the
Certificate Insurer in its sole discretion after notice to and written approval
by the Rating Agencies; provided, however, on any Distribution Date during the
occurrence and continuance of a Trigger Event and for three Distribution Dates
after the conclusion of a Trigger Event, notwithstanding anything to the
contrary contained in this definition, the Required OC Amount shall be equal to
the greater of (a) the OC Floor or (b) the product of (i) the OC Multiple for
such Distribution Date times (ii) the product of 3.75% times the Initial Group I
Principal Balance.
Residual Interest. The fractional undivided interest evidenced by
a Class R Certificate in all amounts distributable to Holders of Class R
Certificates pursuant to Section 4.05(a).
Responsible Officer. When used with respect to the Trustee, an
officer in its Corporate Trust Office, or any other officer assigned by the
Trustee to administer its corporate trust matters, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to any other Person that is not an individual, the President,
any Vice-President or Assistant Vice-President or the Controller of such Person,
or any other officer or employee having similar functions.
SAIF. The Savings Association Insurance Fund, as from time to
time constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Securities Act. The Securities Act of 1933, as amended.
Senior Certificate. Any of the Class IA-1, Class IA-2, Class
IA-3, Class IIA, Class IS Certificates or Class IIS Certificates.
Servicer. Mego or any other Eligible Servicer with whom the
Master Servicer has entered into a Servicing Agreement pursuant to Section 3.02.
Servicer Fee. With respect to any Distribution Date and Loan
Group, 1/12 times 1.00% times the Aggregate Principal Balance of such Loan
Group, as of the opening of business on the first day of the month preceding the
month of such Distribution Date (or, with respect to the first Distribution
Date, the Initial Loan Group I Principal Balance or Initial Loan Group II
Principal Balance, as applicable), reduced by the sum of (a) aggregate
Prepayment Interest Shortfall for such Loan Group for the related Due Period and
(b) any Additional Trustee Fee in respect of such Loan Group for such
Distribution Date.
Servicer Review Report. As defined in Section 3.05(d).
Servicer Termination Event. With respect to the Servicing
Agreement, the events specified in Section 7.02 therein.
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Servicing Agreement. The servicing agreement dated as of November
1, 1996, between Mego, as Servicer, the Master Servicer, the Trustee and the
Trust and any other agreement entered into in accordance with Section 3.02.
Servicing Record. The records for each Loan Group maintained by
the Master Servicer pursuant to Section 3.03.
Servicing Standard. The standard set forth in Section 3.01(a).
60+ Day Delinquent Loan. With respect to any Determination Date
or related Distribution Date, a Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 61 days or more past due (without giving effect
to any grace period) and unpaid by the Obligor.
60+ Delinquency Percentage (Rolling Three Month). With respect to
any Determination Date and Loan Group I, the average of the percentage
equivalents of the fractions determined for each of the three immediately
preceding Due Periods the numerator of each of which is equal to the aggregate
Principal Balance of Loans in such Loan Group that are 60+ Day Delinquent Loans
as of the end of such Due Period and the denominator of which is the Aggregate
Principal Balance of the Loans in such Loan Group as of the end of such Due
Period.
Standard & Poor's. Standard & Poor's Rating Services, or any
successor thereto.
Start-up Day. The day designated as such in Section 8.12(a).
Substitute Loan. A Loan: (i) having characteristics such that the
representations and warranties made pursuant to Section 2.03(b) with respect to
the Loans in the related Loan Group are true and correct as of the date of
substitution with respect to such Loan; (ii) each Monthly Payment with respect
to such Loan shall be greater than or equal to the Monthly Payments due in the
same Due Period on the Loan for which such Substitute Loan is being substituted;
(iii) the Maturity Date with respect to such Loan shall be no later than the
Maturity Date of the Loan for which such Substitute Loan is being substituted;
(iv) as of the date of substitution, the Principal Balance of such Loan is less
than or equal to (but not more than 1% less than) the Principal Balance of the
Loan for which such Substitute Loan is being substituted; (v) the Loan Rate with
respect to such Loan is at least equal to the Loan Rate of the Loan for which
such Substitute Loan is being substituted and (vi) the FICO score for such Loan
must not be less than ten points of the FICO score for such Loan for which such
Substitute Loan is being substituted; provided however, in the event more than
one Substitute Loan is being substituted for one or more Defective Loans in a
Loan Group on any date, in which case (i) the weighted average Loan Rate for
such Substitute Loans must equal or exceed the weighted average Loan Rate of the
Defective Loans in such Loan Group immediately prior to giving effect to the
substitution, in each case weighted on the basis of the outstanding Principal
Balance of such loans as of such day, (ii) the sum of the Monthly Payments with
respect to such Substitute Loans shall be greater than or equal to the Monthly
Payments due in the same Due Period on the Defective Loans for which a
substitution is being made, and (iii) as of the date of substitution, the
aggregate Principal Balances of such
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Substitute Loans are less than or equal to (but not more than 1% less than) the
aggregate Principal Balances of the Defective Loans for which such a
substitution is being made.
Substitution Adjustment Amount. The meaning assigned to such term
in Section 2.04(d).
Tax Return. For the Group I Loans, the federal income tax return
on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment
Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any
successor forms, to be filed on behalf of the portion of the Trust consisting of
the REMIC Pool due to its classification as a REMIC under the REMIC Provisions,
together with any and all other information, reports or returns that may be
required to be furnished to the Certificateholders or filed with the Internal
Revenue Service or any other governmental taxing authority under any applicable
provisions of federal, state or local tax laws. For the Group II Loans, Internal
Revenue Service Form 1041, or any successor forms, to be filed on behalf of the
Trust due to its classification as a grantor trust under the Grantor Trust
Provisions, together with any and all other information, reports or returns that
may be required to be furnished to the Certificateholders, including Schedule
K-1 (Form 1041), or filed with the Internal Revenue Service or any other
governmental taxing authority under any applicable provisions of federal, state
or local tax laws.
Termination Date. The earlier of (a) the Distribution Date in
November 2022 and (b) the Distribution Date next following the Monthly Cut-Off
Date coinciding with or next following the date of the liquidation or
disposition of the last asset held by the Trust pursuant to Section 3.13,
9.01(d) or 9.01(e).
30+ Day Delinquent Loan. With respect to any Determination Date
or related Distribution Date, a Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 31 days or more past due (without giving effect
to any grace period) and unpaid by the Obligor.
30+ Delinquency Percentage (Rolling Three Month). With respect to
any Determination Date and Loan Group I, the average of the percentage
equivalents of the fractions determined for each of the three immediately
preceding Due Periods the numerator of which is equal to the aggregate Principal
Balance of Loans in such Loan Group that are 30+ Day Delinquent Loans as of the
end of such Due Period, and the denominator of which is the Aggregate Principal
Balance of the Loans in such Loan Group as of the end of such Due Period.
Title Document. The evidence of title to or ownership of the
Property required by Title I. (See 24 C.F.R. 201.26(a)(1) and 201.20).
Title I. Section 2 of Title I of the National Housing Act of
1934, as amended, and the rules and regulations promulgated thereunder as each
may be amended from time to time and any successor statute, rules or regulations
thereto.
Transaction Documents. This Agreement, the Purchase Agreement,
the Servicing Agreement, the Insurance Agreement and the Indemnification
Agreement.
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Transfer. Any direct or indirect purchase, transfer, sale,
assignment or other form of disposition of any Ownership Interest in a
Certificate other than any pledge of such Certificate for security.
Transferee. Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
Trigger Event. The occurrence and continuance of any of the
following events:
(i) Mego shall fail to pay when due any amount payable by it
under the Insurance Agreement, such failure results in a drawing under
the Policy and the Certificate Insurer has not been reimbursed
therefor;
(ii) Mego shall fail to pay when due any amount payable by
it hereunder, such failure results in a drawing under the Policy and
the Certificate Insurer has not been reimbursed therefor;
(iii) the Pool Annual Default Percentage (Three Month
Average) exceeds 6.5% or the Pool 60+ Delinquency Percentage (Rolling
Three Month) exceeds 6.0% or such higher percentage as determined from
time to time by the Certificate Insurer;
(iv) any representation, warranty or statement of Mego made
in the Insurance Agreement or in this Agreement shall prove to be
incorrect in any material respect as of the time when the same shall
have been made, and the circumstances or condition in respect of which
such representation, warranty or statement was incorrect could (A) in
the opinion of the Certificate Insurer have a material adverse affect
on the interests of the Certificate Insurer and (B) has not been cured
within the applicable cure period specified in the Insurance Agreement
or this Agreement, as the case may be or otherwise remedied as
provided in the applicable agreement;
(v) Mego shall dissolve or liquidate, in whole or in part,
in any material respect unless the resulting successor entity (a)
assumes all obligations of Mego under this Agreement, the Purchase
Agreement and the Insurance Agreement and has a net worth at least
equal to Mego's at the time of dissolution or liquidation, or (b) is
acceptable to the Certificate Insurer;
(vi) Mego is the subject of a conservatorship, receivership
or other insolvency proceeding; or
(vii) The Purchase Agreement or this Agreement ceases to be
in full force and effect or any act or omission by Mego results in the
Insurance Agreement not being in full force and effect.
Trust. The trust established hereby and evidenced by the Home
Loan Asset- Backed Certificates, Series 1996-3, designated as the "Mego Mortgage
Home Loan Trust 1996-3."
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Trust Designated Insurance Amount. $3,674,309 or such greater
amount approved in advance in writing by the Certificate Insurer.
Trust Property. The property and proceeds of every kind conveyed
pursuant to Section 2.01 hereof or in accordance with Section 2.04(c) hereof,
together with the Policies and the Accounts (including all cash and Eligible
Investments therein and all proceeds thereof).
Trustee. First Trust of New York, National Association, its
successors in interest or any successor trustee appointed as herein provided.
Trustee Fee. With respect to any Distribution Date and Loan
Group, one-twelfth of 0.045% times the Aggregate Principal Balance of such Loan
Group as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (or, with respect to the
first Distribution Date, the Initial Loan Group I Principal Balance or the
Initial Loan Group II Principal Balance, as applicable).
Underwriter. Greenwich Capital Markets, Inc.
Voting Rights. The portion of the aggregate voting rights of all
the Certificates evidenced by a Class of Certificates. At all times during the
term of this Agreement, 98% of all of the Voting Rights shall be allocated among
Holders of the Class A Certificates and the Holders of the Class S Certificates
shall be entitled to 2% of all of the Voting Rights. Voting Rights allocated to
a Class of Certificates shall be allocated among the Certificates of each such
Class in accordance with their respective Percentage Interests.
Section 1.02. Rules of Interpretation.
The terms "hereof," "herein" or "hereunder," unless otherwise
modified by more specific reference, shall refer to this Agreement in its
entirety. Unless otherwise indicated in context, the terms "Article," "Section,"
"Exhibit" or "Schedule" shall refer to an Article or Section of, or Exhibit or
Schedule to, this Agreement. The definition of a term shall include the
singular, the plural, the past, the present, the future, the active and the
passive forms of such term. Whenever the Agreement refers to a Certificate Group
and "related" Certificates, such reference shall be to all Certificates with the
same numeric designation as set forth in the definition of each Certificate
Group. Whenever the Agreement refers to a Certificate Group and "related" Loan
Group or Account, such reference shall be to the Loan Group or Account with the
same numeric designation as set forth in the definition of Loan Group.
Section 1.03. Interest Calculations.
All calculations of accrued interest on the Loans, the
Certificates and accrued fees shall be made on the basis of a 360-day year
consisting of twelve 30-day months.
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ARTICLE II
Transfer and Assignment of Loans;
Issuance of Certificates
Section 2.01. Transfer and Assignment of Loans.
(a) The Depositor as of the Closing Date does hereby, sell,
transfer, assign and otherwise convey to the Trustee for the benefit of the
Holders of the Certificates, in accordance with their terms and the terms
hereof, and the Certificate Insurer, without recourse other than as expressly
provided herein, and, with respect to the FHA Loans, in accordance with the
requirements for transfer of an insured loan in Title I and 24 C.F.R. Section
201.32(c), all the right, title and interest of the Depositor in and to (a) as
of the applicable Cut-Off Date, the Loans delivered to the Trustee on the
Closing Date, including the related Principal Balance and all payments and
collections on account thereof received on or after such Cut-Off Date (including
amounts due prior to such Cut-Off Date but received thereafter), the rights to
FHA Insurance reserves attributable to the FHA Loans as of the applicable
Cut-Off Date, the Files, the Insurance Policies and any proceeds from any
Insurance Policies, the Mortgages and security interests in Properties which
secure the Mortgage Loans and any and all documents or electronic records
relating to the Loans, and all proceeds of any of the foregoing, and (b) the
Purchase Agreement.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Loans
and the other property specified in Section 2.01(a) from the Depositor to the
Trust and such property shall not be property of the Depositor. After the
Closing Date, Mego and the Depositor shall each account for the transfer of the
Loans in its financial statements as a sale of the Loans. If the assignment and
transfer of the Loans and the other property specified in this Section 2.01(a)
to the Trustee pursuant to this Agreement or the conveyance of the Loans or any
of such other property to the Trustee is held or deemed not to be a sale or is
held or deemed to be a pledge of security for a loan, the Depositor intends that
the rights and obligations of the parties shall be established pursuant to the
terms of the Agreement and that, in such event, (i) the Depositor shall be
deemed to have granted and does hereby grant to the Trustee a first priority
security interest in the entire right, title and interest of the Depositor in
and to the Loans and all other property conveyed to the Trustee pursuant to this
Section 2.01(a) and all proceeds thereof, and (ii) this Agreement shall
constitute a security agreement under applicable law. Within five days of the
Closing Date, the Depositor shall cause to be filed UCC-1 financing statements
naming the Trustee as "secured party" and describing the Loans being sold by the
Depositor to the Trust with the office of the Secretary of State of the State in
which the Depositor is located.
(b) In connection with the sale, transfer, assignment and
conveyance pursuant to Section 2.01(a), the Depositor hereby delivers to, and
deposits with, the Trustee the following documents or instruments with respect
to each Loan so sold, transferred, assigned and conveyed (provided that the
Credit Files shall be held in the custody of Mego as custodian on behalf of the
Trustee). Notwithstanding anything herein to the contrary, the Credit Files are
hereby conveyed to the Trustee and are, and shall at all times hereinafter be,
held in the custody of Mego, as custodian on behalf of the Trustee:
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(A) With respect to each Loan:
(i) The original Note, showing a complete chain of
endorsements or assignments from the named payee to the Trust and
endorsed without recourse to the order of the Trustee which latter
endorsement may be executed with a facsimile signature;
(ii) If such Loan is a Mortgage Loan, the original Mortgage
with evidence of recording indicated thereon (except that a true copy
thereof certified by an appropriate public official may be
substituted); provided, however, that if the Mortgage with evidence of
recording thereon cannot be delivered concurrently with the execution
and delivery of this Agreement solely because of a delay caused by the
public recording office where such Mortgage has been delivered for
recordation, there shall be delivered to the Trustee a copy of such
Mortgage certified as a true copy in an Officer's Certificate, which
Officer's Certificate shall certify that such Mortgage has been
delivered to the appropriate public recording office for recordation,
and there shall be promptly delivered to the Trustee such Mortgage
with evidence of recording indicated thereon upon receipt thereof from
the public recording official (or a true copy thereof certified by an
appropriate public official may be delivered to the Trustee);
(iii) If such Loan is a Mortgage Loan, the original
assignment of Mortgage to the Trustee, in recordable form. Such
assignments may be blanket assignments, to the extent such assignments
are effective under applicable law, for Mortgages covering Properties
situated within the same county. If the assignment of Mortgage is in
blanket form an assignment of Mortgage need not be included in the
individual File;
(iv) If such Loan is a Mortgage Loan, all original
intermediate assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Trustee,
with evidence of recording thereon (or true copies thereof certified
by appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with
evidence of recording thereon cannot be delivered concurrently with
the execution and delivery of this Agreement solely because of a delay
caused by the public recording office where such assignments of
Mortgage have been delivered for recordation, there shall be delivered
to the Trustee a copy of each such assignment of Mortgage certified as
a true copy in an Officer's Certificate of Mego, which Officer's
Certificate shall certify that each such assignment of Mortgage has
been delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the Trustee such
assignments of Mortgage with evidence of recording indicated thereon
upon its receipt thereof from the public recording official (or true
copies thereof certified by an appropriate public official may be
delivered to the Trustee);
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(v) An original of each assumption or modification
agreement, if any, relating to such Loan;
(vi) (A) If such Loan is an FHA Loan, an original or copy of
notice signed by the Obligor acknowledging HUD insurance, (B) an
original or copy of truth-in-lending disclosure, (C) an original or
copy of the credit application, (D) an original or copy of the
consumer credit report, (E) an original or copy of verification of
employment and income, or verification of self-employment income, (F)
if such Loan is an FHA Loan, an original or copy of evidence of the
Obligor's interest in the Property, (G) an original or copy of
contract of work or written description with cost estimates, (H) if
such Loan is an FHA Loan either (a) an original or copy of the
completion certificate or an original or copy of notice of
non-compliance, if applicable or (b) an original or copy of report of
inspection of improvements to the Property or an original or copy of
notice of non-compliance, if applicable, (I) to the extent not
included in (C), an original or a copy of a written verification that
the Mortgagor at the time of origination was not more than 30 days
delinquent on any senior mortgage or deed of trust on the Property,
(J) (i) if such Loan is an FHA Loan for which an appraisal is required
pursuant to the applicable regulations, an original or a copy of an
appraisal of the Property as of the time of origination of such FHA
Loan or (ii) if such Loan is a Non-FHA Loan and secured by a Mortgage,
(a) if the original principal balance is greater than $25,000 but less
than $50,000, a copy of the HUD-1 or HUD 1-A Closing Statement
indicating the sale price, or an existing Uniform Residential
Appraisal Report, or a Drive-by Appraisal documented on Freddie Mac
form 704, or a tax assessment, or (b) if the original principal
balance exceeds $50,000, a full Uniform Residential Appraisal Report
prepared by a national appraisal firm, (K) an original or a copy of a
title search as of the time of origination with respect to the
Property, and (L) if such Loan is an FHA Loan, any other documents
required for the submission of a claim with respect to such FHA Loan
to the FHA.
With respect to any documents referred to clauses (A)(ii) and
(A)(iv) above that are not delivered to the Trustee because of a delay caused by
the public recording office such documents shall be delivered to the Trustee in
accordance with the terms of such clauses by Mego if such documents are received
by it or by the Depositor if such documents are received by it.
(c) Mego, at the direction of the Depositor, concurrently with
the execution and delivery hereof, has delivered to the Trustee cash in an
amount equal to at least an aggregate amount representing for such Loan Group
(i) the accrued annual FHA premium due on each FHA Loan to the applicable
Cut-Off Date, and (ii) the amount of FHA premium collected in respect of the
Invoiced Loans after the applicable Cut-Off Date. The Trustee shall distribute
the amount referred to in clause (i) of the previous sentence into the related
FHA Premium Account for such Loan Group and shall distribute the amount referred
to in clause (ii) of the previous sentence for such Loan Group into the related
Distribution Account.
(d) Except as provided in Section 8.11 hereof, the Trustee shall
take and maintain continuous physical possession of the Files (except with
respect to the Credit Files)
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in the State of Minnesota, and in connection therewith, shall act solely as
agent for the holders of the Certificates and the Certificate Insurer in
accordance with the terms hereof and not as agent for Mego or any other party.
(e) In addition to the documents delivered to the Trustee
pursuant to Section 2.01(b), on or prior to the Closing Date, the Policies will
be delivered to the Trustee for the benefit of the Holders of the Senior
Certificates of the related Certificate Group.
(f) Within 60 days of the Closing Date, Mego, at its own expense,
shall cause the Trustee to record each assignment of Mortgage in favor of the
Trustee (which may be a blanket assignment if permitted by applicable law) in
the appropriate real property or other records; provided, however, the Trustee
need not cause to be recorded any assignment which relates to a Mortgage Loan in
any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel
delivered by Mego (at Mego's expense) to the Trustee, the Certificate Insurer
and the Rating Agencies, the recordation of such assignment is not necessary to
protect the Trustee's interest in the related Mortgage Loan. With respect to any
assignment of Mortgage as to which the related recording information is
unavailable within 60 days following the Closing Date, such assignment of
Mortgage shall be submitted for recording within 30 days after receipt of such
information but in no event later than one year after the Closing Date. The
Trustee shall be required to retain a copy of each assignment of Mortgage
submitted for recording. In the event that any such assignment of Mortgage is
lost or returned unrecorded because of a defect therein, Mego shall promptly
prepare a substitute assignment of Mortgage or cure such defect, as the case may
be, and thereafter the Trustee shall be required to submit each such assignment
of Mortgage Loan for recording.
Section 2.02. Acceptance by Trustee.
(a) The Trustee hereby acknowledges conveyance of the Note, the
Mortgage, if applicable, and the other documents included in the Legal File
relating to each Loan listed on the Loan Schedule, receipt of such Legal Files
(the contents of which are subject to the Trustee's review pursuant to Section
2.02(b)), receipt of each Policy and receipt of the cash delivered to the
Trustee pursuant to Section 2.01(c), and declares that it holds and will hold
each such Loan, each related Legal File, each Policy, such cash, all proceeds of
any of the foregoing and all other rights, titles or interests of the Trustee in
any asset included in the Trust Property from time to time, in trust for the use
and benefit of all present and future Holders of the Certificates of each Class
and the Certificate Insurer. The Trustee hereby agrees to maintain possession of
the Notes in the State of Minnesota.
(b) The Trustee agrees for the benefit of the Certificate Insurer
and the Certificateholders to review each Legal File within 45 Business Days
following the Closing Date, to confirm that all the documents and instruments
required to be included in each Legal File pursuant to Section 2.01(b) (i)-(v),
are so included and have been executed (and that documents which are required to
be originals bear original signatures) and that such documents and instruments
relate to the Loans identified in the Loan Schedule and are what they purport to
be on their face. Promptly upon completion of such review, the Trustee shall
prepare and deliver a list of the Legal Files which are incomplete as described
in this paragraph and deliver such list to the Certificate Insurer, the Master
Servicer, the Depositor and Mego.
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The Trustee agrees to review each Legal File within 60 days of
the Closing Date to confirm whether or not the recorded Mortgage or recorded
intermediate assignment or assignments, as the case may be, is contained in such
File. Promptly upon completion of such review, the Trustee shall prepare and
deliver a list of the Files which are incomplete as described in this paragraph
and deliver such list to the Certificate Insurer, the Master Servicer, the
Depositor and Mego and Mego shall be obligated to cure such incomplete File in
accordance with Section 2.04.
In performing the review required by this Section 2.02(b), the
Trustee may presume the due execution (unless no signature appears thereon) and
genuineness of any such document and the genuineness of any signature thereon.
The Trustee shall have no responsibility for reviewing any File except as
expressly provided in this Section 2.02(b). Without limiting the effect of the
preceding sentence, in reviewing any File pursuant to such Subsection, the
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper form (except, with respect to each Loan, to determine if the Trustee is
the assignee or endorsee and to determine if there is a complete chain of title
from the Person who is the initial payee and initial Mortgagee), whether the
recordation of any document is in accordance with the requirements of any
applicable jurisdiction, whether any person who has executed any document is
authorized to do so, whether each assumption or modification agreement, if any,
relating to a Loan has been delivered to it, whether a blanket assignment is
permitted or effective in any applicable jurisdiction or, with respect to each
FHA Loan, whether the requirements for transfer of an insured loan specified in
Title I, 24 C.F.R. Section 201.32(c) or elsewhere have been complied with.
(c) The Credit File shall be held in the custody of Mego for the
benefit of, and as agent for, the Certificateholders and the Trustee as the
owner thereof and the Certificate Insurer. It is intended that by Mego's
agreement pursuant to this Section 2.02(c) the Trustee shall be deemed to have
possession of the Credit File for purposes of Section 9- 305 of the Uniform
Commercial Code of the State in which such documents or instruments are located.
Mego shall promptly report to the Trustee and the Certificate Insurer any
failure by it to hold the Credit File as herein provided and shall promptly take
appropriate action to remedy any such failure. In acting as custodian of such
documents and instruments, Mego agrees not to assert any legal or beneficial
ownership interest in the Loans or such documents or instruments. Mego agrees to
indemnify the Certificateholders, the Certificate Insurer and the Trustee for
any and all liabilities, obligations, losses, damages, payments, costs, or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Certificateholders, the Certificate Insurer or the Trustee as the
result of any act or omission by Mego relating to the maintenance and custody of
such documents or instruments which have been delivered to Mego; provided,
however, that Mego will not be liable for any portion of any such amount
resulting from the negligence or misconduct of any Certificateholder, the
Certificate Insurer or the Trustee and provided, further, that Mego will not be
liable for any portion of any such amount resulting from Mego's compliance with
any instructions or directions consistent with this Agreement issued to Mego by
the Trustee. The Trustee shall have no duty to monitor or otherwise oversee
Mego's performance as custodian hereunder.
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Section 2.03. Representations and Warranties of Mego.
(a) Mego hereby represents and warrants to the Depositor, the
Master Servicer, the Trustee for the benefit of the Certificateholders and the
Certificate Insurer that as of the Closing Date:
(i) Mego is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Mego is
duly qualified to do business, is in good standing and has obtained
all necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and the performance of its obligations under the
Transaction Documents, in each jurisdiction in which the failure to be
so qualified or to obtain such approvals would render any Transaction
Document unenforceable in any respect or would have a material adverse
effect upon the Transaction.
(ii) Mego has full power and authority to execute, deliver
and perform, and to enter into and consummate all transactions
required of it by this Agreement and each other Transaction Document
to which it is a party; has duly authorized the execution, delivery
and performance of this Agreement and each other Transaction Document
to which it is a party; has duly executed and delivered this Agreement
and each other Transaction Document to which it is a party; when duly
authorized, executed and delivered by the other parties hereto, this
Agreement and each other Transaction Document to which it is a party
will constitute a legal, valid and binding obligation of Mego
enforceable against it in accordance with its terms, except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity);
(iii) Neither the execution and delivery of this Agreement
or any of the other Transaction Documents to which Mego is a party,
the consummation of the transactions required of it herein or under
any other Transaction Document, nor the fulfillment of or compliance
with the terms and conditions of this Agreement or any of the other
Transaction Documents will conflict with or result in a breach of any
of the terms, conditions or provisions of Mego's charter or by-laws or
any legal restriction or any material agreement or instrument to which
Mego is now a party or by which it is bound, or which would adversely
affect the creation and administration of the Trust as contemplated
hereby, or constitute a material default or result in an acceleration
under any of the foregoing, or result in the violation of any law,
rule, regulation, order, judgment or decree to which Mego or their
respective property is subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against Mego or, to its knowledge, threatened,
which, if determined adversely to Mego, would materially adversely
affect the sale of the Loans, the issuance of the Certificates, the
execution, delivery or enforceability of this Agreement or any other
Transaction Document, or which would have a material adverse affect on
the financial condition of Mego;
(v) No consent, approval, authorization or order of any
court or governmental agency or body is required for: (a) the
execution, delivery and
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performance by Mego of, or compliance by Mego with, this Agreement,
(b) the transfer of all FHA insurance reserves relating to the FHA
Loans to the Contract of Insurance Holder, (c) the issuance of the
Certificates, (d) the sale of the Loans or (e) the consummation of the
transactions required of it by this Agreement, except: (A) such as
shall have been obtained before the Closing Date, (B) the transfer of
the FHA insurance reserves by the FHA to the Contract of Insurance
Holder with respect to the FHA Loans as to which an FHA case number
has not been assigned as of the Closing Date, and (C) such as may be
required under state securities or "Blue Sky" laws in connection with
the sale of the Certificates by the Underwriter;
(vi) Mego is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of Mego or its properties or might
have consequences that would materially and adversely affect its
performance hereunder;
(vii) Mego received fair consideration and reasonably
equivalent value in exchange for the sale of the Loans to the
Depositor;
(viii) HUD has approved in writing the transfer to the
Contract of Insurance of the FHA Reserve Amount relating to each FHA
Loan and all actions have been taken by Mego (other than the filing of
the Transfer of Note Report Form 27030 with HUD) and all required
consents have been obtained (other than approval upon HUD's receipt of
such Transfer of Note Report), in either case, necessary to effect
transfer to the Contract of Insurance Holder of the FHA Reserve Amount
relating to each FHA Loan (except for FHA Loans with respect to which
a case number has not been assigned as of the Closing Date). The FHA
Reserve Amounts with respect to the FHA Loans transferred to the
Contract of Insurance Holder both prior to and following the transfer
of the FHA Loans to the Trustee will be available to satisfy claims
with respect to such FHA Loans. The amount in the FHA Insurance
Coverage Reserve Account, together with all amounts to be requested
for transfer with respect to the FHA Loans, will equal $16,971,823.
The amount to be requested for transfer with respect to the FHA Loans
is $3,674,309, which is the sum of approximately 10% of the aggregate
of the Initial Principal Balances of the FHA Loans;
(ix) Mego is a non-supervised lender in good standing with
HUD under 24 CFR Section202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR Part
201 pursuant to a valid contract of insurance, Number 70497-00003; and
(x) Mego has transferred the Loans without any intent to
hinder, delay or defraud any of its creditors.
(b) Mego hereby agrees for the benefit of the Depositor, the
Master Servicer and the Trustee for the benefit of the Certificateholders and
the Certificate Insurer, that the failure of any of the following
representations and warranties to be true and correct as to any Loan (and the
related Note and Mortgage, if applicable) as of the Cut-Off Date for such Loan,
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or such later date if so specified in such representation and warranty, gives
rise to the remedy specified in Section 2.04:
(i) The information pertaining to each Loan set forth in the
Loan Schedule was true and correct in all material respects as of the
applicable Cut-Off Date;
(ii) As of the Closing Date at least 99.49% of the Loans (by
aggregate Initial Principal Balance) are not more than 30 days and the
remaining 0.51% of the Loans (by aggregate Initial Principal Balance)
are not more than 59 days past due (without giving effect to any grace
period); Mego has not advanced funds, induced, solicited or knowingly
received any advance of funds from a party other than the Obligor,
directly or indirectly, for the payment of any amount required by the
Loan;
(iii) The terms of the Note and any related Mortgage contain
the entire agreement of the parties and have not been impaired,
waived, altered or modified in any respect, except by written
instruments reflected in the related File and recorded, if necessary,
to maintain the lien priority of the any related Mortgage; if such
Loan is an FHA Loan the substance of each such waiver, alteration and
modification has been approved by the FHA to the extent required under
Title I; no other instrument of waiver, alteration, expansion or
modification has been executed, and no Obligor has been released, in
whole or in part, except in connection with an assumption agreement
which assumption agreement is part of the related File and the payment
terms of which are reflected in the related Loan Schedule and; if such
Loan is an FHA Loan, has been approved by the FHA to the extent
required under Title I;
(iv) The Note and any related Mortgage are not subject to
any set-off, claims, counterclaim or defense and will not have such in
the future with respect to the goods and services provided under the
Note, including the defense of usury or of fraud in the inducement,
nor will the operation of any of the terms of the Note and any related
Mortgage, or the exercise of any right thereunder, render such Note or
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;
(v) Any and all requirements of any federal, state or local
law applicable to the Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto)
have been complied with;
(vi) No Note or Mortgage has been satisfied, cancelled,
rescinded or subordinated, in whole or part; and Mego has not waived
the performance by the Obligor of any action, if the Obligor's failure
to perform such action would cause the Note or Mortgage Loan to be in
default, except as otherwise permitted by clause (iii); and with
respect to a Mortgage Loan, the related Property has not been released
from the lien of the Mortgage, in whole or in part, nor has any
instrument been executed that would effect any such satisfaction,
subordination, release, cancellation or rescission;
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(vii) Each related Mortgage is a valid, subsisting and
enforceable lien on the related Property, including the land and all
buildings on the Property;
(viii) The Note and any related Mortgage are genuine and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights in general and by general principles
of equity;
(ix) To Mego's best knowledge, all parties to the Note and
any related Mortgage had legal capacity at the time to enter into the
Loan and to execute and deliver the Note and any related Mortgage, and
the Note and any related Mortgage have been duly and properly executed
by such parties;
(x) As of the applicable Cut-Off Date, the proceeds of the
Loan have been fully disbursed and there is no requirement for future
advances thereunder, and any and all applicable requirements set forth
in the Loan documents have been complied with; the Obligor is not
entitled to any refund of any amounts paid or due under the Note or
any related Mortgage;
(xi) Immediately prior to the sale, transfer and assignment
to the Depositor, Mego will have good and indefeasible legal title to
the Loan, the related Note and any related Mortgage and the full right
to transfer such Loan, the related Note and any related Mortgage, and
Mego will have been the sole owner thereof, subject to no liens,
pledges, charges, mortgages, encumbrances or rights of others, except
for such liens as will be released simultaneously with the transfer
and assignment of the Loans to the Depositor; and immediately upon the
sale, transfer and assignment contemplated by the Purchase Agreement,
the Depositor will hold good title to, and be the sole owner of each
Loan, the related Note and any related Mortgage, free of all liens,
pledges, charges, mortgages, encumbrances or rights of others;
(xii) Except for those Loans referred to in Section
2.03(b)(ii) above that are delinquent as of the Closing Date, there is
no default, breach, violation or event of acceleration existing under
the Loan, the related Note and any related Mortgage and there is no
event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration and neither Mego nor its
predecessors have waived any default, breach, violation or event of
acceleration;
(xiii) The Note and any related Mortgage contain customary
and enforceable provisions such as to render the rights and remedies
of the holder thereof adequate for the realization against the
Property of the benefits of the security provided thereby, including,
(A) in the case of any Mortgage designated as a deed of trust, by
trustee's sale, and (B) otherwise by judicial foreclosure;
(xiv) Each FHA Loan is an FHA Title I property improvement
loan (as defined in 24 C.F.R. Section 201.2) underwritten and
originated by Mego in
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accordance with FHA requirements for the Title I Loan program as set
forth in 24 C.F.R. Parts 201 and 202, and Mego has transmitted a loan
report with respect to such FHA Loan to FHA so that such FHA Loan will
be included in the Title I program;
(xv) The Loan is a fixed rate loan; the Note shall mature
within not more than (a) for an FHA Loan, 20 years and 32 days and (b)
for a Non-FHA Loan, 25 years, from the date of origination of the
Loan; the Note is payable in substantially equal Monthly Payments,
with interest payable in arrears, and requires a Monthly Payment which
is sufficient to fully amortize the original principal balance over
the original term and to pay interest at the related Loan Rate;
interest on each Loan is calculated on the basis of a 360 day year
consisting of twelve 30-day months, and the Note does not provide for
any extension of the original term;
(xvi) The related Note is not and has not been secured by
any collateral except, in the case of a Mortgage Loan, the lien of the
corresponding Mortgage;
(xvii) With respect to any Mortgage Loan, if the related
Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees
or expenses are or will become payable to the trustee under the deed
of trust, except in connection with default proceedings and a
trustee's sale after default by the Mortgagor;
(xviii) With respect to any Mortgage Loan, Mego has no
knowledge of any circumstances or conditions not reflected in the
representations set forth herein, or in the Loan Schedule, or in the
related File with respect to the related Mortgage, the related
Property or the Obligor which could reasonably be expected to
materially and adversely affect the value of the related Property, or
the marketability of the Mortgage Loan or to cause the Mortgage Loan
to become delinquent or otherwise in default;
(xix) Assuming no material change to the applicable law or
regulations in effect as of the Closing Date, after the consummation
of the transactions contemplated by this Agreement, the Trustee or its
designee on behalf of the Trust will have the ability to foreclose or
otherwise realize upon a Property, if the Loan is a Mortgage Loan, or
to enforce the provisions of the related Loan against the Obligor
thereunder, if the foreclosure upon any such Property or enforcement
of the provisions of the related Loan against the Obligor are
undertaken as set forth in Section 3.12;
(xx) With respect to any FHA Loan that is a Mortgage Loan,
the improvements to the Property relating to such FHA Loan, have been
or shall be completed and inspected by the Servicer within the time
period and to the extent required under the applicable Title I
regulations, and evidence of such inspection shall have been delivered
to the Trustee or, if not, a letter of non-compliance shall be
delivered to the Trustee promptly upon the completion of such
inspection;
(xxi) Each FHA Loan has been originated in compliance with
the provisions of 24 C.F.R. Section 201.20, and, if required by Title
I, the market value
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of the any related Property has been ascertained in accordance with
the procedures established by HUD;
(xxii) There exists a File relating to each Loan and such
File contains all of the original or certified documentation listed in
Section 2.01(b)(A) for such Loan. Each Legal File has been delivered
to the Trustee and each Credit File is being held in trust by Mego for
the benefit of, and as agent for, the Certificateholders, the
Certificate Insurer and the Trustee as the owner thereof. Each
document included in the File which is required to be executed by the
Obligor has been executed by the Obligor in the appropriate places.
With respect to each Mortgage Loan, the related assignment of Mortgage
to the Trustee is in recordable form and is acceptable for recording
under the laws of the jurisdiction in which the Property is located.
All blanks on any form required to be completed have been so
completed;
(xxiii) Each FHA Loan is in respect of a home improvement
loan or a retail installment sale contract, and each Property is
improved by a residential dwelling and is not a Loan in respect of a
manufactured home or mobile home or the land on which a manufactured
home or mobile home has been placed;
(xxiv) Each FHA Loan was originated by Mego in accordance
with the applicable underwriting criteria established by the FHA and
HUD; each Non-FHA Loan was originated by Mego in accordance with
Mego's "Express 35/Swift 60 Loan Program" or "Debt Consolidation 125
Loan Program" underwriting guidelines, as applicable, attached hereto
as Exhibit G;
(xxv) Any Property securing an FHA Loan is covered by any
insurance required by Title I; if the Property securing any Mortgage
Loan is in an area identified by the Federal Emergency Management
Agency ("FEMA") as having special flood hazards, unless the community
in which the area is situated is participating in the National Flood
Insurance Program and the regulations thereunder or less than a year
has passed since FEMA notification regarding such hazards, a flood
insurance policy is in effect with respect to such Property with a
generally acceptable carrier which complies with Section 102(a) of the
Flood Disaster Protection Act of 1973; all improvements upon each
Property securing a Non-FHA Loan are insured by a generally acceptable
insurer against loss by fire hazards of extended coverage and such
other hazards as are customary in the area where the Property is
located pursuant to insurance policies conforming to the requirements
of the Agreement; all such policies contain a standard mortgage clause
naming Mego, its successors and assigns, as loss payee.
(xxvi) All costs, fees and expenses incurred in originating
and closing the Loan and in recording any related Mortgage were paid
and the Obligor is not entitled to any refund of any amounts, paid or
due to the Obligee pursuant to the Note or any related Mortgage;
(xxvii) Except for the related FHA Premium Amount, if
applicable, there is no obligation on the part of Mego or any other
party other than the Obligor to make payments with respect to the
Loan;
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(xxviii) At the time of origination of the Loan, each
related prior lien, if any, was not 30 or more days delinquent;
(xxix) All parties which have had any interest in the Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during
the period in which they held and disposed of such interest, were) (i)
in compliance with any and all applicable licensing requirements of
the laws of the state wherein the Property is located, and (ii) (A)
organized under the laws of such state, or (B) qualified to do
business in such state, or (C) federal savings and loan associations
or national banks having principal offices in such state, or (D) not
doing business in such state;
(xxx) With respect to each Mortgage Loan, the related
Mortgage contains an enforceable provision requiring the consent of
the Mortgagee to assumption of the related Mortgage Loan upon sale of
the Property;
(xxxi) With respect to any Mortgage Loan, there is no
homestead or other exemption available to the Mortgagor which would
materially interfere with the right to sell the related Property at a
trustee's sale or the right to foreclose the Mortgage; no relief has
been requested or allowed to the Mortgagor under the Civil Relief Act;
(xxxii) Subject to Section 2.04(b), each FHA Loan has been
submitted to the FHA for insurance pursuant to the FHA Title I loan
program and each FHA Loan has been or will be assigned a case number
by the FHA for the FHA Title I loan program;
(xxxiii) Subject to Section 2.04(b), the FHA Reserve Amount
with respect to each FHA Loan, has been or will be transferred to the
FHA Insurance Coverage Reserve Account;
(xxxiv) The related File for each FHA Loan that is a
Mortgage Loan contains a Title Document with respect to such Loan
reflecting that title to the related Property is vested at least 50%
in the Obligor under such Loan;
(xxxv) Each Property (including each residential dwelling
improvement thereon) is free of damage which materially and adversely
affects the value thereof and, if the related Loan is an FHA Loan,
impairs the ability to insure the related Loan under the Title I
program;
(xxxvi) Each Group I Loan is a "qualified mortgage" under
Section 860G(a)(3) of the Code;
(xxxvii) Each Loan was originated in compliance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith
or, if the related loan is an FHA Loan, in the application for any
insurance required by Title I in relation to such FHA Loan;
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(xxxviii) Each Loan has been serviced in accordance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(xxxix) The transfer, assignment and conveyance of the Notes
and the Mortgages by Mego to the Depositor were not subject to the
bulk transfer laws or any similar statutory provisions in effect in
any applicable jurisdiction;
(xl) Any Loan originated in the State of Texas, was
originated pursuant to either Chapter 3 or Chapter 6 of the Texas
Consumer Credit Code;
(xli) As of the applicable Cut-Off Date, no Mortgagor is a
debtor under proceedings under the Bankruptcy Code, and no such
Mortgagor has defaulted in payments on a Loan after the filing of such
bankruptcy case, whether under a plan or reorganization or otherwise;
(xlii) Mego has not advanced funds, or induced, solicited or
knowingly received any advance of loan payments from a party other
than, with respect to a Mortgage Loan, the owner of the Property
subject to the Mortgage;
(xliii) Mego originated the Loans through its network of
dealers and correspondents;
(xliv) Each Loan conforms, and all such Loans in the
aggregate conform, to the description thereof set forth in the
Prospectus Supplement;
(xlv) With respect to FHA Loans secured by a Mortgage, the
representations and warranties of the Mortgagor in each mortgage loan
application and in connection with the related FHA Loan are true and
correct in all material respects (and it shall be deemed that a breach
is material only if a claim for payment made to the FHA under the
Contract of Insurance in respect of such FHA Loan is a Rejected Claim
as a result of such breach);
(xlvi) Each Loan either complies with the Home Ownership and
Equity Protection Act of 1994 or is not subject to such act;
(xlvii) Mego has caused to be performed or shall cause to be
performed within 15 Business Days of the Closing Date any and all acts
required to preserve the rights and remedies of the Trustee in any
insurance policies applicable to each Loan and, if such Loan is an FHA
Loan, required by Title I, including, without limitation, any
necessary notifications of insurers, assignments of policies or
interests therein, and establishment of coinsured, joint loss payee
and mortgagee rights in favor of the Trustee;
(xlviii) With respect to any Mortgage Loan, to Mego's best
knowledge, there exists no violation of any environmental law (either
local, state or federal), rule or regulation in respect of the
Property which violation has or could have a material adverse effect
on the market value of such Property. Mego has no knowledge of any
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pending action or proceeding directly involving the related Property
in which compliance with any environmental law, rule or regulation is
in issue; and, to Mego's best knowledge, nothing further remains to be
done to satisfy in full all requirements of each such law, rule or
regulation constituting a prerequisite to the use and enjoyment of
such Property; and
(xlix) Not more than 0.762% of the FHA Loans (by aggregate
Initial Principal Balance) and none of the Non-FHA Loans are secured
by Mortgages on nonowner occupied Properties.
(l) Substantially all of the proceeds of each FHA Loan that
is a Mortgage Loan were used to acquire, improve or protect an
interest in real property. For purposes of this representation,
"interest in real property" shall have the meaning set forth in
Treasury Regulation Section1.856-3(c) and Section1.856-3(d).
(li) No Loan was selected from among Mego's assets in a
manner which would cause them to be adversely selected as to credit
risk from the pool of home improvement loans owned by Mego. The
parties to the Agreement hereby acknowledge that the Seller is not
selling $9,200,000 of Title I Loans with loan rates of 11% per annum
or less in its inventory to the Trust.
(c) The representations and warranties set forth in Section 2.03
(together with the remedies with respect thereto): (i) shall survive delivery of
the related Legal Files to the Trustee and the delivery of and payment for the
Certificates and shall be continuing (but shall speak as of their respective
dates) as long as any Certificate is Outstanding or this Agreement has not been
terminated, and (ii) are made exclusively to the Master Servicer, the Depositor,
the Certificate Insurer and the Trustee for the benefit of Certificateholders.
No representation or warranty made in this Section 2.03 shall constitute a
waiver of any right, claim or defense of the obligee with respect to any
Obligor, Note, Mortgage, or Property.
Section 2.04. Defective Loans.
(a) Upon determination by the Master Servicer, the Certificate
Insurer, the Depositor, Mego or the Trustee that:
(i) any document constituting a part of any File was not
delivered to the Trustee or, with respect to any document constituting
the Credit File, to Mego, as custodian for the Trustee, the
Certificate Insurer and Certificateholders, by the time required
hereby (which in the case of (A) a failure to deliver a recorded
mortgage or recorded assignment pursuant to Section 2.01(b)(A)(ii) or
(A)(iv) (only under the circumstances in which a delay is caused by
the public recording office and an Officer's Certificate is required
to be provided thereunder) shall be the 20 month anniversary of the
Closing Date, (B) failure to deliver a completion certificate or
inspection report pursuant to Section 2.01(b)(A)(vi)(H) shall be the
14 month anniversary of the Closing Date, (C) a failure to deliver
each other document constituting a part of any Legal File shall be the
Closing Date and (D) a failure to deliver each document (other than
those described in clause (B) above) specified in Section
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2.01(b)(A)(vi) shall be 45 Business Days after the Closing Date) to be
so delivered or was defective in any material respect when delivered
to the Trustee; or
(ii) any of the statements made by Mego in Section 2.03
shall prove to have been untrue in a manner that materially and
adversely affects the interests of Certificateholders or the
Certificate Insurer in the Loan with respect to which such statement
is made or in the Loans;
the party identifying any of the foregoing shall give prompt written notice to
the other parties and the Certificate Insurer. Nothing contained herein shall
require the Trustee to undertake any independent investigation or to make any
review of any File other than as provided for in Section 2.02.
(b) Except with respect to a breach of the representations made
by Mego pursuant to Section 2.03(b)(xxxiii) and (xxxiv), in the event of a
determination referred to in Section 2.04(a) and a failure within sixty Business
Days of discovery or receipt of notice of such failure to effect a cure of the
circumstances giving rise to such defect, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding the expiration of such sixty-day period, to
repurchase (or substitute for, to the extent permitted by subsection (c) below)
the affected Loan. The Certificate Insurer and the Trustee on behalf of the
Certificateholders agree that if an FHA Loan is a Defective Loan because a
document is not included in the Credit File as of the 60th Business Day after
the discovery or receipt of notice thereof, such defect shall be deemed to be
cured if the Trustee shall have received during the sixty-day period after such
date a written statement addressed to it from the Director of HUD Title I
Insurance Division that such document would not be required in connection with a
claim for FHA Insurance with respect to such FHA Loan. Except as set forth in
Section 5 of the Indemnification Agreement, it is understood and agreed that the
obligation of Mego to repurchase or substitute any such Loan pursuant to this
Section shall constitute the sole remedy against it with respect to such breach
of the foregoing representations or warranties or the existence of the foregoing
conditions. For purposes of calculating 90 Business Days from the discovery of a
Defective Loan that is an FHA Loan because a document is not included in the
Credit File in this Section 2.04(b), a Business Day shall not include any day on
which the FHA is officially closed for reasons other than as specified in the
definition of Business Day. With respect to representations and warranties made
by Mego pursuant to Section 2.03(b) that are made to Mego's best knowledge, if
it is discovered by any of the Depositor, Mego, the Trustee or the Certificate
Insurer that the substance of such representation and warranty is inaccurate and
such inaccuracy materially and adversely affects the value of the related Loan,
notwithstanding Mego's lack of knowledge, such inaccuracy shall be deemed a
breach of the applicable representation and warranty.
With respect to a breach of the representations made by Mego
pursuant to Section 2.03(b)(xxxiii) or (xxxiv) if the FHA has not assigned a
case number under the Contract of Insurance to an FHA Loan to indicate that such
FHA Loan is eligible for Title I Insurance coverage under the Contract of
Insurance on or before the 120th day after the Closing Date, Mego shall be
obligated, on the Monthly Cut-Off Date next succeeding such 120th day, to
repurchase such FHA Loan. If the FHA Reserve Amount with respect to an FHA Loan
has not been transferred to the FHA Insurance Coverage Reserve Account on or
before the 150th day after the Closing Date, Mego shall be obligated, on the
Monthly Cut-Off
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Date next succeeding such 150th day, to repurchase such FHA Loan. The Claims
Administrator shall give notice in writing to each of the Master Servicer, the
Certificate Insurer, the Depositor, Mego and the Trustee of (i) any FHA Loan
with respect to which there has not been assigned a case number under the
Contract of Insurance on or before the 120th day after the Closing Date and (ii)
any FHA Loan that has not been transferred to the FHA Insurance Coverage Reserve
Account on or before the 150th day after the Closing Date. For purposes of
calculating either 120 or 150 days from the Closing Date in this Section
2.04(b), any day on which the FHA is officially closed for reasons other than
such day being a Saturday, Sunday or a day on which banking institutions in
Washington, D.C. are authorized or obligated by law, executive order or
governmental decree to be closed, shall not be counted in making such
calculation.
If Mego is required to repurchase any Loan on a Monthly Cut-Off
Date that is not a Business Day, such repurchase shall be made on the last
Business Day preceding such Monthly Cut-Off Date. Any Loan required to be
purchased or repurchased pursuant to this Section 2.04(b) is referred to as a
"Defective Loan."
(c) Mego shall be obligated to repurchase a Defective Loan for
the Purchase Price, payable to the Trustee in cash on the Monthly Cut-Off Date
specified in Section 2.04(b) for deposit in the related Distribution Account.
Notwithstanding the foregoing, within two years of the Closing Date, Mego may
elect in lieu of the purchase or repurchase of a Defective Loan as provided in
this Section 2.04, to substitute, as of the Monthly Cut-off Date specified in
Section 2.04(b), a Substitute Loan for the Defective Loan in accordance with the
provisions of this Section 2.04.
(d) Mego shall notify the Servicer, the Trustee and the
Certificate Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Loan pursuant to Section 2.04(b) of its
intention to effect a substitution under this Section. On such Determination
Date (the "Substitution Date"), Mego shall deliver to the Trustee and the
Certificate Insurer (1) a list of the Loans to be substituted for by such
Substitute Loans, and attaching as an exhibit a supplemental Loan Schedule (the
"Supplemental Loan Schedule") setting forth the same type of information
appearing on the Loan Schedule and representing as to the accuracy thereof and
(2) an Opinion of Counsel to the effect set forth below. In connection with any
substitution pursuant to this Section 2.04, to the extent that the aggregate
Principal Balance of any Substitute Loan or Loans is less than the aggregate
Principal Balance of the corresponding Loan or Loans as of the Determination
Date on which the substitution is being made, Mego shall deposit such difference
(a "Substitution Adjustment Amount") to the Distribution Account on such date.
(e) Concurrently with the satisfaction of the conditions set
forth in this Section 2.04 and the grant of such Substitute Loans to the Trustee
pursuant to Section 2.04(c), Exhibit B to this Agreement shall be deemed to be
amended to exclude all Loans being replaced by such Substitute Loans and to
include the information set forth on the Supplemental Loan Schedule with respect
to such Substitute Loans, and all references in this Agreement to Loans shall
include such Substitute Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Substitute Loans.
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In connection with any Loan for which Mego elects to substitute a
Substitute Loan, Mego shall deliver to the Trustee and the Certificate Insurer
an Opinion of Counsel to the effect that such actions will not cause (x) any
federal tax to be imposed on the Trust, including without limitation, with
respect to a Substitute Loan for Loan Group I, any Federal tax imposed on
"prohibited transactions" under Section 860F(a)(1) of the Code or on
"contributions after the start-up day" under Section 860G(d)(1) of the Code or
(y) solely with respect to substitutions in Loan Group I, any portion of the
Trust to fail to qualify as a REMIC at any time that any Certificate is
outstanding. In the event that such opinion indicates that such substitution
will result in the imposition of a prohibited transaction tax, give rise to net
taxable income or be deemed a contribution to the REMIC after the "start-up
day", Mego shall not be permitted to substitute for such Loan but shall
repurchase such Loan in accordance with this Section 2.04.
(f) Notwithstanding the provisions of Section 2.04(b), the
Certificate Insurer, in its sole discretion, may extend, by not more than 150
days from the date of the notice described in Section 2.04(b), the sixty-day
period available, pursuant to Section 2.04(b), to Mego to cure the circumstances
giving rise to a defect with respect to any Loan described in Section 2.04(a).
(g) With respect to all Defective Loans or other Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the Purchase
Price therefor to the related Distribution Account, the Trustee shall assign to
Mego, without recourse, representation or warranty, all the Trustee's right,
title and interest in and to such Defective Loans or Loans, which right, title
and interest were conveyed to the Trustee pursuant to Section 2.01, including,
without limitation, the rights any FHA Insurance reserves attributable to such
Loans. The Trustee shall take any actions as shall be reasonably requested by
Mego to effect the repurchase of any such Loans.
Section 2.05. Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to Mego, the Master
Servicer and the Trustee for the benefit of the Certificateholders and the
Certificate Insurer, that, as of the Closing Date:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
with full power and authority to own its properties and conduct its
business as such properties are presently owned and such business is
presently conducted;
(ii) The Depositor has full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
required of it by this Agreement and each other Transaction Document
to which it is a party; has duly authorized the execution, delivery
and performance of this Agreement and each other Transaction Document
to which it is a party; has duly executed and delivered this Agreement
and each other Transaction Document to which it is a party; when duly
authorized, executed and delivered by the other parties hereto, this
Agreement and each other Transaction Document to which it is a party
will constitute a legal, valid and binding obligation of the Depositor
enforceable against it in accordance with its terms,
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except as such enforceability may be limited by general principles of
equity (whether considered in a proceeding at law or in equity);
(iii) Immediately prior to the sale, transfer and assignment
by the Depositor to the Trustee of each Loan, the Depositor had good
and indefeasible title to each Loan and the related Note and any
related Mortgage (insofar as such title was conveyed to it by Mego)
subject to no prior lien, claim, participation interest, mortgage,
security interest, pledge, charge or other encumbrance or other
interest of any nature;
(iv) As of the Closing Date, the Depositor has transferred
all right, title and interest in the Loans to the Trustee;
(v) The Depositor has not transferred the Loans to the
Trustee with any intent to hinder, delay or defraud any of its
creditors;
(vi) Neither the execution and delivery of this Agreement or
any of the other Transaction Documents to which the Depositor is a
party, the consummation of the transactions required of it herein or
under any other such Transaction Document, nor the fulfillment of or
compliance with the terms and conditions of this Agreement or any of
the other Transaction Documents to which the Depositor is a party,
will conflict with or result in a breach of any of the terms,
conditions or provisions of the Depositor's charter or by-laws or any
legal restriction or any material agreement or instrument to which the
Depositor is now a party or by which it is bound, or which would
adversely affect the creation and administration of the Trust as
contemplated hereby, or constitute a material default or result in an
acceleration under any of the foregoing, or result in the violation of
any law, rule, regulation, order, judgment or decree to which the
Depositor is subject;
(vii) There is no action, suit, proceeding, investigation or
litigation pending against the Depositor or, to its knowledge,
threatened, which, if determined adversely to the Depositor, would
materially adversely affect the sale of the Loans, the issuance of the
Certificates, the execution, delivery or enforceability of this
Agreement or any other Transaction Document to which the Depositor is
a party, or which would have a material adverse affect on the
financial condition of the Depositor; and
(viii) The Depositor received fair consideration and
reasonably equivalent value in exchange for the sale of the interest
in the Loans evidenced by the Certificates.
Section 2.06. Execution, Countersignature and Delivery of
Certificates.
Concurrently with, and in consideration for, the sale, transfer,
assignment and conveyance by the Depositor of the Loans listed in the Loan
Schedule on the Closing Date, the delivery by the Depositor of the related Files
pursuant to Section 2.01(b), the delivery of the cash required by Section
2.01(c) to be deposited in the related Distribution Account and the related FHA
Premium Account, the Trustee has executed, authenticated and delivered to or
upon the order of the Depositor, the Class IA-1 Certificates, Class IA-2
Certificates, Class
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IA-3 Certificates, Class IIA Certificates, Class IS Certificates, Class IIS
Certificates and the Class R Certificates specified in Section 5.01(a).
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ARTICLE III
Administration and Servicing of Loans;
Claims Administration
Section 3.01. Servicing Standard.
(a) The Master Servicer is hereby authorized to act as agent for
the Trust and in such capacity shall manage, service, administer and make
collections on the Loans, and perform the other actions required by the Master
Servicer under this Agreement. In performing its obligations hereunder the
Master Servicer shall at all times act in good faith in a commercially
reasonable manner in accordance with all requirements of the FHA applicable to
the servicing of the FHA Loans and otherwise in accordance with applicable law
and the Notes and Mortgages. The Master Servicer shall at all times service and
administer the FHA Loans in accordance with Title I, and shall have full power
and authority, acting alone and/or through the Servicer as provided in Section
3.02, subject only to this Agreement, the respective Loans, and, in the case of
the FHA Loans, the specific requirements and prohibitions of Title I, to do any
and all things in connection with such servicing and administration which are
consistent with the manner in which prudent servicers service FHA Title I home
improvement loans and which are consistent with the ordinary practices of
prudent mortgage lending institutions, but without regard to:
(i) any relationship that the Master Servicer, the Servicer
or any affiliate of the Master Servicer or any Servicer may have with
the related Obligor:
(ii) Mego's obligations to repurchase or substitute for a
Defective Loan pursuant to Section 2.04(c) or any FHA Loans pursuant
to Section 3.12(b);
(iii) the ownership of any Certificate by the Master
Servicer or any affiliate of the Master Servicer;
(iv) the Master Servicer's obligation to make Interest
Advances pursuant to Section 3.08(a), to make Foreclosure Advances
pursuant to Section 3.08(b), or repurchase any FHA Loans pursuant to
Section 3.12; or
(v) the Master Servicer's right to receive compensation for
its services hereunder pursuant to Section 4.05.
The Master Servicer may take any action hereunder, including
exercising any remedy under any Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of any Obligor, without the consent or approval of the
Trustee or the Certificate Insurer, unless any such consent or approval is
expressly required hereunder or under applicable law.
(b) The Trustee shall execute and return to the Master Servicer
or the Servicer designated in a written instruction from the Master Servicer to
the Trustee, within 5 days of the Trustee's receipt any and all documents or
instruments necessary to maintain the lien created by any Mortgage on the
related Property or any portion thereof, and, within
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5 days of request by the Master Servicer or the Servicer therefor a power of
attorney in favor of the Servicer with respect to any modification, waiver, or
amendment to any document contained in any File and 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 Loans and with respect to
the related Properties prepared and delivered to the Trustee by the Master
Servicer or any Servicer, all in accordance with the terms of this Agreement.
(c) The Trustee shall furnish the Master Servicer within 5 days
of request of a Master Servicing Officer therefor any powers of attorney and
other documents necessary and appropriate to carry out its servicing and
administrative duties hereunder, including any documents or powers of attorney
necessary to foreclose any Loan. The forms of any such powers or documents shall
be appended to such requests.
(d) Nothing in this Agreement shall preclude the Master Servicer,
in its individual capacity, from entering into other mortgage loans or other
financial transactions with any Obligor or from refinancing any Loan.
(e) The Servicer hereby incorporates by reference the
representations, warranties and covenants made by it in Section 2.02 of the
Servicing Agreement.
Section 3.02. Servicing Arrangements.
(a) On or prior to the date hereof, the Master Servicer has
entered into a Servicing Agreement with respect to all of the Loans, in
substantially the form of the Form of the Servicing Agreement attached hereto as
Exhibit A with Mego, as Servicer. So long as no Certificate Insurer Default
shall have occurred and be continuing, upon the termination of the Servicing
Agreement, the Master Servicer may only appoint or consent to the appointment or
succession of a successor Servicer under the Servicing Agreement and may only
enter into a substitute servicing agreement which is in form and substance as
the Servicing Agreement attached hereto as Exhibit A (which, with the consent of
the Certificate Insurer, may differ in material respects from the Form of
Servicing Agreement attached hereto as Exhibit A) and with a Person acceptable
to the Certificate Insurer. So long as no Certificate Insurer Default exists,
the Master Servicer shall not consent to any material amendment, modification or
waiver of the provisions of a Servicing Agreement without the consent of the
Certificate Insurer.
(b) No provision of this Agreement or the Servicing Agreement
shall be deemed to relieve the Master Servicer of any of its duties and
obligations to the Trustee on behalf of Certificateholders and the Certificate
Insurer with respect to the servicing and administration of the Loans as
provided hereunder; it being understood that the Master Servicer shall be
obligated with respect thereto to the same extent and under the same terms and
conditions as if it alone were performing all duties and obligations set forth
in this Agreement in connection with the collection, servicing and
administration of such Loans.
(c) Without limitation of the provisions of Section 3.02(b), the
Master Servicer shall (i) review the servicing reports prepared by the Servicer
in order to ensure the accuracy thereof, (ii) review the reports submitted by
the Servicer to confirm that the Servicer is collecting and appropriately
accounting for Obligor payments of premium on FHA Insurance
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on Invoiced Loans, (iii) otherwise monitor the performance by the Servicer under
the Servicing Agreement and notify the Trustee and the Certificate Insurer of
any Servicer Termination Event, and (iv) be obligated to ensure that the
Servicer deposits Payments into the related Collection Account. In the event the
Servicer fails to make such deposit, the Master Servicer will deposit such
amounts as set forth in Section 4.03(a).
(d) The Master Servicer agrees that it shall at all times be
prepared (and shall take all steps reasonably required by the Certificate
Insurer to ensure such preparation), to perform the obligations of the Servicer
if the Servicer fails to perform its duties and obligations under the Servicing
Agreement.
(e) The Servicing Agreement may provide that the Servicer may
retain, as additional compensation, prepayment penalties, assumption and
processing fees paid by any Obligor and all similar fees customarily associated
with the servicing of the Loans, including, but not limited to late charges,
paid by any Obligor.
(f) At the direction of the Certificate Insurer, so long as no
Certificate Insurer Default exists, the Master Servicer shall terminate the
Servicer upon the occurrence and continuance of a Servicer Termination Event
pursuant to the terms of the Servicing Agreement.
(g) Mego, as Servicer, shall provide information to the Master
Servicer monthly in a mutually agreeable format in order to enable the Master
Servicer to independently reconfirm the loan-by-loan reconciliation of the
outstanding Principal Balance of each Loan included in such information. The
Master Servicer shall prepare exception reports, if necessary, showing all
Principal Balance differences between the information provided by the Servicer
and the confirmations prepared by the Master Servicer and shall furnish such
reports to the Trustee for distribution to the Certificate Insurer. If requested
by the Certificate Insurer, the Servicer shall provide to the Certificate
Insurer all information provided to the Master Servicer pursuant to this Section
3.02(g).
Section 3.03. Servicing Record.
(a) The Master Servicer shall establish and maintain books and
records for each Loan Group, (each, a "Servicing Record") in which the Master
Servicer shall record by Loan Group: (i) all Payments received or collected by
or on behalf of the Master Servicer (through the Servicer or otherwise) or
received by the Trustee in respect of each Loan and each Foreclosed Property and
(ii) all amounts owing to the Master Servicer in compensation for services
rendered by the Master Servicer hereunder or in reimbursement of costs and
expenses incurred by the Master Servicer hereunder. In addition, the Master
Servicer shall establish and maintain records for the Insurance Record (which
shall be part of each Servicing Record) in which the Master Servicer shall
record all claims made under the Contract of Insurance, all payments received by
or on behalf of the Contract of Insurance Holder from the FHA for each such
claim and the amount of insurance coverage available in the Insurance Record.
(b) Except as otherwise provided herein, amounts received or
collected by or on behalf of the Master Servicer or the Trustee from or on
behalf of any Obligor or in
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respect of any Foreclosed Property or from FHA with respect to a claim made
under the Contract of Insurance shall be credited to applicable Servicing
Record:
(i) promptly following direct receipt or direct collection
by the Master Servicer;
(ii) in the case of a Loan directly serviced by a Servicer,
promptly following deposit of the receipt or collection in the related
Collection Account; or
(iii) in the case of any amount received directly by the
Trustee, promptly following the Master Servicer's actual knowledge of
receipt by the Trustee pursuant to the notice required by Section
3.12(e) or otherwise;
but in any event not later than the Determination Date next following the date
of receipt or collection by or on behalf of the Master Servicer (through the
Servicer or otherwise) or receipt by the Trustee. Amounts received or collected
by the Master Servicer in connection with the purchase or repurchase of any Loan
or any Foreclosed Property shall be so recorded on and as of the date of
receipt. Each Servicing Record shall separately reflect amounts so received or
collected by the Master Servicer in each Due Period. All Obligor Payments
received from FHA Loans from or on behalf of an Obligor shall be allocated in
accordance with Title I.
(c) The Master Servicer shall credit to each Servicing Record
relating to each Due Period, on a Loan-by-Loan basis, each of the following
Payments collected or received by or on behalf of the Master Servicer (through
the Servicer or otherwise) or received by the Trustee in respect of each Loan in
the related Loan Group and each Foreclosed Property relating to such Loan Group:
(i) all payments on account of principal;
(ii) all payments on account of interest;
(iii) all proceeds of the purchase or repurchase of any Loan
pursuant to Section 2.04(b) or, with respect to FHA Loans, Section
3.12(b) and all Substitution Adjustment Amounts;
(iv) all amounts paid by or on behalf of the related Obligor
in respect of Foreclosure Advances previously advanced by the Master
Servicer or the Servicer;
(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 3.13;
(vi) all proceeds of the sale of the Loans and any
Foreclosed Properties pursuant to Section 9.01;
(vii) all FHA Insurance Payment Amounts; and
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(viii) all Insurance Proceeds, any condemnation awards or
settlements or any payments made by any related guarantor or
third-party credit-support provider and any and all other amounts
received in respect of Loans and not specified above.
(d) Notwithstanding anything to the contrary herein, the Master
Servicer shall not be required to credit to the Servicing Record, and neither
the Master Servicer nor any Certificateholder shall have any right or interest
in any amount due or received with respect to any Loan or any related Foreclosed
Property subsequent to the date of repurchase of such Loan or Foreclosed
Property from the Trust.
(e) The Master Servicer shall separately record in each Servicing
Record for each Loan Group the items required to be included in the Master
Servicer Certificate for such Loan Group and additionally the following items
with respect to such Loan Group to the extent not included therein:
(i) on or before each Determination Date, the related unpaid
Master Servicer Fee due the Master Servicer on the next Distribution
Date;
(ii) on or before each Determination Date, all amounts
retained by the Servicer in respect of the preceding Due Period in
respect of amounts due Independent Contractors hired by the Master
Servicer to operate and manage a Foreclosed Property pursuant to
Section 3.14(c);
(iii) on or before each Determination Date, the amount of
unreimbursed Interest Advances in respect of prior Distribution Dates
and the amount which the Master Servicer or the Servicer is entitled
to be reimbursed therefor in accordance with Section 3.08;
(iv) on or before each Determination Date, all amounts due
as of the preceding Monthly Cut-Off Date in reimbursement of
Foreclosure Advances previously advanced by the Master Servicer or the
Servicer (separately identifying the type and amount of each then
due);
(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Trustee, all Other
Fees required to be distributed pursuant to Section 4.05(a)(xv) or
4.05(b)(xiv), as applicable on the next succeeding Distribution Date;
(vi) promptly following each Distribution Date, the
aggregate amount of the Master Servicer Fee and Servicer Fee paid to
the Master Servicer or Servicer, respectively, on such Distribution
Date pursuant to Section 4.05(a)(ii) or 4.05(b)(ii), as applicable;
(vii) promptly following each Distribution Date, the
aggregate amount of Interest Advances and Foreclosure Advances
reimbursed to the Master Servicer or the Servicer on such Distribution
Date;
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(viii) on or before each Determination Date, all unpaid
Trustee Fees due the Trustee as of the preceding Monthly Cut-Off Date
pursuant to Section 8.05;
(ix) on or before each Determination Date, the Principal
Balance of Loans that became Defaulted Loans during the prior Due
Period;
(x) on or before each Determination Date, each Collateral
Performance Percentage,
(xi) on or before each Determination Date, the amount
deposited into each Collection Account representing payments by the
related Obligors on Invoiced Loans in respect of premium on FHA
Insurance;
(xii) on or before each Determination Date, the amount
remaining in the FHA Insurance Coverage Reserve Account with respect
to all FHA Loans and the Related Series Loans, if any;
(xiii) on or before each Determination Date, identification
by loan number, Obligor name, address of Property and Principal
Balance of such Loan with respect to which the Master Servicer has
requested that the Trustee obtain the environmental report required by
Section 3.12 in connection with deciding pursuant to Section 3.12 to
foreclose on or otherwise acquire title to the related Property;
(xiv) on or before each Determination Date, the Principal
Balance of each such Loan with respect to which the Master Servicer
has determined under the circumstances described in the penultimate
sentence of Section 3.12(a) that in good faith in accordance with
customary mortgage loan servicing practices that all amounts which it
expects to receive with respect to such Loan have been received; and
(xv) on or before each Determination Date, any other
information with respect to the Loans reasonably required by the
Trustee or the Certificate Insurer to determine the amount of required
distributions pursuant to Section 4.05(a) or 4.05(b), as applicable,
and determinable by the Master Servicer without undue burden from the
Servicer or the items otherwise required to be maintained in each
Servicing Record.
(f) On or before each Distribution Date, the Master Servicer will
determine, based on the date of origination of the FHA Loans as set forth in the
Loan Schedule, the amount of FHA insurance premium, if any, due on or prior to
the next succeeding Distribution Date with respect to each FHA Loan. On or
before such Distribution Date, the Master Servicer will compare such amounts
with respect to each FHA Loan against amounts invoiced by FHA with respect to
the Contract of Insurance as due on or prior to such next succeeding
Distribution Date and report all discrepancies to the Trustee. Mego will assist
the Trustee with the transfer of FHA Insurance with respect to each FHA Loan to
the Contract of Insurance Holder. The Master Servicer is not responsible for the
transfer of FHA Insurance or the payment of any premium for FHA Insurance.
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Section 3.04. Annual Statement as to Compliance; Notice of Master
Servicer Termination Event.
(a) The Master Servicer will deliver to the Trustee, the
Depositor and the Certificate Insurer on or before May 31 of each year an
Officer's Certificate signed by two Responsible Officers of the Master Servicer
stating with respect to the Trust created hereunder, that:
(i) a review of the activities of the Master Servicer during
the preceding calendar year (or in connection with the first such
Officer's Certificate the period from the Closing Date through the end
of 1996) and of the Master Servicer's performance under this Agreement
with respect to such Trust has been made under the supervision of the
signer of such Officer's Certificate; and
(ii) to the best of such signer's knowledge, based on such
review, the Master Servicer has fulfilled all its obligations under
this Agreement throughout such year (or such portion of such year), or
there has been a default in the fulfillment of any such obligation, in
which case such Officer's Certificate shall specify each such default
known to such signer and the nature and status thereof and what action
the Master Servicer proposes to take with respect thereto.
(b) The Master Servicer shall deliver to the Trustee, the
Certificate Insurer and the Depositor, promptly after having obtained knowledge
thereof, but in no event later than 2 Business Days thereafter, written notice
in an Officer's Certificate of any event which with the giving of notice or
lapse of time, or both, would become a Master Servicer Termination Event under
Section 7.01. Each of Mego, the Depositor, the Certificate Insurer, the Trustee
and the Master Servicer shall deliver to the other of such Persons promptly
after having obtained knowledge thereof, but in no event later than 2 Business
Days thereafter, written notice in an Officer's Certificate of any event which
with the giving of notice or lapse of time, or both, would become a Master
Servicer Termination Event under any other clause of Section 7.01.
Section 3.05. Annual Independent Accountants' Report; Servicer
Review Report.
(a) The Master Servicer shall cause a firm of Independent
Accountants, who may also render other services to the Master Servicer, to
deliver to the Trustee, the Depositor and the Certificate Insurer on or before
May 31 (or 150 days after the end of the Master Servicer's fiscal year) of each
year, beginning on the first May 31 (or other applicable date) after the date
that is six months after the Closing Date, with respect to the twelve months
ended the immediately preceding December 31 (or other applicable date) (or such
other period as shall have elapsed from the Closing Date to the date of such
certificate) a report, conducted in accordance with generally accepted
accounting principles (the "Accountant's Report") including: (i) an opinion on
the financial position of the Master Servicer at the end of its most recent
fiscal year, and the results of operations and changes in financial position of
the Master Servicer for such year then ended on the basis of an examination
conducted in accordance with generally accepted auditing standards, and (ii) a
statement to the effect that, based on an examination of certain specified
documents and records relating to the servicing
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of the Master Servicer's mortgage loan portfolio or the affiliate of the Master
Servicer principally engaged in the servicing of mortgage loans conducted in
compliance with the audit program for mortgages serviced for FNMA, the United
States Department of Housing and Urban Development Mortgagee Audit Standards or
the Uniform Single Attestation Program for Mortgage Bankers (the "Applicable
Accounting Standards") such firm is of the opinion that such servicing has been
conducted in compliance with the Applicable Accounting Standards except for such
exceptions as such firm shall believe to be immaterial and such other exceptions
as shall be set forth in such statement.
(b) In addition, the Master Servicer will provide a report of a
firm of Independent Accountants which shall state that (1) a review in
accordance with agreed upon procedures (determined by the Certificate Insurer)
was made of such number of Master Servicer Certificates which the Independent
Accountants deem necessary to carry out their review of Master Servicer
performance, but in no case less than two and (2) except as disclosed in the
Accountant's Report, no exceptions or errors in the Master Servicer Certificates
so examined were found. The Accountant's Report shall also indicate that the
firm is independent of the Master Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
(c) The Master Servicer shall mail a copy of the Servicer Review
Report and any report or statement of the Servicer prepared pursuant to Section
6.04 of the Servicing Agreement to the Trustee.
(d) (1) The Master Servicer shall, unless otherwise directed by
the Certificate Insurer, cause a firm of Independent Accountants chosen with the
consent of the Certificate Insurer to review, annually within 90 days after each
anniversary of the Closing Date, in accordance with agreed upon procedures
(determined by the Certificate Insurer) the performance of the Servicer under
the Servicing Agreement in order to confirm that the records of the Servicer
accurately reflect collections, delinquencies and other relevant data with
respect to the Loans reported to the Master Servicer for the purpose of
preparation of the Servicing Record, and that such data is accurately reported
to the Master Servicer for reflection in the Servicing Record. Any exceptions or
errors disclosed by such procedures shall be included in a report delivered to
the Master Servicer, the Trustee and the Certificate Insurer (the "Servicer
Review Report").
(2) If the Certificate Insurer, upon receipt and review of the
Servicer Review Report, determines in its sole discretion that the errors or
exceptions disclosed by the Servicer Review Report warrant further review of the
performance of the Servicer, then the Certificate Insurer may, so long as no
Certificate Insurer Default exists, direct the Master Servicer to cause such
firm of Independent Accountants to perform such further review with respect to
the performance of Servicer as is reasonably requested by the Certificate
Insurer.
(3) In addition to the foregoing, the Certificate Insurer may at
any time and from time to time, so long as no Certificate Insurer Default
exists, direct the Master Servicer to cause such firm of Independent Accountants
to conduct such additional reviews and prepare such additional reports with
respect to the performance of any Servicer as the Certificate Insurer deems
reasonably appropriate.
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Section 3.06. Access to Certain Documentation and Information
Regarding Loans.
The Master Servicer shall provide to representatives of the
Trustee or the Certificate Insurer reasonable access to (a) the documentation
regarding the Loans and to those employees of the Master Servicer who are
responsible for the performance of the Master Servicer's duties hereunder and
(b) the books of account, records, reports and other papers of the Master
Servicer and to discuss its affairs, finances and accounts with its employees
and Independent accountants for the purpose of reviewing or evaluating the
financial condition of the Master Servicer. The Master Servicer shall provide
such access to any Certificateholder only in such cases where the Master
Servicer is required by applicable statutes or regulations (whether applicable
to the Master Servicer or to such Certificateholder) to permit such
Certificateholder to review such documentation. In each case, such access shall
be afforded without charge but only upon reasonable request and during normal
business hours. Nothing in this Section shall derogate from the obligation of
the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors, and the failure of the Master Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section. Any Certificateholder, by its
acceptance of a Certificate (or by acquisition of its beneficial interest
therein), shall be deemed to have agreed to keep confidential and not to use for
its own benefit any information obtained by it pursuant to this Section, except
as may be required by applicable law or by any applicable regulatory authority.
Section 3.07. [Reserved]
Section 3.08. Advances.
(a) With respect to the Loans (other than Defaulted Loans) in
each Loan Group and each Distribution Date, the Master Servicer shall advance
from its own funds and deposit into the related Distribution Account or from
funds on deposit in the related Collection Account in respect of amounts
available for distribution on future Distribution Dates, no later than the
related Determination Date, the excess, if any, of (i) the aggregate of the
portions of the Monthly Payments due with respect to all Loans of the related
Loan Group in the related Due Period allocable to interest (calculated at a rate
equal to the Net Loan Rate) over (ii) the aggregate amount deposited into the
Distribution Account with respect to all Loans in such Loan Group and such
Distribution Date and allocated in accordance with Section 3.03(c) to interest
(such amounts, "Interest Advances"). Any funds so applied from funds on deposit
in the related Collection Account in respect of amounts available for
distribution on future Distribution Dates shall be reimbursed by the Master
Servicer on or before any future Distribution Date to the extent that funds on
deposit in such Collection Account applied in the order of priority set forth in
such Section 4.05(a) or 4.05(b), as applicable, would be less than the amount
required to be distributed pursuant to Section 4.05(a) or 4.05(b), as
applicable, on such dates as a result of such Interest Advances.
Notwithstanding anything herein to the contrary, no Interest
Advance shall be required to be made hereunder if the Master Servicer determines
that such Interest Advance would, if made, constitute a Nonrecoverable Advance.
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(b) The Master Servicer shall advance from its own funds the
following amounts in respect of any Mortgage Loan or Foreclosed Property, as
applicable (collectively, "Foreclosure Advances"):
(i) all third party costs and expenses (including legal fees
and costs and expenses relating to bankruptcy or insolvency
proceedings in respect of any Obligor) associated with the institution
of foreclosure or other similar proceedings in respect of any Loan
pursuant to Section 3.12;
(ii) all insurance premiums due and payable in respect of
each Foreclosed Property, prior to the date on which the related
Insurance Policy would otherwise be terminated;
(iii) all real estate taxes and assessments in respect of
each Foreclosed Property that have resulted in the imposition of a
lien thereon, other than amounts that are due but not yet delinquent;
(iv) all costs and expenses necessary to maintain each
Foreclosed Property;
(v) all fees and expenses payable to any Independent
Contractor hired to operate and manage a Foreclosed Property pursuant
to Section 3.14(c); and
(vi) all fees and expenses of any Independent appraiser or
other real estate expert retained by the Trustee pursuant to Section
3.13(a).
The Master Servicer shall advance the Foreclosure Advances described in clauses
(i) through (v) above if, but only if, it has approved the foreclosure or other
similar proceeding in writing and the Master Servicer would make such an advance
if it or an affiliate held the affected Mortgage Loan or Foreclosed Property for
its own account and, in the Master Servicer's good faith judgment, such amounts
will be recoverable from related Payments. In making such assessment with
respect to the institution of such proceedings, the Master Servicer shall not
advance funds with respect to a Mortgage Loan unless the appraised value of the
related Property exceeds the sum of (i) the amounts necessary to satisfy any
liens prior to the liens on Mortgages securing such Mortgage Loan and (ii) the
reasonably anticipated costs of foreclosure or similar proceedings.
Section 3.09. Reimbursement of Interest Advances and Foreclosure
Advances.
(a) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii), in the case of Group I Loans and pursuant to
Section 4.05(b)(iii), in the case of Group II Loans, for previously unreimbursed
Interest Advances made from its own funds or any such previously unreimbursed
Interest Advance by the Servicer with respect to a Loan on Distribution Dates
subsequent to the Distribution Date in respect of which such Interest Advance
was made from Payments with respect to such Loan. If a Loan shall become a
Defaulted Loan and the Master Servicer shall not have been fully reimbursed for
any such Interest Advances with respect to such Loan, the Master Servicer shall
be entitled to be
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reimbursed for the outstanding amount of such Interest Advances from unrelated
Loans in the same Loan Group pursuant to Section 4.05(a)(iii), in the case of
Group I Loans and pursuant to Section 4.05(b)(iii), in the case of Group II
Loans. No interest shall be due to the Master Servicer in respect of any
Interest Advance for any period prior to the reimbursement thereof.
(b) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii), in the case of Group I Loans and pursuant to
Section 4.05(b)(iii), in the case of Group II Loans from related Payments for
Foreclosure Advances advanced on or prior to the related Monthly Cut-Off Date
but only to the extent the Master Servicer has satisfied the requirements of
Section 3.08. No interest shall be due to the Master Servicer in respect of any
Foreclosure Advance for any period prior to the reimbursement thereof.
(c) The Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 4.05(a)(iii), with
respect to Group I Loans and pursuant to Section 4.05(b)(iii), with respect to
Group II Loans, amounts, if any, which were required to be deposited in any
Collection Account pursuant to Section 4.03(a) with respect to the related Due
Period but which were not so deposited.
Section 3.10. Modifications, Waivers, Amendments and Consents.
(a) The Master Servicer shall not agree to any modification,
waiver or amendment of any provision of any Loan unless, in the Master
Servicer's good faith judgment, such modification, waiver or amendment (i) would
minimize the loss that might otherwise be experienced with respect to such Loan,
and (ii) in the case of any FHA Loan, complies with the requirements of Title I
or is required by Title I and such FHA Loan has experienced a payment default or
a payment default is reasonably foreseeable by the Master Servicer. The Master
Servicer shall agree to subordinate the position of the security interest in the
Property which secures any FHA Loan upon the Master Servicer's receipt of
written approval of HUD to such subordination or written certification by the
Servicer that such proposed subordination complies with current published HUD
requirements and provided such subordination (i) would permit the Obligor to
refinance a senior lien to take advantage of a lower interest rate or (ii) would
permit the Obligor to extend the term of the senior lien. Notwithstanding the
foregoing, at no time shall the aggregate of the Principal Balances of Loans
modified, waived or amended without the prior or subsequent approval of the
Certificate Insurer exceed 3% of the aggregate of the Initial Loan Group I
Principal Balance and the Initial Loan Group II Principal Balance and no
modification or amendment of a Loan shall involve the execution by the Obligor
of a new Note or, with respect to any Mortgage Loan, of a new Mortgage. At the
request of the Master Servicer, the Certificate Insurer, at its discretion, may
approve an increase in or waiver of the percentage referred to in the previous
sentence, such approval not to be unreasonably withheld.
(b) The Master Servicer shall notify the Trustee and the
Certificate Insurer of any modification, waiver or amendment of any provision of
any Loan and the date thereof, and shall deliver to the Trustee for deposit in
the related File, an original counterpart of the agreement relating to such
modification, waiver or amendment, promptly following the execution thereof.
Such notice shall state that the conditions contained in this Section 3.10 have
been satisfied.
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Section 3.11. Due-On-Sale; Due-on-Encumbrance.
(a) If any Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:
(i) provides that such Loan shall (or may at the Obligee's
option) become due and payable upon the sale or other transfer of an
interest in the related Property; or
(ii) provides that such Loan may not be assumed without the
consent of the related Obligee in connection with any such sale or
other transfer,
then, for so long as such Loan is included in the Trust, the Master Servicer, on
behalf of the Trustee, shall exercise any right the Trustee may have as the
Obligee of record with respect to such Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to any such sale or other transfer, in a
manner consistent with the servicing standard set forth in Section 3.01.
(b) If any Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:
(i) provides that such Loan shall (or may at the Obligee's
option) become due and payable upon the creation of any lien or other
encumbrance on the related Property; or
(ii) requires the consent of the related Obligee to the
creation of any such lien or other encumbrance on the related
Property,
then, for so long as such Loan is included in the Trust, the Master Servicer, on
behalf of the Trustee, shall exercise any right the Trustee may have as the
Obligee of record with respect to such Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to the creation of any such lien or
other encumbrance, in a manner consistent with the servicing standard set forth
in Section 3.01.
(c) Nothing in this Section 3.11 shall constitute a waiver of the
Trustee's right to receive notice of any assumption of a Loan, any sale or other
transfer of the related Property or the creation of any lien or other
encumbrance with respect to such Property.
(d) Except as otherwise permitted by Section 3.10, the Master
Servicer shall not agree to modify, waive or amend any term of any Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 3.11.
Section 3.12. Claim for FHA Insurance and Foreclosure.
(a) (x) If any Monthly Payment due under any FHA Loan is not paid
when the same becomes due and payable, or if the Obligor fails to perform any
other covenant or obligation under such FHA Loan and such failure continues
beyond any applicable grace period, the Master Servicer shall take such action
(consistent with Title I, including efforts to
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cure the default of such FHA Loan pursuant to 24 C.F.R. Section 201.50) as it
shall deem to be in the best interest of the Trust. If the maturity of the
related Note has been accelerated pursuant to the requirements under Title I
following the Master Servicer's efforts to cure the default of such FHA Loan
(and such FHA Loan is not required to be purchased pursuant to Section 2.04(b)),
and (i) if an FHA Insurance Coverage Insufficiency does not exist at the time,
the Claims Administrator shall initiate, on behalf of the Trust and the Contract
of Insurance Holder, a claim under the Contract of Insurance for reimbursement
for loss on such FHA Loan pursuant to Title I (see 24 C.F.R. Section 201.54), or
(ii) if an FHA Insurance Coverage Insufficiency exists at the time, the Master
Servicer shall determine within 90 days in accordance with Section 3.12(c)
whether or not to proceed against the Property securing such FHA Loan, if such
FHA Loan is a Mortgage Loan or against the Obligor, if such FHA Loan is
unsecured, and if thereafter an FHA Insurance Coverage Insufficiency does not
exist, the Claims Administrator may submit a claim under the Contract of
Insurance with respect to such FHA Loan if it has obtained the prior approval of
the Secretary of HUD pursuant to 24 C.F.R. Section 201.51; (y) if any Monthly
Payment due under any Non-FHA Loan is not paid when the same is due and payable,
or if the Obligor fails to perform any other covenant or obligation under such
Non-FHA Loan and such failure continues beyond any applicable grace period, the
Master Servicer shall take such action as it shall deem to be in the best
interest of the Trust; including but not limited to proceeding against the
Property securing such Non-FHA Loan.
In the event that in accordance with clauses (a)(x)(ii) and (y)
above the Master Servicer determines not to proceed against the Property or
Obligor, as applicable, on or before the Determination Date following such
determination the Master Servicer shall determine in good faith in accordance
with customary servicing practices that all amounts which it expects to receive
with respect to such Loan have been received. If the Master Servicer makes such
a determination, it shall give notice to such effect pursuant to Section
3.03(e)(xiv).
(b) If the Claims Administrator initiates a claim for
reimbursement for loss on any FHA Loan under this Section, the Claims
Administrator shall comply with applicable provisions of Title I and diligently
pursue such claim and, in any event, shall initiate such claim no later than the
last day permitted under Title I (see 24 C.F.R. Section 201.54(b)). For purposes
of this Agreement, the term "initiate a claim for reimbursement" shall mean the
filing of the claim application pursuant to the requirements set forth in 24
C.F.R. Section 201.54, including the filing of all related assignments and
documents and materials required for file review. For the purposes of such
filing, the Claims Administrator shall request, and the Trustee within 5
calendar days of request shall deliver to the Claims Administrator, the Note and
the related Mortgage for such FHA Loan and each other item in the related File
necessary to make such claim. Each Certificateholder hereby consents to the
assignment of such FHA Loan for the sole purpose of initiating a claim under the
Contract of Insurance for reimbursement with respect to such FHA Loan. Pursuant
to Section 3.12(i), the Contract of Insurance Holder shall furnish the Claims
Administrator a power of attorney to file claims under the Contract of
Insurance. The Trustee and Contract of Insurance Holder agree to execute and
deliver to the Claims Administrator, within 5 Business Days of receipt from the
Claims Administrator, all documents, if any, necessary to initiate and file a
claim under the Contract of Insurance for such FHA Loan, which documents shall
be prepared by the Claims Administrator. If any claim to the FHA becomes a
Rejected Claim, upon receipt of the FHA's rejection notice by the Claims
Administrator directly from the FHA or from the Contract of Insurance Holder
pursuant to Section 3.12(e) and a determination by the Claims Administrator
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that the rejection was not due to clerical error, then the Claims Administrator
shall promptly notify the Contract of Insurance Holder (if such notice has not
already been given), the Trustee and the Certificate Insurer of the notice of a
Rejected Claim.
If the FHA indicates in writing that the claim is a Rejected
Claim due to reasons other than a failure to service the related FHA Loan in
accordance with Title I, Mego shall repurchase the FHA Loan on or before the
Monthly Cut-Off Date next following the date of such notice from the Claims
Administrator to repurchase such FHA Loan, either directly from FHA or from the
Trustee, for the Purchase Price. If FHA indicates in writing that the claim is a
Rejected Claim due to a failure to service such FHA Loan in accordance with
Title I, the Claims Administrator shall immediately notify Mego, the Contract of
Insurance Holder, the Trustee and the Certificate Insurer of such determination,
and the Master Servicer shall on or before the later to occur of (i) the next
succeeding Monthly Cut-Off Date and (ii) ten Business Days from the date on
which such rejection notice is received by the Claims Administrator, purchase
such FHA Loan either directly from FHA or from the Trustee, for the Purchase
Price. In the event that the FHA fails to indicate in writing why the claim is a
Rejected Claim, the Claims Administrator shall determine why the claim is a
Rejected Claim. If the Claims Administrator determines that the claim is a
Rejected Claim for reasons other than a servicing failure that occurred after
the Closing Date, Mego shall be obligated to repurchase such FHA Loan for the
Purchase Price. If the Claims Administrator determines that the claim is a
Rejected Claim due to a servicing failure that occurred after the Closing Date,
the Master Servicer shall be obligated to repurchase such FHA Loan for the
Purchase Price. Notwithstanding any provisions herein to the contrary, neither
Mego nor the Master Servicer shall be required to repurchase or purchase, as
applicable, any FHA Loan subject to a Rejected Claim as a result of the
depletion of the amount of the FHA Insurance Coverage Reserve Account as shown
in the Insurance Record.
(c) In accordance with the criteria for proceeding against the
Property set forth in Section 3.12(a), with respect to an FHA Loan that is a
Mortgage Loan that has been accelerated pursuant to the requirements of Title I
following the Master Servicer's efforts to cure the default of the FHA Loan, and
with respect to Non-FHA Loans in Group I, unless otherwise prohibited by
applicable law or court or administrative order, the Master Servicer, on behalf
of the Trustee, may, at any time, institute foreclosure proceedings, exercise
any power of sale to the extent permitted by law, obtain a deed in lieu of
foreclosure, or otherwise acquire possession of or title to the related
Property, by operation of law or otherwise; provided, however, that the Master
Servicer shall not acquire any personal property pursuant to this Section 3.12
unless either:
(x) such personal property is incident to real property
(within the meaning of section 856(e)(1) of the Code) so acquired by
the Master Servicer; or
(y) the Trustee shall have received an Opinion of Counsel
not employed by the Master Servicer, Mego or its affiliates (with a
copy to the Certificate Insurer) to the effect that the holding of
such personal property by the Trust will not cause the imposition of a
tax on the Trust under the REMIC Provisions or cause the REMIC Pool
portion of the Trust to fail to qualify as a REMIC at any time that
any Certificate is outstanding.
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In accordance with the criteria for proceeding against the
Property set forth in Section 3.12(a), with respect to FHA Loans that are
Mortgage Loans and with respect to the Non-FHA Loans, the Master Servicer shall
institute foreclosure proceedings, repossess, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure, or otherwise
acquire possession of or title to any Property, by operation of law or otherwise
only in the event that in the Master Servicer's reasonable judgement such action
is likely to result in a positive economic benefit to the Trust by creating net
liquidation proceeds (after reimbursement of all amounts owed with respect to
such Loan to the Master Servicer or the Servicer) and provided that, with
respect to any Property, prior to taking title thereto, the Master Servicer has
requested that the Trustee obtain, and the Trustee shall have obtained, an
environmental review to be performed on such Property by a company with
recognized expertise, the scope of which is limited to the review of public
records and documents for information regarding whether such Property has on it,
under it or is near, hazardous or toxic material or waste. If such review
reveals that such Property has on it, under it or is near hazardous or toxic
material or waste or reveals any other environmental problem, the Trustee shall
provide a copy of the related report to the Master Servicer and the Certificate
Insurer and title shall be taken to such Property only after obtaining the
written consent of the Certificate Insurer.
In connection with any foreclosure proceeding on an FHA Loan, the
Master Servicer shall comply with the requirements under Title I, shall follow
such practices and procedures in a manner which is consistent with the Master
Servicer's procedure for foreclosure with respect to similar FHA Title I loans
held in the Master Servicer's portfolio for its own account or, if there are no
such loans, FHA Title I loans serviced by the Master Servicer for others. To the
extent required by Section 3.08, the Master Servicer shall advance all necessary
and proper Foreclosure Advances until final disposition of the Foreclosed
Property and shall manage such Foreclosed Property pursuant to Section 3.14. If,
in following such foreclosure procedures, title to the Foreclosed Property is
acquired, the deed or certificate of sale shall be issued to the Trustee.
(d) In the event the Trust acquires any Foreclosed Property
relating to a Group I Loan, the Trustee shall elect to treat such Foreclosed
Property as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code, in accordance with such rules as are then applicable; and the Master
Servicer, pursuant to Section 3.13(b), shall sell such Foreclosed Property in
its entirety prior to the date which is two years after its Acquisition Date,
unless, in any such case, either (i) the Master Servicer on behalf of the REMIC
Pool has applied for and received an extension of such two-year period pursuant
to Code Sections 856(e)(3) and 860G(a)(8)(A) in which case the Master Servicer
shall sell such Foreclosed Property within the applicable extension period or
(ii) the Master Servicer shall have provided and the Trustee shall have received
an opinion of counsel not employed by the Master Servicer, the Depositor or
either of their affiliates to the effect that the holding of such Foreclosed
Property (subject to any conditions set forth in such Opinion) for an additional
specified period will not cause such Foreclosed Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) at any time that any Certificate is Outstanding, in which
event such two-year period shall be extended by such additional specified
period, subject to any conditions set forth in such Opinion of Counsel.
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(e) With respect to any FHA Loan, each of the Trustee and the
Contract of Insurance Holder shall deposit in the Distribution Account for the
Loan Group relating to such FHA Loan on the day of receipt all amounts received
from the FHA or any other Person with respect to such FHA Loans or any other
assets of the Trust and shall transmit by facsimile, or such other method
requested by the Master Servicer, Claims Administrator or the Certificate
Insurer, to the Master Servicer, Claims Administrator and the Certificate
Insurer on each such day the letter of transmittal received from the FHA and any
other documents with respect to such receipt. Each of the Trustee and the
Contract of Insurance Holder shall also promptly deliver to the Claims
Administrator copies of any other correspondence received from the FHA or sent
to the FHA by the Trustee or the Contract of Insurance Holder, as the case may
be, including, but not limited to, any correspondence regarding the balance of
the FHA Insurance Coverage Reserve Account, premiums due and claims rejected.
(f) If, prior to the Termination Date, the FHA rejects an
insurance claim, in whole or part, under the Contract of Insurance after
previously paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such FHA Loan, the Claims Administrator shall pursue
such appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such FHA Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego, the Master Servicer or any other person is required
to repurchase such FHA Loan under this Agreement, the Claims Administrator shall
notify the Contract of Insurance Holder of such fact and the Contract of
Insurance Holder in its capacity as Trustee shall repurchase such FHA Loan from
funds available in the related Distribution Account. The Claims Administrator
shall, to the extent possible, direct the Trustee to make all such repurchases
of FHA Loans once a month and to repurchase any and all such FHA Loans from the
FHA in that portion of the calendar month after each Distribution Date. If the
Trustee withdraws any amounts from the Trust for such purpose between the
Determination Date and Distribution Date of any month, the Master Servicer shall
prepare the Master Servicer Certificates provided under Section 4.01 for such
Distribution Date (or promptly revise the Master Servicer Certificate if already
prepared for such Distribution Date) to reflect such withdrawals as if made on
such Determination Date and the Trustee shall revise its determination pursuant
to Section 4.10 accordingly. To the extent allowed by FHA, Mego may repurchase
directly from FHA any FHA Loan for which an insurance claim has been paid and
later rejected by FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than (i) a failure to service the FHA Loan in accordance with Title I or
(ii) the amount in the FHA Insurance Coverage Reserve Account is insufficient to
pay such claim, or if the FHA does not indicate in writing the reason for its
rejection or refusal, Mego shall be liable to reimburse the Trust for any
amounts paid by the Trustee to the FHA in order to repurchase such FHA Loan.
Subject to Section 3.12(b), if the FHA indicates in writing, or it is agreed by
the Master Servicer, in connection with its rejection or refusal to pay a claim
that such rejection or refusal is due to a failure to service such Loan in
accordance with Title I, the Master Servicer shall be liable to reimburse the
Trust or Mego for any amounts paid by the Trust or Mego, as the case may be, to
FHA in order to repurchase FHA Loans for which the FHA has rejected an insurance
claim as a result of a failure to service such FHA Loan in accordance with Title
I.
(g) If, after the Termination Date, the FHA rejects an insurance
claim, in whole or part, under the Contract of Insurance after previously paying
such insurance claim
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and the FHA demands that the Contract of Insurance Holder repurchase such FHA
Loan, the Claims Administrator shall pursue such appeals with the FHA as are
reasonable. If the FHA continues to demand that the Contract of Insurance Holder
repurchase such FHA Loan after the Claims Administrator exhausts such
administrative appeals as are reasonable, then notwithstanding that Mego or any
other person is required to repurchase such FHA Loan under this Agreement, the
Claims Administrator shall notify the Contract of Insurance Holder of such fact
and the Contract of Insurance Holder shall repurchase such FHA Loan from the
FHA. If the FHA indicates in writing in connection with its rejection or refusal
to pay a claim that such rejection or refusal is due to other than (i) a failure
to service the Loan in accordance with Title I or (ii) the amount in the FHA
Insurance Coverage Reserve Account is insufficient to pay such claim, or if FHA
does not indicate in writing the reason for its rejection or refusal, Mego shall
be liable to reimburse the Contract of Insurance Holder for any amounts paid by
the Contract of Insurance Holder to the FHA in order to repurchase such FHA
Loan. Subject to Section 3.12(b), if the FHA indicates in writing, or it is
agreed by the Claims Administrator, in connection with its rejection or refusal
to pay a claim that such rejection or refusal is due to a failure to service
such FHA Loan in accordance with Title I, the Master Servicer shall be liable to
reimburse the Contract of Insurance Holder or Mego for any amounts paid by the
Contract of Insurance Holder or Mego to FHA in order to repurchase FHA Loans for
which the FHA has rejected an insurance claim as a result of a failure to
service such FHA Loan in accordance with Title I.
(h) The Claims Administrator shall be entitled to reimbursement
of expenses associated with the filing of any FHA Insurance claim from and to
the extent that such amounts are reimbursed by HUD.
(i) The Trustee shall furnish the Claims Administrator or the
Servicer, as applicable, within 5 days of request of the Claims Administrator or
the Servicer therefor any powers of attorney and other documents necessary and
appropriate to carry out its respective duties hereunder, including any
documents or powers of attorney necessary to foreclose or file a claim with
respect to any FHA Loan and to file claims with the FHA under the Contract of
Insurance. The forms of any such powers or documents shall be appended to such
requests. The Contract of Insurance Holder shall furnish the Claims
Administrator or the Servicer, as applicable, within 5 days of request of the
Claims Administrator or the Servicer therefor any powers of attorney and other
documents necessary and appropriate to carry out its administrative duties
pursuant to Section 3.12.
Section 3.13. Sale of Foreclosed Properties.
(a) The Master Servicer may offer to sell to any Person any
Foreclosed Property, if and when the Master Servicer determines consistent with
the Servicing Standard and that such a sale would be in the best interests of
the Trust, but shall, with respect to the Group I Loans, in any event, so offer
to sell any Foreclosed Property in accordance with the criteria set forth in
Section 3.12 and no later than the time determined by the Master Servicer to be
sufficient to result in the sale of such Foreclosed Property on or prior to the
date specified in Section 3.12(d). The Master Servicer shall give the Trustee
and the Certificate Insurer not less than five days' prior notice of its
intention to sell any Foreclosed Property, and shall accept the highest bid
received from any Person for any Foreclosed Property in an amount at least equal
to the sum of:
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(i) the Principal Balance of the related foreclosed Loan,
unreimbursed Foreclosure Advances plus the outstanding amount of any
liens superior in priority, if any, to the lien of the foreclosed
Loan; and
(ii) all unpaid interest accrued thereon at the related Loan
Rate through the date of sale.
In the absence of any such bid, the Master Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
other than an Interested Person, or by an Independent appraiser retained by the
Master Servicer, if the highest bidder is an Interested Person. In the absence
of any bid determined to be fair as aforesaid, the Master Servicer shall offer
the affected Foreclosed Property for sale to any Person, other than an
Interested Person, in a commercially reasonable manner for a period of not less
than 10 or more than 30 days, and shall accept the highest cash bid received
therefor in excess of the highest bid previously submitted. If no such bid is
received, any Interested Person may resubmit its original bid, and the Master
Servicer shall accept the highest outstanding cash bid, regardless of from whom
received. No Interested Person shall be obligated to submit a bid to purchase
any Foreclosed Property, and notwithstanding anything to the contrary herein,
neither the Trustee, in its individual capacity, nor any of its affiliates may
bid for or purchase any Foreclosed Property pursuant hereto.
(b) In determining whether any bid constitutes a fair price for
any Foreclosed Property, the Master Servicer shall take into account, and any
appraiser or other expert in real estate matters shall be instructed to take
into account, as applicable, among other factors, the financial standing of any
tenant of the Foreclosed Property, the physical condition of the Foreclosed
Property, the state of the local and national economies and, with respect to the
Group I Loans, the Trust's obligation to dispose of any Foreclosed Property
within the time period specified in Section 3.12(d).
(c) Subject to the provision of Section 3.12, the Master Servicer
shall act on behalf of the Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Foreclosed Property,
including the collection of all amounts payable in connection therewith. Any
sale of a Foreclosed Property shall be without recourse to the Trustee, the
Master Servicer or the Trust, and if consummated in accordance with the terms of
this Agreement, neither the Master Servicer nor the Trustee shall have any
liability to any Certificateholder with respect to the purchase price therefor
accepted by the Master Servicer or the Trustee.
Section 3.14. Management of Real Estate Owned.
(a) If the Trust acquires any Foreclosed Property pursuant to
Section 3.12, the Master Servicer shall have full power and authority, subject
only to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection therewith as are consistent with the manner in
which the Master Servicer manages and operates similar property owned by the
Master Servicer or any of its affiliates, all on such terms and for such period
as the Master Servicer deems to be in the best interests of Certificateholders.
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(b) Notwithstanding the foregoing, with respect to the Group I
Loans the Master Servicer will not manage, conserve, protect and operate (or
cause to be managed, conserved, protected and operated) each Foreclosed Property
for disposition and sale in a manner that causes such Foreclosed Property to
fail to qualify as "foreclosure property" within the meaning of the REMIC
Provisions (determined without regard to the exception applicable for purposes
of Section 860D(a) of the Code) or results in the receipt by the REMIC of any
"income from nonpermitted assets" within the meaning of the REMIC Provisions or
any "net income from foreclosure property" subject to taxation under the REMIC
Provisions.
(c) The Master Servicer may contract with any Independent
Contractor for the operation and management of any Foreclosed Property, provided
that:
(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor remit all
related Payments to the Master Servicer as soon as practicable, but in
no event later than two Business Days following the receipt thereof by
such Independent Contractor;
(iii) none of the provisions of this Section 3.14(c)
relating to any such contract or to actions taken through any such
Independent Contractor shall be deemed to relieve the Master Servicer
of any of its duties and obligations to the Trustee for the benefit of
Certificateholders with respect to the operation and management of any
such Foreclosed Property; and
(iv) the Master Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all duties
and obligations in connection with the operation and management of
such Foreclosed Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, but shall be entitled to
be reimbursed for all such fees advanced by it pursuant to Section 3.08(b)(v) in
the manner provided in Section 3.09(b).
Section 3.15. Inspections.
The Master Servicer shall inspect or cause to be inspected each
Property that secures any Loan at such times and in such manner as are
consistent with the servicing standard set forth in Section 3.01.
Section 3.16. Maintenance of Insurance.
(a) The Master Servicer shall maintain or cause to be maintained
with respect to each Property securing an FHA Loan such insurance as is required
with respect
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thereto by Title I. The Master Servicer shall cause to be maintained for each
Foreclosed Property acquired by the Trust such types and amounts of insurance
coverage as the Master Servicer shall deem reasonable. The Master Servicer shall
cause to be maintained for each Non-FHA Loan, fire and hazard insurance naming
Mego as loss payee thereunder providing extended coverage in an amount which is
at least equal to the least of (i) the maximum insurable value of the
improvements securing such Non-FHA Loan from time to time, (ii) the combined
principal balance owing on such Non-FHA Loan and any mortgage loan senior to
such Non-FHA Loan and (iii) the minimum amount required to compensate for damage
or loss on a replacement cost basis. In cases in which any Property securing a
Non-FHA Loan is located in a federally designated flood area, the hazard
insurance to be maintained for the related Loan shall include flood insurance to
the extent such flood insurance is available and the Master Servicer has
determined such insurance to be necessary in accordance with accepted mortgage
loan servicing standards for mortgage loans similar to the Mortgage Loans. All
such flood insurance shall be in amounts equal to the least of (A) the maximum
insurable value of the improvement securing such Non-FHA Loan, (B) the combined
principal balance owing on such Non-FHA Loan and any mortgage loan senior to
such Non-FHA Loan and (c) the maximum amount of insurance available to the
lender under the National Flood Insurance Act of 1968, as amended.
(b) Any amounts collected by the Master Servicer under any
Insurance Policies, shall be paid over or applied by the Master Servicer as
follows:
(i) In the case of amounts received in respect of any Loan:
(A) for the restoration or repair of the affected
Property, in which event such amounts shall be released to the
Obligor in accordance with the terms of the related Note, or to
the extent not so used, or
(B) in reduction of the Principal Balance of the related
Loan, in which event such amounts shall be credited to the
related Servicing Record,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
(ii) Subject to Section 3.14, in the case of amounts
received in respect of any Foreclosed Property, for the restoration or
repair of such Foreclosed Property, unless the Master Servicer
determines, consistent with the servicing standard set forth in
Section 3.01, that such restoration or repair is not in the best
economic interest of the Trust, in which event such amounts shall be
credited, as of the date of receipt, to the applicable Servicing
Record, as a Payment received from the operation of such Foreclosed
Property.
Section 3.17. Release of Files.
(a) If with respect to any Loan:
(i) the outstanding Principal Balance of such Loan plus all
interest accrued thereon shall have been paid;
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(ii) the Master Servicer, or the Servicer shall have
received, in escrow, payment in full of such Loan in a manner
customary for such purposes;
(iii) such Loan has become a Defective Loan;
(iv) such Loan or the related Foreclosed Property has been
sold in connection with the termination of the Trust pursuant to
Section 9.01;
(v) the FHA has paid a claim with respect to such Loan under
the Contract of Insurance; or
(vi) the related Foreclosed Property has been sold pursuant
to Section 3.13.
In each such case, the Servicer shall deliver a certificate to
the effect that the Servicer has complied with all of its obligations under the
Servicing Agreement with respect to such Loan and requesting that the Trustee
release to the Servicer the related File, then the Trustee shall, within three
Business Days or such shorter period as may be required by applicable law,
release, or cause the Custodian to release, the related File to the Servicer and
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest ownership of such Loan in the
Servicer or such other Person as may be specified in such certificate, the forms
of any such instrument to be appended to such certificate.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Loan, the Trustee shall, upon request of the Servicer,
release the related File (or any requested portion thereof) to the Servicer.
Such receipt shall obligate the Servicer, to return the File (or such portion
thereof) to the Trustee when the need therefor by the Servicer, no longer exists
unless any of the conditions specified in subsection (a) above, is satisfied
prior thereto. The Trustee shall release such receipt to the Servicer (i) upon
the Servicer's return of the File (or such portion thereof) to the Trustee or
(ii) if any of the conditions specified in subsection (a) has been satisfied,
and the Servicer has not yet returned the File (or such portion thereof) to the
Trustee, upon receipt of a certificate certifying that any of such condition has
been satisfied.
Section 3.18. Certain Tax Matters.
The Trustee shall maintain records as to investments and other
assets of the Trust sufficient to show compliance with the REMIC Provisions and
Grantor Trust Provisions, respectively, during each taxable year of the Trust.
The Master Servicer shall provide Mego with such information from the Servicing
Record as Mego shall request to prepare any Tax Returns, and any other federal,
state or local tax or information returns or reports that are required to be so
filed, or so provided to Certificateholders, by the Trust. Mego shall maintain
such records and make such information available as required by Section 8.12.
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Section 3.19. Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by Mego and the Depositor, respectively, with respect to the assets
conveyed to the Trustee, Mego and the Depositor shall prepare, have executed by
the necessary parties and file in the proper jurisdictions all financing and
continuation statements necessary to maintain the liens, security interests, and
priorities of such liens and security interests that have been granted by Mego
and the Depositor, respectively, and Mego and the Depositor shall continue to
file on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Trust has terminated pursuant to Section 9.01. Subject to Section
8.03, the Trustee agrees to cooperate with Mego and the Depositor in preparing,
executing and filing such statements. The Trustee agrees to notify Mego and the
Depositor on the third Distribution Date prior to each such fifth anniversary of
the requirement to file such financing and continuation statements. The filing
of any such statement with respect to Mego and the Depositor shall not be
construed as any indication of an intent of any party contrary to the expressed
intent set forth in Section 10.09. If Mego or the Depositor has ceased to do
business whenever any such financing and continuation statements must be filed
or Mego or the Depositor fails to file any such financing statements or
continuation statements at least one month prior to the expiration thereof, the
Trustee shall perform the services required under this Section 3.19.
Section 3.20. Fidelity Bond.
The Master Servicer shall maintain a fidelity bond in such form
and amount as is customary for entities acting as custodian of funds and
documents in respect of loans on behalf of institutional investors.
Section 3.21. Errors and Omissions Insurance.
The Master Servicer shall obtain and maintain at all times during
the term of this Agreement errors and omissions insurance coverage covering the
Master Servicer and its employees issued by a responsible insurance company. The
issuer, policy terms and forms and amounts of coverage, including applicable
deductibles, shall be reasonably satisfactory to the Certificate Insurer and
shall be in such form and amount as is customary for entities acting as master
servicers. The Master Servicer agrees to notify the Certificate Insurer in
writing within five (5) days of the Master Servicer's receipt of notice of the
cancellation or termination of any such errors and omissions insurance coverage.
The Master Servicer shall provide to the Certificate Insurer upon request
written evidence of such insurance coverage.
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ARTICLE IV
Distributions to Certificateholders
Section 4.01. General Provisions Relating to Distributions to
Certificateholders.
(a) Distributions allocable to interest and principal in respect
of each Class of the Senior Certificates shall be made, to the extent and in the
priority described in Section 4.05, to the Holders of such Class of Certificates
based on the respective Percentage Interests of the Certificateholder of such
Class, without preference or priority of any kind. Any amounts distributed to
Holders of the Senior Certificates on any Distribution Date shall not be subject
to any claim or interest of Holders of Class R Certificates.
(b) Distributions from the Trust to Holders of Class R
Certificates shall be made on each Distribution Date in accordance with Section
4.05(a) solely from amounts available for distribution on deposit in the
Distribution Account for the Group I Certificates. Distributions to the Holders
of Class R Certificates shall be made pro rata based on the respective Residual
Interests, without preference or priority of any kind. Any amount distributed to
Holders of the Class R Certificates on any Distribution Date shall not be
subject to any claim or interest of Holders of Senior Certificates.
(c) On each Determination Date, the Master Servicer shall deliver
to the Trustee and the Certificate Insurer, a certificate for each Loan Group
containing the items described in Exhibit E-1 and Exhibit E-2 hereto (each, a
"Master Servicer Certificate"), prepared as of the related Determination Date
and executed by a Master Servicing Officer. The Master Servicer shall revise any
Master Servicer Certificate to take into account any payments of which the
Master Servicer is notified made by the Trust to FHA after the related
Determination Date and before the related Distribution Date as provided in
Section 3.12(f). The Trustee may rely on the Master Servicer Certificate with
respect to the matters set forth therein.
Section 4.02. Distributions to Certificateholders.
(a) Distributions will be made by the Trustee to each
Certificateholder of record on the preceding Record Date by:
(i) check mailed, via first class mail, postage prepaid, to
the address of such Holder as it appears on the Certificate Register;
or
(ii) Fedwire transfer of immediately available funds, if
such Certificateholder holds at least a $1,000,000 Denomination, Class
S Certificates representing at least a 30% Percentage Interest or
Class R Certificates representing at least 25% of the Residual
Interests, if notice from such Certificateholder has been received by
the Trustee at least five Business Days prior to any Distribution Date
(any such notice being applicable to all subsequent Distribution Dates
unless and until rescinded in writing) designating a deposit account
for receipt of distributions at a bank
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which has Fedwire transfer capabilities, and providing such other
information as the Trustee may reasonably require to effect an
electronic credit entry to such account.
To the extent required by applicable law, the Trustee shall deduct and withhold
taxes due on amounts distributed to Certificateholders.
(b) Whenever the Trustee, based on a Master Servicer Certificate,
expects that the final distribution with respect to a Class of Senior
Certificates will be made on the next Distribution Date, the Trustee shall, as
soon as practicable, mail to each Holder of such Class of Senior Certificates as
of the applicable Record Date a notice to the effect that:
(i) the Trustee expects that the final distribution with
respect to such Class of Senior Certificates will be made on such
Distribution Date, and
(ii) no interest shall accrue on such Class of Senior
Certificates after such Distribution Date provided that the final
distribution occurs on such Distribution Date.
Section 4.03. Collection Accounts and FHA Premium Accounts and
the FHA Reserve Fund.
(a) The Trustee has heretofore established or caused to be
established and shall hereafter maintain or cause to be maintained a separate
account for each Loan Group denominated a Collection Account, which in each case
is and shall continue to be an Eligible Account in the name of the Trustee and
shall be designated "First Trust of New York, National Association, as Trustee
of the Mego Mortgage Home Loan Trust 1996-3, Collection Account--Group I Loans"
and "First Trust of New York, National Association, as Trustee of the Mego
Mortgage Home Loan Trust 1996-3, Collection Account--Group II Loans",
respectively. The Master Servicer shall cause all Payments relating to a Loan
Group to be deposited by the Servicer in the appropriate Collection Account no
later than the second Business Day following the date of receipt thereof by the
Servicer. The Trustee shall provide to the Master Servicer and the Servicer a
monthly statement of all activity in each Collection Account.
(b) No later than the second Business Day preceding each
Distribution Date, the Trustee shall withdraw amounts from the Collection
Account for each Loan Group in respect of Payments with respect to such
Distribution Date and deposit such amounts into the Distribution Account for the
related Certificate Group and liquidate the Eligible Investments in which such
amounts are invested and distribute all net investment earnings to the Servicer.
(c) All amounts on deposit in a Distribution Account representing
payments by Obligors on Invoiced Loans in respect of premium on FHA Insurance
shall be withdrawn by the Trustee from such Distribution Account and deposited
in the related FHA Premium Account no later than the second Business Day
preceding each Distribution Date.
(d) The Trustee has heretofore established or caused to be
established and shall hereafter maintain or cause to be maintained a separate
account denominated a FHA Reserve Fund, in the name of the Trustee and shall be
designated "First Trust of New York, National Association, as Trustee of the
Mego Mortgage Trusts, FHA Reserve Fund." The
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Trustee shall deposit all amounts required to be deposited therein pursuant to
Section 4.05(a)(xiv) and Section 4.05(b)(xiv). Amounts on deposit therein shall
be withdrawn by the Trustee at the direction of the Certificate Insurer and paid
or deposited to either a Distribution Account, the distribution account of a
Related Series or the Class R Certificateholders. Amounts on deposit in the FHA
Reserve Fund shall be invested by the Trustee in Permitted Investments.
Section 4.04. Distribution Accounts.
(a) The Trustee has heretofore established with itself in its
trust capacity at its corporate trust department for the benefit of
Certificateholders of each Certificate Group and the Certificate Insurer an
account each referred to herein as a "Distribution Account" for the Trust. The
Trustee shall at all times maintain the Distribution Accounts as an Eligible
Accounts and shall cause such accounts to be designated, in the case of the
Group I Certificates, "First Trust of New York, National Association, as Trustee
of the Mego Mortgage Home Loan Trust Series 1996-3, Distribution Account--Group
I Certificates" and in the case of the Group II Certificates, "First Trust of
New York, National Association, as Trustee of the Mego Mortgage Home Loan Trust
1996-3--Group II Certificates." Eligible Investments of amounts on deposit in
the Distribution Account shall mature no later than the Business Day immediately
preceding the Distribution Date related to the Due Period to which such amounts
relate.
(b) Except for amounts deposited into the FHA Premium Accounts,
any and all moneys or Eligible Investments that are received by the Trustee from
any Person with respect to a Loan Group, including pursuant to Sections 2.04(c),
3.12(b), 4.03(b), 4.10(c) or 9.01(d), together with any Eligible Investments in
which such moneys are invested or reinvested prior to the termination of the
Trust, shall be held by the Trustee in the related Distribution Account, subject
to disbursement and withdrawal as herein provided.
Section 4.05. Distributions.
(a) On each Distribution Date, on the basis of the information
set forth in the Master Servicer Certificate for the Group I Loans with respect
to the related Determination Date, the Trustee shall distribute from amounts on
deposit in the Distribution Account for the Group I Certificates, the following
amounts in the following order of priority:
(i) from the Collected Amount for the Group I Loans, for
deposit in the related FHA Premium Account, the FHA Premium Account
Deposit for the Group I Loans for such Distribution Date;
(ii) from the Collected Amount for the Group I Loans,
concurrently, to (a) the Master Servicer, the Master Servicer Fee for
the Group I Loans and (b) the Servicer, the Servicer Fee for the Group
I Loans for such Distribution Date;
(iii) from the Collected Amount for the Group I Loans, to
the Master Servicer or Servicer, any amount in respect of
reimbursement of Interest Advances or Foreclosure Advances for the
Group I Loans, to which the Master Servicer or any Servicer is
entitled pursuant to Section 3.09 with respect to such Distribution
Date and
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to the Claims Administrator, amounts in reimbursement of any expenses
for the Group I Loans, of filing of any FHA Insurance claim pursuant
to Section 3.12(h);
(iv) from the Collected Amount for the Group I Loans, to the
Trustee, the Trustee Fee and any Additional Trustee Fee for the Group
I Loans for such Distribution Date;
(v) other than with respect to the Distribution Dates in
December 1996, from the Collected Amount for the Group I Loans, to the
Certificate Insurer, the Premium in respect of the Group I
Certificates for such Distribution Date;
(vi) from the Amount Available, to the holders of the Class
IS Certificates, an amount equal to the applicable Class Interest
Distribution for such Distribution Date;
(vii) from the Amount Available, to holders of each Class of
Group IA Certificates, an amount equal to the applicable Class
Interest Distribution for such Distribution Date;
(viii) from the Collected Amount for the Group I Loans, to
the holders of the Group IA Certificates, subject to clause (2)
following this paragraph, the Class A Principal Distribution for the
Group I Certificates (other than the portion constituting
Distributable Excess Spread) for such Distribution Date;
(ix) from the Collected Amount for the Group I Loans, to the
Certificate Insurer, the Reimbursement Amount;
(x) from the Collected Amount for the Group I Loans, to the
holders of the Group IA Certificates, subject to clause (2) following
this paragraph, the Distributable Excess Spread for such Distribution
Date;
(xi) from the Amount Available, to the holders of the Group
IA Certificates, subject to clause (2) following this paragraph, an
amount equal to the Class A Guaranteed Principal Distribution Amount
for the Group I Certificates, if any, for such Distribution Date;
(xii) from the Collected Amount for the Group I Loans, to
the Certificate Insurer, any other amounts with respect to the Group I
Certificates owing to the Certificate Insurer under the Insurance
Agreement;
(xiii) from the Collected Amount for the Group I Loans, to
any successor Master Servicer, if any, for such Distribution Date
payable in accordance with Section 7.03(c) in addition to the Master
Servicer Fee paid pursuant to Section 4.05(a)(ii);
(xiv) from the Collected Amount for the Group I Loans, to
the FHA Reserve Fund, any unpaid Excess Claim Amount;
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(xv) from the Collected Amount for the Group I Loans, to the
Person entitled thereto, payments in respect of Other Fees related to
the Group I Loans;
(xvi) from the Collected Amount for the Group I Loans, to
the Group I Reserve Fund, any amount required to be deposited therein
pursuant to Section 7.04 of the Insurance Agreement or after the
occurrence and during the continuance of a Trigger Event and at the
direction of the Certificate Insurer, to the holders of the Group IA
Certificates, as principal, pro rata, based on the respective Class A
Certificate Balances, until the respective Class A Certificates are
reduced to zero.; and
(xvii) the balance of any Collected Amount for the Group I
Loans, to the Class R Certificateholders;
provided, however, that any portion of the Amount Available for the Group I
Certificates that constitutes an Insured Payment for any Distribution Date shall
be applied only to payment of the amount referred to in clause (vi), clause
(vii), and clause (xi) above, and provided further, with respect to any
Distribution Date as to which (a) the Required OC Amount has been reduced below
the Overcollateralization Amount or (b) a full distribution of the amounts
referred to in clause 4.05(a)(viii) above would cause the Overcollateralization
Amount to exceed the Required OC Amount, the amounts to be distributed pursuant
to clause 4.05(a)(viii) shall be reduced by the amount of such reduction in the
case of clause (a) above and the amount of such excess in the case of (b) above.
(1) As to each Distribution Date, any shortfall in the amount of
interest required to be distributed pursuant to Section 4.05(a)(vii) above,
shall be allocated among the Group IA Certificates, in proportion to the amount
each such Class would have been entitled to receive in the absence of such
shortfall.
(2) As to each Distribution Date, distributions pursuant to
Section 4.05(a)(viii), (x) and (xi) shall be made to the Class A Certificates as
follows:
(i) prior to the occurrence and continuance of a Certificate
Insurer Default, sequentially, to the holders of the Class IA-1 Certificates,
Class IA-2 Certificates and Class IA-3 Certificates, in that order, until their
respective Class A Certificate Balances have been reduced to zero; and
(ii) upon the occurrence and continuance of a Certificate
Insurer Default and upon the first reduction of the Overcollateralization Amount
thereafter to zero, concurrently, to the holders of the Group IA Certificates
then outstanding, pro rata, based upon their respective Class A Certificate
Balances immediately prior to such Distribution Date.
(b) On each Distribution Date, on the basis of the information
set forth in the Master Servicer Certificate for the Group II Loans with respect
to the related Determination Date, the Trustee shall distribute from amounts on
deposit in the Distribution Account for the Group II Certificates, the following
amounts in the following order of priority:
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(i) from the Collected Amount for the Group II Loans, for
deposit in the related FHA Premium Account, the FHA Premium Account
Deposit for the Group II Loans for such Distribution Date;
(ii) from the Collected Amount for the Group II Loans,
concurrently, to (a) the Master Servicer, the Master Servicer Fee for
the Group II Loans and (b) the Servicer, the Servicer Fee for the
Group II Loans for such Distribution Date;
(iii) from the Collected Amount for the Group II Loans, to
the Master Servicer or Servicer, any amount in respect of
reimbursement of Interest Advances or Foreclosure Advances for the
Group II Loans, to which the Master Servicer or any Servicer is
entitled pursuant to Section 3.09 with respect to such Distribution
Date and to the Claims Administrator, amounts in reimbursement of any
expenses for the Group II Loans, of filing of any FHA Insurance claim
pursuant to Section 3.12(h);
(iv) from the Collected Amount for the Group II Loans, to
the Trustee, the Trustee Fee and any Additional Trustee Fee for the
Group II Loans for such Distribution Date;
(v) other than with respect to the Distribution Dates in
December 1996, from the Collected Amount for the Group II Loans, to
the Certificate Insurer, the Premium in respect of the Group II
Certificates for such Distribution Date;
(vi) from the Amount Available, to the Class IIS
Certificateholders, an amount equal to the applicable Class Interest
Distribution for such Distribution Date;
(vii) from the Amount Available, to the holders of the Group
IIA Certificates, an amount equal to the applicable Class Interest
Distribution for such Distribution Date;
(viii) from the Collected Amount for the Group II Loans, to
the holders of the Group IIA Certificates, the Class A Principal
Distribution for the Group II Certificates for such Distribution Date;
(ix) from the Amount Available for the Group II Loans to the
holders of the Group IIA Certificates, an amount equal to the Loss
Carryforward Amount, if any, for such Distribution Date;
(x) from the Collected Amount for the Group II Loans, to the
Certificate Insurer, the Reimbursement Amount;
(xi) from the Amount Available, to the holders of the Group
IIA Certificates, an amount equal to the Class A Guaranteed Principal
Distribution Amount for the Group II Certificates, if any, for such
Distribution Date;
(xii) from the Collected Amount for the Group II Loans, to
the Certificate Insurer, any other amounts with respect to the Group
II Certificates owing to the Certificate Insurer under the Insurance
Agreement;
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(xiii) from the Collected Amount for the Group II Loans, to
any successor Master Servicer, if any, for such Distribution Date
payable in accordance with Section 7.03(c) in addition to the Master
Servicer Fee paid pursuant to Section 4.05(b)(ii);
(xiv) from the Collected Amount for the Group II Loans, to
the FHA Reserve Fund, any unpaid Excess Claim Amount (giving effect to
any amounts to be distributed pursuant to Section 4.05(a)(xiv) on such
Distribution Date);
(xv) from the Collected Amount for the Group II Loans, to
the Person entitled thereto, payments in respect of Other Fees related
to the Group II Loans;
(xvi) from the Collected Amount for the Group II Loans, to
the Group II Reserve Fund, any amount required to be deposited therein
pursuant to Section 7.04 of the Insurance Agreement; and
(xvii) the balance of any Collected Amount for the Group II
Loans, to the Seller.
provided, however, that any portion of the Amount Available for the Group II
Certificates that constitutes an Insured Payment for any Distribution Date shall
be applied only to payment of the amount referred to in clause (vi), clause
(vii), and clause (xi) above.
(c) If any amount is deposited in either Distribution Account in
error, the Master Servicer may notify the Trustee and the Certificate Insurer
(such notice to be signed by a Master Servicing Officer) of the amount of such
deposit and in connection therewith shall be required to provide such
information to the Trustee and the Certificate Insurer as may be necessary in
the opinion of the Trustee and the Certificate Insurer to verify the accuracy of
such certification. Upon verification of the accuracy of such certification to
the satisfaction of the Trustee and the Certificate Insurer, the Trustee shall
then promptly withdraw the erroneous deposit and remit the same to the Master
Servicer or to such Person as the Master Servicer shall designate.
(d) As directed by the Master Servicer (such direction to be
signed by a Master Servicing Officer), the Trustee shall withdraw on the
Business Day, the amount, designated by the Master Servicer from the applicable
Distribution Account of funds to repurchase any FHA Loan from FHA pursuant to
Section 3.12(f). If such withdrawal is to be made between a Determination Date
and the related Distribution Date, the Master Servicer shall prepare the related
Master Servicer Certificate (or promptly revise the Master Servicer Certificate
if already prepared) for such Distribution Date to reflect such withdrawal.
Section 4.06. FHA Premium Accounts.
(a) FHA Premium Account. The Trustee has heretofore established
with itself in its trust capacity at its corporate trust department two
segregated trust accounts each referred to herein as a "FHA Premium Account" for
the benefit of the Trust. The Trustee shall at all times maintain each FHA
Premium Account as an Eligible Account and shall cause such accounts to be
designated as "First Trust of New York, National Association, as Trustee
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for Mego Mortgage Home Loan Trust 1996-3, FHA Premium Account--Group I Loans"
and "First Trust of New York, National Association as Trustee for Mego Mortgage
Home Loan Trust 1996-3 FHA Premium Account--Group II Loans".
(b) Any and all moneys with respect to a Loan Group transferred
to the applicable FHA Premium Account pursuant to Section 4.03(c), Section
4.05(a)(i) or Section 4.05(b)(i) shall be held by the Trustee in the FHA Premium
Account subject to disbursement and withdrawal as herein provided.
(c) All amounts deposited to an FHA Premium Account shall be
invested and reinvested by the Trustee pursuant to Section 4.07(a) in one or
more Eligible Investments.
(d) Amounts on deposit in an FHA Premium Account shall be
withdrawn by the Trustee, in the amounts required, for application as follows:
(i) to payment to the FHA of any premiums due on the
Contract of Insurance in respect of FHA Loans in the related Loan
Group, in such amounts and on such dates as directed by the Master
Servicer or Mego; the Trustee shall apply all amounts on deposit in
the related FHA Premium Account to payment to the FHA of any premiums
due under the Contract of Insurance as invoiced by FHA and, if, in
connection with an FHA Loan in the related Loan Group the FHA
Insurance with respect to which shall not yet have been transferred to
the Contract of Insurance, Mego instructs the Trustee to pay FHA
insurance with respect to such Loan to the related contract of
insurance holder, the Trustee shall make such payment, and Mego and
not the Trustee shall be liable in the event of the failure of such
funds to be applied to payment of the premium with respect to such FHA
Loan; and
(ii) on the Business Day preceding a Distribution Date that
is also the Termination Date, the Trustee shall withdraw from each FHA
Premium Account and deposit in the related Distribution Account all
amounts then on deposit in such FHA Premium Account, whereupon the
each FHA Premium Account shall terminate.
Section 4.07. General Provisions Regarding the Accounts; Eligible
Accounts.
(a) All investments of funds in the Accounts shall be made by the
Trustee in accordance with an Investment Order previously delivered to the
Trustee. Eligible Investments of amounts on deposit in the Accounts, unless
payable on demand or as otherwise specified herein, shall mature no later than
the second Business Day immediately preceding the Distribution Date related to
the Due Period to which such amounts relate. Amounts on deposit in each FHA
Premium Account shall be invested in Eligible Investments which are overnight
investments for the period from the Business Day immediately preceding the
Distribution Date to the date on which the Master Servicer indicates the amount
to be withdrawn therefrom pursuant to Section 4.06(d)(i). In the event amounts
on deposit in an Account are at any time invested in an Eligible Investment
payable on demand, the Trustee shall demand that payment thereon be made on the
last day such Eligible Investment may otherwise mature hereunder.
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(b) Any investment of funds in an Account shall be made in the
name of the Trustee (in its capacity as such) or in the name of a nominee of the
Trustee. The Trustee shall have sole control over each such investment, the
income thereon and the proceeds thereof. Any certificate or other instrument
evidencing any such investment shall be delivered directly to the Trustee or its
agent, together with any document of transfer necessary to transfer title to
such investment to the Trustee or its nominee. The Trustee or its agent, as the
case may be, shall take and maintain continuous physical possession of any such
certificate or other instrument and the proceeds thereof in the State of
Minnesota. The Trustee or its agent, as the case may be, shall in the case of
Eligible Investments deposited in all Accounts, act in connection therewith
solely as agent for the Trust and not as agent for Mego, the Depositor or any
other party. Any certificated security, when so delivered in registered form,
shall be issued or endorsed to the Trustee, its nominee or in blank. Any
uncertificated security shall either (i) be registered in the name of the
Trustee or its nominee on the books of the issuer thereof or (ii) be registered
in the name of a financial intermediary which is not a clearing corporation,
provided that such financial intermediary sends the Trustee written confirmation
of such purchase which also confirms that such financial intermediary has by
book-entry or otherwise identified such uncertificated securities as belonging
to the Trustee or its nominee. The proceeds of an investment at maturity or upon
demand shall be remitted by the issuer thereof or its agent directly to the
Trustee for deposit in the Account as to which such investment was made and all
earnings on investments shall be added to the corpus of the respective Account.
(c) The Trustee shall not be in any way liable by reason of any
insufficiency in the Accounts, except for losses on investments that are
liabilities of the Trustee in its commercial capacity. Mego shall deposit in the
Collection Account or the Distribution Account, as the case may be, the amount
of any loss incurred in respect of any Eligible Investment held therein which is
in excess of the income thereon immediately upon realization of such loss,
without any right to reimbursement therefor, from its own funds.
(d) Any Investment Order shall be effective upon receipt thereof
by the Trustee. Any Investment Order delivered to the Trustee with respect to
funds on deposit in an Account shall be revocable only upon written notice
delivered by the Depositor to the Trustee. Revocation of any Investment Order
pursuant to any such notice shall be effective on the later of (i) the date of
receipt thereof by the Trustee, and (ii) the date specified therein. Revocation
of an Investment Order shall not affect investments already made pursuant
thereto.
(e) In the event that any account required to be an Eligible
Account hereunder ceases to be an Eligible Account, the Trustee shall within 5
Business Days establish a new account which shall be an Eligible Account and any
cash and Eligible Investments in such original account shall be transferred to
such Eligible Account.
Section 4.08. Statements to Certificateholders.
(a) On or before the third Business Day following each
Distribution Date, the Trustee shall mail:
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(i) to each Holder of a Senior Certificate (with a copy to
the Certificate Insurer and the Rating Agency) at its address shown on
the Certificate Register a statement, based on information set forth
in the Master Servicer Certificate for such Distribution Date,
substantially in the form of Trustee's Statement to Senior
Certificateholders of the Group I Certificates and the Group II
Certificates attached hereto as Exhibit F-1 and F-2, respectively,
together with a copy of such related Master Servicer Certificate;
(ii) to each Holder of a Class R Certificate (with a copy to
the Certificate Insurer) at its address shown on the Certificate
Register a statement, based on information set forth in the Master
Servicer Certificate for such Distribution Date substantially in the
form of Trustee's Statement to Class R Certificateholders attached
hereto as Exhibit F-1.
(b) Promptly following preparation by Trustee of any returns or
reports described in Section 8.12(b)(i), the Trustee shall:
(i) sign such returns or reports as may be required pursuant
to the last paragraph of Section 8.12(b); and
(ii) mail such returns or reports as may be required by
applicable law to each Holder of a Senior Certificate and to each
Holder of a Class R Certificate, at their respective addresses shown
on the Certificate Register.
(c) The Trustee shall provide the Depositor, the Rating Agency
and the Certificate Insurer each statement called for by (a)(i) and (ii) above
and each report or return called for by (b)(i) and (ii) above at such times as
such statements, reports and returns are required to be provided to the
recipients thereof in accordance with the terms of such provisions.
Section 4.09. [Reserved]
Section 4.10. Claims Under the Policies.
(a) On the Determination Date preceding each Distribution Date,
the Trustee shall determine if a Deficiency Amount exists with respect to each
Class of Senior Certificates. If a Deficiency Amount does exist with respect to
a Class of Senior Certificates, the Trustee shall promptly, but in no event
later than 12:00 noon New York City time on the second Business Day preceding
the related Distribution Date, make a claim under the related Policy for such
Class in accordance with its terms.
(b) On any date on which the Trustee receives written notice from
the Holder of a Class of Senior Certificates that a Preference Amount is payable
pursuant to the terms of the related Policy, the Trustee shall make a claim for
the payment of such Preference Amount and shall deliver the documents required
to be delivered under such Policy to the Certificate Insurer with respect
thereto in the manner set forth in such Policy.
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(c) The Trustee shall (i) receive as attorney-in-fact of each
Holder of a Senior Certificate with respect to which a Deficiency Amount has
been determined to exist, any Insured Payment from the Certificate Insurer under
the related Policy and deposit such Insured Payment in the Distribution Account
of the Certificate Group to which such Deficiency Amount relates on the date of
receipt and (ii) immediately disburse such Insured Payments to such Holders of
such Class of Senior Certificates as set forth in Sections 4.05(a) and 4.05(b),
as applicable. Insured Payments for a Class of Senior Certificates disbursed by
the Trustee from the Policy shall not be considered payment by the Trust with
respect to such Class of Senior Certificates, nor shall such payments discharge
the obligation of the Trust, with respect to such Class of Senior Certificates,
and the Certificate Insurer shall become the owner of such unpaid amounts due
from the Trust in respect of Insured Payments for such Class and the deemed
assignee of such Holders of such Class of Senior Certificates. The Trustee
hereby agrees on behalf of each Holder of a Class of Senior Certificates for the
benefit of the Certificate Insurer that it recognizes that to the extent the
Certificate Insurer makes Insured Payments for such Class, either directly or
indirectly (as by paying through the Trustee), to the Holders of such Class of
Senior Certificates, the Certificate Insurer will be entitled to receive the
related Reimbursement Amount pursuant to Section 4.05(a)(ix), if such Class is a
class of Group I Certificates or Section 4.05(b)(ix), if such Class is a class
of Group II Certificates.
(d) To the extent of any Insured Payment for a Class of Senior
Certificates under the related Policy, the Certificate Insurer shall be fully
subrogated to the rights of the Holders of such Class of Senior Certificates and
the Trustee in respect of such Class of Senior Certificates, the Deficiency
Amount or Preference Amount giving rise to such Insured Payment or in any
proceedings relating thereto.
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ARTICLE V
The Certificates
Section 5.01. The Certificates.
(a) Each Class A Certificate shall be substantially in the form
of Exhibit C-1 hereto, each Class S Certificate shall be substantially in the
form of Exhibit C-2 hereto and each Class R Certificate shall be substantially
in the form of Exhibit D hereto, in each case with such appropriate insertions
and substitutions as are required or permitted hereunder, and shall, on original
issue, be executed on behalf of the Trust by manual or facsimile signature of a
Responsible Officer of the Trustee having such authority under the Trustee's
seal imprinted or otherwise affixed therein and attested on behalf of the
Trustee by the manual or facsimile signature of any other Responsible Officer of
the Trustee. The maximum and initial Class A Certificate Balance of the Class A
Certificates authorized to be issued hereunder shall be equal to the Initial
Class A Certificate Balance, and each Class of Senior Certificates shall bear
interest at the applicable Certificate Rate. The Class A Certificates shall be
issued in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof (except that one Certificate may be issued in an amount that is
not an integral multiple of $1,000). The Class S Certificates shall be issued in
minimum denominations of a Percentage Interest equal to 10% and integral
multiples of a Percentage Interest equal to 10% in excess thereof. One Class of
residual Certificates is authorized to be issued hereunder, designated as the
"Class R Certificates." The Class R Certificates shall be issued in minimum
denominations representing a one twentieth (i.e., 5%) Residual Interest. No
Certificate shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless there appears on such Certificate a execution by the
Trustee by manual or facsimile signature, and such signature upon any
Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly executed and delivered hereunder. Each Certificate
shall be dated the date of its signature. Certificates of each Class shall be
numbered consecutively beginning with 0001 and each number shall be preceded by
an "A" for Class A Certificates, an "S" for Class S Certificates and an "R" for
Class R Certificates. The Trustee shall cause to be executed and delivered to or
upon the order of the Depositor, in exchange for the Loans and the other Trust
Property, simultaneously with the sale, assignment and transfer to the Trustee
of Loans, Files and the other Trust Property, Certificates duly executed by the
Trustee evidencing the entire ownership of the Trust.
(b) Any 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 5.02. Registration of Transfer and Exchange of
Certificates.
(a) The Trustee shall keep or cause to be kept at an office or
agency in the city where the Corporate Trust Office is located, a Certificate
Register for each Class of Certificates in which, subject to such reasonable
regulations as it may prescribe, the Trustee shall provide for the registration
of Certificates of such Class and of transfers and exchanges of such
Certificates as herein provided. The Trustee shall also designate and cause to
be kept in the City of New York an office at and through which Certificates may
be delivered to and
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received from the Trustee for purposes of transfers and exchanges as herein
provided. The Trustee shall initially serve as Certificate Registrar for the
purpose of registering Certificates as herein provided. The Trustee may appoint,
by a written instrument delivered to the Master Servicer, any other bank or
trust company to act as Certificate Registrar under such conditions as the
Master Servicer may prescribe. If the Trustee shall at any time not be the
Certificate Registrar, the Trustee shall have and maintain the right to inspect
the Certificate Register or to obtain a copy thereof at all reasonable times, to
afford Certificateholders access thereto for the purposes specified in Section
10.08, and to rely conclusively upon a certificate of the Certificate Registrar
as to the information set forth in the Certificate Register.
(b) (1) No transfer of a Class S or Class R 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 of any such transfer,
(i) unless such transfer is made in reliance upon Rule 144A under the 1933 Act,
the Trustee or the Depositor may require a written Opinion of Counsel (which may
be in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Trustee and the Depositor 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 Depositor
and (ii) the Trustee shall require the transferee to execute an investment
letter (in substantially the form attached hereto as Exhibit I or Exhibit J)
acceptable to and in form and substance reasonably satisfactory to the Depositor
and the Trustee certifying to the Depositor and the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee or the Depositor. The Holder of a Class S or Class R Certificate
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee and the Depositor against any liability that may result if the transfer
is not so exempt or is not made in accordance with such federal and state laws.
(2) Except as provided below, the Book-Entry Certificates shall
at all times remain registered in the name of the Depository or its nominee and
at all times: (i) registration of the Book-Entry Certificates may not be
transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Book-Entry Certificates; (iii)
ownership and transfers of registration of the Book-Entry Certificates on the
books of the Depository shall be governed by applicable rules established by the
Depository; (iv) the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants; (v) the Trustee shall
deal with the Depository, Depository Participants and indirect participating
firms as representatives of the Certificate Owners of the Book-Entry
Certificates for purposes of exercising the rights of Holders under this
Agreement, and requests and directions for and votes of such representatives
shall not be deemed to be inconsistent if they are made with respect to
different Certificate Owners; and (vi) the Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository with respect
to its Depository Participants and furnished by the Depository Participants with
respect to indirect participating firms and persons shown on the books of such
indirect participating firms as direct or indirect Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates
shall be made in accordance with the procedures established by the Depository
Participant or brokerage firm
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representing such Certificate Owner. Each Depository Participant shall only
transfer Book-Entry Certificates of Certificate Owners it represents or of
brokerage firms for which it acts as agent in accordance with the Depository's
normal procedures.
If (x) (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (ii) the Trustee or the Depositor is
unable to locate a qualified successor, (y) the Depositor at its option, with
the consent of the Certificate Insurer, advises the Trustee in writing that it
elects to terminate the book-entry system through the Depository or (z) after
the occurrence of an Event of Master Servicing Termination, the Certificate
Insurer or Certificate Owners representing at least 51% of the Voting Rights
evidenced by the Class A Certificates, with the consent of the Certificate
Insurer, advise the Trustee and the Depository through the Depository
Participants in writing that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Certificate Owners, the
Trustee shall notify all Certificate Owners, through the Depository, of the
occurrence of any such event and of the availability of definitive,
fully-registered Class A Certificates (the "Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the Trustee of such
Book-Entry Certificates by the Depository, accompanied by the instructions from
the Depository for registration, the Trustee shall issue the Definitive
Certificates. None of the Seller, the Master Servicer, the Depositor, the
Certificate Insurer or the Trustee shall be liable for any delay in delivery of
such instruction and each may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates all
references herein to obligations imposed upon or to be performed by the
Depository shall be deemed to be imposed upon and performed by the Trustee, to
the extent applicable with respect to such Definitive Certificates and the
Trustee shall recognize the Holders of the Definitive Certificates as
Certificateholders hereunder; provided that the Trustee shall not by virtue of
its assumption of such obligations become liable to any party for any act or
failure to act of the Depository.
Neither the Trustee nor the Certificate Registrar shall have any
responsibility to monitor or restrict the transfer of beneficial ownership in
any Certificate an interest in which is transferable through the facilities of
the Depository.
(3) No Transfer of a Class IS, Group II Certificate or Class R
Certificate shall be made unless the Trustee shall have received either (i) a
representation letter from the transferee of such Certificate acceptable to and
in form and substance satisfactory to the Trustee, to the effect that such
transferee is not an employee benefit plan or arrangement subject to Section 406
of ERISA or a plan subject to Section 4975 of the Code, nor a person acting on
behalf of any such plan or arrangement nor using the assets of any such plan or
arrangement to effect such Transfer, (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any Class R Certificate presented for registration in the name of an employee
benefit plan subject to ERISA, or a plan or arrangement subject to Section 4975
of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan or any other person acting on behalf of any such plan
or arrangement or using such plan's or arrangement's assets, an Opinion of
Counsel satisfactory to the Trustee, which Opinion of
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Counsel shall not be an expense of either the Trustee or the Trust, addressed to
the Trustee, to the effect that the purchase or holding of such Class S or Class
R Certificate will not result in the assets of the Trust being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. Notwithstanding the
foregoing, the Trustee shall waive the transfer restrictions imposed by this
Section 5.02(b)(3) with respect to the Class IS Certificates, if the initial
transferee of the Class S Certificates certifies in writing to the Trustee that
such transferee has a valid Exemption and all requirements for transfer of the
Class S Certificates pursuant to such Exemption are satisfied.
(c) Subject to subsection (b) of this Section and subject to
Article XI, upon surrender for registration of transfer of a Certificate of any
Class at the office or agency of the Trustee maintained for such purpose
pursuant to Section 5.02(a), the Trustee shall execute, authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same Class in authorized denominations of the same
Percentage Interest.
(d) At the option of Certificateholders, Certificates of any
Class may be exchanged for other Certificates of the same Class and aggregate
Percentage Interests, upon surrender of the Certificates to be exchanged at any
such office or agency. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute, authenticate and deliver the Certificates
which the Certificateholder making the exchange is entitled to receive. Every
Certificate presented or surrendered for transfer or exchange shall be duly
endorsed by, or be accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing.
(e) No service charge shall be made for any transfer or exchange
of Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
(f) All Certificates surrendered for transfer, exchange or
payment shall be disposed of by the Certificate Registrar in accordance with its
standard procedures.
(g) Transfers of Class R Certificates shall be subject to the
provisions of Article XI.
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the
Certificate Registrar or the Trustee, or the Certificate Registrar and the
Trustee, the Depositor and the Certificate Insurer receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate, and (b) there
is delivered to the Certificate Registrar, the Certificate Insurer and the
Trustee, the Depositor and the Certificate Insurer such security or indemnity as
may be required by them to save each of them harmless (which in the case of a
Certificateholder that is an institutional investor with a minimum net worth of
$250,000,000, will be deemed to be satisfied by a written agreement of indemnity
from such Certificateholder, then, in the absence of notice
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to the Certificate Registrar or the Trustee that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute on behalf of the
Trust and the Trustee shall countersign and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of the same Class and Percentage Interest, as such mutilated, destroyed, lost or
stolen Certificate, in each case bearing a number not borne by any then
Outstanding Certificate of any Class. Upon the issuance of any new Certificate
under this Section 5.03, 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 and any other expenses (including the fees and expenses of the
Certificate Registrar) connected therewith. Any Certificate issued pursuant to
this Section 5.03 shall constitute complete and indefeasible evidence of the
same interest in the Trust, and shall be entitled to the same benefits under
this Agreement, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
Section 5.04. Persons Deemed Owners.
Prior to due presentation of a Certificate for registration of
transfer, the Trustee, the Certificate Insurer, the Certificate Registrar and
any agent of the Trustee, the Certificate Insurer or the Certificate Registrar
may treat the Person in whose name any Certificate is registered (i) on any
Record Date for purposes of making distributions on the following Distribution
Date, whether or not any distribution required to be made on such Certificate
shall have been made when scheduled, and (ii) on any date for any other purpose,
as the owner of such Certificate, and neither the Trustee, the Certificate
Insurer, the Certificate Registrar nor any agent of the Trustee, the Certificate
Insurer or the Certificate Registrar shall be affected by notice to the
contrary, except, with respect to a Class R Certificate, for notice by the
Master Servicer pursuant to Section 11.02 that the record holder is not a
Permitted Transferee, and in such case the provisions of Section 11.02 shall
apply.
Section 5.05. Trustee to Make Payments From Trust Only.
All distributions to be made by the Trustee in respect of the
Certificates or under this Agreement shall be made only from the Trust Property.
Each Certificateholder, by its acceptance of a Certificate, agrees that it will
look solely to the Trust Property to the extent available for distribution to it
as herein provided and that the Trustee is not personally liable to it for any
amount distributable in respect of any Certificate or for any other liability in
respect of any Certificate. This Section is intended solely to limit the
liability of the Trustee and shall have no effect on the obligations of the
Depositor, Mego or the Master Servicer under this Agreement. This Section 5.05
does not limit the liability of the Trustee set forth elsewhere in this
Agreement for violations of its representations, warranties and covenants
contained herein.
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ARTICLE VI
The Master Servicer
Section 6.01. Liability of the Master Servicer.
(a) The Master Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Master Servicer herein and the representations made by the Master
Servicer.
(b) The Master Servicer shall indemnify, defend and hold harmless
the Trust, the Trustee, Mego, the Depositor and the Certificate Insurer, their
respective officers, directors, agents and employees and the Certificateholders
from and against any and all costs, expenses, losses, claims, damages, and
liabilities to the extent that such cost, expense, loss, claim, damage or
liability arose out of, or was imposed upon the Trustee, the Trust, Mego, the
Depositor, the Certificate Insurer or the Certificateholders through the breach
of this Agreement by the Master Servicer, the negligence, willful misfeasance,
or bad faith of the Master Servicer in the performance of its duties under this
Agreement or by reason of reckless disregard of its obligations and duties under
this Agreement. Such indemnification shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation.
Section 6.02. Merger or Consolidation of, or Assumption of, the
Master Servicer.
The Master Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the Master
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity (i) shall be an
Eligible Servicer, (ii) shall be capable of fulfilling the duties of the Master
Servicer contained in this Agreement and (iii) shall have a long-term debt
rating which is BBB and Baa2 by Standard & Poor's and Moody's respectively. Any
corporation (i) into which the Master Servicer may be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Master Servicer
shall be a party, (iii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Master Servicer, or (iv) succeeding to
the business of the Master Servicer, in any of the foregoing cases shall execute
an agreement of assumption to perform every obligation of the Master Servicer
under this Agreement and, whether or not such assumption agreement is executed,
shall be the successor to the Master Servicer under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties to this Agreement, anything in this Agreement to the contrary
notwithstanding; provided, however, that nothing contained herein shall be
deemed to release the Master Servicer from any obligation. The Master Servicer
shall provide notice of any merger, consolidation or succession pursuant to this
Section 6.02 to the Trustee, the Certificate Insurer and each Rating Agency.
Notwithstanding the foregoing, as a condition to the consummation of the
transactions referred to in clauses (i) through (iv) above, (x) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 6.06 shall have been breached (for purposes hereof, such
representations and warranties shall speak as of the date of the consummation of
such transaction), (y) the
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Master Servicer shall have delivered to the Trustee and the Certificate Insurer
an Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this Section 6.02 and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, and (z) the
Master Servicer shall have delivered to the Trustee and the Certificate Insurer
an Opinion of Counsel, stating, in the opinion of such counsel, either (A) all
financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary to preserve and protect the interest
of the Trustee in the Trust Property and reciting the details of the filings or
(B) no such action shall be necessary to preserve and protect such interest.
Section 6.03. Limitation on Liability of the Master Servicer and
Others.
Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties, representations or covenants
made herein or any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in performing or failing to perform
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. The Master Servicer and any of its directors, officers, employees or
agents may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Section 6.04. Master Servicer Not to Resign; Expenses;
Assignment.
(a) The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) with the consent of the Certificate
Insurer and the Rating Agencies or (ii) upon determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would result in a material adverse effect on the Master Servicer and the
Certificate Insurer (so long as an Certificate Insurer Default shall not have
occurred and be continuing) does not elect to waive the obligations of the
Master Servicer to perform the duties which render it legally unable to act or
to delegate those duties to another Person. Any such determination permitting
the resignation of the Master Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered and acceptable to the Trustee and the
Certificate Insurer (unless a Certificate Insurer Default shall have occurred
and be continuing). No resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer acceptable to the Certificate Insurer
shall have assumed the Master Servicer's servicing responsibilities and
obligations in accordance with Section 7.02.
(b) Notwithstanding anything to the contrary herein, the Master
Servicer shall remain liable for all liabilities and obligations incurred by it
as Master Servicer hereunder prior to the time that any resignation or
assignment referred to in subsection (a) above or termination under Section 7.01
becomes effective, including the obligation to indemnify the Trustee pursuant to
Section 8.05(b) hereof in connection with the Trustee's administration of the
trusts created by this Agreement prior to such resignation, assignment or
termination.
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(c) The Master Servicer agrees to cooperate with any successor
Master Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Files in the possession of the Master Servicer and the
Servicing Record) and all amounts credited to the Servicing Record or thereafter
received with respect to the Loans and not otherwise permitted to be retained by
the Master Servicer pursuant to this Agreement. In addition, the Master
Servicer, at its sole cost and expense, shall prepare, execute and deliver any
and all documents and instruments, deliver to the successor Master Servicer all
Files and do or accomplish all other acts necessary or appropriate to effect
such termination and transfer of servicing responsibilities, including, without
limitation, assisting in obtaining any necessary approval under Title I from the
FHA.
Section 6.05. Master Servicer May Own Certificates.
Each of the Master Servicer and any affiliate of the Master
Servicer may in its individual or any other capacity become the owner or pledgee
of Certificates with the same rights as it would have if it were not the Master
Servicer or an affiliate thereof except as otherwise specifically provided
herein. Certificates so owned by or pledged to the Master Servicer or such
affiliate shall have an equal and proportionate benefit under the provisions of
this Agreement, without preference, priority, or distinction as among all of the
Certificates, provided that any Certificates owned by the Master Servicer or any
Affiliate thereof, during the time such Certificates are owned by them, shall be
without voting rights for any purpose set forth in this Agreement. The Master
Servicer shall notify the Trustee and the Certificate Insurer promptly after it
or any of its affiliates becomes the owner or pledgee of a Certificate.
Section 6.06. Representations and Warranties of the Master
Servicer.
The Master Servicer hereby represents and warrants to the
Depositor, Mego, the Certificate Insurer and the Trustee, for the benefit of the
Certificateholders as of the Closing Date:
(a) The Master Servicer is a national banking association duly
organized and validly existing under the laws of the United States of America,
with full power and authority to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted;
(b) The Master Servicer has the full power and authority to
execute, deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which it
is a party, has duly authorized the execution, delivery and performance of this
Agreement and each other Transaction Document to which it is a party, has duly
executed and delivered this Agreement and each other Transaction Document to
which it is a party, and this Agreement and each other Transaction Document to
which it is a party, when duly authorized, executed and delivered by the other
parties thereto, will constitute a legal, valid and binding obligation of the
Master Servicer, enforceable against it in accordance with its terms;
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(c) Neither the execution and delivery of this Agreement or any
other Transaction Document to which the Master Servicer is a party, the
consummation of the transactions required of the Master Servicer herein or
therein, nor the fulfillment of or compliance with the terms and conditions of
this Agreement or any other Transaction Document to which the Master Servicer is
a party will conflict with or result in a breach of any of the terms, conditions
or provisions of the Master Servicer's charter or bylaws or any legal
restriction or any material agreement or instrument to which the Master Servicer
is now a party or by which it is bound, or which would adversely affect the
creation or administration of the Trust as contemplated hereby, or constitute a
material default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgment or decree
to which the Master Servicer or its property is subject;
(d) The Master Servicer is not in default, and the execution and
delivery of this Agreement and each other Transaction Document to which it is a
party and its performance of and compliance with the terms hereof and thereof
will not constitute a violation of, any law, any order or decree of any court,
or any order, regulation or demand of any federal, state or local governmental
or regulatory authority;
(e) No action, suit or other proceeding or investigation is
pending or, to the Master Servicer's knowledge, threatened before any court or
any federal, state or local governmental or regulatory authority (A) asserting
the invalidity of this Agreement or any other Transaction Document to which the
Master Servicer is a party, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or any other Transaction
Document to which the Master Servicer is a party, or (C) seeking any
determination or ruling that would materially and adversely affect the ability
of the Master Servicer to perform its obligations under this Agreement or any
other Transaction Document to which the Master Servicer is a party (including
any threatened or pending action, suit, proceeding or investigation which might
result in the suspension, revocation or modification of the Contract of
Insurance);
(f) No consent, approval, authorization or order of, registration
or filing with or notice to, any court or any federal, state or local government
or regulatory authority is required for the execution, delivery and performance
by the Master Servicer of this Agreement or any other Transaction Document to
which the Master Servicer is a party (other than those that have been obtained
or will be obtained prior to the Closing Date);
(g) Neither this Agreement nor any other Transaction Document to
which the Master Servicer is a party nor any statement, report or other document
furnished or to be furnished by the Master Servicer pursuant to this Agreement
or any other Transaction Document to which the Master Servicer is a party or in
connection with the transactions contemplated hereby and thereby contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading;
(h) The statements contained in the section of the Prospectus
Supplement entitled "The Master Servicer" which describe the Master Servicer are
true and correct in all material respects, and such section of the Prospectus
Supplement does not contain any untrue statement of a material fact with respect
to the Master Servicer and does not omit to state
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a material fact necessary to make the statements contained therein with respect
to the Master Servicer not misleading;
(i) The Master Servicer is solvent, and the Master Servicer will
not be rendered insolvent as a result of the performance of its obligations
pursuant to this Agreement and any other Transaction Document to which the
Master Servicer is a party;
(j) The Servicing Agreement conforms to the requirements for a
Servicing Agreement contained in this Agreement;
(k) Each FHA Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;
(l) The Servicer is an Eligible Servicer, and the Master Servicer
possesses all state and federal licenses necessary for servicing the Loans in
accordance with this Agreement;
(m) The Master Servicer has not waived any default, breach,
violation or event of acceleration existing under any Note or the related
Mortgage; and
(n) The Master Servicer has caused and will cause to be performed
any and all acts required to be performed by the Master Servicer or Servicer to
preserve the rights and remedies of the Trustee in any Insurance Policies
applicable to the Loans including, without limitation, in each case, any
necessary notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and mortgagee rights
in favor of the Trustee.
It is understood and agreed that the representations and
warranties set forth in this Section 6.06 shall survive the issuance and
delivery of the Certificates and shall be continuing as long as any Certificate
shall be outstanding or this Agreement has not been terminated.
Section 6.07. General Covenants of the Master Servicer.
The Master Servicer covenants and agrees for the benefit of the
Depositor, Mego, the Certificate Insurer and the Trustee for the benefit of the
Certificateholders that until the Termination Date:
(a) The Master Servicer shall comply with, and shall service, or
cause to be serviced, each Loan, in accordance with all applicable laws, and, in
particular, in accordance with the National Housing Act, as amended and
supplemented, all rules and regulations issued thereunder, and all
administrative publications published pursuant thereto including, in the case of
the FHA Loans, all FHA requirements of FHA Title I loans.
(b) The Master Servicer agrees that, so long as it shall continue
to serve in the capacity contemplated under the terms of this Agreement, it
shall remain in good standing under the laws governing its creation and
existence and qualified under the laws of each state in which it is necessary to
perform its obligations under this Agreement or in which the nature
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of its business requires such qualification, it shall maintain all licenses,
permits and other approvals required by any law or regulations, including,
without limitation Title I, as may be necessary to perform its obligations under
this Agreement and to retain all rights to service the Loans, and it shall not
dissolve or otherwise dispose of all or substantially all of its assets.
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ARTICLE VII
Master Servicer Termination Events
Section 7.01. Master Servicer Termination Events; Waiver.
For purposes of this Agreement, each of the following shall
constitute a "Master Servicer Termination Event":
(a) (i) failure by the Master Servicer to deposit or cause the
Servicer to deposit all Payments in the related Collection Account no later than
the second Business Day following receipt thereof by the Master Servicer or
Servicer, which failure continues unremedied for two Business Days; (ii) failure
by the Master Servicer to make any required Interest Advance pursuant to Section
3.08; (iii) failure of the Master Servicer to pay when due any amount payable by
it under the Insurance Agreement, which failure continues unremedied for two
Business Days; or (iv) failure of the Master Servicer to pay when due any amount
payable by it under this Agreement and such failure results in a drawing under
the related Policy; or
(b) failure on the part of the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice of
such failure to the Trustee or the Certificate Insurer pursuant to Section
3.04(b) and (y) the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Master Servicer by the Trustee
or the Certificate Insurer, or to the Master Servicer and the Trustee pursuant
to a Class Vote; or
(c) failure by the Master Servicer to deliver to the Trustee and
(so long as a Certificate Insurer Default shall not have occurred and be
continuing) the Certificate Insurer the Master Servicer Certificate by the
fourth Business Day prior to each Distribution Date, or failure on the part of
the Master Servicer to observe its covenants and agreements set forth in Section
6.07(a); or
(d) the entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Master Servicer in 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, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Master Servicer or of
any substantial part of their respective properties or ordering the winding up
or liquidation of the affairs of the Master Servicer and the continuance of any
such decree or order unstayed and in effect for a period of 60 consecutive days
or the commencement of an involuntary case under the federal bankruptcy laws, as
now or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days; or
(e) the commencement by the Master Servicer of a voluntary case
under the federal bankruptcy laws, as now or hereinafter in effect, or any other
present or future, federal or state bankruptcy, insolvency or similar law, or
the consent by the Master Servicer
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to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Master
Servicer or of any substantial part of its property or the making by the Master
Servicer of an assignment for the benefit of creditors or the failure by the
Master Servicer generally to pay its debts as such debts become due or the
taking of corporate action by the Master Servicer in furtherance of any of the
foregoing or the admission in writing by the Master Servicer of an inability to
pay its debts as they become due; or
(f) any representation, warranty or statement of the Master
Servicer made in this Agreement or any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Trustee or the Certificate Insurer pursuant
to Section 3.04(b) and (y) the date on which written notice thereof shall have
been given to the Master Servicer by the Trustee or the Certificate Insurer (or,
if a Certificate Insurer Default shall have occurred and be continuing, written
notice thereof shall have been given by a Class Vote), the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured; or
(g) failure on the part of the Master Servicer to deposit into
the applicable Distribution Account within 3 Business Days following the related
Determination Date any Interest Advance pursuant to Section 3.08; or
(h) the Certificate Insurer determines that the performance by
the Master Servicer of its servicing duties hereunder with respect to the Loans
is not, in the reasonable opinion of the Certificate Insurer after consultation
with the Master Servicer, in conformity with acceptable standards after
considering the following factors: (A) the terms and conditions of this
Agreement, (B) conformity with the Servicing Standards, (C) the Master
Servicer's practices as of the Closing Date, provided that such practices are
either (i) consistent with industry standards for the servicing of loans similar
to the Loans or (ii) the Master Servicer's historical practices and procedures;
or
(i) the Master Servicer shall dissolve or liquidate, in whole or
in part, in any material respects except to the extent that any resulting
successor entity is acceptable to the Certificate Insurer; or
(j) the long-term debt rating of the Master Servicer shall be
reduced below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or
(k) the Pool Annual Default Percentage (Three Month Average)
exceeds 6.5% or the Pool 60+ Delinquency Percentage (Rolling Three Month)
exceeds 6.0%.
Section 7.02. Consequences of a Master Servicer Termination
Event.
If a Master Servicer Termination Event shall occur and be
continuing, the Certificate Insurer (or, if a Certificate Insurer Default shall
have occurred and be continuing, the Trustee at the direction of the Holders
pursuant to a Class Vote), by notice given in
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writing to the Master Servicer (and to the Trustee if given by the Certificate
Insurer or the Certificateholders) may terminate all of the rights and
obligations of the Master Servicer under this Agreement. On or after the receipt
by the Master Servicer of such written notice, and the appointment of and
acceptance by a successor Master Servicer, all authority, power, obligations and
responsibilities of the Master Servicer under this Agreement, whether with
respect to the Certificates or the Trust or otherwise, shall pass to, be vested
in and become obligations and responsibilities of the successor Master Servicer;
provided, however, that the successor Master Servicer shall have no liability
with respect to any obligation which was required to be performed by the prior
Master Servicer prior to the date that the successor Master Servicer becomes the
Master Servicer or any claim of a third party based on any alleged action or
inaction of the prior Master Servicer. The successor Master Servicer is
authorized and empowered by this Agreement to execute and deliver, on behalf of
the prior 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.
The prior Master Servicer agrees to cooperate with the successor Master Servicer
in effecting the termination of the responsibilities and rights of the prior
Master Servicer under this Agreement, including, without limitation, the
transfer to the successor Master Servicer for administration by it of all cash
amounts that shall at the time be held by the prior Master Servicer for deposit,
or have been deposited by the prior Master Servicer, in the Collection Accounts
or thereafter received with respect to the Loans and the delivery to the
successor Master Servicer of all Files and a computer tape in readable form
containing the Servicing Record and any other information necessary to enable
the successor Master Servicer to service the Loans and the other Trust Property.
If requested by the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), the successor Master Servicer shall
direct the Obligors to make all payments under the Loans directly to the
successor Master Servicer, or to a lockbox established by the Master Servicer at
the direction of the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), at the prior Master Servicer's expense.
In addition to any other amounts that are then payable to the terminated Master
Servicer under this Agreement, the terminated Master Servicer shall then be
entitled to receive (to the extent provided by Section 3.08) out of the
Collected Amount for the related Loan Group, reimbursements for any outstanding
Interest Advances made during the period prior to the notice pursuant to this
Section 7.02 which terminates the obligation and rights of the terminated Master
Servicer under this Agreement. The Trustee and the successor Master Servicer may
set off and deduct any amounts owed by the terminated Master Servicer from any
amounts payable to the terminated Master Servicer. The terminated Master
Servicer shall grant the Trustee, the successor Master Servicer and the
Certificate Insurer reasonable access to the terminated Master Servicer's
premises at the terminated Master Servicer's expense.
Section 7.03. Appointment of Successor.
(a) On or after the time the Master Servicer receives a notice of
termination pursuant to Section 7.02 or upon the resignation of the Master
Servicer pursuant to Section 6.04, the Trustee shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for in this Agreement, and
shall be subject to all the responsibilities, restrictions, duties, liabilities
and termination provisions relating thereto placed on the Master Servicer by the
terms and provisions of this Agreement. The Trustee shall take such action,
consistent with this
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Agreement, as shall be necessary to effectuate any such succession. If the
Trustee or any other successor Master Servicer is acting as Master Servicer
hereunder, it shall be subject to termination under Section 7.02 upon the
occurrence of a Master Servicer Termination Event applicable to it as Master
Servicer.
(b) Any successor Master Servicer appointed pursuant to the
provisions of the Agreement must be approved by the Certificate Insurer
(provided no Certificate Insurer Default is then occurring and continuing) and
shall execute, acknowledge and deliver to the Trustee, the Certificate Insurer
and its predecessor Master Servicer an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Master
Servicer shall become effective.
(c) Any successor Master Servicer shall be entitled to such
compensation (whether payable out of the Collected Amount or otherwise) as the
Master Servicer would have been entitled to under the Agreement if the Master
Servicer had not resigned or been terminated hereunder. The Certificate Insurer
and a successor Master Servicer may agree on additional compensation to be paid
to such successor Master Servicer in accordance with Section 4.05(a)(xiii) and
Section 4.05(b)(xiii), as applicable. In addition, any successor Master Servicer
shall be entitled, to reasonable transition expenses incurred in acting as
successor Master Servicer pursuant to Section 4.05(a)(xiii) and Section
4.05(b)(xiii), as applicable.
Section 7.04. Notification to Certificateholders.
Upon any termination of the Master Servicer or appointment of a
successor to the Master Servicer, the Trustee shall give prompt written notice
thereof to Certificateholders at their respective addresses appearing in the
Certificate Register.
Section 7.05. Waiver of Past Defaults.
The Certificate Insurer (or, if a Certificate Insurer Default
shall have occurred and be continuing, the Certificateholders pursuant to a
Class Vote) may, on behalf of all Holders of Certificates, waive any default by
the Master Servicer in the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Master Servicer Termination Event arising therefrom shall be
deemed to have been remedied for every purpose of this Agreement. No such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.
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ARTICLE VIII
Concerning the Trustee
Section 8.01. Duties of the Trustee and Contract of Insurance
Holder.
(a) The Trustee, prior to the occurrence of a Master Servicer
Termination Event and after the curing of all Master Servicer Termination Events
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. In case a Master Servicer
Termination Event has occurred and not been cured (the appointment of a
successor servicer (including the Trustee) shall for purposes of this Article be
deemed such a cure), the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, 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. The Trustee shall not, except as
otherwise provided in this Agreement, sell or otherwise transfer any of the
Trust Property.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, notices, orders or other instruments
furnished to the Trustee that are specifically required to be furnished pursuant
to any provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement; provided, however, that the
Trustee, in its capacity as such, shall not be responsible for the accuracy or
content of any such resolution, certificate, statement, opinion, report,
document, notice, order or other instrument furnished to the Trustee pursuant to
this Agreement. The Trustee shall promptly mail each such resolution,
certificate, statement, opinion, report, document, notice, order or other
instrument to each Certificateholder.
(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 bad faith or willful misconduct; provided, however,
that:
(i) Prior to the occurrence of a Master Servicer Termination
Event, and after the curing of all such Master Servicer Termination
Events which may have occurred, the duties and obligations of the
Trustee shall be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee and, in the absence of bad faith,
willful misconduct, or negligence on the part of the Trustee or actual
knowledge to the contrary of a Responsible Officer of the Trustee
assigned to and working in the Trustee's Corporate Trustee
Administration Department, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Trustee that conform to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee,
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unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction given pursuant to a Class
Vote, 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, with respect to such Class
of Certificates under this Agreement;
(iv) The Trustee shall not be personally liable for any
failure to ascertain whether a Certificateholder is an affiliate of
the Master Servicer or the Depositor for purposes of obtaining
Certificateholder consent pursuant to the terms of this Agreement;
(v) For all purposes of this Agreement, the Trustee shall
not be deemed to have knowledge of any Master Servicer Termination
Event unless a Responsible Officer of the Trustee assigned to and
working in the Trustee's Corporate Trustee Administration Department
shall have actual knowledge thereof or if written notice thereof is
received by the Trustee in accordance herewith, and in the absence of
such knowledge no provision hereof requiring the taking of any action
or the assumption of any duties or responsibility by the Trustee
following the occurrence of any Master Servicer Termination Event
shall be effective as to the Trustee; and
(vi) None of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or to be
responsible for the manner of performance of, any of the obligations
of the Master Servicer or the Servicer under this Agreement or to
supervise or monitor the performance of such obligations (other than
to determine that any notices, reports or statements required to be
delivered to it by the Master Servicer hereunder comply with the
provisions of this Agreement), except during such time, if any, as the
Trustee shall be the successor to, and be vested with the rights,
duties, powers and privileges of the Master Servicer in accordance
with the provisions of this Agreement.
(d) If the Trustee receives any funds from the FHA or any other
Person with respect to the Loans or any other assets of the Trust, the
provisions of Section 3.12(e) shall apply.
(e) In the event that any conservator or receiver shall be
appointed for Mego, the Trustee shall cause the Master Servicer to notify the
Obligors of the sale of the Loans to the Trust.
Section 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate,
certificate of auditors or any
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other certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or document
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(ii) The Trustee shall be under no obligation to exercise
any of the trusts or powers vested in it by this Agreement or to
institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of the Certificate Insurer
or any of the Certificateholders, pursuant to the provisions of this
Agreement, expend or use its own funds or otherwise incur any
financial liability in the performance of any of its duties as Trustee
hereunder, or in the exercise of any of its rights or powers as such,
unless either (A) payment within a reasonable time to the Trustee of
the costs, expenses or liabilities likely to be incurred by it in
taking such action is, in the opinion of the Trustee, reasonably
assured to the Trustee by the security afforded to it by the terms of
this Agreement, or (B) the Certificate Insurer or such
Certificateholders as the case may be shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby (which, in
the case of a Certificateholder which is an institutional investor,
will be deemed satisfied by a written agreement of indemnity from such
Certificateholder); the right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be construed
as a duty, and the Trustee shall not be answerable for other than its
negligence, bad faith or willful misconduct in the performance of any
such act; nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of a Master Servicer
Termination Event which has not been cured, to exercise such of the
rights and powers vested in it by this Agreement, and to use the same
degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own
affairs;
(iii) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and believed by
it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement;
(iv) The Trustee may consult with counsel and any Opinion of
Counsel or written advice of counsel shall be full and complete
authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel or written advice;
(v) Prior to the occurrence of a Master Servicer Termination
Event hereunder and after the curing of all such Master Servicer
Termination Events which may have occurred, 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, consent, order, approval, bond or other paper or
document, unless requested in writing to do so by the Certificate
Insurer or pursuant to a Class Vote; provided, however, that if the
payment within a reasonable time to the 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 Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of
this Agreement, the Trustee may require reasonable indemnity from the
Certificate Insurer or the Certificateholders, as the case
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may be, giving such direction against such expense or liability as a
condition to so proceeding (which, in the case of a Certificateholder
which is an institutional investor, will be deemed satisfied by a
written agreement of indemnity from such Certificateholder), except
that, if a Master Servicer Termination Event has occurred and is
continuing, the expenses of any such investigation shall be paid by
the Master Servicer or, if paid by the Trustee, shall be repaid by the
Master Servicer upon demand, and the Trustee shall not have any lien,
claim or demand upon the Trust for the payment thereof;
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or through
agents or attorneys; and
(vii) The Trustee shall not be required to give any bond or
surety in respect of the trust created hereby or the powers created
hereunder.
Section 8.03. Trustee Not Liable for Certificates or Loans.
The recitals contained herein and in the Certificates (other than
the countersignature of the Trustee on such Certificates) shall not be taken as
the statements of the Trustee, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement (other than as to the execution and delivery of
this Agreement by the Trustee) or of the Certificates (other than the
countersignature of the Trustee on such Certificates) or of any Loan or related
document. The Trustee shall not be accountable for the use or application by the
Depositor of any of the Certificates or of the proceeds of such Certificates, or
for the use or application of any funds paid to the Master Servicer (unless the
Trustee is acting as such) in respect of the Loans or deposited in or withdrawn
by the Master Servicer from the Collection Accounts, other than funds so
withdrawn and thereafter deposited in a Distribution Account. Except as
otherwise expressly provided herein, the Trustee shall have no obligation to
inspect, insure or pay taxes on any Property, to investigate the state of title
with respect to any Property, to ensure the priority or perfection of any
Mortgage or security interest or to file or record any assignment, lien,
financing statement, continuation statement or security interest in relation to
any Loan or Property or to ensure the priority or perfection of any security
referred to in this Agreement or to prepare, file or record any assignment,
lien, financing statement or continuation statement with respect thereto or to
prepare or file any Securities and Exchange Commission filings for the Trust or
to record this Agreement.
Section 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Certificates of any Class with the same rights as it
would have if it were not Trustee, except that no determination, vote or request
as Holder of such Certificates shall be included in the determination of a Class
Vote. The Trustee, in its individual capacity, may deal with either the
Depositor, the Certificate Insurer and the Master Servicer, each in their
individual capacities, with the same rights it would have if it were not
Trustee.
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Section 8.05. Trustee's Fees and Expenses;
Indemnification.
(a) The Trustee will disburse to itself pursuant to Section
4.05(a)(iv) and Section 4.05(b)(iv), to the extent funds are available therefor,
the Trustee Fee for all services rendered by it in the execution of the trusts
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee.
(b) Mego shall indemnify the Trustee and its agent for, and hold
them harmless against, any loss, liability or expense (including reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ and the fees and expenses of any
co-trustee appointed hereunder)) incurred by the Trustee or such agent without
negligence, willful misfeasance or bad faith on the part of the Trustee or any
such agent and arising out of or in connection with the acceptance or
administration of the trusts created hereby, including without limitation the
costs and expenses of defending the Trustee or any such agent against any claim
or liability incurred by them in connection with the exercise or performance of
any of their powers or duties hereunder, including the signing of any document
pursuant to this Agreement, and including without limitation any liability
incurred by the Trustee arising from the Depositor's bad faith, willful
misfeasance or negligence. The obligations set forth in this Section 8.05(b)
shall survive the termination of this Agreement.
Section 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or
national banking association organized and doing business under the laws of the
United States or of any state, authorized under such laws to exercise corporate
trust powers, subject to supervision or examination by federal or state
authority and either (i) having a combined capital and surplus of at least
$50,000,000 or (ii) being the wholly-owned subsidiary of a bank holding company
having such a capital and surplus. If such corporation or national banking
association publishes reports of condition at least annually, pursuant to law or
the requirements of the aforesaid supervising or examining authority, then for
the purpose of this Section 8.06 the combined capital and surplus of such
corporation or national banking association shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. By executing and delivering this Agreement, the Trustee represents
and warrants that it meets such requirements as of the date hereof. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.07. Neither the Master
Servicer nor any affiliate thereof shall be eligible to serve as Trustee at any
time, except that the Trustee may serve as successor master servicer pursuant to
Section 7.02.
Section 8.07. Resignation and Removal of the Trustee.
(a) The Trustee may resign and be discharged from the trust
hereby created by giving not less than 60 days' written notice thereof to the
Master Servicer and the Certificate Insurer. Upon receiving such notice of
resignation, the Depositor with the prior
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written consent of the Certificate Insurer or, if a Certificate Insurer Default
is then occurring and continuing, the Depositor shall promptly appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted appointment within sixty 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.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06, or if the Trustee has failed to
perform any obligation hereunder and such failure materially and adversely
affects Certificateholders of any Class or the Certificate Insurer, and, in
either such case, the Trustee shall fail to resign after written request
therefor by the Depositor, with the consent of the Certificate Insurer, if a
Certificate Insurer Default is not then occurring and continuing, or the
Certificate Insurer, if a Certificate Insurer Default is not then occurring and
continuing or if at any time the Trustee shall become incapable of acting, or
shall be adjudged as bankrupt or insolvent, or a receiver or other conservator
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then, in any such
case the Depositor may with the prior written consent of the Certificate Insurer
or at the written request of the Certificate Insurer shall remove the Trustee
and appoint a successor trustee acceptable to the Certificate Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.
(c) Any resignation or removal of the Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 8.07 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.08.
Section 8.08. Successor Trustee.
(a) Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Depositor and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and the
acceptance of such successor trustee shall become effective, and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all rights, powers, duties and obligations of its predecessor hereunder,
with like effect as if originally named as Trustee herein. The predecessor
trustee shall upon payment of any unpaid Trustee Fees deliver to the successor
trustee all Files, related documents, statements and funds held by it hereunder,
including, without limitation, the monies held in the Distribution Accounts and
the FHA Premium Accounts and the Depositor and the predecessor trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required more fully and certainly to vest and confirm in the successor
trustee all such rights, powers, duties and obligations, provided, however, that
the Trust shall remain liable to the predecessor trustee for any unpaid
outstanding fees and expenses of such predecessor trustee.
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(b) No successor trustee shall accept appointment as provided in
this Section 8.08 unless at the time of such acceptance such successor trustee
shall be eligible under the provisions of Section 8.06. In addition, no
appointment of a successor trustee shall be effective until such entity holds a
contract of insurance that covers the Loans or First Trust of New York, National
Association, as Contract of Insurance Holder is appointed co-trustee under this
Pooling and Servicing Agreement.
(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 8.08, the Master Servicer shall mail notice of the
succession of such trustee hereunder to all Certificateholders at their
respective addresses appearing in the Certificate Register and be entitled to
reimbursement of expenses for such mailing from Mego.
Section 8.09. Merger or Consolidation of the Trustee.
Any corporation or national banking association into which the
Trustee may be merged or converted or with which it may be consolidated or any
corporation or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or national banking 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, anything herein to the
contrary notwithstanding, provided that such corporation or national banking
association shall be eligible under the provisions of Section 8.06. The Trustee
or its successor hereunder shall provide the Depositor and the Certificate
Insurer with prompt notice of any such transaction.
Section 8.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions hereof at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust or property securing the same may at the time be located, the
Depositor and the Trustee acting jointly with the prior written consent of the
Certificate Insurer shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section 8.10, 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 fifteen days after the receipt by it of a request so to
do, or in case a Master Servicer Termination Event shall have occurred and be
continuing, the Trustee shall have the power to make such appointment with the
prior written 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 8.06, and no notice to Certificateholders of the
appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 8.08.
(b) In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10, 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, except to the extent that under any
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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 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.
(c) 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 of
appointment of any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VIII. 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.
(d) 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.
(e) No trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder.
(f) The Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
Section 8.11. Appointment of Custodians.
(a) Any provision of this Agreement notwithstanding, the Trustee
may, with the consent of the Master Servicer and the prior written consent of
the Certificate Insurer, appoint, as agents for the Trustee, one or more
Custodians to hold all or a portion of the Files, and to take such other action
with respect thereto as shall be consistent with the terms of this Agreement, by
entering into a Custodial Agreement in form and substance satisfactory to the
Certificate Insurer, provided that none of the provisions of this Section 8.11
relating to agreements or arrangements between the Trustee and any Custodian or
to actions taken through any such Custodian or otherwise shall be deemed to
relieve the Trustee of any of its duties and obligations hereunder, and the
Trustee shall be obligated with respect thereto to the same extent and under the
same terms and conditions as if it alone were performing all such duties and
obligations. Any Custodian shall have a combined capital and surplus of at least
$10,000,000. The Trustee shall be entitled to enter into any agreement with any
Custodian performing services on behalf of the Trustee related to its duties and
obligations
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hereunder for indemnification of the Trustee by such Custodian, and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
(b) The Custodian in its individual or any other capacity may
become the owner or pledgee of Certificates of any Class with the same rights it
would have if it were not Custodian.
(c) Subject to the provisions of this Article VIII, the Trustee
agrees to comply with the terms of each such Custodial Agreement and to enforce
the terms and provisions thereof against the Custodian for the benefit of
Certificateholders and the Certificate Insurer. The Trustee shall be solely
liable for all fees owed by it to any Custodian performing services on behalf of
the Trustee, irrespective of whether the Trustee's compensation pursuant to this
Agreement is sufficient to pay such fees. Any Custodial Agreement shall require
that the Custodian thereunder maintain continuous custody of each File in the
State of Minnesota, unless the Trustee shall obtain an Opinion of Counsel
acceptable to the Certificate Insurer from a firm of attorneys licensed to
practice law in the State in which custody of the Files will be maintained to
the effect that, in the event that the intended transfer and sale to the Trustee
by the Depositor of the Loans is deemed to be the grant of a security interest
in the Trust rather than a sale, the Trustee will have a perfected first
priority security interest in the Notes despite the fact that custody of the
Files no longer is maintained in the State of Minnesota.
Section 8.12. Certain Tax Matters.
(a) The Trustee is hereby authorized and directed by Mego and to
elect to treat the REMIC Pool, including the Collection Account, the
Distribution Account and the FHA Premium Account for the Group I Loans, as a
REMIC in accordance with the REMIC Provisions. In connection with such election,
(i) the Class R Certificates are hereby designated as the sole class of
"residual interests" in the REMIC Pool, (ii) the Group IA Certificates are
hereby designated as classes of "regular interests" in the REMIC Pool, (iii) the
latest possible maturity date of the Group I Certificates is the Final Scheduled
Distribution Date, and (iv) the Closing Date is hereby designated as the
"Start-Up Day" of the REMIC Pool, all within the meaning of the REMIC
Provisions. The taxable year of the REMIC Pool shall be the calendar year and
the first taxable year shall begin on the Closing Date. The books of the REMIC
Pool shall be maintained on an accrual basis for federal income tax purposes.
(b) The Trustee as agent for Mego, so long as it shall be a
Holder of a Class R Certificate, and otherwise the Residual Holder appointed in
accordance with the provisions of the Code, shall, with respect to the REMIC
Pool:
(i) in a timely manner, prepare, file with the Internal
Revenue Service or other appropriate authorities, and cause the
Trustee to mail to Group I Certificateholders, as required, any Tax
Returns, and any other federal, state or local tax or information
returns or reports that are required to be so filed, or provided to
Group I Certificateholders, with respect to the REMIC Pool;
(ii) in the first Tax Return, elect to treat the REMIC Pool
as a REMIC;
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(iii) in the Tax Return for each taxable year of the REMIC
Pool, designate as the tax matters person for the REMIC Pool (x) Mego
or an affiliate thereof, if Mego or such affiliate, as the case may
be, owned a Class R Certificate at any time during such taxable year,
or (y) if neither Mego nor an affiliate thereof owned a Class R
Certificate at any time during such taxable year, (A) the Holder of a
Class R Certificate designated in a notice delivered to the Trustee
prior to the date of completion of such Tax Return by Holders of Class
R Certificates representing a majority of the Residual Interests, or
(B) if no such notice is received, the Person holding, at the end of
such taxable year, Class R Certificates representing, in the
aggregate, a greater percentage of the Residual Interests than Class R
Certificates then held by any other Person;
(iv) maintain or instruct the Trustee to maintain records as
to investments and other assets of the REMIC Pool sufficient to show
compliance with the REMIC Provisions during each taxable year of the
REMIC Pool; and
(v) take all actions necessary to ensure that the Tax Return
and such other returns or reports are signed by a Person that is both
authorized to sign such returns or reports hereunder and is an
appropriate Person to sign such returns or reports under the law
applicable to such returns or reports (including in the case of the
Tax Return, the Code, Treasury Regulations, and any official
pronouncements of the Internal Revenue Service).
The Trustee is hereby authorized under this Agreement to sign on behalf of the
REMIC Pool the Tax Return and any such other returns and reports. Each Holder of
a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to
be its attorney-in-fact for purposes of signing any such returns and reports.
The Trustee shall (i) give notice to the Internal Revenue Service on Internal
Revenue Service Form 56 that it is acting in a fiduciary capacity on behalf of
the REMIC Pool in accordance with Treasury Regulation Section 1.860F-4(c), and
(ii) sign such return or report, provided that the Trustee shall be protected in
signing such return or report to the extent provided in Section 8.05(b). The
Trustee shall cause the REMIC Pool accountants to include in the first federal
income tax return the information required by Treasury Regulation Section
1.860D-1(d)(2) and Treasury Regulation Section 1.860F-4(b)(2).
(c) The Trustee shall, with respect to the Grantor Trust Pool:
(i) in a timely manner, prepare, sign, and file with the
Internal Revenue Service or other appropriate authorities, and mail to
Certificateholders of the Group II Certificates as required, any Tax
Returns, and any other federal, state or local tax or information
returns or reports that are required to be so filed, or provided to
such Certificateholders, with respect to the Grantor Trust Pool; and
(ii) maintain or instruct the Trustee to maintain records as
to investments and other assets of the Grantor Trust Pool sufficient to
show compliance with the Grantor Trust Provisions during each taxable
year of the Grantor Trust Pool.
(d) This Agreement shall be construed so as to carry out the
intention of the parties that the REMIC Pool be a REMIC and the Grantor Trust
Pool be a Grantor Trust at all
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times from the Start-up Day to the Termination Date. Neither the Master Servicer
nor the Trustee shall knowingly or intentionally take any action or omit to take
any action that would cause the imposition of a tax on the REMIC Pool, Grantor
Trust Pool or Trust under any provisions of the Code or cause the REMIC or cause
the Grantor Trust Pool to fail to qualify as a Grantor Trust Pool to fail to
qualify as a REMIC at any time that any Certificate is outstanding. Without
limiting the generality of the foregoing, after the Start-up Day the Trustee
shall not accept any contribution of assets to the Trust unless the Trustee
shall have received an Opinion of Counsel to the effect that such contribution
will not cause the imposition of a tax on the Trust under the Code or cause the
REMIC Pool to fail to qualify as a REMIC or cause the Grantor Trust Pool to fail
to qualify as a Grantor Trust at any time that any Certificate is outstanding.
There is no requirement for any holder of a Residual Interest to contribute any
amount to the Trust.
(e) The Trustee is hereby authorized and directed to make
information available to the Internal Revenue Service and to any Holder or
transferor of a Class R Certificate necessary for compliance with Section
860E(e) of the Code. The Master Servicer shall maintain records and information
related to the Loans and Monthly Payments sufficient to make any calculations
that may be required pursuant to such section and shall provide such information
to the Trustee; provided, however, that any calculations necessary to provide
such information to any Holder or the Internal Revenue Service shall be
performed by the accountants for the REMIC Pool. The provisions of Section
11.02(vi) shall also apply.
(f) The Trustee shall apply promptly to the Internal Revenue
Service for a Taxpayer Identification Number for the REMIC Pool and, promptly
upon receipt thereof, shall forward to the Master Servicer a copy of the "Notice
of New Employer Identification Number Assigned."
(g) In connection with assisting Mego (or such other Residual
Holder as is referred to in Section 8.12(a) above) in the preparation of, and in
filing of, any Tax Returns or other returns or reports pursuant to this Section,
the Trustee may rely on information provided by Mego and the Master Servicer and
Mego or the Master Servicer, as appropriate, shall indemnify and hold harmless
the Trustee for any loss, liability or expense incurred in connection with such
preparation and filing arising by reason of such person's bad faith, willful
misfeasance or negligence in providing or failing to provide such information.
The Trustee shall be entitled to reimbursement from Mego for its reasonable
out-of-pocket expenses and disbursements except any such expenses or
disbursements as may arise from its negligence, willful misfeasance or bad faith
and except as provided in the following sentence.
(h) With respect to the REMIC Pool, the Trustee shall file IRS
Form 8811 within the time prescribed by law and make available on a timely basis
all information required to be provided pursuant to Temporary Treasury
Regulation Section 1.6049-7T(e) (or any successor provision) to persons entitled
to receive information pursuant thereto.
Section 8.13. Representations and Warranties of the Trustee.
The Trustee represents and warrants to, and agrees with, the
parties hereto, the Certificate Insurer and Certificateholders that:
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(a) The Trustee is duly organized as a national banking
association under the laws of the United States of America, is validly existing
and in good standing in such state and has the corporate power and authority
under United States law to conduct its corporate trust business as now
conducted.
(b) The Trustee has full corporate power and authority under
United States law to enter into and perform all transactions contemplated herein
and no consent, approval, authorization or order of any federal court or
governmental agency or body governing or having jurisdiction with respect to the
Trustee's trust powers is required for the Trustee to enter into this Agreement
and to perform its obligations hereunder.
(c) The Certificates when countersigned by the Trustee shall have
been duly and validly countersigned in accordance with this Agreement.
(d) The execution, delivery and performance by it of this
Agreement (a) do not violate any provision of any law or regulation governing
the banking and trust powers of the Trustee or any order, writ, judgment, or
decree of any court, arbitrator, or governmental authority applicable to the
Trustee or any of its assets, (b) do not violate any provision of its corporate
charter or by-laws, (c) do not violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of any lien on any of the Trust Property pursuant to the provisions
of any mortgage, indenture, contract, agreement or other undertaking other than
this Agreement to which it is a party and (d) have been duly authorized by the
Trustee.
(e) This Agreement has been duly executed and delivered by the
Trustee and constitutes the legal, valid and binding agreement of the Trustee,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(f) The Trustee has taken actual possession of the Notes,
Mortgages and any other related documents delivered pursuant to Section 2.01(b)
in good faith, and without notice or knowledge: (i) of any adverse claims, lien,
or encumbrance against any of the same; (ii) that any Note was overdue (except
for those Loans referred to in Section 2.03(b)(ii) that are delinquent as of the
Closing Date) or had been dishonored or subject to the circumstances described
in Section 3.304 of the Uniform Commercial Code as in effect in the State of New
York; or, (iii) of any other defense against or claim to the Notes by any other
person or entity. For purposes of this subsection (g), the Trustee shall not be
deemed to have had notice or knowledge of the foregoing matters unless a
Responsible Officer assigned to and working in the Trustee's Corporate Trustee
Administration Department shall have actual knowledge thereof or written notice
thereof is received by the Trustee in accordance herewith.
(g) The Trustee has taken actual possession of the Notes,
Mortgages and other items in the Files in the ordinary course of its business.
(h) The Trustee is authorized and approved by FHA for
participation in the FHA Title I loan program and holds the Contract of
Insurance, which is a valid contract of insurance
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from FHA for such purpose; and no contract of insurance held by the Trustee has
ever been revoked or terminated by FHA.
Section 8.14. Streit Act.
Any provisions required to be contained in this Agreement by Section 126
Article 4-A of the New York Real Property law are hereby incorporated, and such
provisions shall be in addition to those conferred or imposed by this Agreement;
provided, however, that to the extent that such Section 126 shall not apply to
this Agreement, said Section 126 shall not have any effect, and if said Section
126 should at any time be repealed or cease to apply to this Agreement, or be
construed by judicial decision to be inapplicable, said Section 126 shall cease
to have any further effect upon the provisions of this Agreement. In case of a
conflict between the provisions of this Agreement and any mandatory provisions
of Article 4-A of the New York Real Property law, such mandatory provisions of
said Article 4-A shall prevail, provided that if said Article 4-A shall not
apply to this Agreement, should at any time be repealed, or cease to apply to
this Agreement, or be construed by judicial decision to be inapplicable, such
mandatory provision of such Article 4-A shall cease to have any further effect
upon the provisions of this Agreement; provided, however, that the Trustee
agrees to act in good faith in the exercise of its rights and powers hereunder.
Section 8.15. Rights to Direct Trustee.
Subject to Section 8.02(ii), the Certificate Insurer (or, if an
Certificate Insurer Default shall have occurred and be continuing, the
Certificateholders pursuant to a Class Vote) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee;
provided, however, that subject to Section 8.01, the Trustee shall have the
right to decline to follow any such direction if the Trustee being advised by
counsel determines that the action so directed may not lawfully be taken, or if
the Trustee in good faith shall, by a Responsible Officer, determine that the
proceedings so directed would be in violation of this Agreement or any other
Transaction Document or would subject it to personal liability against which it
has not been provided reasonable indemnity (which, in the case of a
Certificateholder which is an institutional investor, will be deemed satisfied
by a written agreement of indemnity from such Certificateholder) or (in the case
of directions provided by a Class Vote) be unduly prejudicial to the rights of
Certificateholders not parties to such direction; and provided further that
nothing in this Agreement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and which is not inconsistent with such
direction by the Certificate Insurer or the Certificateholders.
Section 8.16. Reports to the Securities and Exchange Commission.
The Trustee shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Seller, the Servicer, the Depositor and
the Master Servicer shall cooperate with the Trustee in the preparation of any
such report and shall provide to the Trustee in a timely manner all such
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information or documentation as the Trustee may reasonable request in connection
with the performance of its duties and obligations under this Section.
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ARTICLE IX
Termination
Section 9.01. Termination.
(a) The respective obligations and responsibilities of Mego, the
Master Servicer, the Depositor and the Trustee created hereby with respect to
the Certificates (other than the obligation to make certain payments and to send
certain notices to Certificateholders as hereinafter set forth) shall terminate
immediately following the occurrence of the last action required to be taken by
the Trustee pursuant to this Article IX on the Termination Date; provided,
however, that in no event shall the trust created hereby, i.e., the Trust,
continue beyond the expiration of twenty-one years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James's, living on the Closing Date; and
provided, further, that the respective obligations and responsibilities of Mego
and the Master Servicer with respect to reimbursing the Trustee for claims of
the FHA shall continue until the Final Date pursuant to Section 3.12(g). As soon
as practicable after the termination of the Trust, the Trustee shall surrender
the Policies to the Certificate Insurer for cancellation.
(b) The REMIC Pool and the Grantor Trust Pool shall each be
terminated with the consent of the Certificate Insurer, and the assets of the
REMIC Pool and the Grantor Trust Pool shall be sold or otherwise disposed of in
connection therewith, only pursuant to a Plan of Complete Liquidation adopted by
the Trustee at the direction of the Depositor and having the terms set forth in
Section 9.01(c). Each Holder of a Certificate hereby irrevocably approves and
appoints the Trustee, acting at the direction of the Depositor as its
attorney-in-fact for the purposes of the adoption of the Plan of Complete
Liquidation. The Trustee, acting at the direction of the Depositor, shall adopt
a Plan of Complete Liquidation promptly following the Trustee's receipt of a
Notice of Termination.
(c) The Plan of Complete Liquidation shall be adopted on the
earliest practicable date occurring not more than 90 days prior to the
Anticipated Termination Date specified in the Notice of Termination, and shall
provide:
(i) for the actions contemplated by the provisions hereof
pursuant to which the applicable Notice of Termination is given;
(ii) With respect to a Plan of Complete Liquidation of the
REMIC Pool, that the REMIC Pool shall terminate as a REMIC as required
by Section 860F(a)(4) of the Code on a Distribution Date occurring not
more than 90 days following the date of adoption of the Plan of
Complete Liquidation; and
(iii) With respect to a Plan of Complete Liquidation of the
REMIC Pool, that all assets of the REMIC Pool required to be sold
pursuant to the Plan of Complete Liquidation shall be sold after the
date of adoption thereof, such sale to be conducted by the Master
Servicer on behalf of the Trustee;
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provided that the Plan of Complete Liquidation may be adopted prior to the
ninetieth day prior to the Anticipated Termination Date and, to the extent
consistent with the actions contemplated by the provisions hereof pursuant to
which the applicable Notice of Termination is given, may provide for actions
different from those set forth in clauses (ii) or (iii) if an Opinion of Counsel
shall have been previously delivered to the Trustee to the effect that the
adoption of a Plan of Complete Liquidation that provides for such alternative
actions as are set forth in such Opinion of Counsel will not result in the
imposition of a tax on the REMIC Pool or pursuant to the REMIC Provisions cause
the REMIC Pool to fail to qualify as a REMIC at any time that any Certificate is
Outstanding. The Trustee shall deliver to the Master Servicer and the
Certificate Insurer a copy of the Plan of Complete Liquidation promptly
following its adoption.
(d) Subject to the provisions of the following sentence, Mego or,
if such option is not exercised by Mego, the Master Servicer may, at its option
(with the prior written consent of the Certificate Insurer if such purchase
would result in a claim under the related Policy), upon not less than thirty
days' prior notice given to the Trustee at any time on or after the applicable
Early Termination Notice Date, purchase on the Monthly Cut-Off Date specified in
such notice, all, but not less than all, the Loans, all claims made under the
Contract of Insurance with respect to Loans that are pending with FHA ("FHA
Pending Claims") and Foreclosed Properties then included in the Trust, at a
purchase price, payable in cash, equal to the sum of:
(i) the Principal Balance of each Loan included in the Trust
as of such Monthly Cut-Off Date;
(ii) all unpaid interest accrued on the Principal Balance of
each such Loan at the related Net Loan Rate to such Monthly Cut-Off
Date;
(iii) the aggregate fair market value of the FHA Pending
Claims for which a claim has been filed with the FHA included in the
Trust on such Monthly CutOff Date, as determined by an Independent
appraiser acceptable to the Trustee as of a date not more than thirty
days prior to such Monthly Cut-Off Date;
(iv) the aggregate fair market value of each Foreclosed
Property included in the Trust on such Monthly Cut-Off Date, as
determined by an Independent appraiser acceptable to the Trustee as of
a date not more than thirty days prior to such Monthly Cut-Off Date;
and
(v) any unreimbursed amounts due to the Certificate Insurer
under this Agreement or the Insurance Agreement.
Any amount received from such sale with respect to FHA Pending Claims shall be
considered FHA Insurance Payment Amounts. The expense of any Independent
appraiser required under this Section 9.01(d) shall be a nonreimbursable expense
of Mego. Mego or the Master Servicer shall effect the purchase referred to in
this Section 9.01(d) by deposit of the purchase price allocable to each of the
Loan Groups into the applicable Distribution Account. The Trustee shall give
written notice of the Early Termination Notice Date to the Certificate Insurer
promptly upon the occurrence thereof.
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(e) If the Trust has not been previously terminated pursuant to
subsection (d) of this Section 9.01, the Master Servicer shall give the Trustee
and the Certificate Insurer notice as soon as practicable (at least 45 days
before the Distribution Date) of the Distribution Date which is the earlier of
(i) the Final Scheduled Distribution Date and (ii) the Distribution Date on
which the Master Servicer anticipates the latest of the maturity or other
liquidation of the last Loan.
(f) Notice of any termination of the Trust pursuant to this
Section 9.01 shall be mailed, via first class mail, postage prepaid, by the
Trustee to affected Certificateholders at their addresses shown in the
Certificate Register as soon as practicable after the Trustee shall have
received a Notice of Termination, but in any event, not more than thirty days,
and not less than five days, prior to the Anticipated Termination Date except
that notice to Holders of Class R Certificates shall be made within two Business
Days after the Trustee shall have received a Notice of Termination. The notice
mailed by the Trustee to affected Certificateholders shall:
(i) specify the Anticipated Termination Date on which the
final distribution is anticipated to be made to Holders of
Certificates of the Classes specified therein; and
(ii) specify the amount of any such final distribution, if
known.
If the Trust is not terminated on any Anticipated Termination Date for any
reason, the Trustee shall promptly mail, via first class mail, postage prepaid,
notice thereof to each affected Certificateholder.
(g) On the Termination Date, amounts on deposit in each
Distribution Account will be withdrawn and applied in the manner set forth in
Section 4.05.
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ARTICLE X
Miscellaneous Provisions
Section 10.01. Amendment.
(a) This Agreement may be amended from time to time by the
parties hereto as specified in this Section, with the prior written consent of
the Certificate Insurer if a Certificate Insurer Default is not then occurring
and continuing (unless such amendment materially and adversely affects the
interests of the Certificate Insurer), provided that any amendment be
accompanied by an Opinion of Counsel to the Trustee and the Certificate Insurer
to the effect that such amendment complies with the provisions of this Section.
(b) If the purpose of the amendment (as detailed therein) is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered (i.e., to give effect to the intent of the parties
and, if applicable, to the expectations of the Certificateholders), it shall not
be necessary to obtain the consent of any Certificateholder, but the Trustee
shall be furnished with a letter from the Rating Agency that the amendment will
not result in the downgrading or withdrawal of the rating then assigned to any
Certificate.
(c) If the purpose of the amendment is to prevent the imposition
of any federal or state taxes at any time that any Certificates are outstanding
(i.e., technical in nature), it shall not be necessary to obtain the consent of
any Certificateholder, but the Trustee shall be furnished with an Opinion of
Counsel that such amendment is necessary or helpful to prevent the imposition of
such taxes and is not materially adverse to any Certificateholder.
(d) If the purpose of the amendment is to add or eliminate or
change any provision of the Agreement other than as contemplated in (b) and (c)
above, the amendment shall require the consent of Holders of Certificates
evidencing 51% of the Percentage Interests of each Class affected thereby;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received that are required to be
distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all such Certificates then Outstanding.
(e) The Trustee or the Depositor may amend this Agreement to
effect a FASIT election for all or a portion of the Trust; provided, that the
Trustee and the Certificate Insurer shall be furnished with an Opinion of
Counsel to the effect that such election will not adversely affect the Federal
or applicable state income tax characterization of any outstanding Certificates
or the taxability of the Trust under Federal or applicable state income tax
laws.
(f) Promptly after the execution of any amendment hereof, the
Trustee shall furnish written notification of the substance of such amendment to
each Holder of the affected Certificates.
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(g) It shall not be necessary for the consent of
Certificateholders under this Section 10.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders and of any
other consents, directions, waivers or other acts of Certificateholders
hereunder shall be subject to such reasonable regulations as to the Trustee may
prescribe.
(h) The Trustee may, but shall not be obligated to, enter into
any amendment hereto which affects the Trustee's own rights, duties, liabilities
and immunities under this Agreement or otherwise, except to the extent necessary
to maintain the qualification of the REMIC Pool as a REMIC and the Grantor Trust
Pool as a Grantor Trust.
Section 10.02. Recordation of Agreement.
(a) To the extent permitted by applicable law, this Agreement or
a memorandum hereof (in a form mutually agreed upon by the Master Servicer, the
Depositor, Mego, the Certificate Insurer and the Trustee) may be recorded in all
appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the Properties are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at the expense of the
Trust, if the Master Servicer determines that such recordation materially and
beneficially affects the interests of the affected Certificateholders.
(b) For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
Section 10.03. Rights of Certificateholders.
(a) The death, incapacity or bankruptcy of any Certificateholder
shall not operate to terminate this Agreement or the Trust, nor entitle such
Certificateholder's legal representatives, heirs or successors to claim an
accounting or to take any action or proceeding in any court for a partition or
winding-up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
(b) No Certificateholder shall have any right to vote (except as
expressly provided herein) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Certificates, be
construed as to constitute the Certificateholders of any Class or of all Classes
from time to time as partners or members of an association; nor, to the extent
permitted by applicable law, shall any Certificateholder be under any liability
to any third person by reason of any action taken by the parties to this
Agreement pursuant to any provision hereof.
(c) No Holder of a Certificate of any Class shall have any right
by virtue of any provision of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless, with the prior written consent of the
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Certificate Insurer, if a Certificate Insurer Default is not then occurring and
continuing the Holders shall have made written request pursuant to a Class Vote
(wherein such request is only made by each such affected Class of Certificates)
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby (which, in the case of a Certificateholder which is
an institutional investor, will be deemed satisfied by a written agreement of
indemnity from such Certificateholder), and the Trustee, for sixty 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; it being understood
and intended, and being expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates of any Class shall have any right in any manner whatever by virtue
of any provision of this Agreement to affect, disturb or prejudice the rights of
any other Holders of such 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 herein provided and for the equal, ratable and
common benefit of all Certificateholders of such Class. For the protection and
enforcement of the provisions of this Section 10.03, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity. Nothing in this Agreement shall be construed
as giving the Certificateholders any right to make a claim under the Policy.
SECTION 10.04. GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF AND THE PROVISIONS OF THE CERTIFICATES, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.05. Notices.
(a) All demands, notices, statements and reports hereunder shall
be in writing (unless otherwise specified) and shall be deemed to have been duly
given, if personally delivered, mailed by registered mail postage prepaid, or
delivered by overnight courier or if telecopied (with confirmation by another
prior specified method):
(i) in the case of the Master Servicer, to:
Norwest Bank Minnesota, N.A.
11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Master Servicing Department
Mego Mortgage Home Loan
Trust 1996-3
or such other address as may hereafter be furnished to the other
parties hereto in writing by the Master Servicer;
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(ii) in the case of Depositor to:
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Charles A. Forbes
or such other address as may hereafter be furnished to the other
parties hereto in writing by the Depositor;
(iii) in the case of Mego
Mego Mortgage Corporation
1000 Parkwood Circle
Suite 500
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President
(iv) in the case of the Trustee, to:
First Trust of New York, N.A.
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance
or such other address as may hereafter be furnished to the other
parties hereto in writing by the Trustee;
(v) in the case of the FHA, to:
Maurice D. Gulledge
Chief, Home Improvement Insurance Branch
U.S. Department of Housing and Urban
Development
451 Seventh Street SW
Room 9272
Washington, D.C. 20410-8000
(vi) in the case of Standard & Poor's, to:
Standard & Poor's Rating Services
25 Broadway, 15th Floor
New York, New York 10004
Attention: Loan Surveillance
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(vii) in the case of Moody's, to:
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Home Equity Monitoring Department
(viii) in the case of the Certificate Insurer, to:
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
Attention: Insured Portfolio Management
Structured Finance (IPM-SF)
(Mego Home Loan Asset-Backed
Certificates, Series 1996-3)
Confirmation: (914) 273-4545
Telecopy No.: (914) 765-3164
(b) Any notice required or permitted to be mailed to a Holder of
any Class of Certificates (except for any notice required to be given to a
Holder of Senior Certificate in connection with a Class Vote) and any
information to be mailed by the Trustee to the Certificateholders pursuant to
Section 8.01(b) shall be mailed by first class mail, postage prepaid, or
delivered by overnight courier, to the address of such Holder appearing in the
Certificate Register, with a copy thereof to each Person designated by such
Holder in a written notice provided by such Holder to the Trustee. Any notice
required or permitted to be given to a Holder of any Senior Certificate in
connection with a Class Vote shall specify the consent sought and the
circumstances relating thereto and shall state that if the Class Vote does not
occur within 30 days after the date of such notice, such Class Vote shall be
determined by the Certificate Insurer, which notice shall be delivered by
overnight courier to the address of such Holder appearing in the Certificate
Register, with a copy thereof to each Person designated by such Holder in a
written notice provided by such Holder to the Trustee. Any notice or information
so mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not such notice is received.
Section 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, illegal
or unenforceable, then such covenants, agreements, provisions or terms shall be
deemed to be modified to the extent necessary to render them valid, legal and
enforceable, and if no such modification shall render them valid, legal and
enforceable, then such covenants, agreements, provisions or terms shall be
severable from the remaining covenants, agreements, provisions or terms of this
Agreement and shall in no way affect the validity or enforceability of the other
provisions of this Agreement or of any Class of Certificates or the rights of
the Holders thereof.
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Section 10.07. Waiver of Notice.
Notwithstanding anything to the contrary contained herein, any
Holder of a Class R Certificate shall be entitled to:
(i) waive any provision hereof that requires the Trustee to
give any notice, or mail any report, statement or request for consent,
to such Holder; and
(ii) appoint the Master Servicer (with notice to the
Trustee) as its attorney-in-fact for the purposes of providing any
consent or giving any instruction required to be provided or given by
such Holder hereunder.
Any such waiver or appointment shall be in writing, shall be effective as of the
later of the date specified therein and the date of receipt by the Master
Servicer and/or the Trustee, as the case may be, and shall be revocable at any
time by such Holder upon receipt of written notice thereof by the Trustee and/or
the Master Servicer, as the case may be.
Section 10.08. Access to List of Holders.
Upon the written applications of Holders of Certificates
representing greater than $2,000,000 in aggregate Denomination (hereinafter
referred to as "applicants") to the Trustee, which application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Agreement or under the Certificates, the Trustee shall, within five
Business Days after the receipt of such application, afford such applicants
access during normal business hours to the most recent Certificate Register.
Every Holder agrees with the Trustee that neither the Trustee nor the
Certificate Registrar shall be held accountable by reason of disclosure pursuant
hereto of any information included in the Certificate Registrar, regardless of
the source from which such information was derived.
Section 10.09. Third-Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns. Except
as otherwise provided in this Article X, no other Person shall have the right or
obligation hereunder. Upon issuance of the Policies, this Agreement shall also
inure to the benefit of the Certificate Insurer. Without limiting the generality
of the foregoing, all covenants and agreements in this Agreement which expressly
confer rights upon the Certificate Insurer shall be for the benefit of and run
directly to the Certificate Insurer, and the Certificate Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party to this Agreement. The Certificate Insurer may disclaim any of its
rights and powers under this Agreement (but not its duties and obligations under
the Policies) upon delivery of a written notice to the Trustee.
Section 10.10. The Certificate Insurer.
(a) Except as set forth in Section 10.01, any right conferred to
the Certificate Insurer shall be suspended and shall run to the benefit of the
Certificateholders during any
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period in which an Certificate Insurer Default shall have occurred and be
continuing and shall be exercisable by Class Vote.
(b) For so long as no Certificate Insurer Default shall have
occurred and be continuing, the Trustee shall agree to accept any moneys due
hereunder from the Certificate Insurer.
Section 10.11. Consent to Jurisdiction.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE
OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR
IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO
THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT
BE LITIGATED IN OR BY SUCH COURTS.
Section 10.12. Trial by Jury Waived.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING
DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTION. EACH PARTY HERETO (A) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER
THINGS, THIS WAIVER.
Section 10.13. 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.
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ARTICLE XI
Class R Certificate Transfer Restrictions
Section 11.01. Restrictions on Transfer. Each Person who has or
who acquires any Ownership Interest in a Class R Certificate shall be deemed by
the acceptance or acquisition of such Ownership Interest to have agreed to be
bound by the following provisions and to have irrevocably appointed the Trustee
or its designee as its attorney-in-fact to direct under clause (iv) below the
delivery of payments to a Person other than such Person and to negotiate the
terms of any mandatory sale under clause (v) below and to execute all
instruments of transfer and to do all other things necessary in connection with
any such sale, and the rights of each Person acquiring any Ownership Interest in
a Class R Certificate are expressly subject to the following provisions:
(i) Only a Permitted Transferee may hold or acquire any
Ownership Interest in a Class R Certificate. Each Person holding or
acquiring any Ownership Interest in a Class R Certificate shall
promptly notify the Trustee, the Certificate Insurer and the Master
Servicer of any change or impending change in its status as a
Permitted Transferee.
(ii) In connection with any proposed Transfer of any
Ownership Interest in a Class R Certificate, the Trustee shall, as a
condition to such consent, require delivery to the Trustee of a
properly completed, sworn, executed and acknowledged affidavit from
the Transferee (the "Transfer Affidavit") in the form attached hereto
as Exhibit L and from the transferor (the "Transferor
Representation"), in the form attached hereto as Exhibit K.
(iii) Notwithstanding the delivery of a Transfer Affidavit
by a proposed Transferee under clause (ii) above, if the Responsible
Officer or Responsible Officers of the Trustee has or have actual
knowledge that the proposed Transferee is not a Permitted Transferee,
the Trustee shall not register and, if the Trustee is not the
Certificate Registrar, shall direct to the Certificate Registrar not
to register a Class R Certificate in the name of the proposed
Transferee, no Transfer of an Ownership Interest in the Residual
Interest to such proposed Transferee shall be effected and the
Trustee, and Certificate Registrar, shall have no liability for
failing to effect the proposed registration.
(iv) Any attempted or purported Transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section 11.01 shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported Transferee shall,
in violation of the provisions of this Section 11.01, become a Holder
of a Class R Certificate, then the prior Holder of such Class R
Certificate shall, upon discovery that the registration of Transfer of
such Class R Certificate was not in fact permitted by this Section
11.01, notify the Trustee and the Trustee, upon receipt of such notice
and upon verification of the facts set forth in such notice or upon
discovery by other means that the registration of Transfer of such
Class R Certificate was not in fact permitted by this Section 11.01,
shall notify the Master Servicer and the Certificate Registrar of such
improper Transfer (such notice to be accompanied by
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an Opinion of Counsel to the effect that such Transfer was improper
and the retroactive restoration of the rights of the last preceding
Permitted Transferee as described in this clause (iv) shall not be
invalid, illegal or unenforceable) and, subject to clause (v) below,
shall make payments due on such Class R Certificate to the last
preceding Holder that is a Permitted Transferee (as described in such
written notice) and the last Holder that is a Permitted Transferee
shall be restored to all rights as Holder thereof retroactive to the
date of registration of Transfer of such Class R Certificate. The
Trustee shall be entitled, but shall not be obligated, to recover from
any Holder of a Class R Certificate that was in fact not a Permitted
Transferee at the time it became a Holder all payments made on such
Class R Certificate. Any such payments so recovered by the Trustee
shall be paid and delivered by the Trustee to the last preceding
Holder that is a Permitted Transferee who was a Holder of such Class R
Certificate.
(v) If any Person that is not a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section 11.02, and (A) to the extent that
the retroactive restoration of the rights of the last preceding Holder
that is a Permitted Transferee as described in clause (iv) above shall
be invalid, illegal or unenforceable or (B) if the Trustee is unable
within a reasonable period to obtain the Opinion of Counsel required
by clause (iv) above then the Trustee shall have the right, without
notice to the Holder of such Class R Certificate or any other Person
having an Ownership Interest therein, to sell such Class R Certificate
to a purchaser selected by the Trustee on such terms as the Trustee
may choose. The proceeds of such sale, net of commissions, expenses
and taxes due, if any, will be remitted to the Holder of such Class R
Certificate by the Trustee, except that in the event that the Trustee
determines that the Holder of such Class R Certificate may be liable
for any amount due under this Section 11.01 or any other provisions of
this Agreement, the Trustee may withhold a corresponding amount from
such remittance as security for such claim. The terms and conditions
of any sale under this clause (v) shall be determined in the sole
discretion of the Trustee, and it shall not be liable to any Person
having an Ownership Interest in a Class R Certificate as a result of
its exercise of such discretion.
(vi) The Trustee shall make available, upon receipt of
written requests, all information necessary to compute any tax imposed
(A) as a result of the Transfer of an Ownership Interest in Class R
Certificates to any Person who is not a Permitted Transferee, and (B)
as a result of any regulated investment company, real estate
investment trust, common trust fund, partnership, trust, estate or
organizations described in Code section 1381 that holds an Ownership
Interest in a Class R Certificate and having as among its record
holders at any time any Person who is not a Permitted Transferee.
Reasonable compensation for providing such information may be charged
by the Trustee. The information furnished must be sufficient to
compute the present value of the anticipated excess inclusions as
required by Treasury Department regulations. The information must be
furnished to the requesting party or such later time period as allowed
by Treasury Department regulations or the Internal Revenue Service.
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<PAGE> 130
(vii) No undivided interest of the Residual Interest may be
transferred to any Person unless the entire interest and rights
relating to such undivided interest in the Residual Interest under
this Agreement are transferred to such Person.
(viii) The provisions of this Section 11.01 set forth prior
to this clause (viii) may be eliminated upon execution by the Trustee
of a certificate stating that the Trustee has received an Opinion of
Counsel, in form and substance satisfactory to the Trustee, to the
effect that the absence of such provisions will not cause the REMIC
Pool to cease to qualify as a REMIC and will not create a risk that
(A) the Trust or the REMIC Pool may be subject to an entity-level tax
caused by the Transfer of any Ownership Interest in a Class R
Certificate to a Person which is not a Permitted Transferee or (B) a
Holder of a Senior Certificate or another Person will be subject to a
REMIC-related tax caused by the Transfer of any Ownership Interest in
a Class R Certificate to a Person which is not a Permitted Transferee.
125
<PAGE> 131
ARTICLE XII
Concerning the Contract of Insurance Holder
Section 12.01. Compliance with Title I and Filing of FHA Claims.
(a) The Contract of Insurance Holder shall at all times while any
Senior Certificates are outstanding have a valid Contract of Insurance with the
FHA covering the FHA Loans. To the extent applicable to the duties of the
Contract of Insurance Holder hereunder, the Contract of Insurance Holder shall
comply with the requirements of Title I and shall take or refrain from taking
such actions as are necessary or appropriate to maintain a valid Contract of
Insurance for the Trust with the FHA covering the FHA Loans.
(b) If and for so long as the Contract of Insurance covers any
loans other than the FHA Loans, and if HUD shall not have earmarked the coverage
of the Contract of Insurance with respect to the FHA Loans, the Contract of
Insurance Holder covenants and agrees not to submit any claim to FHA with
respect to an FHA Loan if the effect of approval of such claim would result in
the amount of claims paid by the FHA in respect of the FHA Loans to exceed the
Trust Designated Insurance Amount. Notwithstanding the foregoing, the Claims
Administrator shall promptly notify the Trustee, the Master Servicer and the
Certificate Insurer if the amount of claims submitted to FHA in respect of the
FHA Loans under the Contract of Insurance exceeds the Trust Designated Insurance
Amount. As of the Closing Date and at all times thereafter until the Termination
Date, the Contract of Insurance Holder covenants and agrees that the Contract of
Insurance will only apply to the FHA Loans and Related Series Loans,
exclusively, or HUD shall have agreed pursuant to 24 C.F.R. Section 201.32(d)(1)
to "earmark" the FHA insurance relating to the FHA Loans and Related Series
Loans, in a manner satisfactory to the Certificate Insurer, in its sole and
absolute discretion. Mego, as Claims Administrator and Servicer, covenants and
agrees that it shall not take any action that would result in the Contract of
Insurance applying to loans other than the FHA Loans and the Related Series
Loans, exclusively, unless HUD shall have agreed pursuant to 24 C.F.R.
Section201.32(d)(1) to "earmark" the FHA insurance relating to the Loans and
Related Series Loans in a manner satisfactory to the Certificate Insurer, in its
sole and absolute discretion.
(c) The Trustee hereby appoints Mego Mortgage Corporation as
Claims Administrator. Mego Mortgage Corporation, as Claims Administrator, shall
perform on behalf of the Contract of Insurance Holder the duties associated with
the submission of claims under Title I in connection with the Contract of
Insurance, except to the extent that certain documents must be signed by the
Contract of Insurance Holder (in which case the Contract of Insurance Holder
shall only sign such documents at the direction of the Claims Administrator) and
shall not, in its capacity as Claims Administrator, take any action or omit to
take any action that would cause the Contract of Insurance Holder to violate
this Section 12.01 or otherwise fail to maintain a valid Contract of Insurance
or cause any denial by FHA of an insurance claim under Title I.
(d) The Contract of Insurance Holder shall not be deemed to have
violated this Section 12.01 and shall otherwise incur no liability hereunder if
any failure to maintain a valid Contract of Insurance or to comply with the
requirements of Title I or any denial by
126
<PAGE> 132
FHA of an insurance claim under Title I shall have been caused by any act or
omission of the Master Servicer or Claims Administrator in the performance of
its duties hereunder. The Contract of Insurance Holder shall be permitted to,
or, if directed by the Certificate Insurer, so long as no Certificate Insurer
Default exists, shall replace the Claims Administrator for any failure of the
Claims Administrator to perform its duties hereunder. Any successor Claims
Administrator shall be subject to the prior approval of the Certificate Insurer,
provided no Certificate Insurer Default is then occurring.
(e) The Contract of Insurance Holder hereby represents and
warrants to the Depositor, the Master Servicer, the Seller, the Trustee for the
benefit of the Certificateholders and the Certificate Insurer that First Trust
of New York, National Association is an investing lender in good standing with
HUD having authority to purchase, hold, and sell loans insured under 24 CFR Part
201, pursuant to a valid Contract of Insurance, Number 71400 0000 6.
(f) The Seller shall forward to the Trustee a fully executed
Transfer of Note Report for each FHA Loan within 20 days of the receipt by the
Seller of such FHA Loan's case number under the Contract of Insurance. The
Trustee shall execute each Transfer of Note Report, as buying lender, and submit
such Transfer of Note Report to HUD within 31 days of the transfer of the FHA
Loans to the Trust.
Section 12.02. Regarding the Contract of Insurance Holder.
(a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except (i) upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the Contract of Insurance and (ii) the Certificate
Insurer (so long as a Certificate Insurer Default shall not have occurred and be
continuing) or the Certificateholders by Class Vote (if a Certificate Insurer
Default shall have occurred and be continuing) does not elect to waive the
obligations of the Contract of Insurance Holder to perform the duties which
render it legally unable to act or to delegate those duties to another Person or
if the circumstances giving rise to such illegality cannot be waived or
delegated. Any such determination permitting the resignation of the Contract of
Insurance Holder shall be evidenced by an Opinion of Counsel to such effect
delivered and acceptable to the Trustee and the Certificate Insurer. Upon
receiving such notice of resignation, the Contract of Insurance shall be
transferred to a qualified successor with the consent of the Certificate Insurer
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Contract of Insurance Holder and one copy to the
successor contract of insurance holder. Notwithstanding the foregoing, the
Contract of Insurance Holder may resign, with the prior written consent of the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) or the Certificateholders by Class Vote (if a
Certificate Insurer Default shall have occurred and be continuing), which may be
withheld in its sole and absolute discretion, upon transfer of the FHA insurance
and related reserves with respect to the FHA Loans and any Related Series Loans
to a contract of insurance held by a successor Contract of Insurance Holder
provided, however, that any Contract of Insurance held by such successor
Contract of Insurance Holder shall satisfy the criteria set forth in Section
12.01(b),
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<PAGE> 133
and, at the time of succession, shall have an FHA insurance coverage reserve
account balance not less than that of the FHA Insurance Coverage Reserve Account
at the time of succession.
(b) If at any time (i) the Contract of Insurance shall be
revoked, suspended or otherwise terminated, or (ii) the Contract of Insurance
Holder shall become incapable of acting, or shall be adjudged as bankrupt or
insolvent, or a receiver of the Contract of Insurance Holder or of its property
shall be appointed, or any public officer shall take charge or control of the
Contract of Insurance Holder or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) or the Certificate-holders by Class Vote (if a
Certificate Insurer Default shall have occurred and be continuing) may remove
the Contract of Insurance Holder and appoint a successor contract of insurance
holder by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take any
action required to transfer the benefits of the FHA Insurance Coverage Reserve
Account to the successor contract of insurance holder.
(c) Any resignation or removal of the Contract of Insurance
Holder and appointment of a successor contract of insurance holder pursuant to
any of the provisions of this Section 12.02 shall become effective upon
acceptance of appointment by the successor contract of insurance holder.
(d) On or prior to the Closing Date, the Contract of Insurance
Holder shall have instructed FHA to forward all payments in respect of claims
under the Contract of Insurance made to the Contract of Insurance Holder to
First Trust of New York, National Association, as Trustee. The Contact of
Insurance Holder shall provide no further notification with respect to which
such payments shall be directed unless directed by First Trust of New York,
National Association, as Trustee.
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<PAGE> 134
IN WITNESS WHEREOF, the Depositor, Mego, the Master Servicer, the
Claims Administrator, the Trustee and the Contract of Insurance Holder have
caused their names to be signed to this Pooling and Servicing Agreement by their
respective officers thereunto duly authorized as of the date first written
above.
MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims
Administrator
By:__________________________________________
Name:
Title:
FINANCIAL ASSET SECURITIES CORP.,
as Depositor
By:__________________________________________
Name:
Title:
NORWEST BANK MINNESOTA, N.A.,
as Master Servicer
By:__________________________________________
Name:
Title:
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION,
as Trustee and Contract of
Insurance Holder
By:__________________________________________
Name:
Title:
<PAGE> 135
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the __th day of December, 1996 before me, a notary public in
and for said State, personally appeared James L. Belter, known to me to be the
Executive Vice President of MEGO MORTGAGE CORPORATION, one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ___th day of December, 1996 before me, a notary public in
and for said State, personally appeared Kari Skilbred, known to me to be the
Vice President of FINANCIAL ASSET SECURITIES CORP., one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE> 136
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ___th day of December, 1996 before me, a notary public in
and for said State, personally appeared Michael L. Mayer, known to me to be the
Vice President of NORWEST BANK MINNESOTA, N.A., one of the parties that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said party, and acknowledged to me that such party executed the within
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the ___th day of December, 1996 before me, a notary public in
and for said State, personally appeared Lynn Steiner, known to me to be the Vice
President of FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, one of the parties
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
<PAGE> 1
EXHIBIT 10.119
EXECUTION COPY
================================================================================
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser,
and
MEGO MORTGAGE CORPORATION,
as Seller,
HOME LOAN PURCHASE AGREEMENT
================================================================================
Dated as of February 1, 1997
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
SALE OF HOME LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Home Loans . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Obligations of Seller Upon Sale . . . . . . . . . . . . . . 2
Section 2.4 Payment of Purchase Price for the Home Loans . . . . . . . 5
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties . . . . . . . . . . . 5
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller . . . . . . . . . . . . . . . . . . 7
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.2 Limitation on Liability of the Seller . . . . . . . . . . . 8
ARTICLE VI.
TERMINATION
Section 6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.4 Severability of Provisions . . . . . . . . . . . . . . . . 11
Section 7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.6 Further Agreements . . . . . . . . . . . . . . . . . . . . 11
Section 7.7 Intention of the Parties . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7.8 Successors and Assigns; Assignment of
Purchase Agreement . . . . . . . . . . . . . . . . . . . . 12
Section 7.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.10 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . 12
</TABLE>
EXHIBITS AND SCHEDULES
Schedule I Schedule of Home Loans
ii
<PAGE> 4
HOME LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated
as of February 1, 1997, between Mego Mortgage Corporation ("Mego" or the
"Seller") and FINANCIAL ASSET SECURITIES CORP., ("FASCO" and together with any
assignee of FASCO, the "Purchaser").
W I T N E S S E T H
WHEREAS, the Seller is the owner of a pool of (i) fixed-rate
home improvement and home equity loans and debt consolidation loans and retail
installment sale contracts (the "Mortgage Loans") secured by first and junior
mortgages, deeds of trust and security deeds on certain residential and
investment properties (the "Properties") and (ii) fixed-rate home improvement
loans and retail installment sale contracts unsecured by an interest in real
property (the "Unsecured Loans" and together with the Mortgage Loans, the "Home
Loans") as listed on Schedule I hereto referred to below and the Related
Documents thereto (as defined below);
WHEREAS, certain of the Home Loans will be partially insured
under the FHA Title I program (the "FHA Loans") and the remaining Home Loans
are home improvement or debt consolidation or home equity loans that have been
originated by the Seller and are not insured under the FHA Title I program;
WHEREAS, the parties hereto desire that the Seller sell all
its right, title and interest in and to the Home Loans and the Related
Documents to the Purchaser pursuant to the terms of this Purchase Agreement;
and
WHEREAS, pursuant to the terms of a Sale and Servicing
Agreement, dated as of February 1, 1997 (the "Sale and Servicing Agreement"),
among Mego Mortgage Home Loan Owner Trust 1997-1, as issuer (the "Trust"),
FASCO, as depositor (the "Depositor"), Mego, as Seller, servicer (the
"Servicer") and claims administrator (the "Claims Administrator"), Norwest Bank
Minnesota, N.A., as master servicer (the "Master Servicer"), and First Trust of
New York, National Association, as Indenture Trustee (the "Indenture Trustee"),
co-owner trustee (the "Co-Owner Trustee") and contract of insurance holder
(the "Contract of Insurance Holder"), the Purchaser will sell, transfer, assign
and otherwise convey to the Trust all its right, title and interest in and to
the Home Loans and this Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not
defined herein have the meanings assigned thereto in the Sale and Servicing
Agreement.
Registration Statement. The Purchaser's registration
statement on Form S-3 (No. 333-10273), in the form in which it became effective
under the Securities Act of 1933, as amended, on August 20, 1996 including any
documents incorporated by reference therein.
1
<PAGE> 5
Base Prospectus. The prospectus, dated March 7, 1997 attached
to the Prospectus Supplement relating to the Notes.
ARTICLE II.
SALE OF HOME LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Home Loans. The Seller, concurrently
with the execution and delivery of this Purchase Agreement, does hereby sell,
assign, set over, and otherwise convey to the Purchaser, without recourse other
than as expressly provided herein and in the Sale and Servicing Agreement, and
with respect to the FHA Loans, in accordance with the requirements for transfer
of an insured loan under Title I and 24 CFR Section 201.32(c), all of its
right, title and interest in, to and under the following, whether now existing
or hereafter acquired and wherever located: (i) as of the Cut-Off Date, the
Home Loans delivered to the Indenture Trustee on the Closing Date, including
the related Principal Balance and all payments and collections on account
thereof received on or with respect to such Home Loans after the Cut-Off Date
(including amounts due prior to the Cut-Off Date but received thereafter), (ii)
the rights to the FHA Insurance reserves attributable to the FHA Loans as of
the Cut-Off Date under Title I, (iii) the Home Loan Files, (iv) any Insurance
Policies and related Insurance Proceeds, (v) the Mortgages and security
interests in Mortgaged Properties which secure the Mortgage Loans, (vi) any and
all documents or electronic records relating to the Home Loans, (vii) all
proceeds of any of the foregoing.
Section 2.2 [Reserved].
Section 2.3 Obligations of Seller Upon Sale. In
connection with any transfer pursuant to Section 2.1 hereof, the Seller further
agrees, at its own expense, on or prior to the Closing Date (a) to indicate in
its books and records that the Home Loans have been sold to the Purchaser
pursuant to this Purchase Agreement and (b) to deliver to the Purchaser a
computer file containing a true and complete list of all Home Loans specifying
for each Home Loan, as of the Cut-Off Date, (i) its account number and (ii) its
Principal Balance. Such file, which forms a part of Exhibit A to the Sale and
Servicing Agreement, shall also be marked as Schedule I to this Purchase
Agreement and is hereby incorporated into and made a part of this Purchase
Agreement.
The Seller agrees to prepare, execute and file UCC-1 financing
statements with the County Clerk of Cobb (which shall have been filed on or
before the Closing Date with respect to the Home Loans describing the Home
Loans and naming the Seller as debtor and, the Purchaser as secured party (and
indicating that such loans have been assigned to the Trust) all necessary
continuation statements and any amendments to the UCC-1 financing statements
required to reflect a change in the name or corporate structure of the Seller
or the filing of any additional UCC-1 financing statements due to the change in
the principal office of the Seller, as are necessary to perfect the sale of the
Seller's interest in each Home Loan and the proceeds thereof.
In connection with any conveyance by the Seller, the Seller
shall on behalf of the Purchaser deliver to, and deposit with the Custodian, on
behalf of the Indenture Trustee, as assignee of the Purchaser, on or before the
Closing Date the following documents or
2
<PAGE> 6
instruments with respect to each Home Loan (the "Related Documents"); provided,
that the documents or instruments listed in clause (f) below may be held in the
custody of the Seller on behalf of the Indenture Trustee.
With respect to each Home Loan:
(a) The original Debt Instrument, showing a
complete chain of endorsements or assignments from the named payee to
the Trust and endorsed as follows: "Pay to the order of First Trust
of New York, National Association, as Indenture Trustee and Co-Owner
Trustee for Mego Mortgage Home Loan Owner Trust 1997-1 without
recourse";
(b) If such Home Loan is a Mortgage Loan, the
original Mortgage with evidence of recording indicated thereon (except
that a true copy thereof certified by an appropriate public official
may be substituted); provided, however, that if the Mortgage with
evidence of recording thereon cannot be delivered concurrently with
the execution and delivery of this Purchase Agreement solely because
of a delay caused by the public recording office where such Mortgage
has been delivered for recordation, there shall be delivered to the
Indenture Trustee a copy of such Mortgage certified as a true copy in
an Officer's Certificate which shall certify that such Mortgage has
been delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the Indenture
Trustee such Mortgage with evidence of recording indicated thereon
upon receipt thereof from the public recording official (or a true
copy thereof certified by an appropriate public official may be
delivered to the Indenture Trustee);
(c) If such Home Loan is a Mortgage Loan, an
original Assignment of the Mortgage, in recordable form. Such
assignment may be a blanket assignment, to the extent that blanket
assignments are effective under applicable law, for Mortgages covering
Properties situated in the same county. If the assignment of Mortgage
is in blanket form, an assignment of Mortgage need not be included in
the individual Home Loan File;
(d) If such Home Loan is a Mortgage Loan, all
original intermediate assignments of the Mortgage, showing a complete
chain of assignments from the named mortgagee to the assignor to the
Indenture Trustee, with evidence of recording thereon (or true copies
thereof certified by appropriate public officials may be substituted);
provided, however, that if the intermediate assignments of mortgage
with evidence of recording thereon cannot be delivered concurrently
with the execution and delivery of this Purchase Agreement solely
because of a delay caused by the public recording office where such
Assignments of Mortgage have been delivered for recordation, there
shall be delivered to the Indenture Trustee a copy of each such
assignment of Mortgage certified as a true copy in an Officer's
Certificate which shall certify that each such assignment of Mortgage
has been delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the Indenture
Trustee such assignments of Mortgage with evidence of recording
indicated thereon upon its receipt thereof from the public recording
official (or true copies thereof certified by an appropriate public
official may be delivered to the Indenture Trustee);
3
<PAGE> 7
(e) An original of each assumption or
modification agreement, if any, relating to such Home Loan; and
(f) (i) If such Home Loan is an FHA Loan, an original
or copy of a notice signed by the Obligor acknowledging HUD insurance,
(ii) an original or copy of truth-in-lending disclosure, (iii) an
original or copy of the credit application, (iv) an original or copy
of the consumer credit report, (v) an original or copy of verification
of employment and income, or verification of self-employment income,
(vi) if such Home Loan is an FHA Loan and a Mortgage Loan, an original
or copy of evidence of the Obligor's interest in the Property, (vii)
an original or copy of contract of work or written description with
cost estimates, (viii)(A) if such Home Loan is an FHA Loan either (1)
an original or copy of the completion certificate or an original or
copy of notice of non-compliance, if applicable or (2) an original or
copy of report of inspection of improvements to the Property or an
original or copy of notice of non-compliance, if applicable, or (B) if
such Home Loan is a Mortgage Loan and a home improvement loan, an
original or copy of report of inspection of improvements to the
Property, (ix) if such Home Loan is a Mortgage Loan, to the extent not
included in (iii), an original or a copy of a written verification
that the Obligor at the time of origination was not more than 30 days
delinquent on any senior mortgage or deed of trust on the Property,
(x) (A) if such Home Loan is an FHA Loan for which an appraisal is
required pursuant to the applicable regulations, an original or a copy
of an appraisal of the Property as of the time of origination of such
FHA Loan or (B) if such Home Loan is a Non-FHA Loan and secured by a
Mortgage (1) if the original principal balance is greater than $25,000
but less than $50,000, a copy of the HUD-1A Closing Statement
indicating the sale price, or an existing Uniform Residential
Appraisal Report, or a Drive-By Appraisal documented on Freddie Mac
form 704, or a tax assessment, or (2) if the original principal
balance exceeds $50,000, a full Uniform Residential Appraisal Report
prepared by a national appraisal firm, (xi) an original or a copy of a
title search as of the time of origination with respect to the
Property, and (xii) if such Home Loan is an FHA Loan, any other
documents required for the submission of a claim with respect to such
FHA Loan to the FHA.
With respect to any documents referred to clauses (b) and (d)
above that are not delivered to the Custodian on behalf of the Indenture
Trustee because of a delay caused by the public recording office, such
documents shall be delivered to the Custodian on behalf of the Indenture
Trustee in accordance with the terms of such clauses by the Seller if such
documents are received by it or by the Purchaser if such documents are received
by it.
The Seller further hereby confirms to the Purchaser that, as
of the Closing Date it has caused the portions of the Seller's electronic
ledger relating to the Home Loans to be clearly and unambiguously marked to
indicate that the Home Loans have been sold to the Purchaser.
The Purchaser hereby acknowledges its acceptance of all right,
title and interest to the Home Loans and other property, now existing and
hereafter created, conveyed to it pursuant to Section 2.1 hereof.
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<PAGE> 8
The parties hereto intend that each of the transactions set
forth herein be a sale by the Seller to the Purchaser of all the Seller's
right, title and interest in and to the Home Loans and other property described
above. In the event the transactions set forth herein are deemed not to be a
sale, the Seller hereby grants to the Purchaser a security interest in all of
the Seller's right, title and interest in, to and under the Home Loans and
other property described above, whether now existing or hereafter created, to
secure all of the Seller's obligations hereunder; and this Purchase Agreement
shall constitute a security agreement under applicable law.
Section 2.4 Payment of Purchase Price for the Home Loans.
(a) In consideration of the sale of the Home Loans from the Seller to the
Purchaser on the Closing Date, the Purchaser agrees to pay to the Seller on the
Closing Date by transfer of immediately available funds, an amount equal to
$86,092,410.64 (before deducting expenses payable by the Seller to the
Purchaser) (the "Purchase Price").
(b) Within 60 days of the Closing Date, the Seller, at its
own expense, shall cause the Indenture Trustee to record each Assignment of
Mortgage in favor of the Indenture Trustee (which may be a blanket assignment
if permitted by applicable law) in the appropriate real property or other
records; provided, however, the Indenture Trustee need not record any
assignment which relates to a Home Loan in any jurisdiction under the laws of
which, as evidenced by an Opinion of Counsel delivered by the Seller (at the
Seller's expense) to the Indenture Trustee and the Securities Insurer, the
recordation of such Assignment is not necessary to protect the Indenture
Trustee's, the Securities Insurer's and the Securityholders' interest in the
related Home Loan. With respect to any Assignment of Mortgage as to which the
related recording information is unavailable within 60 days following the
Closing Date, such Assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Indenture Trustee shall be required to retain
a copy of each Assignment of Mortgage submitted for recording. In the event
that any such Assignment of Mortgage is lost or returned unrecorded because of
a defect therein, the Seller shall promptly prepare a substitute Assignment of
Mortgage or cure such defect, as the case may be, and thereafter the Trustee
shall be required to submit each such Assignment of Mortgage for recording.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties. (a)
The Seller represents and warrants to the Purchaser as of the Cut-Off Date and
the Closing Date that:
(i) The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware with full power and authority to own its properties and
conduct its business as such properties are presently owned and such
business is presently conducted;
(ii) The Seller has full power and authority to
execute, deliver and perform, and to enter into and consummate all
transactions required of it by this Purchase Agreement and each other
Transaction Document to which it is a party; has
5
<PAGE> 9
duly authorized the execution, delivery and performance of this
Purchase Agreement and each other Transaction Document to which it is
a party; has duly executed and delivered this Purchase Agreement and
each other Transaction Document to which it is a party; when duly
authorized, executed and delivered by the other parties hereto, this
Purchase Agreement and each other Transaction Document to which it is
a party will constitute a legal, valid and binding obligation of the
Seller enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(iii) Neither the execution and delivery of this
Purchase Agreement or any of the other Transaction Documents to which
the Seller is a party, the consummation of the transactions required
of it herein or under any other Transaction Document, nor the
fulfillment of or compliance with the terms and conditions of this
Purchase Agreement or any of the other Transaction Documents will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Seller's charter or by-laws or any legal restriction
or any material agreement or instrument to which the Seller is now a
party or by which it is bound, or which would adversely affect the
creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any
of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Seller or its
property is subject;
(iv) There is no action, suit, proceeding,
investigation or litigation pending against the Seller or, to its
knowledge, threatened, which, if determined adversely to the Seller,
would materially adversely affect the sale of the Home Loans, the
execution, delivery or enforceability of this Purchase Agreement or
any other Transaction Document, or which would have a material adverse
affect on the financial condition of the Seller;
(v) No consent, approval, authorization or order
of any court or governmental agency or body is required for: (a) the
execution, delivery and performance by the Seller of, or compliance by
the Seller with, this Purchase Agreement, (b) the sale of the Home
Loans or (c) the consummation of the transactions required of it by
this Purchase Agreement;
(vi) The Seller is not in default with respect to
any order or decree of any court or any order, regulation or demand of
any federal, state, municipal or governmental agency, which default
might have consequences that would materially and adversely affect the
condition (financial or other) or operations of the Seller or its
properties or might have consequences that would materially and
adversely affect its performance hereunder;
(vii) The Seller received fair consideration and
reasonably equivalent value in exchange for the sale of the Home Loans
to the Purchaser;
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<PAGE> 10
(viii) The Seller is a non-supervised lender in good
standing under 24 CFR Section 202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR part
201; and
(ix) The Seller has transferred the Home Loans
without any intent to hinder, delay or defraud any of its creditors.
(b) The Seller further represents and warrants to
the Purchaser that with respect to the Home Loans as of the Closing Date each
of the representations and warranties contained in Section 3.03(b) of the Sale
and Servicing Agreement are true and correct.
It is understood and agreed that the representations and
warranties set forth in this Section 3.1(b) shall survive delivery of the
respective Home Loan Files to the Indenture Trustee on behalf of the Purchaser.
In the event that (a) any of the representations and warranties of the Seller
in Section 3.03(b) of the Sale and Servicing Agreement are determined to be
untrue in a manner that materially and adversely affects the interests of the
Securityholders or the Securities Insurer in any Home Loan with respect to
which such representation or warranty is made and (b) the Seller shall fail to
cure such breach within the time period specified in Section 3.05 of the Sale
and Servicing Agreement, the Seller shall be obligated to repurchase or
substitute the affected Home Loan(s) in accordance with the provisions of
Section 3.05 of the Sale and Servicing Agreement.
With respect to representations and warranties made by Mego
pursuant to this Section 3.1(b) that are made to the Seller's best knowledge,
if it is discovered by any of the Depositor, the Seller, the Trustee or the
Certificate Insurer that the substance of such representation and warranty is
inaccurate and such inaccuracy materially and adversely affects the value of
the related Home Loan, notwithstanding the Seller's lack of knowledge, such
inaccuracy shall be deemed a breach of the applicable representation and
warranty.
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller. The Seller hereby
covenants that except for the transfer hereunder, the Seller will not sell,
pledge, assign or transfer to any other Person, or grant, create, incur, assume
or suffer to exist any lien on, any Home Loan, or any interest therein; and the
Seller will defend the right, title and interest of the Trust, as assignee of
the Purchaser, in, to and under the Home Loans, against all claims of third
parties claiming through or under the Seller.
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification. The Seller agrees to
indemnify and hold harmless the Purchaser from and against any loss, liability,
expense, damage, claim or injury (other than those resulting solely from
defaults on the Home Loans) arising out of or based on
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<PAGE> 11
this Agreement including, without limitation, in connection with the
origination or prior servicing of the Home Loans by reason of any acts,
omissions, or alleged acts or omissions arising out of activities of the
Seller, originator or prior servicer, including reasonable attorneys' fees and
other costs or expenses incurred in connection with the defense of any actual
or threatened action, proceeding or claim; provided that the Seller shall not
indemnify the Purchaser if such loss, liability, expense, damage or injury is
due to the Purchaser's willful misfeasance, bad faith or negligence or by
reason of the Purchaser's reckless disregard of its obligations hereunder. The
provisions of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof.
Section 5.2 Limitation on Liability of the Seller.
None of the directors or trustees or officers or employees or agents of the
Seller shall be under any liability to the Purchaser, it being expressly
understood that all such liability is expressly waived and released as a
condition of, and as consideration for, the execution of this Purchase
Agreement; provided, however, that this provision shall not protect any such
Person against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder. Except as expressly provided herein and in the Sale and Servicing
Agreement, the Seller shall not be under any liability to the Trust, the
Trustee or the Securityholders. The Seller and any director or officer or
employee or agent of the Seller may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person respecting any
matters arising hereunder.
Section 5.3 Indemnification (a) The Seller agrees to indemnify and
hold harmless the Purchaser, the directors of the Purchaser and each person, if
any, who controls the Purchaser within the meaning of Section 15 of the
Securities Act of 1933 (the "Act") or Section 20 of the Securities Exchange Act
of 1934 (the "Exchange Act"), from and against any and all losses, claims,
damages, liabilities or judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action,
suit or proceeding or any claim asserted) arising out of (i) any untrue
statement or alleged untrue statement of a material fact contained under any of
the captions "Mego Mortgage Corporation," "The Title I Loan Program and the
Contract of Insurance" and "The Pool" in the Prospectus Supplement or caused by
any 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 in which they were made, not misleading or (ii) any
information concerning the Seller, the Home Loans or the Seller's operations
based on any untrue statement or alleged untrue statement of a fact contained
in any information provided by the Seller to the Purchaser, or any material
omission from the information purported to be provided thereby, and
disseminated to any Rating Agency, the Securities Insurer, Deloitte & Touche or
prospective investors (directly or indirectly through available information
systems) in connection with the issuance, marketing or offering of the Notes.
This indemnity agreement will be in addition to any liability which the Seller
may otherwise have pursuant to this Agreement.
(b) The Purchaser agrees to indemnify and hold harmless the
Seller and each person, if any, who controls the Seller within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities caused by (A) any untrue
statement or alleged untrue statement of a material fact contained in (i) the
Prospectus Supplement under the caption "Description of the Securities,"
"Description of the Transfer and Servicing Agreements," and "Prepayment and
Yield
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Considerations" (ii) the Base Prospectus or (iii) the Registration Statement
(other than the information with respect to the Seller contained in the
Prospectus Supplement) or (B) any omission or alleged omission to state a
material fact, in the case of the Registration Statement (other than the
information with respect to the Seller contained in the Prospectus Supplement),
required to be stated therein or necessary to make the statements therein not
misleading, and in the case of the section of the Prospectus Supplement
specified in clause (A) (i) of this sentence and the Base Prospectus, necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.] This indemnity agreement will be
in addition to any liability which the Purchaser may have pursuant to
Agreement.
(c) In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (hereinafter called the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (hereinafter called the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
action or proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (1) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (2) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
any indemnified party and each person, if any, who controls such indemnified
party within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act, and it is also understood that expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for any indemnified
party and any director, officer and control person of the indemnified party,
such firm shall be designated in writing by such indemnified party. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in this Section 5.3
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
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<PAGE> 13
claims, damages, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnified party
on the one hand and the indemnifying party on the other from the sale of the
Home Loans or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the indemnified party on the one hand and the indemnifying
party on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. For purposes of the foregoing,
the benefit received by the Seller from the sale of the Home Loans shall be
deemed to equal the amount of the gross proceeds received by the Seller from
such sale, and the benefit received by the Purchaser for such sale shall be
deemed to equal the Formula Amount (as defined below). The relative fault of
the Purchaser on the one hand and the Seller on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the Purchaser or by the Seller and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Seller and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 5.3(d) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5.3(d), in no
event shall the Purchaser be required to contribute any amount in excess of
$753,844. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
ARTICLE VI.
TERMINATION
Section 6.1 Termination. The respective obligations
and responsibilities of the Seller and the Purchaser created hereby shall
terminate, except for the Seller's and Purchaser's indemnity obligations as
provided herein, upon the termination of the Trust as provided in Article XI of
the Sale and Servicing Agreement.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment. This Purchase Agreement may be
amended from time to time by the Seller and the Purchaser, with the consent of
the Securities Insurer, by written agreement signed by the Seller and the
Purchaser.
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Section 7.2 Governing Law. This Purchase Agreement
shall be governed by and construed in accordance with the laws of the State of
New York and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
Section 7.3 Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by registered mail, postage
prepaid, addressed as follows:
(a) if to the Seller:
Mego Mortgage Corporation
1000 Parkwood Circle, Suite 500
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President
or, such other address as may hereafter be furnished to the Purchaser in
writing by the Seller.
(b) if to FASCO
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: General Counsel
or such other address as may hereafter be furnished to the Seller in writing by
the Purchaser.
Section 7.4 Severability of Provisions. If any one or
more of the covenants, agreements, provisions of terms of this Purchase
Agreement shall be held invalid for any reason whatsoever, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Purchase Agreement and shall
in no way affect the validity of enforceability of the other provisions of this
Purchase Agreement.
Section 7.5 Counterparts. This Purchase Agreement may
be executed in one or more counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed to be
an original and such counterparts, together, shall constitute one and the same
agreement.
Section 7.6 Further Agreements. The Purchaser and the
Seller each agree to execute and deliver to the other such amendments to
documents and such additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this Purchase Agreement
or in connection with the offering of securities representing interests in the
Home Loans.
Without limiting the generality of the foregoing, as a further
inducement for the Purchaser to purchase the Home Loans from the Seller, the
Seller will cooperate with the
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Purchaser in connection with the sale of any of the securities representing
interests in the Home Loans. In that connection, the Seller will provide to
the Purchaser any and all information and appropriate verification of
information, whether through letters of its auditors and counsel or otherwise,
as the Purchaser shall reasonably request and will provide to the Purchaser
such additional representations and warranties, covenants, opinions of counsel,
letters from auditors, and certificates of public officials or officers of the
Seller as are reasonably required in connection with such transactions and the
offering of securities rated "Aaa" and "AAA" by Moody's Investors Service, Inc.
and Standard & Poor's Rating Services, respectively.
Section 7.7 Intention of the Parties. It is the
intention of the parties that the Purchaser is purchasing, and the Seller is
selling, the Home Loans rather than pledging the Home Loans to secure a loan by
the Purchaser to the Seller. Accordingly, the parties hereto each intend to
treat the transaction for federal income tax purposes and all other purposes as
a sale by the Seller, and a purchase by the Purchaser, of the Home Loans. The
Purchaser will have the right to review the Home Loans and the related Home
Loan Files to determine the characteristics of the Home Loans which will affect
the federal income tax consequences of owning the Home Loans and the Seller
will cooperate with all reasonable requests made by the Purchaser in the course
of such review.
Section 7.8 Successors and Assigns; Assignment of
Purchase Agreement. The Agreement shall bind and inure to the benefit of and
be enforceable by the Seller, the Purchaser and the Trustee. The obligations
of the Seller under this Purchase Agreement cannot be assigned or delegated to
a third party without the consent of the Purchaser, which consent shall be at
the Purchaser's sole discretion, except that the Purchaser acknowledges and
agrees that the Seller may assign its obligations hereunder to any Person into
which the Seller is merged or any corporation resulting from any merger,
conversion or consolidation to which the Seller is a party or any Person
succeeding to the business of the Seller. The parties hereto acknowledge that
FASCO is acquiring the Home Loans for the purpose of contributing them to the
Trust that will issue (i) the Certificates representing undivided interests in
such Home Loans and (ii) the Notes which will be secured by such Home Loans.
As an inducement to FASCO to purchase the Home Loans, the Seller acknowledges
and consents to the assignment by FASCO to the Trust of all of FASCO's rights
against the Seller pursuant to this Purchase Agreement and to the enforcement
or exercise of any right or remedy against the Seller pursuant to this Purchase
Agreement by the Owner Trustee and Co-Owner Trustee under the Sale and
Servicing Agreement. Such enforcement of a right or remedy by the Owner
Trustee and Co-Owner Trustee shall have the same force and effect as if the
right or remedy had been enforced or exercised by FASCO directly.
Section 7.9 Survival. The representations and
warranties set forth in Article III and the provisions of Article V shall
survive the purchase of the Home Loans hereunder.
Section 7.10 Third-Party Beneficiaries. This Purchase
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Except as otherwise
provided in this Section 7.10 no other Person shall have the right or
obligation hereunder. Upon issuance of the Policy (as defined in the Sale and
Servicing Agreement), this Purchase Agreement shall also inure to the benefit
of the Securities Insurer. Without limiting the generality of the foregoing,
all covenants and agreements in this
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<PAGE> 16
Purchase Agreement which expressly confer rights upon the Securities Insurer
shall be for the benefit of and run directly to the Securities Insurer, and the
Securities Insurer shall be entitled to rely on and enforce such covenants to
the same extent as if it were a party to this Purchase Agreement. The
Securities Insurer may disclaim any of its rights and powers under this
Purchase Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Indenture Trustee.
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<PAGE> 17
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
this Home Loan Purchase Agreement to be duly executed on their behalf
by their respective officers thereunto duly authorized as of the day
and year first above written.
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser
By:
------------------------------------------------
Name: John Anderson
Title: Senior Vice President
MEGO MORTGAGE CORPORATION,
as Seller
By:
------------------------------------------------
Name: James L. Belter
Title: Executive Vice President
<PAGE> 18
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 10th day of March, 1997 before me, a Notary Public in and for
said State, personally appeared John Anderson known to me to be a Senior Vice
President of FINANCIAL ASSET SECURITIES CORP., the corporation that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
<PAGE> 19
STATE OF )
) ss.:
COUNTY OF )
On the 10th day of March, 1997 before me, a Notary Public in and for
said State, personally appeared James L. Belter, known to me to be the
Executive Vice President of MEGO MORTGAGE CORPORATION, the company that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
<PAGE> 20
SCHEDULE I
Loan Schedule
See Exhibit A to Sale and Servicing Agreement
<PAGE> 1
EXHIBIT 10.120
Execution Copy
================================================================================
SALE AND SERVICING AGREEMENT
Dated as of February 1, 1997
among
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
(Issuer)
FINANCIAL ASSET SECURITIES CORP.
(Depositor)
MEGO MORTGAGE CORPORATION
(Seller, Servicer and Claims Administrator)
NORWEST BANK MINNESOTA, N.A.
(Master Servicer)
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
(Indenture Trustee, Co-Owner Trustee and Contract of Insurance Holder)
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
HOME LOAN ASSET-BACKED SECURITIES
SERIES 1997-1
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions.................................................... 1
Section 1.02 Other Definitional Provisions................................. 31
Section 1.03 Interest Calculations......................................... 32
ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans.................................. 33
Section 2.02 Reserved...................................................... 33
Section 2.03 Ownership and Possession of Home Loan Files................... 33
Section 2.04 Books and Records............................................. 34
Section 2.05 Delivery of Home Loan Documents............................... 34
Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
Substitutions;Initial Certification by Custodian.............. 37
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor
Section 3.02 Representations, Warranties and Covenants of the Master
Servicer...................................................... 40
Section 3.03 Representations and Warranties of Mego........................ 43
Section 3.04 [Reserved].................................................... 54
Section 3.05 Purchase and Substitution..................................... 54
ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS;
CLAIMS ADMINISTRATION
Section 4.01 Servicing Standard............................................ 58
Section 4.02 Servicing Arrangements........................................ 59
Section 4.03 Servicing Record.............................................. 60
Section 4.04 Annual Statement as to Compliance; Notice of Event of Default. 64
Section 4.05 Annual Independent Accountants' Report; Servicer Review Report 65
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans.................................................... 66
Section 4.07 [Reserved].................................................... 67
Section 4.08 Advances...................................................... 67
Section 4.09 Reimbursement of Interest Advances and Foreclosure Advances... 68
Section 4.10. Modifications, Waivers, Amendments and Consents............... 69
</TABLE>
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<TABLE>
<S> <C> <C>
Section 4.11. Due-On-Sale; Due-on-Encumbrance............................... 69
Section 4.12. Claim for FHA Insurance and Foreclosure....................... 70
Section 4.13. Sale of Foreclosed Properties................................. 75
Section 4.14. Management of Real Estate Owned............................... 76
Section 4.15. Inspections................................................... 77
Section 4.16. Maintenance of Insurance...................................... 77
Section 4.17. Release of Files.............................................. 79
Section 4.18. Filing of Continuation Statements............................. 80
Section 4.19. Fidelity Bond................................................. 80
Section 4.20. Errors and Omissions Insurance................................ 80
ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.............. 81
Section 5.02 Claims Under Guaranty Policy.................................. 85
Section 5.03 Certificate Distribution Account.............................. 87
Section 5.04 Trust Accounts; Trust Account Property........................ 89
ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate.................................. 92
Section 6.02 Statement to Securityholders.................................. 92
ARTICLE VII.
CONCERNING THE CONTRACT OF INSURANCE HOLDER
Section 7.01 Compliance with Title I and Filing of FHA Claims.............. 93
Section 7.02. Contract of Insurance Holder.................................. 94
ARTICLE VIII.
[Reserved]
ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims........................... 97
Section 9.02 Merger or Consolidation of the Master Servicer................ 97
Section 9.03 Limitation on Liability of the Master Servicer and Others..... 98
Section 9.04 Master Servicer Not to Resign; Assignment..................... 98
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee....................................................... 99
Section 9.06 Master Servicer May Own Notes................................. 99
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE X.
DEFAULT
Section 10.01 Events of Default............................................ 100
Section 10.02 Consequences of an Event of Default.......................... 102
Section 10.03 Appointment of Successor..................................... 103
Section 10.04 Notification to Certificateholders........................... 103
Section 10.05 Waiver of Past Defaults...................................... 103
ARTICLE XI.
TERMINATION
Section 11.01 Termination.................................................. 105
Section 11.02 Notice of Termination........................................ 106
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders...................................... 107
Section 12.02 Amendment.................................................... 107
Section 12.03 Recordation of Agreement..................................... 108
Section 12.04 Duration of Agreement........................................ 108
Section 12.05 Governing Law................................................ 108
Section 12.06 Notices...................................................... 108
Section 12.07 Severability of Provisions................................... 109
Section 12.08 No Partnership............................................... 109
Section 12.09 Counterparts................................................. 109
Section 12.10 Successors and Assigns....................................... 110
Section 12.11 Headings..................................................... 110
Section 12.12 Actions of Securityholders................................... 110
Section 12.13 Reports to Rating Agencies................................... 110
Section 12.14 Grant of Securityholder Rights to Securities Insurer......... 111
Section 12.15 Third Party Beneficiary...................................... 112
Section 12.16 Holders of the Residual Interest Instruments................. 112
Section 12.17 Inconsistencies Among Transaction Documents.................. 112
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A Home Loan Schedule
EXHIBIT B Form of Master Servicer Certificate
EXHIBIT C Form of Monthly Statement to Securityholders
EXHIBIT D Underwriting Guidelines
EXHIBIT E Form of Servicing Agreement
</TABLE>
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This Sale and Servicing Agreement is entered into effective as of
February 1, 1997, among MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1, a Delaware
business trust (the "Issuer" or the "Trust"), FINANCIAL ASSET SECURITIES CORP.,
a Delaware corporation, as Depositor (the "Depositor"), MEGO MORTGAGE
CORPORATION, a Delaware corporation ("Mego"), as Seller (in such capacity, the
"Seller"), Servicer (in such capacity, the "Servicer") and Claims Administrator
(in such capacity, the "Claims Administrator"), NORWEST BANK MINNESOTA, N.A., as
Master Servicer (the "Master Servicer"), and FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee"), as Co-Owner Trustee
on behalf of the Certificateholders (in such capacity, the "Co-Owner Trustee")
and as Contract of Insurance Holder (in such capacity, the "Contract of
Insurance Holder").
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Home Loans which were
originated or purchased by the Seller and sold to the Depositor in the ordinary
course of business of the Seller;
WHEREAS, the Depositor is willing to purchase from the Seller and sell
such Home Loans to the Issuer; and
WHEREAS, the Master Servicer is willing to service such Home Loans in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Amount Available. With respect to any Distribution Date and the related
Determination Date, an amount equal to the sum of (i) the Collected Amount in
respect of such Distribution Date, plus (ii) Insured Payments, if any, received
by the Indenture Trustee with respect to such Distribution Date.
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Annual Default Percentage (Three Month Average). With respect to any
Determination Date, the average of the percentage equivalents of the fractions
for each of the three immediately preceding Due Periods, the numerator of which
is the product of (i) the aggregate of the Principal Balances of all Home Loans
that became Credit Support Multiple Defaulted Loans during the Due Period
immediately prior to such Home Loans becoming Credit Support Multiple Defaulted
Loans times (ii) 12, and the denominator of which is the Pool Principal Balance
of the Home Loans as of the end of such Due Period.
Assignment of Mortgage: With respect to each Home Loan secured by a
Mortgage, an assignment, notice of transfer or equivalent instrument sufficient
under the laws of the jurisdiction wherein the related Property is located to
reflect of record the sale of the related Home Loan to the Trust as follows:
"First Trust of New York, National Association, as Indenture Trustee and
Co-Owner Trustee for the Mego Mortgage Home Loan Owner Trust 1997-1".
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in New York City or in the city in which the
Securities Insurer or the Corporate Trust Office of the Indenture Trustee is
located or the city in which the Master Servicer's or Servicer's servicing
operations are located and are authorized or obligated by law or executive order
to be closed.
Certificate(s): Any one of the Class S Certificates or the Residual
Interest Instruments, or both.
Certificate Distribution Account: The account established and maintained
pursuant to Section 5.03.
Certificateholder: A holder of any Certificate.
Certificate Register: The register established pursuant to Section 3.4
of the Trust Agreement.
Civil Relief Act Interest Shortfall: With respect to any Distribution
Date, for any Home Loan as to which there has been a reduction in the amount of
interest collectible thereon for the most recently ended Due Period as a result
of the application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Civil Relief Act"), the amount by which (i) interest collectible
on such Home Loan during such Due Period is less than (ii) one month's interest
on the Principal Balance of such Home Loan at the Home Loan Interest Rate for
such Home Loan before giving effect to the application of the Civil Relief Act.
Class: With respect to the Notes, all Notes bearing the same class
designation, and with respect to the Certificates, the Certificates with the
same class designation.
Class A-1 Final Scheduled Distribution Date: March 25, 2023.
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Class A-2 Final Scheduled Distribution Date: March 25, 2023.
Class A-3 Final Scheduled Distribution Date: March 25, 2023.
Class A-4 Final Scheduled Distribution Date: March 25, 2023.
Class A-1 Note: Any Class A-1 Note in the form attached to the Indenture
as Exhibit A-1.
Class A-2 Note: Any Class A-2 Note in the form attached to the Indenture
as Exhibit A-2.
Class A-3 Note: Any Class A-3 Note in the form attached to the Indenture
as Exhibit A-3.
Class A-4 Note: Any Class A-4 Note in the form attached to the Indenture
as Exhibit A-4.
Class Principal Balance: With respect to each Class of Notes and as of
any date of determination, the Original Class Principal Balance of each such
Class reduced by all amounts previously distributed to Noteholders of such Class
in reduction of the principal balance of such Class on all previous Distribution
Dates pursuant to Section 5.01(c).
Class S Certificate: Any Class S Certificate in the form attached to the
Trust Agreement as Exhibit A.
Class S Certificate Rate: 0.50% per annum.
Class S Interest Distribution. With respect to any Distribution Date and
the Class S Certificates, the sum of (i) the Class S Monthly Interest Amount and
(ii) the Class S Interest Shortfall for such Distribution Date.
Class S Interest Shortfall. With respect to the Class S Certificates and
any Distribution Date, the excess of the Class S Monthly Interest Amount for the
preceding Distribution Date and any outstanding Class S Interest Shortfall on
such preceding Distribution Date, over the amount in respect of interest that is
actually distributed to the Class S Certificateholders on such preceding
Distribution Date plus (b) interest on such excess, to the extent permitted by
law, at the Certificate Rate from such preceding Distribution Date through the
current Distribution Date.
Class S Monthly Interest Amount. With respect to any Distribution Date
and the Class S Certificates, 30 days of interest at the Class S Certificate
Rate, on the Class S Notional Amount for such Distribution Date, reduced by an
amount equal to such Class' pro rata share (based on the amount of interest to
which such Class would have otherwise been entitled) of
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<PAGE> 8
the sum of (i) Civil Relief Act Interest Shortfall and (ii) the Net Prepayment
Interest Shortfall, if any, in each case for such Distribution Date.
Class S Notional Amount. As to any Distribution Date and the Class S
Certificates, the Pool Principal Balance of the Home Loans as of the opening of
business on the first day of the calendar month preceding the calendar month of
such Distribution Date (i.e., if the Distribution Date is June 25, the first day
of the calendar month preceding the calendar month of such Distribution Date is
May 1), or in the case of the first Distribution Date, the Initial Pool
Principal Balance.
Closing Date: March 10, 1997.
Code: The Internal Revenue Code of 1986, as amended from time to time,
and Treasury Regulations promulgated thereunder.
Collateral Performance Percentages: The Annual Default Percentage (Three
Month Average), the 30+ Delinquency Percentage (Rolling Three Month), the 60+
Day Delinquency (Rolling Three Month) and the Cumulative Default Percentage.
Collected Amount. With respect to any Determination Date or the
Distribution Date, the sum of the amount on deposit in the Note Distribution
Account on such Determination Date plus the amounts required to be deposited
into the Note Distribution Account pursuant to Sections 3.05, 5.01(a)(3) and
5.01(b)(1).
Collection Account: The account denominated as a Collection Account and
maintained or caused to be maintained by the Indenture Trustee pursuant to
Section 5.01.
Contract of Insurance Holder: First Trust of New York, National
Association, its successors in interest, and any successor thereto pursuant to
the terms of this Agreement.
Contract of Insurance: The contract of insurance under Title I covering
the FHA Loans held under the name First Trust of New York, National Association,
or any successor thereto, as Contract of Insurance Holder hereunder.
Corporate Trust Office: The office of the Indenture Trustee at which any
particular time its corporate business shall be principally administered,
located on the Closing Date at First Trust of New York, National Association,
180 East 5th Street, St. Paul, Minnesota 55101, Attention: Structured Finance.
Co-Owner Trustee: First Trust of New York, National Association, a
national banking association, in its capacity as the Co-Owner Trustee under the
Trust Agreement acting on behalf of the Securitiesholders, or any successor
co-owner trustee under the Trust Agreement.
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<PAGE> 9
Credit Support Multiple Defaulted Loan. A Home Loan with respect to
which (a) a claim has been submitted to the FHA in respect of such Loan pursuant
to the Contract of Insurance, (b) foreclosure proceedings have been commenced on
the related Property, (c) any portion of a Monthly Payment is more than 180
calendar days past due and unpaid by the Obligor; or (d) the Servicer has
determined in accordance with customary servicing practices, that the Home Loan
is uncollectible.
Cumulative Default Percentage. As of any Determination Date, the
aggregate of the Principal Balances of all Credit Support Multiple Defaulted
Loans (immediately prior to such Home Loans becoming Credit Support Multiple
Defaulted Loans) as of the prior Monthly Cut-Off Date since the Closing Date,
divided by the aggregate of the Initial Pool Principal Balance.
Custodial Agreement: The custodial agreement dated as of February 1,
1997 by and between the Issuer, the Depositor, Mego, as the Seller and the
Servicer, the Indenture Trustee, and First Trust of New York, National
Association, a national banking association, as the Custodian, and any
subsequent custodial agreement, in similar form and substance, providing for the
retention of the Indenture Trustee's Home Loan Files by the Custodian on behalf
of the Indenture Trustee.
Custodian: Any custodian acceptable to the Securities Insurer and
appointed by the Indenture Trustee pursuant to the Custodial Agreement, which
shall not be affiliated with the Servicer, the Seller, any Servicer, or the
Depositor. First Trust National Association shall be the initial Custodian
pursuant to the terms of the Custodial Agreement.
Cut-Off Date: With respect to any Home Loan, either the opening of
business on February 1, 1997 or if such Home Loan is originated on or after
February 1, 1997, such Home Loan's date of origination.
Debt Instrument: The note or other evidence of indebtedness evidencing
the indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: A Home Loan with respect to which: (i) a claim has
been paid or finally rejected pursuant to the Contract of Insurance, (ii) the
Property has been repossessed and sold, or (iii) any portion of a Monthly
Payment is more than 180 calendar days past due (without giving effect to any
grace period).
Defective Home Loan: A Home Loan required to be repurchased pursuant to
Section 3.05 hereof.
Deficiency Amount: As to any Distribution Date, an amount equal to the
sum of (a) the amount by which the Interest Distribution Amount for such
Distribution Date exceeds the amount on deposit in the Note Distribution Account
available to be distributed therefor on
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such Distribution Date and (b) the Noteholders' Guaranteed Principal
Distribution Amount for such Distribution Date.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and
are susceptible of physical delivery, transfer thereof to the Indenture
Trustee or its nominee or custodian by physical delivery to the
Indenture Trustee or its nominee or custodian endorsed to, or registered
in the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of
such certificated security endorsed to, or registered in the name of,
the Indenture Trustee or its nominee or custodian or endorsed in blank
to a financial intermediary (as defined in Section 8-313 of the UCC) and
the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the
Indenture Trustee or its nominee or custodian and the sending by such
financial intermediary of a confirmation of the purchase of such
certificated security by the Indenture Trustee or its nominee or
custodian, or (ii) by delivery thereof to a "clearing corporation" (as
defined in Section 8-102(3) of the UCC) and the making by such clearing
corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate
securities account of a financial intermediary by the amount of such
certificated security, the identification by the clearing corporation of
the certificated securities for the sole and exclusive account of the
financial intermediary, the maintenance of such certificated securities
by such clearing corporation or a "custodian bank" (as defined in
Section 8-102(4) of the UCC) or the nominee of either subject to the
clearing corporation's exclusive control, the sending of a confirmation
by the financial intermediary of the purchase by the Indenture Trustee
or its nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying
such certificated securities as belonging to the Indenture Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"),
and, in any event, any such Physical Property in registered form shall
be in the name of the Indenture Trustee or its nominee or custodian; and
such additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such
Trust Account Property (as defined herein) to the Indenture Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury,
FNMA or FHLMC that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Trust Account Property to an appropriate
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<PAGE> 11
book-entry account maintained with a Federal Reserve Bank by a financial
intermediary that is also a "depository" pursuant to applicable federal
regulations and issuance by such financial intermediary of a deposit
advice or other written confirmation of such book-entry registration to
the Indenture Trustee or its nominee or custodian of the purchase by the
Indenture Trustee or its nominee or custodian of such book-entry
securities; the making by such financial intermediary of entries in its
books and records identifying such book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations as
belonging to the Indenture Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property solely
as agent for the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate
to effect complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or custodian,
consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that is
an uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of
the issuer thereof in the name of the financial intermediary, the
sending of a confirmation by the financial intermediary of the purchase
by the Indenture Trustee or its nominee or custodian of such
uncertificated security, the making by such financial intermediary of
entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or
custodian.
Depositor: Financial Asset Securities Corp., a Delaware corporation, and
any successor thereto.
Determination Date: With respect to any Distribution Date, the fifth
Business Day preceding such Distribution Date.
Distributable Excess Spread: As to any Distribution Date, the lesser of
(i) the amount of Excess Spread for such Distribution Date and (ii) the portion
of Excess Spread required to be distributed pursuant to Section 5.01(c)(vi) such
that the Overcollateralization Amount for such Distribution Date is equal to the
Required OC Amount for such Distribution Date.
Distribution Date: The 25th day of any month or if such 25th day is not
a Business Day, the first Business Day immediately following such day,
commencing in March 1997.
DTC: The Depository Trust Company.
Due Date: With respect to any Monthly Payment, the date on which such
Monthly Payment is required to be paid pursuant to the related Debt Instrument.
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<PAGE> 12
Due Period: With respect to any Determination Date or Distribution Date,
the calendar month immediately preceding such Determination Date or Distribution
Date, as the case may be.
Early Termination Notice Date. Any date on which the Pool Principal
Balance is less than 10% of the Initial Principal Balance.
Eligible Account: At any time, an account which is any of the following:
(i) A segregated trust account that is maintained with the corporate trust
department of a depository institution acceptable to the Securities Insurer (so
long as a Securities Insurer Default shall not have occurred and be continuing),
or (ii) a segregated direct deposit account maintained with a depository
institution or trust company organized under the laws of the United States of
America, or any of the States thereof, or the District of Columbia, having a
certificate of deposit, short term deposit or commercial paper rating of at
least A-1+ by Standard & Poor's and P-1 by Moody's and (so long as a Securities
Insurer Default shall not have occurred and be continuing) acceptable to the
Securities Insurer.
Eligible Servicer: A Person that (i) is servicing a portfolio of Title I
mortgage loans, (ii) is legally qualified to service, and is capable of
servicing, the FHA Loans and has all licenses required to service Title I
mortgage loans, (iii) has demonstrated the ability professionally and
competently to service a portfolio of FHA insured mortgage loans similar to the
FHA Loans with reasonable skill and care, (iv) has a net worth calculated in
accordance with generally accepted accounting principles of at least $500,000
and (v) if other than Mego, is acceptable to the Securities Insurer.
Event of Default: As described in Section 10.01 hereof.
Excess Claim Amount: With respect to any Distribution Date, an amount
equal to (A) 90% of the excess of (x) claims paid under the Contract of
Insurance in respect of the FHA Loans over (y) the Trust Designated Insurance
Amount less (B) the amount deposited to the FHA Reserve Fund on previous
Distribution Dates.
Excess Spread. With respect to any Distribution Date, the positive
excess, if any, of (x) the Collected Amount with respect to such Distribution
Date over (y) the amount required to be distributed pursuant to priorities (i)
through (v) of Section 5.01(c) on such Distribution Date.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHA. The Federal Housing Administration and any successor thereto.
FHA Insurance. Insurance issued by FHA pursuant to Title I of the
National Housing Act of 1934, as amended.
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FHA Insurance Coverage Insufficiency. At the time of a prospective claim
for reimbursement under the Contract of Insurance for an FHA Loan pursuant to
Section 4.12, the amount by which the sum of all claims previously paid by the
FHA in respect of all FHA Loans and the amount expected to be received in
respect of such prospective claim for such FHA Loan exceeds the Trust Designated
Insurance Amount.
FHA Insurance Coverage Reserve Account. The account established by the
FHA pursuant to the Contract of Insurance which is adjusted and maintained under
Title I (see 24 C.F.R. 201.32(a)).
FHA Insurance Payment Amount. With respect to any Distribution Date and
with respect to an FHA Loan for which an insurance claim has been made by the
Contract of Insurance Holder or the Claims Administrator and paid by the FHA or
rejected, in part, by the FHA, an amount equal to the sum of such of the
following as are appropriate: (i) the amount, if any, received from the FHA,
(ii) with respect to claims rejected in part, the amount, if any, received from
Mego or the Master Servicer pursuant to Section 4.12 and (iii) the amount
received from the sale of FHA Pending Claims sold pursuant to Section 11.01(b).
FHA Loans. The Home Loans designated as FHA Loans on the Home Loan
Schedule.
FHA Pending Claims. As defined in Section 11.01(b).
FHA Premium Account. The account which is an Eligible Account
established and maintained by the Indenture Trustee pursuant to Section
5.01(a)(4).
FHA Premium Account Deposit. With respect to any Distribution Date, an
amount equal to the greater of (i) 1/12 times .75% times the aggregate Principal
Balance of all FHA Loans other than Invoiced Loans as of the first day of the
calendar month preceding the month of such Distribution Date (or the aggregate
Principal Balance of such Loans as of the applicable Cut-Off Date with respect
to the first Distribution Date) and (ii) the positive excess, if any, of (A) the
projected amount of premium and other charges due under the Contract of
Insurance for the next succeeding Due Period over (B) the balance in the FHA
Premium Account as of the related Determination Date.
FHA Reserve Amount. As to each FHA Loan, 10% of the Principal Balance as
of the Cut-Off Date of such FHA Loan.
FHA Reserve Fund. The account which is an Eligible Account denominated
as the FHA Reserve Fund to be established by the Indenture Trustee pursuant to
Section 5.01(a)(3) hereof.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
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FICO Score: The credit evaluation scoring methodology developed by Fair,
Isaac and Company.
Final Date. The later of:
(i) two years after the last insurance claim with respect to an
FHA Loan filed with the FHA was certified for payment by FHA, or
(ii) the final settlement date with respect to any insurance
claim for an FHA Loan rejected by the FHA.
Final Scheduled Distribution Date: With respect to the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes, March 25,
2023.
FNMA: The Federal National Mortgage Association and any successor
thereto.
Foreclosure Advances: As defined in Section 4.08(b).
Foreclosed Loan. As of any date of determination, any Mortgage Loan,
other than a Mortgage Loan for which a claim is pending under the Contract of
Insurance, that has been discharged as a result of (i) the completion of
foreclosure or comparable proceedings; (ii) the Owner Trustee's acceptance of
the deed or other evidence of title to the related Property in lieu of
foreclosure or other comparable proceeding; or (iii) the acquisition by the
Owner Trustee of title to the related Property by operation of law.
Foreclosed Property. With respect to any Mortgage Loan, any Property
acquired by the Trust as a result of:
(i) the completion of foreclosure or comparable proceedings with
respect to the related Mortgage Loan;
(ii) the Co-Owner Trustee's acceptance of the deed or other
evidence of title to the related Property in lieu of foreclosure or
other proceeding with respect to the related Loan; or
(iii) the acquisition by the Co-Owner Trustee of title thereto
by operation of law.
Grant: As defined in the Indenture.
Guaranty Policy. That certain guaranty insurance policy for the Insured
Securities, dated March 10, 1997, and issued by the Securities Insurer to the
Indenture Trustee and guaranteeing payment of any Insured Payment.
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HUD: The United States Department of Housing and Urban Development and
any successor thereto.
Home Loan: An individual Home Loan that is conveyed to the Issuer
pursuant to this Agreement on the Closing Date, together with the rights and
obligations of a holder thereof and payments thereon and proceeds therefrom
received after the Cut-off Date, the Home Loans subject to this Agreement being
identified on the Home Loan Schedule annexed hereto as Exhibit A.
Home Loan File: The Indenture Trustee's Home Loan File and the
Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a
Debt Instrument, as shown on the related Home Loan Schedule (not including any
amounts payable as premium for FHA Insurance with respect to Invoiced Loans).
Home Loan Pool: The pool of Home Loans.
Home Loan Purchase Agreement: The home loan purchase agreement between
the Seller, as seller, and the Depositor, as purchaser, dated as of February 1,
1997.
Home Loan Schedule: The schedule of Home Loans specifying with respect
to each Home Loan, the information set forth on Exhibit A attached hereto, as
amended or supplemented from time to time.
Indemnification Agreement: The Indemnification Agreement, dated as of
March 7, 1997, by and among the Securities Insurer, the Seller and Greenwich
Capital Markets, Inc., as Underwriter.
Indenture: The Indenture, dated as of February 1, 1997, between the
Issuer and the Indenture Trustee.
Indenture Trustee: First Trust of New York, National Association, a
national banking association, as Indenture Trustee under the Indenture and this
Agreement acting on behalf of the Noteholders, or any successor indenture
trustee under the Indenture and this Agreement.
Indenture Trustee Fee: With respect to any Distribution Date, the
greater of (A) one-twelfth of 0.0375% times the Pool Principal Balance of the
Home Loans as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (or, with respect to the
first Distribution Date, the Initial Pool Principal Balance); and (B) $667.
Indenture Trustee's Home Loan File: As defined in Section 2.05.
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Independent. When used with respect to any specified Person, such Person
(i) is in fact independent of Mego, the Master Servicer, the Depositor or any of
their respective affiliates, (ii) does not have any direct financial interest in
or any material indirect financial interest in any of Mego, the Master Servicer,
the Depositor or any of their respective affiliates and (iii) is not connected
with any of Mego, the Master Servicer, the Depositor or any of their respective
affiliates, as an officer, employee, promoter, underwriter, trustee, partner,
director or Person performing similar functions; provided, however, that a
Person shall not fail to be Independent of Mego, the Master Servicer, the
Depositor or any of their respective affiliates merely because such Person is
the beneficial owner of 1% or less of any class of securities issued by Mego,
the Master Servicer, the Depositor or any of their respective affiliates, as the
case may be.
Independent Accountants. A firm of nationally recognized certified
public accountants which is Independent.
Initial Pool Principal Balance: $89,696,622, which is the Pool Principal
Balance as of the Cut-Off Date.
Insurance Agreement: The Insurance Agreement, dated as of February 1,
1997, between the Securities Insurer, Mego, as the Seller, Servicer and Claims
Administrator, Mego Mortgage Home Loan Acceptance Corporation, as affiliated
holder, the Depositor, the Issuer, the Master Servicer, the Indenture Trustee,
as Indenture Trustee, Co-Owner Trustee and Contract of Insurance Holder and
Greenwich Capital Financial Products, Inc.
Insurance Policies. With respect to any Property, any related insurance
policy other than the Contract of Insurance or the Guaranty Policy.
Insurance Proceeds. With respect to any Property, all amounts collected
in respect of Insurance Policies and not required to be applied to the
restoration of the related Property or paid to the related Obligor.
Insurance Record. The record established and maintained by the Claims
Administrator (in a manner consistent with the Title I provisions set forth in
24 C.F.R. Section 201.32) setting forth the FHA insurance coverage attributable
to the FHA Loans hereunder. To the extent consistent with adjustments pursuant
to Title I to the FHA Insurance Coverage Reserve Account, the Insurance Record
shall be reduced by the amount of claims approved for payment by the FHA with
respect to any FHA Loan or Related Series Loan after the date of transfer of the
related FHA reserve account to the Contract of Insurance Holder.
Insured Payment: With respect to the Guaranty Policy, the sum of (i) as
of any Distribution Date, any Deficiency Amount and (ii) any unpaid Preference
Amount.
Insured Securities: Each of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3, the Class A-4 Notes and the Class S Certificates.
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<PAGE> 17
Interest Advance: As defined in Section 4.08(a).
Interest Distribution Amount: On any Distribution Date, the sum of the
Noteholders' Interest Distributable Amount for each Class of Notes and the Class
S Interest Distribution for such Distribution Date.
Invoiced Loan. An FHA Loan with respect to which the related Obligor is
required to pay the premium on FHA Insurance with respect to such FHA Loan.
Issuer: The Trust.
Late Payment Rate. For any Distribution Date, the lesser of (i) the rate
of interest, as it is publicly announced by Citibank, N.A., as its prime rate
(any change in such prime rate of interest to be effective on the date such
change is announced by Citibank, N.A.) plus 2% and (ii) the maximum rate
permissible under any applicable law limiting interest rates. The Late Payment
Rate shall be computed on the basis of a year of 365 days calculating the actual
number of days elapsed.
Majority Securityholders: Subject to Section 12.14, (i) until such time
as the sum of the Class Principal Balances of all Classes of Notes has been
reduced to zero, the holder or holders of in excess of 50% of the Class
Principal Balance of all Classes of Notes (accordingly, the holders of the
Certificates shall be excluded from any rights or actions of the Majority
Securityholders during such period); and (ii) thereafter, the holder or holders
of in excess of 50% of the Percentage Interest of the Residual Interest
Instruments.
Master Servicer. Norwest Bank Minnesota, N.A., a national banking
association, its successors in interest or any successor master servicer
appointed as herein provided.
Master Servicer Certificate: As defined in Section 6.01.
Master Servicer Fee. With respect to any Distribution Date, 1/12 times
0.08% times the Pool Principal Balance as of the opening of business on the
first day of the month preceding the month of such Distribution Date (or, with
respect to the first Distribution Date, the Initial Pool Principal Balance).
Master Servicer Termination Event. Any event specified in Section 10.01.
Master Servicing Officer. Any officer of the Master Servicer responsible
for the administration and servicing of the Home Loans whose name and specimen
signature appears on a list of servicing officers furnished to the Indenture
Trustee by the Master Servicer, as such list may from time to time be amended.
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<PAGE> 18
Maturity Date. With respect to any Home Loan and as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Debt Instrument.
Monthly Cut-Off Date: The last day of any calendar month, and with
respect to any Distribution Date, the last day of the calendar month immediately
preceding such Distribution Date.
Monthly Payment: With respect to any Home Loan and any Due Period, the
payment of principal and interest due in such Due Period from the Obligor
pursuant to the related Debt Instrument (as amended or modified, if applicable,
pursuant to Section 4.10). The Monthly Payment related to a Determination Date
or a Distribution Date shall be the Monthly Payment due for the next preceding
Due Period.
Moody's: Moody's Investors Service, Inc. or any successor thereto.
Mortgage. With respect to any Mortgage Loan, the mortgage, deed of trust
or other instrument creating a mortgage lien (and in a title theory state the
document conveying title to the Property as security for the related Loan) or
other security interest on the related Property.
Mortgage Loan. As of any date of determination, each of the Home Loans,
secured by an interest in a Property, transferred and assigned to the Indenture
Trustee pursuant to Section 2.01(a).
Mortgagee or Obligee. With respect to any Home Loan as of any date of
determination, the holder of the related Debt Instrument and any related
Mortgage as of such date.
Mortgagor or Obligor. With respect to any Home Loan, the obligor(s) on
the related Debt Instrument.
Net Loan Rate. With respect to each Home Loan, the related Home Loan
Interest Rate, less the rate at which the Servicer Fee is calculated.
Net Prepayment Interest Shortfall: As to any Distribution Date, the
amount by which aggregate Prepayment Interest Shortfalls during the preceding
Due Period exceed the Servicer Fee for such Distribution Date.
Non-FHA Loans: The Home Loans designated as Non-FHA Loans on the Home
Loan Schedule.
Nonrecoverable Advances. With respect to any Home Loan, (i) any Interest
Advance previously made and not reimbursed pursuant to Section 5.01(c)(i)(c), or
(ii) an Interest Advance proposed to be made in respect of a Home Loan which, in
the good faith business
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<PAGE> 19
judgment of the Master Servicer, as evidenced by an Officer's Certificate
delivered to the Securities Insurer, Mego and the Indenture Trustee no later
than the Business Day following such determination, would not be recoverable
ultimately from the Payments received in subsequent Due Periods in respect of
that Home Loan.
Note(s): One or more of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes or Class A-4 Notes.
Note Distribution Account: The account established and maintained
pursuant to Section 5.01(a)(2).
Noteholder: A holder of a Note.
Noteholders' Distributable Amount: With respect to any Distribution Date
and each Class of Notes, the sum of the Noteholders' Principal Distributable
Amount and the Noteholders' Interest Distributable Amount.
Noteholders' Guaranteed Principal Distribution Amount. With respect to
any Distribution Date, the positive excess, if any, of (i) the aggregate Class
Principal Balances of the Notes as of such Distribution Date (taking into
account the amount of the distributions required to be distributed pursuant to
Section 5.01(c)(iii) on such Distribution Date) over (ii) the Pool Principal
Balance as of the end of the related Due Period; provided, that on the Final
Scheduled Distribution Date for any Class of Notes, the Noteholders' Guaranteed
Principal Distribution Amount for such Class of Notes shall equal the amount
necessary to reduce the Class Principal Balance thereof to zero (taking into
account the amount of the distributions required to be paid on such Class of
Notes pursuant to Section 5.01(c)(iii) on such Final Scheduled Distribution
Date).
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and each Class of Notes, the sum of (i) excess of (A) the
applicable Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Noteholders' Interest Carry-Forward Amount
for such Class on such preceding Distribution Date, over (B) the amount in
respect of interest that is actually paid on such Class of Notes on such
preceding Distribution Date plus (ii) interest on such excess, to the extent
permitted by law, at the applicable Note Interest Rate from such preceding
Distribution Date through the current Distribution Date.
Noteholders' Interest Distributable Amount: With respect to each
Distribution Date and each Class of Notes, the sum of the applicable
Noteholders' Monthly Interest Distributable Amount and the applicable
Noteholders' Interest Carry-Forward Amount for such Class of Notes, if any, for
such Distribution Date.
Noteholders' Monthly Interest Distributable Amount: With respect to each
Distribution Date and each Class of Notes, the amount of thirty (30) days'
accrued interest at
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<PAGE> 20
the respective Interest Rate for such Class of Notes on the Class Principal
Balance of such Class immediately preceding such Distribution Date (or, in the
case of the first Distribution Date, on the Closing Date) after giving effect to
all payments of principal to the Noteholders of such Class on or prior to the
immediately preceding Distribution Date, in each case reduced by an amount equal
to such Class' pro rata share (based on the amount of interest to which such
Class would have otherwise been entitled) of the sum of (i) Civil Relief Act
Interest Shortfall and (ii) the Net Prepayment Interest Shortfall, if any, in
each case for such Distribution Date.
Noteholders' Monthly Principal Distributable Amount: With respect to
each Distribution Date, the amount equal to the sum of the following amounts
(without duplication) with respect to the immediately preceding Due Period: (i)
that portion of all Payments received on Home Loans allocable to principal,
including all full and partial principal prepayments (excluding such payments in
respect of such Home Loans that became Defaulted Home Loans on or prior to the
end of the preceding Due Period), (ii) the Principal Balance as of the end of
the immediately preceding Due Period of each Home Loan that became a Defaulted
Home Loan for the first time during the such Due Period, (iii) the portion of
the Purchase Price allocable to principal of all Defective Loans with respect to
such Due Period and the portion of the purchase amount, if any, set forth in
11.01(b) allocable to principal with respect to the Home Loans, (iv) any
Substitution Adjustments deposited to the Note Distribution Account pursuant to
Section 3.05 on the previous Determination Date, and (v) the amount of
Distributable Excess Spread, if any, in respect of such Distribution Date.
Noteholders' Principal Distributable Amount: With respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carry-Forward
Amount as of the close of the preceding Distribution Date; provided, however,
that the Noteholders' Principal Distributable Amount on any Distribution Date
shall not exceed the outstanding principal balance of the Notes; and provided,
further, that (i) the Noteholders' Principal Distributable Amount on the Class
A-1 Final Scheduled Distribution Date shall not be less than the amount that is
necessary (after giving effect to other amounts to be deposited in the Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the outstanding Class Principal Balance of the Class A-1 Notes to zero;
(ii) the Noteholders' Principal Distributable Amount on the Class A-2 Final
Scheduled Distribution Date shall not be less than the amount that is necessary
(after giving effect to other amounts to be deposited in the Note Distribution
Account on such Distribution Date and allocable to principal) to reduce the
outstanding Class Principal Balance of the Class A-2 Notes to zero, (iii) the
Noteholders' Principal Distributable Amount on the Class A-3 Final Scheduled
Distribution Date shall not be less than the amount that is necessary (after
giving effect to other amounts to be deposited in the Note Distribution Account
on such Distribution Date and allocable to principal) to reduce the outstanding
Class Principal Balance of the Class A-3 Notes to zero, and (iv) the
Noteholders' Principal Distributable Amount on the Class A-4 Final Scheduled
Distribution Date shall not be less than the amount that is necessary (after
giving effect to other amounts to be deposited in the
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<PAGE> 21
Note Distribution Account on such Distribution Date and allocable to principal)
to reduce the outstanding Class Principal Balance of the Class A-4 Notes to
zero.
Noteholders' Principal Carry-Forward Amount: As of the close of any
Distribution Date, the excess of (A) the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carry-Forward
Amount from the preceding Distribution Dates, over (B) the amount in respect of
principal that is actually paid on the Notes on such preceding Distribution
Date.
Note Interest Rate: With respect to each Class of Notes, the per annum
rate of interest payable to the holders of such Class of Notes. The Note
Interest Rate with respect to the Class A-1 Notes is equal to 6.57% per annum;
the Note Interest Rate with respect to the Class A-2 Notes is equal to 6.75% per
annum; and the Note Interest Rate with respect to the Class A-3 Notes is equal
to 6.94% per annum; and the Note Interest Rate with respect to Class A-4 Notes
is equal to 7.33% per annum.
Note Register: The register established pursuant to Section 2.3 of the
Indenture.
Obligee: See Mortgagee.
Obligor: See Mortgagor.
OC Floor: The product of 1% times the Initial Pool Principal Balance,
which product is equal to $896,966.
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<PAGE> 22
OC Multiple. As to any Distribution Date, the highest OC Multiple based
upon the data set forth in the Master Servicer's Certificate for such
Distribution Date as set forth in the following chart:
<TABLE>
<CAPTION>
30+ Day 60+ Day Annual Default
OC Delinquency Percentage Delinquency Percentage %
Multiple (Rolling 3 Month) (Rolling 3 Month) (3 Month Average)
-------- --------------------- ---------------------- -----------------
<S> <C> <C> <C>
1.00 0.00% to 7.99% 0.00% to 3.49% 0.00% to 4.99%
1.25 8.00% to 8.99% 3.50% to 4.99% 5.00% to 5.99%
1.50 9.00% to 11.99% 5.00% to 6.99% 6.00% to 6.99%
2.50 **=12.00% **=7.00% **=7.00%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE DEFAULT PERCENTAGE
-----------------------------------------------------------------------------
Months* Months 0 Months
012 024 Maturity
-------- --------------------- ---------------------- -----------------
<S> <C> <C> <C>
2.50 **5.0% **8.0% **12.0%
</TABLE>
- ----------
* Month 0 is March, 1997.
** Greater Than
OC Reduction Date. shall be the later of (i) the Distribution Date
occurring in April 2000 and (ii) the Distribution Date on which the Pool
Principal Balance of the Home Loans for such Distribution Date is equal to or
less than one-half of the Initial Pool Principal Balance provided, no OC
Reduction Date shall occur if there has been an OC Multiple greater than 1.00 on
any of the three (3) previous Distribution Dates.
Officer's Certificate: A certificate signed by (i) any Master Servicing
Officer or (ii) the Chairman of the Board, the Vice Chairman of the Board, the
President, a Vice President, an Assistant Vice President, the Treasurer, the
Secretary or one of the Assistant Treasurers or Assistant Secretaries of the
Depositor or Mego, as the case may be, as required by this Agreement.
Opinion of Counsel. A written opinion of counsel (who is acceptable to
the Securities Insurer and the Rating Agencies), who may be employed by Mego,
the Master Servicer, the Depositor or any of their respective affiliates.
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<PAGE> 23
Original Class Principal Balance: In the case of the Class A-1 Notes,
$23,300,000; in the case of the Class A-2 Notes, $25,950,000; in the case of the
Class A-3 Notes, $10,300,000; and in the case of the Class A-4 Notes,
$26,603,605.
Other Fees. With respect to any Distribution Date, (i) amounts in
respect of fees and expenses due to any provider of services to the Trust,
except the Indenture Trustee, the Master Servicer, the Servicer, the Claims
Administrator, the Contract of Insurance Holder and also except any Person, the
fees of which are required by this Agreement to be paid by the Master Servicer,
the Servicer, the Claims Administrator, the Contract of Insurance Holder or the
Trustee, but including such amounts payable to the successor Master Servicer
pursuant to Section 10.03(c); (ii) any taxes assessed against the Trust; and
(iii) the reasonable transition expenses of a successor Master Servicer incurred
in acting as successor Master Servicer.
Overcollateralization Amount: As of any Distribution Date the amount, if
any, by which the Pool Principal Balance as of the end of the related Due Period
exceeds the Class Principal Balances of the Notes after giving effect to
payments of principal to be made on such Distribution Date.
Ownership Interest: As to any Security, any ownership or security
interest in such Security, including any interest in such Security as the holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial, as owner or as pledgee.
Owner Trustee: Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor owner trustee under the Trust Agreement.
Owner Trustee Fee: The annual fee of $4,000 payable to the Owner Trustee
on the Distribution Date occurring in March each year during the term of this
Agreement commencing in March 1998; provided that the initial Owner Trustee Fee
shall be paid on the Closing Date.
Payment: With respect to any Home Loan or the related Foreclosed
Property and any Determination Date, all amounts received or collected on
account of principal and interest by or on behalf of the Master Servicer during
the preceding Due Period in respect of such Home Loan or Foreclosed Property
from whatever source, including without limitation, amounts received or
collected from, or representing:
(i) the related Obligor;
(ii) the application to amounts due on such Home Loan (or, in
the case of any Foreclosed Property, to amounts previously due on the
related Foreclosed Loan) of any related Insurance Proceeds, any related
condemnation awards or settlements or any payments made by any related
guarantor or third-party credit-support provider;
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<PAGE> 24
(iii) FHA Insurance Payment Amounts with respect to such Home
Loan;
(iv) the operation or sale of the related Foreclosed Property;
(v) the Purchase Price with respect to such Home Loan; or
(vi) amounts deposited into the Note Distribution Account
pursuant to Section 11.01(b);
provided, however, that any amount the Servicer shall be entitled to retain as
additional servicer compensation pursuant to Section 6.05(a) of the Servicing
Agreement shall be excluded from the calculation of Payment.
Percentage Interest: As defined in the Trust Agreement.
Permitted Investments: Each of the following:
(a) Direct obligations of the United States of America (including
obligations issued or held in book-entry form on the books of the Department of
the Treasury, and CATS and TIGRS) or obligations the principal of and interest
on which are unconditionally guaranteed by the United States of America.
(b) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped by
the agency itself):
1. U.S. Export-Import Bank (Eximbank)
A. Direct obligations or fully guaranteed
certificates of beneficial ownership
2. Farmers Home Administration (FmHA) A. Certificates of
beneficial ownership
3. Federal Financing Bank
4. Federal Housing Administration (FHA)
A. Debentures
5. General Services Administration
A. Participation certificates
6. U.S. Maritime Administration
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<PAGE> 25
A. Guaranteed Title XI financing
7. U.S. Department of Housing and Urban Development (HUD)
A. Project Notes
B. Local Authority Bonds
C. New Communities Debentures - U.S. government
guaranteed debentures
D. U.S. Public Housing Notes and Bonds - U.S.
government guaranteed public housing notes and
bonds
(c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies that are rated by both Rating Agencies in one of the top two
long-term rating categories (stripped securities are only permitted if they have
been stripped by the agency itself):
1. Federal Home Loan Bank System
A. Senior debt obligations
2. Federal Home Loan Mortgage Corporation (FHLMC)
A. Participation Certificates
B. Senior debt obligations
3. Federal National Mortgage Association (FNMA)
A. Mortgage-backed securities and senior debt
obligations
4. Student Loan Marketing Association
A. Senior debt obligations
5. Resolution Funding Corp. obligations
6. Farm Credit System
A. Consolidated systemwide bonds and notes
(d) Money market funds registered under the Investment Company
Act of 1940, as amended, whose shares are registered under the Securities Act,
and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm and a rating by
Moody's of Aaa.
(e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1. The collateral must be held by a
third party and the Indenture Trustee must have a perfected first security
interest in the collateral.
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<PAGE> 26
(f) Certificates of deposit, savings accounts, deposit accounts
or money market deposits which are fully insured by FDIC, including BIF and
SAIF.
(g) Investment agreements, including guaranteed investment
contracts, acceptable to the Securities Insurer and each Rating Agency.
(h) Commercial paper rated "Prime - 1" by Moody's and "A-1" or
better by Standard & Poor's.
(i) Bonds or notes issued by any state or municipality which are
rated by Moody's and Standard & Poor's in one of the two highest long term
rating categories assigned by such agencies.
(j) Federal funds or bankers acceptances with a maximum term of
one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by S&P.
(k) Repurchase agreements providing for the transfer of
securities from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm will
repay the cash plus a yield to the Trust in exchange for the securities at a
specified date.
Repurchase agreements ("repos") must satisfy the following
criteria or be approved by the Securities Insurer.
1. Repos must be between the Trust and a dealer bank or
securities firm which are:
A. Primary dealers on the Federal Reserve reporting
dealer list which are rated A or better by
Standard & Poor's and P-1 by Moody's, or
B. Banks rated "A" or above by Standard & Poor's
and P-1 by Moody's.
2. The written repo contract trust must include the
following:
A. Securities which are acceptable for transfer
are:
(1) Direct U.S. governments, or
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<PAGE> 27
(2) Federal agencies backed by the full
faith and credit of the U.S. government
(or FNMA or FHLMC) other than mortgage
backed securities.
B. The term of the repo may be up to 30 days
C. The collateral must be delivered to the
Indenture Trustee or third party acting as agent
for the Indenture Trustee before/simultaneous
with payment (perfection by possession of
certificated securities).
D. Valuation of Collateral
(1) The securities must be valued weekly,
marked-to-market at current market price
plus accrued interest.
(a) The value of collateral must be equal to
104% of the amount of cash transferred
by the Trust to the dealer bank or
security firm under the repo plus
accrued interest. If the value of
securities held as collateral slips
below 104% of the value of the cash
transferred by the Trust, then
additional cash and/or acceptable
securities must be transferred. If,
however, the securities used as
collateral are FNMA or FHLMC, then the
value of collateral must equal 105%.
3. Legal opinion which must be delivered to the Indenture
Trustee:
a. Repo meets guidelines under state law for legal
investment of public funds.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to Standard & Poor's and
Moody's.
Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
sum of the Principal Balances for all Home Loans.
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<PAGE> 28
Preference Amount: Any amount previously distributed to the holder of an
Insured Security that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code, in accordance with a final, non-appealable order of a court having
competent jurisdiction.
Premium: The premium, payable monthly, that is specified in the
Commitment Letter issued by the Securities Insurer with respect to the Notes and
the Certificates.
Prepayment Interest Shortfall: As to any Home Loan and Principal
Prepayment, the amount by which one month's interest at the related Home Loan
Interest Rate (or such lower rate as may be in effect from a Home Loan because
of the application of the Civil Relief Act) minus the rate at which the
Servicing Fee is calculated on such Principal Prepayment exceeds the amount of
interest paid by the Mortgagor in connection with such Principal Prepayment.
Principal Balance: With respect to any Home Loan, and for any date of
determination, the Principal Balance of such Home Loan as of the Cut-Off Date
reduced by all amounts previously received or collected in respect of principal
on such Home Loan on or subsequent to the Cut-Off Date for such Home Loan;
provided, that with respect to any Defaulted Home Loan, the Principal Balance
shall be zero immediately after the Due Period in which such Home Loan becomes a
Defaulted Home Loan.
Principal Prepayment: Any payment or other receipt of principal in full
due on a Home Loan made by an Obligor which is received in advance of the
scheduled Maturity Date of such Home Loan.
Property: The property (real, personal or mixed) encumbered by the
Mortgage which secures the Debt Instrument evidencing a secured Home Loan.
Prospectus: The Depositor's final Prospectus, dated March 7, 1997, as
supplemented by the Prospectus Supplement.
Prospectus Supplement: The Prospectus Supplement dated as of March 7,
1997, prepared by the Seller and the Depositor in connection with the issuance
and sale of the Securities.
Purchase Price: With respect to a Home Loan, means the Principal Balance
of such Home Loan as of the date of purchase, plus unpaid accrued interest at
the related Home Loan Interest Rate to the last day of the month in which such
purchase occurs (without regard to any Interest Advance that may have been made
with respect to such Home Loan).
Qualified Substitute Home Loan: A Home Loan: (i) having characteristics
such that the representations and warranties made pursuant to Section 3.03(b)
with respect to the Home Loans are true and correct as of the date of
substitution with respect to such Loan; (ii) each Monthly Payment with respect
to such Home Loan shall be greater than or equal to the
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<PAGE> 29
Monthly Payments due in the same Due Period on the Loan for which such Qualified
Substitute Home Loan is being substituted; (iii) the Maturity Date with respect
to such Home Loan shall be no later than the Maturity Date of the Loan for which
such Qualified Substitute Home Loan is being substituted; (iv) as of the date of
substitution, the Principal Balance of such Home Loan is less than or equal to
(but not more than 1% less than) the Principal Balance of the Home Loan for
which such Qualified Substitute Home Loan is being substituted; (v) the Home
Loan Interest Rate with respect to such Home Loan is at least equal to the Home
Loan Interest Rate of the Home Loan for which such Qualified Substitute Home
Loan is being substituted and (vi) the FICO score for such Home Loan must not be
less than ten points of the FICO score for such Home Loan for which such
Qualified Substitute Home Loan is being substituted; provided however, in the
event more than one Qualified Substitute Home Loan is being substituted for one
or more Defective Home Loans on any date, in which case (i) the weighted average
Home Loan Interest Rate for such Qualified Substitute Home Loans must equal or
exceed the weighted average Home Loan Interest Rate of the Defective Home Loans
immediately prior to giving effect to the substitution, in each case weighted on
the basis of the outstanding Principal Balance of such loans as of such day,
(ii) the sum of the Monthly Payments with respect to such Qualified Substitute
Home Loans shall be greater than or equal to the Monthly Payments due in the
same Due Period on the Defective Home Loans for which a substitution is being
made, and (iii) as of the date of substitution, the aggregate Principal Balances
of such Qualified Substitute Home Loans are less than or equal to (but not more
than 1% less than) the aggregate Principal Balances of the Defective Home Loans
for which such a substitution is being made.
Rating Agency or Rating Agencies: Either or both of (i) Standard &
Poor's, or (ii) Moody's, provided that when the terms Rating Agency or Rating
Agencies are used in reference to the Insured Securities, such terms shall mean
one or both of Standard & Poor's or Moody's. If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person designated
by the Issuer and approved by the Securities Insurer, notice of which
designation shall have been given to the Indenture Trustee, the Securities
Insurer, the Issuer and the Master Servicer.
Ratings: The ratings initially assigned to the Notes and the
Certificates by the Rating Agencies, as evidenced by letters from the Rating
Agencies.
Record Date: With respect to each Distribution Date, the close of
business on the last Business Day of the month immediately preceding the month
in which such Distribution Date occurs.
Rejected Claim. With respect to any FHA Loan, a claim for payment made
to the FHA under the Contract of Insurance that has been finally rejected after
all appeals with FHA have been exhausted for any reason (including a rejection
of a previously paid claim and a demand by the FHA of a return of the FHA
Insurance Payment Amount for the related FHA Loan) other than a refusal or
rejection due to clerical error in computing the claim amount or
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<PAGE> 30
because the amount of the FHA Insurance Coverage Reserve Account as shown in the
Insurance Record is zero.
Related Series. Means (i) the Trust, (ii) Mego Mortgage Home Loan Trust
1996-3, (iii) Mego Mortgage FHA Title I Loan Trust 1996-2, (iv) Mego Mortgage
FHA Title I Loan Trust 1996-1, and (v) each of the subsequent series of trusts,
of which the Indenture Trustee is the trustee and the Securities Insurer is the
certificate insurer, to which Related Series Loans are sold directly or
indirectly by Mego, established pursuant to pooling and servicing agreements.
Related Series Loans. Means FHA Title I loans included in the Related
Series which: (i) are sold by Mego, directly or indirectly, to a trust and (ii)
the Title I insurance coverage attributable to which is made available to cover
claims with respect to the FHA Loans and the Related Series Loans in each other
Related Series by virtue of terms relating to the administration of the FHA
Insurance Coverage Reserve Account substantially similar to the terms hereof.
Required OC Amount: With respect to each Distribution Date, the greater
of (a) the OC Floor or (b) the product of (i) the OC Multiple for such
Distribution Date and (ii)(x) if such Distribution Date is prior to the OC
Reduction Date, the product of 7.90% and the Initial Pool Principal Balance, or
(y) if such Distribution Date is on or after the OC Reduction Date, the lesser
of (A) the product of 7.90% times the Initial Pool Principal Balance and (B) the
product of 15.80% times the Pool Principal Balance of the Home Loans as of such
Distribution Date, or such lower amount as may be established by the Securities
Insurer in its sole discretion after notice to and written approval by the
Rating Agencies.
Residual Interest Instruments: The Certificates representing the
interest which represents the right to the amount remaining, if any, after all
prior distributions have been made under this Agreement, the Indenture and the
Trust Agreement on each Distribution Date and certain other rights to receive
amounts hereunder and under the Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer in the
Corporate Trust Administration Department of the Owner Trustee with direct
responsibility for the administration of the Trust Agreement and this Agreement
on behalf of the Issuer. When used with respect to the Depositor, the Seller,
the Master Servicer, or the Custodian, the President or any Vice President,
Assistant Vice President, or any Secretary or Assistant Secretary.
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SAIF. The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Securities: The Notes and/or the Certificates, as applicable.
Securities Act. The Securities Act of 1933, as amended.
Securities Insurer: MBIA Insurance Corporation, as issuer of the
Guaranty Policy, and its successors and assigns.
Securities Insurer Commitment: As defined in Section 3.04(a) hereof.
Securities Insurer Default: The existence and continuance of any of the
following:
(a) the Securities Insurer fails to make a payment
required under the Guaranty Policy in accordance with its terms;
or
(b) (i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the
Securities Insurer in an involuntary case or proceeding under
any applicable United States federal or state bankruptcy,
insolvency, rehabilitation, reorganization or other similar law
or (B) a decree or order adjudging the Securities Insurer a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, rehabilitation, arrangement, adjustment
or composition of or in respect of the Securities Insurer under
any applicable United States federal or state law, or appointing
a custodian, receiver, liquidator, rehabilitator, assignee,
trustee, sequestrator or other similar official of the
Securities Insurer or of any substantial part of its property,
or ordering the winding-up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period
of 60 consecutive days; or (ii) the commencement by the
Securities Insurer of a voluntary case or proceeding under any
applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Securities Insurer to the entry of a decree
or order for relief in respect of the Securities Insurer in an
involuntary case or proceeding under any applicable United
States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Securities Insurer, or
the filing by the Securities Insurer of a petition or answer or
consent seeking reorganization or relief under any applicable
United States federal or state law, or the consent by the
Securities Insurer to the filing of
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such petition or to the appointment of or the taking possession
by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Securities Insurer or of
any substantial part of its property, or the making by the
Securities Insurer of an assignment for the benefit of its
creditors, or the failure by the Securities Insurer to pay debts
generally as they become due, or the admission by the Securities
Insurer in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the
Securities Insurer in furtherance of any such action.
Securities Insurer Reimbursement Amount: As of any Distribution Date,
the sum of (x) (i) Insured Payments previously received by the Indenture Trustee
and not previously repaid to the Securities Insurer pursuant to Section 5.03(c)
hereof plus (ii) interest accrued on such Insured Payment not previously repaid
calculated at the Late Payment Rate from the date the Indenture Trustee received
such Insured Payment and (y) (i) the amount of any Premium not paid on the date
due and (ii) interest on such amount at the Late Payment Rate. The Securities
Insurer shall notify the Indenture Trustee and the Owner Trustee of the amount
of any Securities Insurer Reimbursement Amount.
Securityholder: A holder of a Note or Certificate, as applicable;
provided that the exercise of any rights by such holder shall be subject to
Section 12.14.
Seller: Mego, in its capacity as the transferor hereunder.
Series or Series 1997-1: Mego Mortgage Home Loan Asset Backed
Securities, Series 1997-1.
Servicer: Mego, in its capacity as the servicer hereunder, or any other
Eligible Servicer with whom the Master Servicer has entered into a Servicing
Agreement pursuant to Section 4.02.
Servicer Fee. With respect to any Distribution Date, 1/12 times 1.00%
times the Pool Principal Balance, as of the opening of business on the first day
of the month preceding the month of such Distribution Date (or, with respect to
the first Distribution Date, the Initial Pool Principal Balance), reduced by the
aggregate Prepayment Interest Shortfall for the related Due Period.
Servicer Review Report. As defined in Section 4.05(d).
Servicer Termination Event. With respect to the Servicing Agreement, the
events specified in Section 7.02 therein.
Servicer's Home Loan Files: As defined in Section 2.05(b).
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Servicing Agreement: The servicing agreement dated as of February 1,
1997 between Mego, as Servicer, the Master Servicer, the Indenture Trustee and
the Trust and any other agreement entered into in accordance with Section 4.02.
Standard & Poor's: Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
Servicing Record. The records for each Home Loan maintained by the
Master Servicer pursuant to Section 4.03.
Servicing Standard. The standard set forth in Section 4.01(a).
60+ Day Delinquent Loan. With respect to any Determination Date or
related Distribution Date, a Home Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 61 days or more past due (without giving effect
to any grace period) and unpaid by the Obligor.
60+ Delinquency Percentage (Rolling Three Month). With respect to any
Determination Date, the average of the percentage equivalents of the fractions
determined for each of the three immediately preceding Due Periods the numerator
of each of which is equal to the aggregate Principal Balance of Home Loans that
are 60+ Day Delinquent Loans as of the end of such Due Period and the
denominator of which is the Pool Principal Balance as of the end of such Due
Period.
Substitution Adjustment Amount: The meaning assigned to such term in
Section 3.05.
Substitution Date: As defined in Section 3.05.
Termination Date: The earlier of (a) the Distribution Date in March 2023
and (b) the Distribution Date next following the Monthly Cut-Off Date coinciding
with or next following the date of the liquidation or disposition of the last
asset held by the Trust pursuant to Sections 4.13 or 11.01.
30+ Day Delinquent Loan. With respect to any Determination Date or
related Distribution Date, a Home Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 31 days or more past due (without giving effect
to any grace period) and unpaid by the Obligor.
30+ Delinquency Percentage (Rolling Three Month). With respect to any
Determination Date, the average of the percentage equivalents of the fractions
determined for each of the three immediately preceding Due Periods the numerator
of which is equal to the aggregate Principal Balance of Home Loans that are 30+
Day Delinquent Loans as of the end
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of such Due Period, and the denominator of which is the Pool Principal Balance
of the Home Loans as of the end of such Due Period.
Title Document. The evidence of title to or ownership of the Property
required by Title I. (See 24 C.F.R. 201.26(a)(1) and 201.20).
Title I. Section 2 of Title I of the National Housing Act of 1934, as
amended, and the rules and regulations promulgated thereunder as each may be
amended from time to time and any successor statute, rules or regulations
thereto.
Transaction Documents. This Agreement, the Home Loan Purchase Agreement,
the Trust Agreement, the Servicing Agreement, the Custodial Agreement, the
Indenture, the Administration Agreement, the Insurance Agreement and the
Indemnification Agreement.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in any Trust Account and all proceeds of the foregoing.
Trust Accounts: The Note Distribution Account, the Certificate
Distribution Account, the Collection Account and the FHA Premium Account.
Trust Agreement: The Trust Agreement dated as of February 1, 1997, among
the Depositor, the Co-Owner Trustee, the Owner Trustee and Mego Mortgage
Corporation.
Trust Designated Insurance Amount: $2,194,698 or such greater amount
approved in advance in writing by the Securities Insurer.
Trust Estate: The assets subject to this Agreement, the Trust Agreement
and the Indenture and assigned to the Indenture Trustee, which assets consist
of: (i) such Home Loans as from time to time are subject to this Agreement,
including Qualified Substitute Home Loans added to the Trust from time to time,
together with the Servicer's Home Loan Files and the Indenture Trustee's Home
Loan Files relating thereto and all proceeds thereof, (ii) the Mortgages and
security interests in Properties, (iii) all payments received on or with respect
to the Home Loans after the applicable Cut-Off Date, (iv) the rights to FHA
Insurance reserves attributable to the FHA Loans as of the Cut-Off Date, (v)
such assets as from time to time are identified as Foreclosed Property, (vi)
such assets and funds as are from time to time deposited in the Collection
Account, the Note Distribution Account, the Certificate Distribution Account and
the FHA Reserve Account, including amounts on deposit in such accounts which are
invested in Permitted Investments, (vii) the Issuer's rights under the Insurance
Policies and any Insurance Proceeds, and (viii) all right, title and interest of
the Depositor in and to the obligations of the Seller under the Home Loan
Purchase Agreement in which the Depositor acquired the Home Loans from the
Seller.
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Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture and the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03 Interest Calculations.
All calculations of accrued interest on the Home Loans, the Notes, the
Certificates and accrued fees shall be made on the basis of a 360-day year
consisting of twelve 30-day months.
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ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes and Certificates to the Depositor or its designee, upon the order of
the Depositor, the Depositor, as of the Closing Date and concurrently with the
execution and delivery hereof, does hereby sell, transfer, assign, set over and
otherwise convey to the Issuer, without recourse, but subject to the other terms
and provisions of this Agreement, all of the right, title and interest of the
Depositor in and to the Trust Estate. The foregoing sale, transfer, assignment,
set over and conveyance does not and is not intended to result in a creation or
an assumption by the Issuer of any obligation of the Depositor, the Seller or
any other person in connection with the Trust Estate or under any agreement or
instrument relating thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it
of the Trust Estate, including from the Depositor all right, title and interest
of the Depositor in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer, and the acceptance of which is made in good faith
and without notice or knowledge of any adverse claims or liens. Concurrently
with such delivery and in exchange therefor, the Issuer has pledged to the
Indenture Trustee the Trust Estate and the Indenture Trustee, pursuant to the
written instructions of the Issuer, has executed and caused to be authenticated
and delivered the Notes to the Depositor or its designee, upon the order of the
Issuer. In addition, concurrently with such delivery and in exchange therefor,
the Owner Trustee, pursuant to the instructions of the Depositor, has executed
(not in its individual capacity, but solely as Owner Trustee on behalf of the
Issuer) and caused to be authenticated and delivered the Certificates to the
Depositor or its designee, upon the order of the Depositor.
Section 2.02 Reserved.
Section 2.03 Ownership and Possession of Home Loan Files.
Upon the issuance of the Securities, with respect to the Home Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of the
related Servicer's Home Loan File and the Indenture Trustee's Home Loan File
shall be vested in the Owner Trustee and the Co-Owner Trustee and pledged to the
Indenture Trustee for the benefit of the Noteholders and the Securities Insurer,
although possession of the Servicer's Home Loan Files (other than items required
to be maintained in the Indenture Trustee's Home Loan Files) on behalf of and
for the benefit of the Securityholders and the Securities Insurer shall remain
with Mego, and the Custodian shall take possession of the Indenture Trustee's
Home Loan Files as contemplated in Section 2.06.
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Section 2.04 Books and Records.
The sale of each Home Loan shall be reflected on the Depositor's or the
Seller's, as the case may be, balance sheets and other financial statements as a
sale of assets by the Depositor or the Seller, as the case may be, under
generally accepted accounting principles ("GAAP"). The Master Servicer shall
maintain, or cause to be maintained pursuant to Section 4.03, a complete set of
books and records for each Home Loan which shall be clearly marked to reflect
the ownership of each Home Loan by the Owner Trustee and the Co-Owner Trustee
and the pledge to the Indenture Trustee for the benefit of the Securityholders
and the Securities Insurer.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Home
Loans and the other property specified in Section 2.01(a) from the Depositor to
the Trust and such property shall not be property of the Depositor. If the
assignment and transfer of the Home Loans and the other property specified in
this Section 2.01(a) to the Owner Trustee and Co-Owner Trustee pursuant to this
Agreement or the conveyance of the Home Loans or any of such other property to
the Owner Trustee and Co-Owner Trustee is held or deemed not to be a sale or is
held or deemed to be a pledge of security for a loan, the Depositor intends that
the rights and obligations of the parties shall be established pursuant to the
terms of the Agreement and that, in such event, (i) the Depositor shall be
deemed to have granted and does hereby grant to the Owner Trustee and Co-Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Home Loans and all other property
conveyed to the Owner Trustee and Co-Owner Trustee pursuant to Section 2.01 and
all proceeds thereof, and (ii) this Agreement shall constitute a security
agreement under applicable law. Within five days of the Closing Date, the
Depositor shall cause to be filed UCC-1 financing statements naming the Owner
Trustee and Co-Owner Trustee as "secured parties" and describing the Home Loans
being sold by the Depositor to the Trust with the office of the Secretary of
State of the State in which the Depositor is located.
Section 2.05 Delivery of Home Loan Documents.
(a) With respect to each Home Loan, on the Closing Date the Seller and
the Depositor have delivered or caused to be delivered to the Custodian as the
designated agent of the Indenture Trustee each of the following documents
(collectively, the "Indenture Trustee's Home Loan Files"):
(i) The original Debt Instrument, showing a complete chain of
endorsements or assignments from the named payee to the Trust and
endorsed as follows: "Pay to the order of First Trust of New York,
National Association, as Indenture Trustee and Co-Owner Trustee for Mego
Mortgage Home Loan Owner Trust 1997-1, without recourse";
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(ii) If such Home Loan is a Mortgage Loan, the original Mortgage
with evidence of recording indicated thereon (except that a true copy
thereof certified by an appropriate public official may be substituted);
provided, however, that if the Mortgage with evidence of recording
thereon cannot be delivered concurrently with the execution and delivery
of this Agreement solely because of a delay caused by the public
recording office where such Mortgage has been delivered for recordation,
there shall be delivered to the Indenture Trustee a copy of such
Mortgage certified as a true copy in an Officer's Certificate which
shall certify that such Mortgage has been delivered to the appropriate
public recording office for recordation, and there shall be promptly
delivered to the Indenture Trustee such Mortgage with evidence of
recording indicated thereon upon receipt thereof from the public
recording official (or a true copy thereof certified by an appropriate
public official may be delivered to the Indenture Trustee);
(iii) If such Home Loan is a Mortgage Loan, the original
Assignment of Mortgage, in recordable form. Such assignments may be
blanket assignments, to the extent such assignments are effective under
applicable law, for Mortgages covering Mortgaged Properties situated
within the same county. If the Assignment of Mortgage is in blanket form
an assignment of Mortgage need not be included in the individual Home
Loan File;
(iv) If such Home Loan is a Mortgage Loan, all original
intermediate assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Indenture
Trustee, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with evidence
of recording thereon cannot be delivered concurrently with the execution
and delivery of this Agreement solely because of a delay caused by the
public recording office where such assignments of Mortgage have been
delivered for recordation, there shall be delivered to the Indenture
Trustee a copy of each such assignment of Mortgage certified as a true
copy in an Officer's Certificate of Mego, which shall certify that each
such assignment of Mortgage has been delivered to the appropriate public
recording office for recordation, and there shall be promptly delivered
to the Indenture Trustee such assignments of Mortgage with evidence of
recording indicated thereon upon its receipt thereof from the public
recording official (or true copies thereof certified by an appropriate
public official may be delivered to the Indenture Trustee);
(v) An original of each assumption or modification agreement, if
any, relating to such Home Loan.
(b) With respect to each Home Loan, on the Closing Date, the Seller and
the Depositor have delivered or caused to be delivered to Mego, as the
designated agent of the Indenture Trustee each of the following documents
(collectively, the "Servicer's Home Loan
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Files"): (A) If such Home Loan is an FHA Loan, an original or copy of notice
signed by the Obligor acknowledging HUD insurance, (B) an original or copy of
truth-in-lending disclosure, (C) an original or copy of the credit application,
(D) an original or copy of the consumer credit report, (E) an original or copy
of verification of employment and income, or verification of self-employment
income, (F) if such Home Loan is an FHA Loan, an original or copy of evidence of
the Obligor's interest in the Property, (G) an original or copy of contract of
work or written description with cost estimates, (H)(i) if such Home Loan is an
FHA Loan either (a) an original or copy of the completion certificate or an
original or copy of notice of non-compliance, if applicable or (b) an original
or copy of report of inspection of improvements to the Property or an original
or copy of notice of non-compliance, if applicable, or (ii) if such Home Loan is
a Non-FHA Loan in respect of a home improvement, an original or copy of report
of inspection of improvements to the Property, (I) to the extent not included in
(C), an original or a copy of a written verification that the Mortgagor at the
time of origination was not more than 30 days delinquent on any senior mortgage
or deed of trust on the Property, (J) (i) if such Home Loan is an FHA Loan for
which an appraisal is required pursuant to the applicable regulations, an
original or a copy of an appraisal of the Property as of the time of origination
of such FHA Loan or (ii) if such Home Loan is a Non-FHA Loan and secured by a
Mortgage, (a) if the original principal balance is greater than $25,000 but less
than $50,000, a copy of the HUD-1 or HUD 1-A Closing Statement indicating the
sale price, or an existing Uniform Residential Appraisal Report, or a Drive-by
Appraisal documented on Freddie Mac form 704, or a tax assessment, or (b) if the
original principal balance exceeds $50,000, a full Uniform Residential Appraisal
Report prepared by a national appraisal firm, (K) an original or a copy of a
title search as of the time of origination with respect to the Property, and (L)
if such Home Loan is an FHA Loan, any other documents required for the
submission of a claim with respect to such FHA Loan to the FHA.
(c) Mego, at the direction of the Depositor, concurrently with the
execution and delivery hereof, has delivered to the Indenture Trustee cash in an
amount equal to (i) the accrued annual FHA premium due on each FHA Loan to the
applicable Cut-Off Date, and (ii) the amount of FHA premium collected in respect
of the Invoiced Loans after the applicable Cut-Off Date. The Indenture Trustee
shall distribute the amount referred to in clause (i) of the previous sentence
into the FHA Premium Account and shall distribute the amount referred to in
clause (ii) of the previous sentence into the Note Distribution Account.
(d) The Indenture Trustee shall cause the Custodian to take and maintain
continuous physical possession of the Indenture Trustee's Home Loan Files in the
State of Minnesota, and in connection therewith, shall act solely as agent for
the holders of the Securities and the Securities Insurer in accordance with the
terms hereof and not as agent for Mego or any other party.
(e) In addition to the documents delivered to the Indenture Trustee
pursuant to Section 2.01, on or prior to the Closing Date, the Guaranty Policy
will be delivered to the
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Indenture Trustee for the benefit of the Holders of the Securities (other than
the holders of the Residual Interest Instruments).
(f) Within 60 days of the Closing Date, Mego, at its own expense, shall
cause the Indenture Trustee to record each Assignment of Mortgage (which may be
a blanket assignment if permitted by applicable law) in the appropriate real
property or other records; provided, however, the Indenture Trustee need not
cause to be recorded any such Assignment of Mortgage which relates to a Mortgage
Loan in any jurisdiction under the laws of which, as evidenced by an Opinion of
Counsel delivered by Mego (at Mego's expense) to the Indenture Trustee, the
Securities Insurer and the Rating Agencies, the recordation of such Assignment
of Mortgage is not necessary to protect the Indenture Trustee's interest in the
related Mortgage Loan. With respect to any Assignment of Mortgage as to which
the related recording information is unavailable within 60 days following the
Closing Date, such Assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Indenture Trustee shall be required to retain a
copy of each Assignment of Mortgage submitted for recording. In the event that
any such Assignment of Mortgage is lost or returned unrecorded because of a
defect therein, Mego shall promptly prepare a substitute Assignment of Mortgage
or cure such defect, as the case may be, and thereafter the Indenture Trustee
shall be required to submit each such Assignment of Mortgage Loan for recording.
Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
Substitutions; Initial Certification by Custodian.
(a) The Indenture Trustee agrees to cause the Custodian to execute and
deliver on the Closing Date an acknowledgment of receipt of the Indenture
Trustee's Home Loan File for each Home Loan. The Indenture Trustee declares that
it will cause the Custodian to hold such documents and any amendments,
replacements or supplements thereto, as well as any other assets included in the
Trust Estate and delivered to the Custodian in trust, upon and subject to the
conditions set forth herein for the benefit of the Securityholders and the
Securities Insurer in good faith and without notice of any adverse claims or
liens. The Indenture Trustee agrees, for the benefit of the Securityholders and
the Securities Insurer, to cause the Custodian to review each Indenture
Trustee's Home Loan File within 45 days after the Closing Date (or, with respect
to any Qualified Substitute Home Loan, within 45 days after the conveyance of
the related Home Loan to the Trust) and to cause the Custodian to deliver to the
Seller, the Depositor, the Indenture Trustee, the Issuer, the Securities Insurer
and the Master Servicer a certification to the effect that, as to each Home Loan
listed in the Home Loan Schedule (other than any Home Loan paid in full or any
Home Loan specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to the Indenture
Trustee pursuant to this Agreement are in its possession or in the possession of
the Custodian on its behalf (other than as expressly permitted in Section 2.05),
(ii) all documents delivered by the Depositor and the Seller to the Custodian
pursuant to Section 2.05 have been reviewed by the Custodian and have not been
mutilated or damaged and appear regular on their face (handwritten additions,
changes or corrections shall not
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constitute irregularities if initialed by the Obligor) and relate to such Home
Loan, (iii) based on the examination of the Custodian on behalf of the Indenture
Trustee, and only as to the foregoing documents, the information set forth on
the Home Loan Schedule accurately reflects the information set forth in the
Indenture Trustee's Home Loan File and (iv) each Debt Instrument has been
endorsed as provided in Section 2.05. Neither the Issuer nor the Custodian shall
be under any duty or obligation (i) to inspect, review or examine any such
documents, instruments, certificates or other papers to determine that they are
genuine, enforceable, or appropriate for the represented purpose or that they
are other than what they purport to be on their face or (ii) to determine
whether any Indenture Trustee's Home Loan File should include any of the
documents specified in Section 2.05(a)(v).
(b) The Servicer's Home Loan File shall be held in the custody of Mego
for the benefit of, and as agent for, the Securityholders and the Indenture
Trustee as the owner thereof and the Securities Insurer. It is intended that by
Mego's agreement pursuant to this Section 2.06(b) the Indenture Trustee shall be
deemed to have possession of the Servicer's Home Loan Files for purposes of
Section 9-305 of the Uniform Commercial Code of the State in which such
documents or instruments are located. Mego shall promptly report to the
Indenture Trustee and the Securities Insurer any failure by it to hold the
Servicer's Home Loan File as herein provided and shall promptly take appropriate
action to remedy any such failure. In acting as custodian of such documents and
instruments, Mego agrees not to assert any legal or beneficial ownership
interest in the Home Loans or such documents or instruments. Mego agrees to
indemnify the Securityholders, the Securities Insurer and the Indenture Trustee
for any and all liabilities, obligations, losses, damages, payments, costs, or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Securityholders, the Securities Insurer or the Indenture Trustee as
the result of any act or omission by Mego relating to the maintenance and
custody of such documents or instruments which have been delivered to Mego;
provided, however, that Mego will not be liable for any portion of any such
amount resulting from the negligence or misconduct of any Securityholder, the
Securities Insurer or the Indenture Trustee and provided, further, that Mego
will not be liable for any portion of any such amount resulting from Mego's
compliance with any instructions or directions consistent with this Agreement
issued to Mego by the Indenture Trustee. The Indenture Trustee shall have no
duty to monitor or otherwise oversee Mego's performance as custodian hereunder.
(c) Upon determination by the Master Servicer, the Securities Insurer,
the Depositor, Mego or the Indenture Trustee that any document constituting a
part of any Home Loan File was not delivered to the Indenture Trustee or, with
respect to any document constituting the Servicer's Home Loan File, to Mego, as
custodian for the Indenture Trustee, the Securities Insurer and Securityholders,
by the time required hereby (which in the case of (A) a failure to deliver a
recorded mortgage or recorded assignment pursuant to Section 2.05(a)(ii) or
(a)(iv) (only under the circumstances in which a delay is caused by the public
recording office and an Officer's Certificate is required to be provided
thereunder) shall be the 20 month anniversary of the Closing Date, (B) failure
to deliver a completion certificate or inspection report pursuant to Section
2.05(b)(H)(i) shall be the 14 month anniversary of the
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Closing Date (C) a failure to deliver an inspection report pursuant to Section
2.05(b)(H)(ii) shall be the 12 month anniversary of the Closing Date, (D) a
failure to deliver each other document constituting a part of any Indenture
Trustee's Home Loan File shall be the Closing Date and (E) a failure to deliver
each document (other than those described in clause (B) above) specified in
Section 2.05(b) shall be 45 Business Days after the Closing Date) to be so
delivered or was defective in any material respect when delivered to the
Indenture Trustee, the party identifying any of the foregoing shall give prompt
written notice to the other parties and the Securities Insurer. Nothing
contained herein shall require the Indenture Trustee to undertake any
independent investigation or to make any review of any Home Loan File other than
as provided for in this Section 2.06. Mego, upon receipt of such notice, shall
comply with the cure, substitution and repurchase provisions of Section 3.05
hereof.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants with and to the
Issuer, and the Indenture Trustee, on behalf of the Securityholders, and the
Master Servicer, as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has all licenses
necessary to carry on its business as now being conducted. The Depositor has the
power and authority to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this Agreement
(including all instruments of transfer to be delivered pursuant to this
Agreement) by the Depositor and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action of the Depositor; this Agreement evidences the valid, binding and
enforceable obligation of the Depositor; and all requisite action has been taken
by the Depositor to make this Agreement valid, binding and enforceable upon the
Depositor in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other, similar laws relating to or
affecting creditors' rights generally or the application of equitable principles
in any proceeding, whether at law or in equity;
(b) The consummation of the transactions contemplated by this Agreement
will not result in (i) the breach of any terms or provisions of the Articles of
Incorporation or Bylaws of the Depositor, (ii) the breach of any term or
provision of, or conflict with or constitute a default under or result in the
acceleration of any obligation under, any material agreement, indenture or loan
or credit agreement or other material instrument to which the Depositor, or its
property is subject, or (iii) the violation of any law, rule, regulation, order,
judgment or decree to which the Depositor or its respective property is subject;
(c) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or other governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or its properties or might have consequences that
would materially and adversely affect its performance hereunder.
Section 3.02 Representations, Warranties and Covenants of the Master
Servicer.
The Master Servicer hereby represents, warrants and covenants with and
to the Depositor, the Issuer, Mego, the Indenture Trustee, the Securities
Insurer and the Securityholders as of the Closing Date:
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(a) The Master Servicer is a national banking association duly organized
and validly existing under the laws of the United States of America, with full
power and authority to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted;
(b) The Master Servicer has the full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which it
is a party, has duly authorized the execution, delivery and performance of this
Agreement and each other Transaction Document to which it is a party, has duly
executed and delivered this Agreement and each other Transaction Document to
which it is a party, and this Agreement and each other Transaction Document to
which it is a party, when duly authorized, executed and delivered by the other
parties thereto, will constitute a legal, valid and binding obligation of the
Master Servicer, enforceable against it in accordance with its terms;
(c) Neither the execution and delivery of this Agreement or any other
Transaction Document to which the Master Servicer is a party, the consummation
of the transactions required of the Master Servicer herein or therein, nor the
fulfillment of or compliance with the terms and conditions of this Agreement or
any other Transaction Document to which the Master Servicer is a party will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Master Servicer's charter or bylaws or any legal restriction
or any material agreement or instrument to which the Master Servicer is now a
party or by which it is bound, or which would adversely affect the
administration of the Trust as contemplated hereby, or constitute a material
default or result in an acceleration under any of the foregoing, or result in
the violation of any law, rule, regulation, order, judgment or decree to which
the Master Servicer or its property is subject;
(d) The Master Servicer is not in default, and the execution and
delivery of this Agreement and each other Transaction Document to which it is a
party and its performance of and compliance with the terms hereof and thereof
will not constitute a violation of, any law, any order or decree of any court,
or any order, regulation or demand of any federal, state or local governmental
or regulatory authority;
(e) No action, suit or other proceeding or investigation is pending or,
to the Master Servicer's knowledge, threatened before any court or any federal,
state or local governmental or regulatory authority (A) asserting the invalidity
of this Agreement or any other Transaction Document to which the Master Servicer
is a party, (B) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or any other Transaction Document to which the
Master Servicer is a party, or (C) seeking any determination or ruling that
would materially and adversely affect the ability of the Master Servicer to
perform its obligations under this Agreement or any other Transaction Document
to which the Master Servicer is a party (including any threatened or pending
action, suit, proceeding or investigation which might result in the suspension,
revocation or modification of the Contract of Insurance);
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(f) No consent, approval, authorization or order of, registration or
filing with or notice to, any court or any federal, state or local government or
regulatory authority is required for the execution, delivery and performance by
the Master Servicer of this Agreement or any other Transaction Document to which
the Master Servicer is a party (other than those that have been obtained or will
be obtained prior to the Closing Date);
(g) Neither this Agreement nor any other Transaction Document to which
the Master Servicer is a party nor any statement, report or other document
furnished or to be furnished by the Master Servicer pursuant to this Agreement
or any other Transaction Document to which the Master Servicer is a party or in
connection with the transactions contemplated hereby and thereby contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading;
(h) The statements contained in the section of the Prospectus Supplement
entitled "The Master Servicer" which describe the Master Servicer are true and
correct in all material respects, and such section of the Prospectus Supplement
does not contain any untrue statement of a material fact with respect to the
Master Servicer and does not omit to state a material fact necessary to make the
statements contained therein with respect to the Master Servicer not misleading;
(i) The Master Servicer is solvent, and the Master Servicer will not be
rendered insolvent as a result of the performance of its obligations pursuant to
this Agreement and any other Transaction Document to which the Master Servicer
is a party;
(j) The Servicing Agreement conforms to the requirements for a Servicing
Agreement contained in this Agreement;
(k) Each FHA Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;
(l) The Master Servicer, or an affiliate thereof that has been
previously approved by the Securities Insurer, the primary business of which is
the servicing of home loans such as the Home Loans, is an Eligible Servicer, and
the Master Servicer or such affiliate possesses all state and federal licenses
necessary for servicing the Home Loans in accordance with this Agreement;
(m) The Master Servicer has not waived any default, breach, violation or
event of acceleration existing under any Debt Instrument or the related
Mortgage;
(n) The Master Servicer will cause to be performed any and all acts
required to be performed by the Master Servicer or Servicer to preserve the
rights and remedies of the Trust and the Indenture Trustee in any Insurance
Policies applicable to the Home Loans or with respect to any FHA Loan, any
Insurance Policy required to be maintained pursuant to Title I,
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including, without limitation, in each case, any necessary notifications of
insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Trust and the
Indenture Trustee;
(o) The Master Servicer shall comply with, and shall service, or cause
to be serviced, each Home Loan, in accordance with all applicable laws, and, in
particular, in accordance with any applicable provisions of the National Housing
Act, as amended and supplemented, all rules and regulations issued thereunder,
and all administrative publications published pursuant thereto including, in the
case of the FHA Loans, all FHA requirements of FHA Title I loans; and
(p) The Master Servicer agrees that, so long as it shall continue to
serve in the capacity contemplated under the terms of this Agreement, it shall
remain in good standing under the laws governing its creation and existence and
qualified under the laws of each state in which it is necessary to perform its
obligations under this Agreement or in which the nature of its business requires
such qualification, it shall maintain or cause an affiliate previously approved
of by the Securities Insurer to maintain all licenses, permits and other
approvals required by any law or regulations, including, without limitation
Title I, as may be necessary to perform its obligations under this Agreement and
to retain all rights to service the Loans, and it shall not dissolve or
otherwise dispose of all or substantially all of its assets.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive the issuance and delivery of the
Securities and shall be continuing as long as any Security shall be outstanding
or this Agreement has not been terminated.
Section 3.03 Representations and Warranties of Mego.
(a) The Seller hereby represents and warrants to the Depositor, the
Issuer, the Indenture Trustee, the Master Servicer, the Securities Insurer and
the Securityholders, that as of the Closing Date:
(i) Mego is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Mego is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and the performance of its obligations under the
Transaction Documents, in each jurisdiction in which the failure to be
so qualified or to obtain such approvals would render any Transaction
Document unenforceable in any respect or would have a material adverse
effect upon the Transaction;
(ii) Mego has full power and authority to execute, deliver and
perform, and to enter into and consummate all transactions required of
it by this Agreement and each other Transaction Document to which it is
a party; has duly authorized the execution, delivery and performance of
this Agreement and each other
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Transaction Document to which it is a party; has duly executed and
delivered this Agreement and each other Transaction Document to which it
is a party; when duly authorized, executed and delivered by the other
parties hereto, this Agreement and each other Transaction Document to
which it is a party will constitute a legal, valid and binding
obligation of Mego enforceable against it in accordance with its terms,
except as such enforceability may be limited by general principles of
equity (whether considered in a proceeding at law or in equity);
(iii) Neither the execution and delivery of this Agreement or
any of the other Transaction Documents to which Mego is a party, the
consummation of the transactions required of it herein or under any
other Transaction Document, nor the fulfillment of or compliance with
the terms and conditions of this Agreement or any of the other
Transaction Documents will conflict with or result in a breach of any of
the terms, conditions or provisions of Mego's charter or by-laws or any
legal restriction or any material agreement or instrument to which Mego
is now a party or by which it is bound, or which would adversely affect
the creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any of
the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Mego or its respective property is
subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against Mego or, to its knowledge, threatened, which,
if determined adversely to Mego, would materially adversely affect the
sale of the Loans, the issuance of the Certificates, the execution,
delivery or enforceability of this Agreement or any other Transaction
Document, or which would have a material adverse affect on the financial
condition of Mego;
(v) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (a) the execution, delivery
and performance by Mego of, or compliance by Mego with, this Agreement,
(b) the transfer of all FHA insurance reserves relating to the FHA Loans
to the Contract of Insurance Holder, (c) the issuance of the
Certificates, (d) the sale of the Home Loans under the Home Loan
Purchase Agreement or (e) the consummation of the transactions required
of it by this Agreement, except: (A) such as shall have been obtained
before the Closing Date, (B) the transfer of the FHA insurance reserves
by the FHA to the Contract of Insurance Holder with respect to the FHA
Loans as to which an FHA case number has not been assigned as of the
Closing Date, and (C) such as may be required under state securities or
"Blue Sky" laws in connection with the sale of the Certificates by the
Underwriter;
(vi) Mego is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of Mego or its
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properties or might have consequences that would materially and
adversely affect its performance hereunder;
(vii) Mego received fair consideration and reasonably equivalent
value in exchange for the sale of the Home Loans to the Depositor;
(viii) HUD has approved in writing the transfer to the Contract
of Insurance Holder of the FHA Reserve Amount relating to each FHA Loan
and all actions have been taken by Mego (other than the filing of the
Transfer of Note Report Form 27030 with HUD) and all required consents
have been obtained (other than approval upon HUD's receipt of such
Transfer of Note Report), in either case, necessary to effect transfer
to the Contract of Insurance Holder of the FHA Reserve Amount relating
to each FHA Loan (except for FHA Loans with respect to which a case
number has not been assigned as of the Closing Date). The FHA Reserve
Amounts with respect to the FHA Loans transferred to the Contract of
Insurance Holder both prior to and following the transfer of the FHA
Loans to the Co-Owner Trustee and Owner Trustee will be available to
satisfy claims with respect to such FHA Loans. The amount in the FHA
Insurance Coverage Reserve Account, together with all amounts to be
requested for transfer with respect to the FHA Loans, will equal
$19,166,521.61. The amount to be requested for transfer with respect to
the FHA Loans is $2,194,698, which is the sum of approximately 10% of
the aggregate of the Principal Balances of the FHA Loans as of the
Cut-Off Date;
(ix) Mego is a non-supervised lender in good standing with HUD
under 24 CFR Section202.5 and is authorized to originate, purchase,
hold, service and/or sell loans insured under 24 CFR Part 201 pursuant
to a valid contract of insurance, Number 70497-00003;
(x) Mego has transferred the Home Loans without any intent to
hinder, delay or defraud any of its creditors;
(b) Mego hereby agrees for the benefit of the Depositor, the Issuer, the
Indenture Trustee, the Securities Insurer and the Securityholders that the
failure of any of the following representations and warranties to be true and
correct as to any Home Loan (and the related Debt Instrument and Mortgage, if
applicable) as of the Cut-Off Date for such Home Loan, or such later date if so
specified in such representation and warranty, gives rise to the remedy
specified in Section 3.05;
(i) The information pertaining to each Home Loan set forth in
the Home Loan Schedule was true and correct in all material respects as
of the Cut-Off Date;
(ii) As of the Closing Date at least 99.5% of the Home Loans (by
aggregate Initial Pool Principal Balance) are between 0 and 30 days past
due and not
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more than 0.5% of the Home Loans (by aggregate Initial Principal
Balance) are between 31 and 60 days past due (without giving effect to
any grace period); Mego has not advanced funds, induced, solicited or
knowingly received any advance of funds from a party other than the
Obligor, directly or indirectly, for the payment of any amount required
by the Home Loan;
(iii) The terms of the Debt Instrument and any related Mortgage
contain the entire agreement of the parties and have not been impaired,
waived, altered or modified in any respect, except by written
instruments reflected in the related File and recorded, if necessary, to
maintain the lien priority of the any related Mortgage; if such Home
Loan is an FHA Loan the substance of each such waiver, alteration and
modification has been approved by the FHA to the extent required under
Title I; no other instrument of waiver, alteration, expansion or
modification has been executed, and no Obligor has been released, in
whole or in part, except in connection with an assumption agreement
which assumption agreement is part of the related Home Loan File and the
payment terms of which are reflected in the related Home Loan Schedule
and; if such Home Loan is an FHA Loan, has been approved by the FHA to
the extent required under Title I;
(iv) The Debt Instrument and any related Mortgage are not
subject to any set-off, claims, counterclaim or defense and will not
have such in the future with respect to the goods and services provided
under the Debt Instrument, including the defense of usury or of fraud in
the inducement, nor will the operation of any of the terms of the Debt
Instrument and any related Mortgage, or the exercise of any right
thereunder, render such Debt Instrument or 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;
(v) Any and all requirements of any federal, state or local law
applicable to the Home Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto)
have been complied with;
(vi) No Debt Instrument or Mortgage has been satisfied,
cancelled, rescinded or subordinated, in whole or part; and Mego has not
waived the performance by the Obligor of any action, if the Obligor's
failure to perform such action would cause the Debt Instrument or
Mortgage Loan to be in default, except as otherwise permitted by clause
(iii); and with respect to a Mortgage Loan, the related Property has not
been released from the lien of the Mortgage, in whole or in part, nor
has any instrument been executed that would effect any such
satisfaction, subordination, release, cancellation or rescission;
(vii) Each related Mortgage is a valid, subsisting and
enforceable lien on the related Property, including the land and all
buildings on the Property;
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(viii) The Debt Instrument and any related Mortgage are genuine
and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting creditors' rights in general and by
general principles of equity;
(ix) To Mego's best knowledge, all parties to the Debt
Instrument and any related Mortgage had legal capacity at the time to
enter into the Home Loan and to execute and deliver the Debt Instrument
and any related Mortgage, and the Debt Instrument and any related
Mortgage have been duly and properly executed by such parties;
(x) As of the applicable Cut-Off Date, the proceeds of the Home
Loan have been fully disbursed and there is no requirement for future
advances thereunder, and any and all applicable requirements set forth
in the Home Loan documents have been complied with; the Obligor is not
entitled to any refund of any amounts paid or due under the Debt
Instrument or any related Mortgage;
(xi) Immediately prior to the sale, transfer and assignment to
the Depositor, Mego will have good and indefeasible legal title to the
Home Loan, the related Debt Instrument and any related Mortgage and the
full right to transfer such Home Loan, the related Debt Instrument and
any related Mortgage, and Mego will have been the sole owner thereof,
subject to no liens, pledges, charges, mortgages, encumbrances or rights
of others, except for such liens as will be released simultaneously with
the transfer and assignment of the Home Loans to the Depositor (and the
Home Loan File will contain no evidence inconsistent with the
foregoing); and immediately upon the sale, transfer and assignment
contemplated by the Home Loan Purchase Agreement, the Depositor will
hold good title to, and be the sole owner of each Home Loan, the related
Debt Instrument and any related Mortgage, free of all liens, pledges,
charges, mortgages, encumbrances or rights of others;
(xii) Except for those Home Loans referred to in Section
3.03(b)(ii) above that are delinquent as of the Closing Date, there is
no default, breach, violation or event of acceleration existing under
the Home Loan, the related Debt Instrument and any related Mortgage and
there is no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration and neither Mego nor its
predecessors have waived any default, breach, violation or event of
acceleration;
(xiii) The Debt Instrument and any related Mortgage contain
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
Property of the benefits of the security provided thereby, including,
(A) in the case of any Mortgage designated as a deed of trust, by
trustee's sale, and (B) otherwise by judicial foreclosure;
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(xiv) Each FHA Loan is an FHA Title I property improvement loan
(as defined in 24 C.F.R. Section 201.2) underwritten and originated by
Mego in accordance with FHA requirements for the Title I Loan program as
set forth in 24 C.F.R. Parts 201 and 202, and Mego has transmitted a
loan report with respect to such FHA Loan to FHA so that such FHA Loan
will be included in the Title I program;
(xv) Each Home Loan is a fixed rate loan; the Debt Instrument
shall mature within not more than (a) for an FHA Loan, 20 years and 32
days and (b) for a Non-FHA Loan, 25 years, from the date of origination
of the Home Loan; the Debt Instrument is payable in substantially equal
Monthly Payments, with interest payable in arrears, and requires a
Monthly Payment which is sufficient to fully amortize the original
principal balance over the original term and to pay interest at the
related Home Loan Interest Rate; interest on each Home Loan is
calculated on the basis of a 360 day year consisting of twelve 30-day
months, and the Debt Instrument does not provide for any extension of
the original term;
(xvi) The related Debt Instrument is not and has not been
secured by any collateral except, in the case of a Mortgage Loan, the
lien of the corresponding Mortgage;
(xvii) With respect to any Mortgage Loan, if the related
Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees or
expenses are or will become payable to the trustee under the deed of
trust, except in connection with default proceedings and a trustee's
sale after default by the Obligor;
(xviii) With respect to any Mortgage Loan, Mego has no knowledge
of any circumstances or conditions not reflected in the representations
set forth herein, or in the Home Loan Schedule, or in the related Home
Loan File with respect to the related Mortgage, the related Property or
the Obligor which could reasonably be expected to materially and
adversely affect the value of the related Property, or the marketability
of the Mortgage Loan or to cause the Mortgage Loan to become delinquent
or otherwise in default;
(xix) Assuming no material change to the applicable law or
regulations in effect as of the Closing Date, after the consummation of
the transactions contemplated by this Agreement, the Master Servicer on
behalf of the Trust and the Indenture Trustee will have the ability to
foreclose or otherwise realize upon a Property, if the Home Loan is a
Mortgage Loan, or to enforce the provisions of the related Home Loan
against the Obligor thereunder, if the foreclosure upon any such
Property or enforcement of the provisions of the related Home Loan
against the Obligor are undertaken as set forth in Section 4.12;
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(xx) With respect to any FHA Loan that is a Mortgage Loan, the
improvements to the Property relating to such FHA Loan, have been or
shall be completed and inspected by the Servicer within the time period
and to the extent required under the applicable Title I regulations, and
evidence of such inspection shall be placed in the Servicer's Home Loan
File or, if not, a letter of non-compliance shall be delivered to HUD
(with a copy placed in the Servicer's Home Loan File) promptly upon the
completion of such inspection;
(xxi) Each FHA Loan has been originated in compliance with the
provisions of 24 C.F.R. Section 201.20, and, if required by Title I, the
market value of the any related Property has been ascertained in
accordance with the procedures established by HUD;
(xxii) There exists a Home Loan File relating to each Home Loan
and such Home Loan File contains all of the original or certified
documentation listed in Section 2.05 for such Home Loan, subject to
applicable grace periods set forth in 2.06(c). Each Indenture Trustee's
Home Loan File has been delivered to the Custodian and each Servicer's
Home Loan File is being held in trust by Mego for the benefit of, and as
agent for, the Securityholders, the Securities Insurer and the Indenture
Trustee as the owner thereof. Each document included in the Home Loan
File which is required to be executed by the Obligor has been executed
by the Obligor in the appropriate places. With respect to each Mortgage
Loan, the related Assignment of Mortgage to the Indenture Trustee is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Property is located. All blanks on any form
required to be completed have been so completed;
(xxiii) Each FHA Loan is in respect of a home improvement loan
or a retail installment sale contract, and each Property is improved by
a residential dwelling and is not a Home Loan in respect of a
manufactured home or mobile home or the land on which a manufactured
home or mobile home has been placed;
(xxiv) Each FHA Loan was originated by Mego in accordance with
the applicable underwriting criteria established by the FHA and HUD;
each Non-FHA Loan was originated by Mego in accordance with Mego's
"Express 35/Swift 60 Loan Program", "Debt Consolidation 125 Loan
Program", and "Renovator 125 Loan Program" underwriting guidelines, as
applicable, attached hereto as Exhibit D;
(xxv) Any Property securing an FHA Loan is covered by any
insurance required by Title I; if the Property securing any Mortgage
Loan is in an area identified by the Federal Emergency Management Agency
("FEMA") as having special flood hazards, unless the community in which
the area is situated is participating in the National Flood Insurance
Program and the regulations thereunder or less than a year has passed
since FEMA notification regarding such hazards, a flood insurance policy
is in effect with respect to such Property with a generally acceptable
carrier which
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complies with Section 102(a) of the Flood Disaster Protection Act of
1973; all improvements upon each Property securing a Non-FHA Loan are
insured by a generally acceptable insurer against loss by fire hazards
of extended coverage and such other hazards as are customary in the area
where the Property is located pursuant to insurance policies conforming
to the requirements of the Agreement; all such policies contain a
standard mortgage clause naming Mego, its successors and assigns, as
loss payee;
(xxvi) All costs, fees and expenses incurred in originating and
closing the Home Loan and in recording any related Mortgage were paid
and the Obligor is not entitled to any refund of any amounts, paid or
due to the Obligee pursuant to the Debt Instrument or any related
Mortgage;
(xxvii) Except for the related FHA Premium Amount, if
applicable, there is no obligation on the part of Mego or any other
party other than the Obligor to make payments with respect to the Home
Loan;
(xxviii) At the time of origination of the Home Loan, each
related prior lien, if any, was not 30 or more days delinquent;
(xxix) All parties which have had any interest in the Home Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during
the period in which they held and disposed of such interest, were) (i)
in compliance with any and all applicable licensing requirements of the
laws of the state wherein the Property is located, and (ii) (A)
organized under the laws of such state, or (B) qualified to do business
in such state, or (C) federal savings and loan associations or national
banks having principal offices in such state, or (D) not doing business
in such state;
(xxx) With respect to each Mortgage Loan, the related Mortgage
contains an enforceable provision requiring the consent of the Mortgagee
to assumption of the related Mortgage Loan upon sale of the Property;
(xxxi) With respect to any Mortgage Loan, there is no homestead
or other exemption available to the Mortgagor which would materially
interfere with the right to sell the related Property at a trustee's
sale or the right to foreclose the Mortgage; no relief has been
requested or allowed to the Mortgagor under the Civil Relief Act;
(xxxii) Subject to Section 3.05, each FHA Loan has been
submitted to the FHA for insurance pursuant to the FHA Title I loan
program and each FHA Loan has been or will be assigned a case number by
the FHA for the FHA Title I loan program;
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(xxxiii) Subject to Section 3.05, the FHA Reserve Amount with
respect to each FHA Loan, has been or will be transferred to the FHA
Insurance Coverage Reserve Account;
(xxxiv) The related Home Loan File for each Home Loan that is a
Mortgage Loan contains a title document with respect to such Home Loan
reflecting that title to the related Property is vested at least 50% in
the Obligor under such Home Loan;
(xxxv) Each Property (including each residential dwelling
improvement thereon) is free of damage which materially and adversely
affects the value thereof and, if the related Home Loan is an FHA Loan,
impairs the ability to insure the related Home Loan under the Title I
program;
(xxxvi) Each Home Loan was originated in compliance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith
or, if the related loan is an FHA Loan, in the application for any
insurance required by Title I in relation to such FHA Loan;
(xxxvii) Each Home Loan has been serviced in accordance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(xxxviii) The transfer, assignment and conveyance of the Debt
Instruments and the Mortgages by Mego to the Depositor were not subject
to the bulk transfer laws or any similar statutory provisions in effect
in any applicable jurisdiction;
(xxxix) Any Home Loan originated in the State of Texas, was
originated pursuant to either Chapter 3 or Chapter 6 of the Texas
Consumer Credit Code;
(xl) As of the applicable Cut-Off Date, no Obligor is a debtor
under proceedings under the Bankruptcy Code, and no such Obligor has
defaulted in payments on a Home Loan after the filing of such bankruptcy
case, whether under a plan or reorganization or otherwise;
(xli) Mego has not advanced funds, or induced, solicited or
knowingly received any advance of loan payments from a party other than,
with respect to a Mortgage Loan, the owner of the Property subject to
the Mortgage;
(xlii) Mego originated the Home Loans through its network of
dealers and correspondents;
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(xliii) Each Home Loan conforms, and all such Home Loans in the
aggregate conform, to the description thereof set forth in the
Prospectus Supplement;
(xliv) With respect to FHA Loans secured by a Mortgage, the
representations and warranties of the Mortgagor in each mortgage loan
application and in connection with the related FHA Loan are true and
correct in all material respects (and it shall be deemed that a breach
is material only if a claim for payment made to the FHA under the
Contract of Insurance in respect of such FHA Loan is a Rejected Claim as
a result of such breach);
(xlv) Each Home Loan either complies with the Home Ownership and
Equity Protection Act of 1994 or is not subject to such act;
(xlvi) Mego has caused to be performed or shall cause to be
performed within 15 Business Days of the Closing Date any and all acts
required to preserve the rights and remedies of the Trust and the
Indenture Trustee in any insurance policies applicable to each Home Loan
or, if such Home Loan is an FHA Loan, only if required by Title I,
including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishment of
coinsured, joint loss payee and mortgagee rights in favor of the
Indenture Trustee;
(xlvii) With respect to any Mortgage Loan, to Mego's best
knowledge, there exists no violation of any environmental law (either
local, state or federal), rule or regulation in respect of the Property
which violation has or could have a material adverse effect on the
market value of such Property. Mego has no knowledge of any pending
action or proceeding directly involving the related Property in which
compliance with any environmental law, rule or regulation is in issue;
and, to Mego's best knowledge, nothing further remains to be done to
satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Property;
(xlviii) Not more than 0.26% of the FHA Loans (by aggregate
Initial Principal Balance) and none of the Non-FHA Loans are secured by
Mortgages on nonowner occupied Mortgaged Properties;
(xlix) On the Closing Date, 55% or more (by aggregate Principal
Balance) of the Home Loans do not constitute "real estate mortgages" for
the purpose of Treasury Regulation Section301.7701 under the Code. For
this purpose a Home Loan does not constitute a "real estate mortgage"
if:
(i) The Home Loan is not secured by an interest in real
property, or
(ii) The Home Loan is not an "obligation principally secured by
an interest in real property." For this purpose an "obligation is
principally secured by an interest
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in real property" if it satisfies either test set out in paragraph (1)
or paragraph (2) below.
(1) The 80-percent test. An obligation is principally
secured by an interest in real property if the fair
market value of the interest in real property securing
the obligation
(A) was at least equal to 80 percent of the adjusted
issue price of the obligation at the time the
obligation was originated (or, if later, the
time the obligation was significantly modified);
or
(B) is at least equal to 80 percent of the adjusted
issue price of the obligation on the Closing
Date.
For purposes of this paragraph (1), the fair market
value of the real property interest must be first
reduced by the amount of any lien on the real property
interest that is senior to the obligation being tested,
and must be further reduced by a proportionate amount of
any lien that is in parity with the obligation being
tested, in each case before the percentages set forth in
(1)(A) and (1)(B) are determined. The adjusted issue
price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of
the date of determination.
(2) Alternative test. An obligation is principally secured
by an interest in real property if substantially all of
the proceeds of the obligation were used to acquire or
to improve or protect an interest in real property that,
at the origination date, is the only security for the
obligation. For purposes of this test, loan guarantees
made by the United States or any state (or any political
subdivision, agency, or instrumentality of the United
States or of any state), or other third party credit
enhancement are not viewed as additional security for a
loan. An obligation is not considered to be secured by
property other than real property solely because the
obligor is personally liable on the obligation. For this
purpose only, substantially all of the proceeds of the
obligations means 66 2/3% or more of the gross proceeds.
(l) No Home Loan was selected from Mego's assets in a manner
which would cause it to be adversely selected as to credit risk from the
pool of home loans owned by Mego;
(li) With respect to each Home Loan that is not a first mortgage
loan, either (i) no consent for the Home Loan is required by the holder
of the related prior lien or (ii) such consent has been obtained and has
been delivered to the Indenture Trustee;
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(lii) Each Home Loan is either a retail installment contract for
goods or services, home improvement loan for goods or services, debt
consolidation loan or a home equity loan. All Home Loans that are not
debt consolidation loans are either retail installment sale contracts
for goods and services or home improvement loans for goods and services
that are either "consumer credit contracts" or "purchase money loans" as
such terms are defined in 16 C.F.R. Part 433.1; and
(liii) Each Debt Instrument is comprised of an original
promissory note and each promissory note constitutes an "instrument" or
"chattel paper" for purposes of Article 9 of the UCC. Each Debt
Instrument has been delivered to the Custodian.
Section 3.04 [Reserved].
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and warranties
set forth in Sections 3.03 shall survive the conveyance of the Home Loans to the
Issuer, the Grant of the Home Loans to the Indenture Trustee and the delivery of
the Securities to the Securityholders and shall be continuing as long as any
Security is outstanding. Upon discovery by the Depositor, the Master Servicer,
the Seller, the Custodian, the Issuer, the Indenture Trustee, the Securities
Insurer or any Securityholder of a breach of any of such representations and
warranties which materially and adversely affects the value of the Home Loans or
the interest of the Securityholders or the Securities Insurer, or which
materially and adversely affects the interests of the Securityholders or the
Securities Insurer in the related Home Loan in the case of a representation and
warranty relating to a particular Home Loan (notwithstanding that such
representation and warranty was made to the Seller's best knowledge), the party
discovering such breach shall give prompt written notice to the others. Except
with respect to a breach of the representations made by Mego pursuant to Section
3.03(b)(xxxii) and (xxxiii), in the event of a determination in Section 2.06(c)
or a breach of a representation and warranty made pursuant to Section 3.03(b)
that materially and adversely affects the interests of the Securityholders or
the Security Insurer in the Home Loan with respect to which such representation
is made or in the Home Loans and a failure within sixty Business Days of
discovery or receipt of notice of such failure to effect a cure of the
circumstances giving rise to such defect, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding the expiration of such sixty-day period, to
repurchase (or substitute for, to the extent permitted by subsection (b) below)
the affected Home Loan. The Securities Insurer and the Indenture Trustee on
behalf of the Securityholders agree that if an FHA Loan is a Defective Home Loan
because a document is not included in the Servicer's Home Loan File as of the
60th Business Day after the discovery or receipt of notice thereof, such defect
shall be deemed to be cured if the Indenture Trustee shall have received during
the sixty-day period after such date a written statement addressed to it from
the Director of HUD Title I Insurance Division that such document would not be
required in connection with a claim for FHA Insurance with respect to such FHA
Loan. Except as set forth in Section 5 of the Indemnification Agreement, it is
understood and agreed that the obligation of Mego to repurchase or substitute
any such Home
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Loan pursuant to this Section shall constitute the sole remedy against it with
respect to such breach of the foregoing representations or warranties or the
existence of the foregoing conditions. For purposes of calculating Business Days
with respect to a Defective Loan that is an FHA Loan because a document is not
included in the Servicer's Home Loan File in this Section 3.05(a), a Business
Day shall not include any day on which the FHA is officially closed for reasons
other than as specified in the definition of Business Day. With respect to
representations and warranties made by Mego pursuant to Section 3.03(b) that are
made to Mego's best knowledge, if it is discovered by any of the Depositor,
Mego, the Indenture Trustee, the Owner Trustee or the Securities Insurer that
the substance of such representation and warranty is inaccurate and such
inaccuracy materially and adversely affects the value of the related Loan,
notwithstanding Mego's lack of knowledge, such inaccuracy shall be deemed a
breach of the applicable representation and warranty.
With respect to a breach of the representations made by Mego pursuant to
Section 3.03(b)(xxxii) or (xxxiii) if the FHA has not assigned a case number
under the Contract of Insurance to an FHA Loan to indicate that such FHA Loan is
eligible for Title I Insurance coverage under the Contract of Insurance on or
before the 120th day after the Closing Date, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding such 120th day, to repurchase such FHA
Loan. If the FHA Reserve Amount with respect to an FHA Loan has not been
transferred to the FHA Insurance Coverage Reserve Account on or before the 150th
day after the Closing Date, Mego shall be obligated, on the Monthly Cut-Off Date
next succeeding such 150th day, to repurchase such FHA Loan. The Claims
Administrator shall give notice in writing to each of the Master Servicer, the
Securities Insurer, the Depositor, Mego and the Indenture Trustee, the Owner
Trustee of (i) any FHA Loan with respect to which there has not been assigned a
case number under the Contract of Insurance on or before the 120th day after the
Closing Date and (ii) any FHA Loan that has not been transferred to the FHA
Insurance Coverage Reserve Account on or before the 150th day after the Closing
Date. For purposes of calculating either 120 or 150 days from the Closing Date
in this Section 3.05(a), any day on which the FHA is officially closed for
reasons other than such day being a Saturday, Sunday or a day on which banking
institutions in Washington, D.C. are authorized or obligated by law, executive
order or governmental decree to be closed, shall not be counted in making such
calculation.
If Mego is required to repurchase any Home Loan on a Monthly Cut-Off
Date that is not a Business Day, such repurchase shall be made on the last
Business Day preceding such Monthly Cut-Off Date. Any Home Loan required to be
purchased or repurchased pursuant to this Section 3.05(a) is referred to as a
"Defective Home Loan."
(b) Mego shall be obligated to repurchase a Defective Home Loan for the
Purchase Price, payable to the Indenture Trustee in cash on the Monthly Cut-Off
Date specified in Section 3.05(a) above, for deposit in the Note Distribution
Account. Notwithstanding the foregoing, within two years of the Closing Date,
Mego may elect in lieu of the purchase or repurchase of a Defective Home Loan as
provided in this Section 3.05, to substitute, as of the
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Monthly Cut-off Date specified in Section 3.05(a), a Qualified Substitute Home
Loan for the Defective Home Loan in accordance with the provisions of this
Section 3.05.
(c) Mego shall notify the Master Servicer, the Indenture Trustee and the
Securities Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Loan pursuant to Section 3.05(a) of its
intention to effect a substitution under this Section. On such Determination
Date (the "Substitution Date"), Mego shall deliver to the Indenture Trustee and
the Securities Insurer a list of the Home Loans to be substituted for by such
Qualified Substitute Home Loans, and attaching as an exhibit a supplemental Home
Loan Schedule (the "Supplemental Loan Schedule") setting forth the same type of
information appearing on the Loan Schedule and representing as to the accuracy
thereof. In connection with any substitution pursuant to this Section 3.05, to
the extent that the aggregate Principal Balance of any Qualified Substitute Home
Loan or Home Loans is less than the aggregate Principal Balance of the
corresponding Home Loan or Home Loans as of the Determination Date on which the
substitution is being made, Mego shall deposit such difference (a "Substitution
Adjustment Amount") to the Note Distribution Account on such date.
(d) Concurrently with the satisfaction of the conditions set forth in
this Section 3.05 and the Grant of such Qualified Substitute Home Loans to the
Indenture Trustee pursuant to Section 3.05(b), Exhibit A to this Agreement shall
be deemed to be amended to exclude all Home Loans being replaced by such
Qualified Substitute Home Loans and to include the information set forth on the
Supplemental Loan Schedule with respect to such Qualified Substitute Home Loans,
and all references in this Agreement to Home Loans shall include such Qualified
Substitute Home Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Qualified Substitute Home
Loans.
(e) Notwithstanding the provisions of Section 3.05(a), the Securities
Insurer, in its sole discretion, may extend, by not more than 150 days from the
date of the notice described in Section 3.05(a), the sixty-day period available,
pursuant to Section 3.05(a), to Mego to cure the circumstances giving rise to a
defect with respect to any Home Loan described in Section 3.05.
(f) With respect to all Defective Home Loans or other Home Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the Purchase
Price therefor to the Note Distribution Account, the Indenture Trustee shall
assign to Mego, without recourse, representation or warranty, all the Indenture
Trustee's right, title and interest in and to such Defective Home Loans or Home
Loans, which right, title and interest were conveyed to the Indenture Trustee
pursuant to Section 2.01, including, without limitation, the rights to any FHA
Insurance reserves attributable to such Home Loans. The Indenture Trustee shall
take any actions as shall be reasonably requested by Mego to effect the
repurchase of any such Home Loans.
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ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS;
CLAIMS ADMINISTRATION
Section 4.01 Servicing Standard.
(a) The Master Servicer is hereby authorized to act as agent for the
Trust and in such capacity shall manage, service, administer and make
collections on the Home Loans, and perform the other actions required by the
Master Servicer under this Agreement. In performing its obligations hereunder
the Master Servicer shall at all times act in good faith in a commercially
reasonable manner in accordance with all requirements of the FHA applicable to
the servicing of the FHA Loans and otherwise in accordance with applicable law
and the Debt Instruments and Mortgages. The Master Servicer shall at all times
service and administer the FHA Loans in accordance with Title I, and shall have
full power and authority, acting alone and/or through the Servicer as provided
in Section 4.02, subject only to this Agreement, the respective Home Loans, and,
in the case of the FHA Loans, the specific requirements and prohibitions of
Title I, to do any and all things in connection with such servicing and
administration which are consistent with the manner in which prudent servicers
service FHA Title I home improvement loans and which are consistent with the
ordinary practices of prudent mortgage lending institutions, but without regard
to:
(i) any relationship that the Master Servicer, the Servicer or
any affiliate of the Master Servicer or any Servicer may have with the
related Obligor:
(ii) Mego's obligations to repurchase or substitute for a
Defective Home Loan pursuant to Section 3.05(b) or any FHA Loans
pursuant to Section 4.12(b);
(iii) the ownership of any Securities by the Master Servicer or
any affiliate of the Master Servicer;
(iv) the Master Servicer's obligation to make Interest Advances
pursuant to Section 4.08(a), to make Foreclosure Advances pursuant to
Section 4.08(b), or repurchase any FHA Loans pursuant to Section 4.12;
or
(v) the Master Servicer's right to receive compensation for its
services as provided in Section 5.01(c)(i)(b).
The Master Servicer may take any action hereunder, including exercising
any remedy under any Home Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of any Obligor, without the consent or approval of the
Indenture Trustee or the Securities Insurer, unless any such consent or approval
is expressly required hereunder or under applicable law.
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(b) The Indenture Trustee shall cause the Custodian to execute and
return to the Master Servicer or the Servicer designated in a written
instruction from the Master Servicer to the Indenture Trustee, within 5 days of
the Indenture Trustee's receipt any and all documents or instruments necessary
to maintain the lien created by any Mortgage on the related Property or any
portion thereof, and, within 5 days of request by the Master Servicer or the
Servicer therefor a power of attorney in favor of the Servicer with respect to
any modification, waiver, or amendment to any document contained in any Home
Loan File and any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, with
respect to the Home Loans and with respect to the related Mortgaged Properties
prepared and delivered to the Indenture Trustee by the Master Servicer or any
Servicer, all in accordance with the terms of this Agreement.
(c) The Indenture Trustee shall cause the Custodian to furnish the
Master Servicer or Servicer within 5 days of request of a Master Servicing
Officer therefor any powers of attorney and other documents necessary and
appropriate to carry out its servicing and administrative duties hereunder,
including any documents or powers of attorney necessary to foreclose any Home
Loan. The forms of any such powers or documents shall be appended to such
requests.
(d) The Servicer hereby incorporates by reference the representations,
warranties and covenants made by it in Section 2.02 of the Servicing Agreement.
Section 4.02 Servicing Arrangements.
(a) On or prior to the date hereof, the Master Servicer has entered into
a Servicing Agreement with respect to all of the Home Loans, in substantially
the form of the Form of the Servicing Agreement attached hereto as Exhibit E
with Mego, as Servicer. So long as no Securities Insurer Default shall have
occurred and be continuing, upon the termination of the Servicing Agreement, the
Master Servicer may only appoint or consent to the appointment or succession of
a successor Servicer under the Servicing Agreement and may only enter into a
substitute servicing agreement which is in form and substance as the Servicing
Agreement attached hereto as Exhibit E (which, with the consent of the
Securities Insurer, may differ in material respects from the Form of Servicing
Agreement attached hereto as Exhibit E) and with a Person acceptable to the
Securities Insurer and the Indenture Trustee. So long as no Securities Insurer
Default exists, the Master Servicer shall not consent to any material amendment,
modification or waiver of the provisions of a Servicing Agreement without the
consent of the Securities Insurer and the Indenture Trustee.
(b) No provision of this Agreement or the Servicing Agreement shall be
deemed to relieve the Master Servicer of any of its duties and obligations to
the Indenture Trustee on behalf of Securityholders and the Securities Insurer
with respect to the servicing and administration of the Home Loans as provided
hereunder; it being understood that the Master Servicer shall be obligated with
respect thereto to the same extent and under the same terms and conditions as if
it alone were performing all duties and obligations set forth in this
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Agreement in connection with the collection, servicing and administration of
such Home Loans.
(c) Without limitation of the provisions of Section 4.02(b), the Master
Servicer shall (i) review the servicing reports prepared by the Servicer in
order to ensure the accuracy thereof, (ii) review the reports submitted by the
Servicer to confirm that the Servicer is collecting and appropriately accounting
for Obligor payments of premium on FHA Insurance on Invoiced Loans, (iii)
otherwise monitor the performance by the Servicer under the Servicing Agreement
and notify the Indenture Trustee and the Securities Insurer of any Servicer
Termination Event, and (iv) be obligated to ensure that the Servicer deposits
Payments into the Collection Account. In the event the Servicer fails to make
such deposit, the Master Servicer will deposit such amounts as set forth in
Section 5.01(a)(1).
(d) The Master Servicer agrees that it shall at all times be prepared
(and shall take all steps reasonably required by the Securities Insurer to
ensure such preparation), to perform the obligations of the Servicer if the
Servicer fails to perform its duties and obligations under the Servicing
Agreement.
(e) The Servicing Agreement may provide that the Servicer may retain, as
additional compensation, prepayment penalties, assumption and processing fees
paid by any Obligor and all similar fees customarily associated with the
servicing of the Home Loans, including, but not limited to late charges, paid by
any Obligor.
(f) At the direction of the Securities Insurer, so long as no Securities
Insurer Default exists, the Master Servicer shall terminate the Servicer upon
the occurrence and continuance of Servicer Termination Event pursuant to the
terms of the Servicing Agreement.
(g) Mego, as Servicer, shall provide information to the Master Servicer
monthly in a mutually agreeable format in order to enable the Master Servicer to
independently reconfirm the loan-by-loan reconciliation of the outstanding
Principal Balance of each Home Loan included in such information. The Master
Servicer shall prepare exception reports, if necessary, showing all Principal
Balance differences between the information provided by the Servicer and the
confirmations prepared by the Master Servicer and shall furnish such reports to
the Indenture Trustee for distribution to the Securities Insurer. If requested
by the Securities Insurer, the Servicer shall provide to the Securities Insurer
all information provided to the Master Servicer pursuant to this Section
4.02(g).
Section 4.03 Servicing Record.
(a) The Master Servicer shall establish and maintain books and records
for the Home Loans (the "Servicing Record"), in which the Master Servicer shall
record: (i) all Payments received or collected by or on behalf of the Master
Servicer (through the Servicer or otherwise) or received by the Indenture
Trustee in respect of each Home Loan and each Foreclosed Property and (ii) all
amounts owing to the Master Servicer in compensation for
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services rendered by the Master Servicer hereunder or in reimbursement of costs
and expenses incurred by the Master Servicer hereunder. In addition, the Master
Servicer shall establish and maintain records for the Insurance Record (which
shall be part of each Servicing Record) in which the Master Servicer shall
record all claims made under the Contract of Insurance, all payments received by
or on behalf of the Contract of Insurance Holder from the FHA for each such
claim and the amount of insurance coverage available in the Insurance Record.
(b) Except as otherwise provided herein, amounts received or collected
by or on behalf of the Master Servicer or the Indenture Trustee from or on
behalf of any Obligor or in respect of any Foreclosed Property or from FHA with
respect to a claim made under the Contract of Insurance shall be credited to the
Servicing Record:
(i) promptly following direct receipt or direct collection by
the Master Servicer;
(ii) in the case of a Home Loan directly serviced by a Servicer,
promptly following deposit of the receipt or collection in the related
Collection Account; or
(iii) in the case of any amount received directly by the
Indenture Trustee, promptly following the Master Servicer's actual
knowledge of receipt by the Indenture Trustee pursuant to the notice
required by Section 4.12(d) or otherwise;
but in any event not later than the Determination Date next following the date
of receipt or collection by or on behalf of the Master Servicer (through the
Servicer or otherwise) or receipt by the Indenture Trustee. Amounts received or
collected by the Master Servicer in connection with the purchase or repurchase
of any Home Loan or any Foreclosed Property shall be so recorded on and as of
the date of receipt. The Servicing Record shall separately reflect amounts so
received or collected by the Master Servicer in each Due Period. All Payments
from Obligors received on FHA Loans from or on behalf of an Obligor shall be
allocated in accordance with Title I.
(c) The Master Servicer shall credit to the Servicing Record relating to
each Due Period, on a Home Loan-by-Home Loan basis, each of the following
Payments collected or received by or on behalf of the Master Servicer (through
the Servicer or otherwise) or received by the Indenture Trustee in respect of
each Home Loan and each Foreclosed Property:
(i) all payments on account of principal;
(ii) all payments on account of interest;
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(iii) all proceeds of the purchase or repurchase of any Home
Loan pursuant to Section 3.05(a) or, with respect to FHA Loans, Section
4.12(b) and all Substitution Adjustment Amounts;
(iv) all amounts paid by or on behalf of the related Obligor in
respect of Foreclosure Advances previously advanced by the Master
Servicer or the Servicer;
(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 4.13;
(vi) all proceeds of the sale of the Home Loans and any
Foreclosed Properties pursuant to Section 11.01;
(vii) all FHA Insurance Payment Amounts; and
(viii) all Insurance Proceeds, any condemnation awards or
settlements or any payments made by any related guarantor or third-party
credit-support provider and any and all other amounts received in
respect of Home Loans and not specified above.
(d) Notwithstanding anything to the contrary herein, the Master Servicer
shall not be required to credit to the Servicing Record, and neither the Master
Servicer nor any Securityholder shall have any right or interest in any amount
due or received with respect to any Home Loan or any related Foreclosed Property
subsequent to the date of repurchase of such Home Loan or Foreclosed Property
from the Trust.
(e) The Master Servicer shall separately record in each Servicing Record
the items required to be included in the Master Servicer Certificate and
additionally the following items to the extent not included therein:
(i) on or before each Determination Date, the related unpaid
Master Servicer Fee due the Master Servicer on the next Distribution
Date;
(ii) on or before each Determination Date, all amounts retained
by the Servicer in respect of the preceding Due Period in respect of
amounts due Independent Contractors hired by the Master Servicer to
operate and manage a Foreclosed Property pursuant to Section 4.14(b);
(iii) on or before each Determination Date, the amount of
unreimbursed Interest Advances in respect of prior Distribution Dates
and the amount which the Master Servicer or the Servicer is entitled to
be reimbursed therefor in accordance with Section 4.08;
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(iv) on or before each Determination Date, all amounts due as of
the preceding Monthly Cut-Off Date in reimbursement of Foreclosure
Advances previously advanced by the Master Servicer or the Servicer
(separately identifying the type and amount of each then due);
(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Indenture Trustee,
all Other Fees distributed pursuant to Section 5.01(c)(xi), as
applicable on the next succeeding Distribution Date;
(vi) promptly following each Distribution Date, the aggregate
amount of the Master Servicer Fee and Servicer Fee paid to the Master
Servicer or Servicer, respectively, on such Distribution Date pursuant
to Section 5.01(c)(i)(b) and the aggregate amount of the Indenture
Trustee Fee and Owner Trustee Fee paid to the Indenture Trustee and
Owner Trustee, respectively, on such Distribution Date pursuant to
Section 5.01(c)(i)(d);
(vii) promptly following each Distribution Date, the aggregate
amount of Interest Advances and Foreclosure Advances reimbursed to the
Master Servicer or the Servicer on such Distribution Date;
(viii) on or before each Determination Date, the Principal
Balance of Home Loans that became Defaulted Home Loans during the prior
Due Period;
(ix) on or before each Determination Date, each Collateral
Performance Percentage,
(x) on or before each Determination Date, the amount deposited
into each Collection Account representing payments by the related
Obligors on Invoiced Loans in respect of premium on FHA Insurance;
(xi) on or before each Determination Date, the amount remaining
in the FHA Insurance Coverage Reserve Account with respect to all FHA
Loans and the Related Series Loans, if any;
(xii) on or before each Determination Date, identification by
loan number, Obligor name, address of Property and Principal Balance of
such Home Loan with respect to which the Master Servicer has requested
that the Indenture Trustee obtain the environmental report required by
Section 4.12 in connection with deciding pursuant to Section 4.12 to
foreclose on or otherwise acquire title to the related Property;
(xiii) on or before each Determination Date, the Principal
Balance of each such Home Loan with respect to which the Master Servicer
has determined under the circumstances described in the penultimate
sentence of Section 4.12(a) that in good
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faith in accordance with customary mortgage loan servicing practices
that all amounts which it expects to receive with respect to such Home
Loan have been received; and
(xiv) on or before each Determination Date, any other
information with respect to the Home Loans reasonably required by the
Indenture Trustee or the Securities Insurer to determine the amount
required to be distributed pursuant to Section 5.01(c) and determinable
by the Master Servicer without undue burden from the Servicer or the
items otherwise required to be maintained in each Servicing Record.
(f) On or before each Distribution Date, the Master Servicer will
determine, based on the date of origination of the FHA Loans as set forth in the
Home Loan Schedule, the amount of FHA insurance premium, if any, due on or prior
to the next succeeding Distribution Date with respect to each FHA Loan. On or
before such Distribution Date, the Master Servicer will compare such amounts
with respect to each FHA Loan against amounts invoiced by FHA with respect to
the Contract of Insurance as due on or prior to such next succeeding
Distribution Date and report all discrepancies to the Indenture Trustee. Mego
will assist the Indenture Trustee with the transfer of FHA Insurance with
respect to each FHA Loan to the Contract of Insurance Holder. The Master
Servicer is not responsible for the transfer of FHA Insurance or the payment of
any premium for FHA Insurance.
Section 4.04 Annual Statement as to Compliance; Notice of Event of
Default.
(a) The Master Servicer will deliver to the Indenture Trustee, the
Depositor and the Securities Insurer on or before May 31 of each year, beginning
in 1998 an Officer's Certificate signed by two Responsible Officers of the
Master Servicer stating with respect to the Trust, that:
(i) a review of the activities of the Master Servicer during the
preceding calendar year (or in connection with the first such Officer's
Certificate the period from the Closing Date through the end of 1997)
and of the Master Servicer's performance under this Agreement with
respect to such Trust has been made under the supervision of the signer
of such Officer's Certificate; and
(ii) to the best of such signer's knowledge, based on such
review, the Master Servicer has fulfilled all its obligations under this
Agreement throughout such year (or such portion of such year), or there
has been a default in the fulfillment of any such obligation, in which
case such Officer's Certificate shall specify each such default known to
such signer and the nature and status thereof and what action the Master
Servicer proposes to take with respect thereto.
(b) The Master Servicer shall deliver to the Indenture Trustee, the
Securities Insurer and the Depositor, promptly after having obtained knowledge
thereof, but in no event later than 2 Business Days thereafter, written notice
in an Officer's Certificate of any event
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which with the giving of notice or lapse of time, or both, would become an Event
of Default under Section 10.01. Each of Mego, the Depositor, the Securities
Insurer, the Indenture Trustee, the Owner Trustee and the Master Servicer shall
deliver to the other of such Persons promptly after having obtained knowledge
thereof, but in no event later than 2 Business Days thereafter, written notice
in an Officer's Certificate of any event which with the giving of notice or
lapse of time, or both, would become an Event of Default under Section 10.01.
Section 4.05 Annual Independent Accountants' Report; Servicer Review
Report.
(a) The Master Servicer shall cause a firm of Independent Accountants,
who may also render other services to the Master Servicer, to deliver to the
Indenture Trustee, Owner Trustee, the Depositor and the Securities Insurer on or
before May 31 (or 150 days after the end of the Master Servicer's fiscal year)
of each year, beginning on the first May 31 (or other applicable date) after the
date that is six months after the Closing Date, with respect to the twelve
months ended the immediately preceding December 31 (or other applicable date)
(or such other period as shall have elapsed from the Closing Date to the date of
such certificate) a report, conducted in accordance with generally accepted
accounting principles (the "Accountant's Report") including: (i) an opinion on
the financial position of the Master Servicer at the end of its most recent
fiscal year, and the results of operations and changes in financial position of
the Master Servicer for such year then ended on the basis of an examination
conducted in accordance with generally accepted auditing standards, and (ii) a
statement to the effect that, based on an examination of certain specified
documents and records relating to the servicing of the Master Servicer's
mortgage loan portfolio or the affiliate of the Master Servicer principally
engaged in the servicing of mortgage loans conducted in compliance with the
audit program for mortgages serviced for FNMA, the United States Department of
Housing and Urban Development Mortgagee Audit Standards or the Uniform Single
Attestation Program for Mortgage Bankers (the "Applicable Accounting Standards")
such firm is of the opinion that such servicing has been conducted in compliance
with the Applicable Accounting Standards except for such exceptions as such firm
shall believe to be immaterial and such other exceptions as shall be set forth
in such statement.
(b) In addition, the Master Servicer will provide a report of a firm of
Independent Accountants which shall state that (1) a review in accordance with
agreed upon procedures (determined by the Securities Insurer) was made of such
number of Master Servicer Certificates which the Independent Accountants deem
necessary to carry out their review of Master Servicer performance, but in no
case less than two and (2) except as disclosed in the Accountant's Report, no
exceptions or errors in the Master Servicer Certificates so examined were found.
The Accountant's Report shall also indicate that the firm is independent of the
Master Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
(c) The Master Servicer shall mail a copy of the Servicer Review Report
and any report or statement of the Servicer prepared pursuant to Section 6.04 of
the Servicing Agreement to the Indenture Trustee.
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(d) (1) The Master Servicer shall, unless otherwise directed by the
Securities Insurer, cause a firm of Independent Accountants chosen with the
consent of the Securities Insurer to review, annually within 90 days after each
anniversary of the Closing Date, in accordance with agreed upon procedures
(determined by the Securities Insurer) the performance of the Servicer under the
Servicing Agreement in order to confirm that the records of the Servicer
accurately reflect collections, delinquencies and other relevant data with
respect to the Loans reported to the Master Servicer for the purpose of
preparation of the Servicing Record, and that such data is accurately reported
to the Master Servicer for reflection in the Servicing Record. Any exceptions or
errors disclosed by such procedures shall be included in a report delivered to
the Master Servicer, the Indenture Trustee, Owner Trustee and the Securities
Insurer (the "Servicer Review Report").
(2) If the Securities Insurer, upon receipt and review of the
Servicer Review Report, determines in its sole discretion that the errors or
exceptions disclosed by the Servicer Review Report warrant further review of the
performance of the Servicer, then the Securities Insurer may, so long as no
Securities Insurer Default exists, direct the Master Servicer to cause such firm
of Independent Accountants to perform such further review with respect to the
performance of Servicer as is reasonably requested by the Securities Insurer.
(3) In addition to the foregoing, the Securities Insurer may at
any time and from time to time, so long as no Securities Insurer Default exists,
direct the Master Servicer to cause such firm of Independent Accountants to
conduct such additional reviews and prepare such additional reports with respect
to the performance of any Servicer as the Securities Insurer deems reasonably
appropriate.
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans.
The Master Servicer shall provide to representatives of the Indenture
Trustee or the Securities Insurer reasonable access to (a) the documentation
regarding the Home Loans and to those employees of the Master Servicer who are
responsible for the performance of the Master Servicer's duties hereunder and
(b) the books of account, records, reports and other papers of the Master
Servicer and to discuss its affairs, finances and accounts with its employees
and Independent accountants for the purpose of reviewing or evaluating the
financial condition of the Master Servicer. The Master Servicer shall provide
such access to any Securityholder only in such cases where the Master Servicer
is required by applicable statutes or regulations (whether applicable to the
Master Servicer or to such Securityholder) to permit such Securityholder to
review such documentation. In each case, such access shall be afforded without
charge but only upon reasonable request and during normal business hours.
Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of the Master Servicer to provide access
as provided in this Section as a result of such obligation shall not constitute
a breach of this Section. Any Securityholder, by its acceptance of a Security
(or by acquisition of its beneficial interest therein), shall be deemed to have
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agreed to keep confidential and not to use for its own benefit any information
obtained by it pursuant to this Section, except as may be required by applicable
law or by any applicable regulatory authority.
Section 4.07 [Reserved]
Section 4.08 Advances.
(a) With respect to the Home Loans (other than Defaulted Home Loans) and
each Distribution Date, the Master Servicer shall advance from its own funds and
deposit into the Note Distribution Account or from funds on deposit in the
related Collection Account in respect of amounts available for distribution on
future Distribution Dates, no later than the related Determination Date, the
excess, if any, of (i) the aggregate of the portions of the Monthly Payments due
with respect to all Home Loans in the related Due Period allocable to interest
(calculated at a rate equal to the Net Loan Rate) less any Civil Relief Act
Interest Shortfalls over (ii) the aggregate amount deposited into the Note
Distribution Account with respect to all Home Loans and such Distribution Date
and allocated in accordance with Section 4.03(c) to interest (such amounts,
"Interest Advances"). Any funds so applied from funds on deposit in the
Collection Account in respect of amounts available for distribution on future
Distribution Dates shall be reimbursed by the Master Servicer on or before any
future Distribution Date to the extent that funds on deposit in the Note
Distribution Account applied in the order of priority set forth in such Section
5.01(c) would be less than the amount required to be distributed pursuant to
Section 5.01(c) on such dates as a result of such Interest Advances.
Notwithstanding anything herein to the contrary, no Interest Advance
shall be required to be made hereunder if the Master Servicer determines that
such Interest Advance would, if made, constitute a Nonrecoverable Advance.
(b) The Master Servicer shall advance from its own funds the following
amounts in respect of any Mortgage Loan or Foreclosed Property, as applicable
(collectively, "Foreclosure Advances"):
(i) all third party costs and expenses (including legal fees and
costs and expenses relating to bankruptcy or insolvency proceedings in
respect of any Obligor) associated with the institution of foreclosure
or other similar proceedings in respect of any Home Loan pursuant to
Section 4.12;
(ii) all insurance premiums due and payable in respect of each
Foreclosed Property, prior to the date on which the related Insurance
Policy would otherwise be terminated;
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(iii) all real estate taxes and assessments in respect of each
Foreclosed Property that have resulted in the imposition of a lien
thereon, other than amounts that are due but not yet delinquent;
(iv) all costs and expenses necessary to maintain each
Foreclosed Property;
(v) all fees and expenses payable to any Independent Contractor
hired to operate and manage a Foreclosed Property pursuant to Section
4.14(b); and
(vi) all fees and expenses of any Independent appraiser or other
real estate expert retained by the Indenture Trustee pursuant to Section
4.13(a).
The Master Servicer shall advance the Foreclosure Advances described in clauses
(i) through (v) above if, but only if, it has approved the foreclosure or other
similar proceeding in writing and the Master Servicer would make such an advance
if it or an affiliate held the affected Mortgage Loan or Foreclosed Property for
its own account and, in the Master Servicer's good faith judgment, such advance
would not constitute a nonrecoverable advance. In making such assessment with
respect to the institution of such proceedings, the Master Servicer shall not
advance funds with respect to a Mortgage Loan unless the appraised value of the
related Property exceeds the sum of (i) the amounts necessary to satisfy any
liens prior to the liens on Mortgages securing such Mortgage Loan and (ii) the
reasonably anticipated costs of foreclosure or similar proceedings.
Section 4.09 Reimbursement of Interest Advances and Foreclosure
Advances.
(a) The Master Servicer shall be entitled to be reimbursed pursuant to
Section 5.01(c) for previously unreimbursed Interest Advances made from its own
funds or any such previously unreimbursed Interest Advance by the Servicer with
respect to a Home Loan on Distribution Dates subsequent to the Distribution Date
in respect of which such Interest Advance was made from Payments with respect to
such Home Loan. If a Home Loan shall become a Defaulted Home Loan and the Master
Servicer shall not have been fully reimbursed for any such Interest Advances
with respect to such Home Loan, the Master Servicer shall be entitled to be
reimbursed for the outstanding amount of such Interest Advances from unrelated
Home Loans pursuant to Section 5.01(c). No interest shall be due to the Master
Servicer in respect of any Interest Advance for any period prior to the
reimbursement thereof.
(b) The Master Servicer shall be entitled to be reimbursed pursuant to
Section 5.01(c) from related Payments for Foreclosure Advances advanced on or
prior to the related Monthly Cut-Off Date but only to the extent the Master
Servicer has satisfied the requirements of Section 4.08. No interest shall be
due to the Master Servicer in respect of any Foreclosure Advance for any period
prior to the reimbursement thereof.
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(c) The Indenture Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 5.01(c), amounts, if
any, which were required to be deposited in any Collection Account pursuant to
Section 5.01(c) with respect to the related Due Period but which were not so
deposited.
Section 4.10. Modifications, Waivers, Amendments and Consents.
(a) The Master Servicer shall not agree to any modification, waiver or
amendment of any provision of any Home Loan unless, in the Master Servicer's
good faith judgment, such modification, waiver or amendment (i) would minimize
the loss that might otherwise be experienced with respect to such Home Loan, and
(ii) in the case of any FHA Loan, complies with the requirements of Title I or
is required by Title I and such FHA Loan has experienced a payment default or a
payment default is reasonably foreseeable by the Master Servicer. The Master
Servicer shall agree to subordinate the position of the security interest in the
Property which secures any FHA Loan upon the Master Servicer's receipt of
written approval of HUD to such subordination or written certification by the
Servicer that such proposed subordination complies with current published HUD
requirements and provided such subordination (i) would permit the Obligor to
refinance a senior lien to take advantage of a lower interest rate or (ii) would
permit the Obligor to extend the term of the senior lien. Notwithstanding the
foregoing, at no time shall the aggregate of the Principal Balances of Home
Loans modified, waived or amended without the prior or subsequent approval of
the Securities Insurer exceed 3% of the aggregate of the Initial Pool Principal
Balance and no modification or amendment of a Home Loan shall involve the
execution by the Obligor of a new Debt Instrument or, with respect to any
Mortgage Loan, of a new Mortgage. At the request of the Master Servicer, the
Securities Insurer, at its discretion, may approve an increase in or waiver of
the percentage referred to in the previous sentence, such approval not to be
unreasonably withheld.
(b) The Master Servicer shall notify the Indenture Trustee and the
Securities Insurer of any modification, waiver or amendment of any provision of
any Home Loan and the date thereof, and shall deliver to the Indenture Trustee
for deposit in the related Home Loan File, an original counterpart of the
agreement relating to such modification, waiver or amendment, promptly following
the execution thereof. Such notice shall state that the conditions contained in
this Section 4.10 have been satisfied.
Section 4.11. Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the Obligee's
option) become due and payable upon the sale or other transfer of an
interest in the related Property; or
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(ii) provides that such Home Loan may not be assumed without the
consent of the related Obligee in connection with any such sale or other
transfer,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Indenture Trustee, shall exercise any right the Trust
or the Indenture Trustee may have as the Obligee of record with respect to such
Home Loan (x) to accelerate the payments thereon, or (y) to withhold its consent
to any such sale or other transfer, in a manner consistent with the servicing
standard set forth in Section 4.01.
(b) If any Home Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the Obligee's
option) become due and payable upon the creation of any lien or other
encumbrance on the related Property; or
(ii) requires the consent of the related Obligee to the creation
of any such lien or other encumbrance on the related Property,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Trust or the Indenture Trustee, shall exercise any
right the Indenture Trustee may have as the Obligee of record with respect to
such Home Loan (x) to accelerate the payments thereon, or (y) to withhold its
consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in Section 4.01.
(c) Nothing in this Section 4.11 shall constitute a waiver of the
Indenture Trustee's right to receive notice of any assumption of a Home Loan,
any sale or other transfer of the related Property or the creation of any lien
or other encumbrance with respect to such Property.
(d) Except as otherwise permitted by Section 4.10, the Master Servicer
shall not agree to modify, waive or amend any term of any Home Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 4.11.
Section 4.12. Claim for FHA Insurance and Foreclosure.
(a) (x) If any Monthly Payment due under any FHA Loan is not paid when
the same becomes due and payable, or if the Obligor fails to perform any other
covenant or obligation under such FHA Loan and such failure continues beyond any
applicable grace period, the Master Servicer shall take such action (consistent
with Title I, including efforts to cure the default of such FHA Loan pursuant to
24 C.F.R. Section 201.50) as it shall deem to be in the best interest of the
Trust. If the maturity of the related Note has been accelerated pursuant to the
requirements under Title I following the Master Servicer's efforts to cure the
default of such FHA Loan (and such FHA Loan is not required to be purchased
pursuant to Section
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2.04(b)), and (i) if an FHA Insurance Coverage Insufficiency does not exist at
the time, the Claims Administrator shall initiate, on behalf of the Trust and
the Contract of Insurance Holder, a claim under the Contract of Insurance for
reimbursement for loss on such FHA Loan pursuant to Title I (see 24 C.F.R.
Section 201.54), or (ii) if an FHA Insurance Coverage Insufficiency exists at
the time, the Master Servicer shall determine within 90 days in accordance with
Section 4.12(c) whether or not to proceed against the Property securing such FHA
Loan, if such FHA Loan is a Mortgage Loan or against the Obligor, if such FHA
Loan is unsecured, and if thereafter an FHA Insurance Coverage Insufficiency
does not exist, the Claims Administrator may submit a claim under the Contract
of Insurance with respect to such FHA Loan if it has obtained the prior approval
of the Secretary of HUD pursuant to 24 C.F.R. Section 201.51; or (y) if any
Monthly Payment due under any Non-FHA Loan is not paid when the same is due and
payable, or if the Obligor fails to perform any other covenant or obligation
under such Non-FHA Loan and such failure continues beyond any applicable grace
period, the Master Servicer shall take such action as it shall deem to be in the
best interest of the Trust; including but not limited to proceeding against the
Property securing such Non-FHA Loan.
In the event that in accordance with clauses (a)(x)(ii) and (y) above
the Master Servicer determines not to proceed against the Property or Obligor,
as applicable, on or before the Determination Date following such determination
the Master Servicer shall determine in good faith in accordance with customary
servicing practices that all amounts which it expects to receive with respect to
such Loan have been received. If the Master Servicer makes such a determination,
it shall give notice to such effect pursuant to Section 4.03(e)(xiv).
(b) If the Claims Administrator initiates a claim for reimbursement for
loss on any FHA Loan under this Section, the Claims Administrator shall comply
with applicable provisions of Title I and diligently pursue such claim and, in
any event, shall initiate such claim no later than the last day permitted under
Title I (see 24 C.F.R. Section 201.54(b)). For purposes of this Agreement, the
term "initiate a claim for reimbursement" shall mean the filing of the claim
application pursuant to the requirements set forth in 24 C.F.R. Section 201.54,
including the filing of all related assignments and documents and materials
required for file review. For the purposes of such filing, the Claims
Administrator shall request, and the Co-Owner Trustee within 5 calendar days of
request shall deliver to the Claims Administrator, the Note and the related
Mortgage for such FHA Loan and each other item in the related File necessary to
make such claim. Each Securityholder hereby consents to the assignment of such
FHA Loan for the sole purpose of initiating a claim under the Contract of
Insurance for reimbursement with respect to such FHA Loan. Pursuant to Section
4.12(i), the Contract of Insurance Holder shall furnish the Claims Administrator
a power of attorney to file claims under the Contract of Insurance. The Co-Owner
Trustee and Contract of Insurance Holder agree to execute and deliver to the
Claims Administrator, within 5 Business Days of receipt from the Claims
Administrator, all documents, if any, necessary to initiate and file a claim
under the Contract of Insurance for such FHA Loan, which documents shall be
prepared by the Claims Administrator. If any claim to the FHA becomes a Rejected
Claim, upon receipt of the FHA's rejection notice by the Claims Administrator
directly from the FHA or
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from the Contract of Insurance Holder pursuant to Section 4.12(e) and a
determination by the Claims Administrator that the rejection was not due to
clerical error, then the Claims Administrator shall promptly notify the Contract
of Insurance Holder (if such notice has not already been given), the Indenture
Trustee and the Securities Insurer of the notice of a Rejected Claim.
If the FHA indicates in writing that the claim is a Rejected Claim due
to reasons other than a failure to service the related FHA Loan in accordance
with Title I after the Closing Date, Mego shall repurchase the FHA Loan on or
before the Monthly Cut-Off Date next following the date of such notice from the
Claims Administrator to repurchase such FHA Loan, either directly from FHA or
from the Trust, for the Purchase Price. If FHA indicates in writing that the
claim is a Rejected Claim due to a failure to service such FHA Loan in
accordance with Title I after the Closing Date, the Claims Administrator shall
immediately notify Mego, the Master Servicer, the Contract of Insurance Holder,
the Trust, the Indenture Trustee and the Securities Insurer of such
determination, and the Master Servicer shall on or before the later to occur of
(i) the next succeeding Monthly Cut-Off Date and (ii) ten Business Days from the
date on which such rejection notice is received by the Claims Administrator,
purchase such FHA Loan either directly from FHA or from the Trust, for the
Purchase Price. In the event that the FHA fails to indicate in writing why the
claim is a Rejected Claim, the Claims Administrator shall determine why the
claim is a Rejected Claim. If the Claims Administrator determines that the claim
is a Rejected Claim for reasons other than a servicing failure that occurred
after the Closing Date, Mego shall be obligated to repurchase such FHA Loan for
the Purchase Price. If the Claims Administrator determines that the claim is a
Rejected Claim due to a servicing failure that occurred after the Closing Date,
the Master Servicer shall be obligated to repurchase such FHA Loan for the
Purchase Price. Notwithstanding any provisions herein to the contrary, neither
Mego nor the Master Servicer shall be required to repurchase or purchase, as
applicable, any FHA Loan subject to a Rejected Claim as a result of the
depletion of the amount of the FHA Insurance Coverage Reserve Account as shown
in the Insurance Record.
(c) In accordance with the criteria for proceeding against the Property
set forth in Section 4.12(a), with respect to an FHA Loan that is a Mortgage
Loan that has been accelerated pursuant to the requirements of Title I following
the Master Servicer's efforts to cure the default of the FHA Loan, and with
respect to a Non-FHA Loan that is a Mortgage Loan, unless otherwise prohibited
by applicable law or court or administrative order, the Master Servicer, on
behalf of the Trust and the Indenture Trustee, may, at any time, institute
foreclosure proceedings, exercise any power of sale to the extent permitted by
law, obtain a deed in lieu of foreclosure, or otherwise acquire possession of or
title to the related Property, by operation of law or otherwise.
In accordance with the criteria for proceeding against the Property set
forth in Section 4.12(a), with respect to FHA Loans that are Mortgage Loans and
with respect to the Non-FHA Loans, the Master Servicer shall institute
foreclosure proceedings, repossess, exercise any power of sale to the extent
permitted by law, obtain a deed in lieu of foreclosure, or
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otherwise acquire possession of or title to any Property, by operation of law or
otherwise only in the event that in the Master Servicer's reasonable judgement
such action is likely to result in a positive economic benefit to the Trust by
creating net liquidation proceeds (after reimbursement of all amounts owed with
respect to such Home Loan to the Master Servicer or the Servicer) and provided
that, with respect to any Property, prior to taking title thereto, the Master
Servicer has requested that the Indenture Trustee obtain, and the Indenture
Trustee shall have obtained, an environmental review to be performed on such
Property by a company with recognized expertise, the scope of which is limited
to the review of public records and documents for information regarding whether
such Property has on it, under it or is near, hazardous or toxic material or
waste. If such review reveals that such Property has on it, under it or is near
hazardous or toxic material or waste or reveals any other environmental problem,
the Indenture Trustee shall provide a copy of the related report to the Master
Servicer and the Securities Insurer and title shall be taken to such Property
only after obtaining the written consent of the Securities Insurer.
In connection with any foreclosure proceeding on an FHA Loan, the Master
Servicer shall comply with the requirements under Title I, shall follow such
practices and procedures in a manner which is consistent with the Master
Servicer's procedure for foreclosure with respect to similar FHA Title I loans
held in the Master Servicer's portfolio for its own account or, if there are no
such loans, FHA Title I loans serviced by the Master Servicer for others. To the
extent required by Section 4.08, the Master Servicer shall advance all necessary
and proper Foreclosure Advances until final disposition of the Foreclosed
Property and shall manage such Foreclosed Property pursuant to Section 4.14. If,
in following such foreclosure procedures, title to the Foreclosed Property is
acquired, the deed or certificate of sale shall be issued to the Co-Owner
Trustee and the Indenture Trustee.
(d) With respect to any FHA Loan, each of the Co-Owner Trustee, Owner
Trustee, Indenture Trustee and the Contract of Insurance Holder shall deposit in
the Note Distribution Account on the day of receipt all amounts received from
the FHA or any other Person with respect to such FHA Loans or any other assets
of the Trust and shall transmit by facsimile, or such other method requested by
the Master Servicer, Claims Administrator or the Securities Insurer, to the
Master Servicer, Claims Administrator and the Securities Insurer on each such
day the letter of transmittal received from the FHA and any other documents with
respect to such receipt. Each of the Co-Owner Trustee, Owner Trustee, Indenture
Trustee and the Contract of Insurance Holder shall also promptly deliver to the
Claims Administrator copies of any other correspondence received from the FHA or
sent to the FHA by the Co-Owner Trustee, Owner Trustee, Indenture Trustee or the
Contract of Insurance Holder, as the case may be, including, but not limited to,
any correspondence regarding the balance of the FHA Insurance Coverage Reserve
Account, premiums due and claims rejected.
(e) If, prior to the Termination Date, the FHA rejects an insurance
claim, in whole or part, under the Contract of Insurance after previously paying
such insurance claim and the FHA demands that the Contract of Insurance Holder
repurchase such FHA Loan, the Claims Administrator shall pursue such appeals
with the FHA as are reasonable. If the FHA
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continues to demand that the Contract of Insurance Holder repurchase such FHA
Loan after the Claims Administrator exhausts such administrative appeals as are
reasonable, then notwithstanding that Mego, the Master Servicer or any other
person is required to repurchase such FHA Loan under this Agreement, the Claims
Administrator shall notify the Contract of Insurance Holder of such fact and the
Contract of Insurance Holder in its capacity as Co-Owner Trustee and the
Indenture Trustee shall repurchase such FHA Loan from funds available in the
Note Distribution Account. The Claims Administrator shall, to the extent
possible, direct the Indenture Trustee to make all such repurchases of FHA Loans
once a month and to repurchase any and all such FHA Loans from the FHA in that
portion of the calendar month after each Distribution Date. If the Indenture
Trustee withdraws any amounts from the Trust for such purpose between the
Determination Date and Distribution Date of any month, the Master Servicer shall
prepare the Master Servicer Certificate provided under Section 6.01 for such
Distribution Date (or promptly revise the Master Servicer Certificate if already
prepared for such Distribution Date) to reflect such withdrawals as if made on
such Determination Date and the Trustee shall revise its determination pursuant
to Section 6.01 accordingly. To the extent allowed by FHA, Mego may repurchase
directly from FHA any FHA Loan for which an insurance claim has been paid and
later rejected by FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than (i) a failure to service the FHA Loan in accordance with Title I
after the Closing Date or (ii) the amount in the FHA Insurance Coverage Reserve
Account is insufficient to pay such claim, or if the FHA does not indicate in
writing the reason for its rejection or refusal, Mego shall be liable to
reimburse the Trust for any amounts paid by the Indenture Trustee to the FHA in
order to repurchase such FHA Loan. Subject to Section 4.12(b), if the FHA
indicates in writing, or it is agreed by the Master Servicer, in connection with
its rejection or refusal to pay a claim that such rejection or refusal is due to
a failure to service such Loan in accordance with Title I after the Closing
Date, the Master Servicer shall be liable to reimburse the Trust or Mego for any
amounts paid by the Trust or Mego, as the case may be, to FHA in order to
repurchase FHA Loans for which the FHA has rejected an insurance claim as a
result of a failure to service such FHA Loan in accordance with Title I.
(f) If, after the Termination Date, the FHA rejects an insurance claim,
in whole or part, under the Contract of Insurance after previously paying such
insurance claim and the FHA demands that the Contract of Insurance Holder
repurchase such FHA Loan, the Claims Administrator shall pursue such appeals
with the FHA as are reasonable. If the FHA continues to demand that the Contract
of Insurance Holder repurchase such FHA Loan after the Claims Administrator
exhausts such administrative appeals as are reasonable, then notwithstanding
that Mego or any other person is required to repurchase such FHA Loan under this
Agreement, the Claims Administrator shall notify the Contract of Insurance
Holder of such fact and the Contract of Insurance Holder shall repurchase such
FHA Loan from the FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than (i) a failure to service the FHA Loan in accordance with Title I
after the Closing Date or (ii) the amount in the FHA Insurance Coverage Reserve
Account is insufficient to pay such claim, or if FHA does not indicate in
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writing the reason for its rejection or refusal, Mego shall be liable to
reimburse the Contract of Insurance Holder for any amounts paid by the Contract
of Insurance Holder to the FHA in order to repurchase such FHA Loan. Subject to
Section 4.12(b), if the FHA indicates in writing, or it is agreed by the Master
Servicer, in connection with its rejection or refusal to pay a claim that such
rejection or refusal is due to a failure to service such FHA Loan in accordance
with Title I after the Closing Date, the Master Servicer shall be liable to
reimburse the Contract of Insurance Holder or Mego for any amounts paid by the
Contract of Insurance Holder or Mego to FHA in order to repurchase FHA Loans for
which the FHA has rejected an insurance claim as a result of a failure to
service such FHA Loan in accordance with Title I.
(g) The Claims Administrator shall be entitled to reimbursement of
expenses associated with the filing of any FHA Insurance claim from and to the
extent that such amounts are reimbursed by HUD.
(h) The Indenture Trustee shall furnish the Claims Administrator or the
Servicer, as applicable, within 5 days of request of the Claims Administrator or
the Servicer therefor any powers of attorney and other documents necessary and
appropriate to carry out its respective duties hereunder, including any
documents or powers of attorney necessary to foreclose or file a claim with
respect to any FHA Loan and to file claims with the FHA under the Contract of
Insurance. The forms of any such powers or documents shall be appended to such
requests. The Contract of Insurance Holder shall furnish the Claims
Administrator or the Servicer, as applicable, within 5 days of request of the
Claims Administrator or the Servicer therefor any powers of attorney and other
documents necessary and appropriate to carry out its administrative duties
pursuant to Section 4.12.
Section 4.13. Sale of Foreclosed Properties.
(a) The Master Servicer may offer to sell to any Person any Foreclosed
Property, if and when the Master Servicer determines consistent with the
Servicing Standard and that such a sale would be in the best interests of the
Trust, but shall, with respect to the FHA Loans, in any event, so offer to sell
any Foreclosed Property in accordance with the criteria set forth in Section
4.12 and no later than the time determined by the Master Servicer to be
sufficient to result in the sale of such Foreclosed Property on or prior to the
date specified in Section 4.12(d). The Master Servicer shall give the Indenture
Trustee and the Securities Insurer not less than five days' prior notice of its
intention to sell any Foreclosed Property, and shall accept the highest bid
received from any Person for any Foreclosed Property in an amount at least equal
to the sum of:
(i) the Principal Balance of the related foreclosed Home Loan,
unreimbursed Foreclosure Advances plus the outstanding amount of any
liens superior in priority, if any, to the lien of the foreclosed Home
Loan; and
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(ii) all unpaid interest accrued thereon at the related Home
Loan Interest Rate through the date of sale.
In the absence of any such bid, the Master Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
other than an Interested Person, or by an Independent appraiser retained by the
Master Servicer, if the highest bidder is an Interested Person. In the absence
of any bid determined to be fair as aforesaid, the Master Servicer shall offer
the affected Foreclosed Property for sale to any Person, other than an
Interested Person, in a commercially reasonable manner for a period of not less
than 10 or more than 30 days, and shall accept the highest cash bid received
therefor in excess of the highest bid previously submitted. If no such bid is
received, any Interested Person may resubmit its original bid, and the Master
Servicer shall accept the highest outstanding cash bid, regardless of from whom
received. No Interested Person shall be obligated to submit a bid to purchase
any Foreclosed Property, and notwithstanding anything to the contrary herein,
neither the Indenture Trustee, in its individual capacity, nor any of its
affiliates may bid for or purchase any Foreclosed Property pursuant hereto.
(b) In determining whether any bid constitutes a fair price for any
Foreclosed Property or to effectuate the payment of a claim under the Contract
of Insurance, the Master Servicer shall take into account, and any appraiser or
other expert in real estate matters shall be instructed to take into account, as
applicable, among other factors, the financial standing of any tenant of the
Foreclosed Property, the physical condition of the Foreclosed Property, the
state of the local and national economies and, with respect to the FHA Loans
which are Mortgage Loans, the Trust's obligation to dispose of any Foreclosed
Property within the time period specified in Section 4.12(d).
(c) Subject to the provision of Section 4.12, the Master Servicer shall
act on behalf of the Indenture Trustee in negotiating and taking any other
action necessary or appropriate in connection with the sale of any Foreclosed
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosed Property shall be without recourse to the
Indenture Trustee, the Master Servicer or the Trust, and if consummated in
accordance with the terms of this Agreement, neither the Master Servicer nor the
Indenture Trustee shall have any liability to any Securityholder with respect to
the purchase price therefor accepted by the Master Servicer or the Indenture
Trustee.
Section 4.14. Management of Real Estate Owned.
(a) If the Trust acquires any Foreclosed Property pursuant to Section
4.12, the Master Servicer shall have full power and authority, subject only to
the specific requirements and prohibitions of this Agreement, to do any and all
things in connection therewith as are consistent with the manner in which the
Master Servicer manages and operates similar property owned by the Master
Servicer or any of its affiliates, all on such terms and for such period as the
Master Servicer deems to be in the best interests of Securityholders.
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(b) The Master Servicer may contract with any Independent Contractor for
the operation and management of any Foreclosed Property, provided that:
(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered
to require, that the Independent Contractor remit all related Payments
to the Master Servicer as soon as practicable, but in no event later
than two Business Days following the receipt thereof by such Independent
Contractor;
(iii) none of the provisions of this Section 4.14(b) relating to
any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Master Servicer of any of its
duties and obligations to the Indenture Trustee for the benefit of
Securityholders with respect to the operation and management of any such
Foreclosed Property; and
(iv) the Master Servicer shall be obligated with respect thereto
to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such
Foreclosed Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, but shall be entitled to
be reimbursed for all such fees advanced by it pursuant to Section 4.08(b)(v) in
the manner provided in Section 4.09(b).
Section 4.15. Inspections.
The Master Servicer shall inspect or cause to be inspected each Property
that secures any Home Loan at such times and in such manner as are consistent
with the servicing standard set forth in Section 4.01.
Section 4.16. Maintenance of Insurance.
(a) The Master Servicer shall maintain or cause to be maintained with
respect to each Property securing an FHA Loan such insurance as is required with
respect thereto by Title I. The Master Servicer shall cause to be maintained for
each Foreclosed Property acquired by the Trust such types and amounts of
insurance coverage as the Master Servicer shall deem reasonable. The Master
Servicer shall cause to be maintained for each Non-FHA Loan, fire and hazard
insurance naming Mego as loss payee thereunder providing extended coverage in an
amount which is at least equal to the least of (i) the maximum insurable value
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of the improvements securing such Non-FHA Loan from time to time, (ii) the
combined principal balance owing on such Non-FHA Loan and any mortgage loan
senior to such Non-FHA Loan and (iii) the minimum amount required to compensate
for damage or loss on a replacement cost basis. In cases in which any Property
securing a Non-FHA Loan is located in a federally designated flood area, the
hazard insurance to be maintained for the related Loan shall include flood
insurance to the extent such flood insurance is available and the Master
Servicer has determined such insurance to be necessary in accordance with
accepted mortgage loan servicing standards for mortgage loans similar to the
Mortgage Loans. All such flood insurance shall be in amounts equal to the least
of (A) the maximum insurable value of the improvement securing such Non-FHA
Loan, (B) the combined principal balance owing on such Non-FHA Loan and any
mortgage loan senior to such Non-FHA Loan and (c) the maximum amount of
insurance available to the lender under the National Flood Insurance Act of
1968, as amended.
(b) Any amounts collected by the Master Servicer under any Insurance
Policies, shall be paid over or applied by the Master Servicer as follows:
(i) In the case of amounts received in respect of any Home Loan:
(A) for the restoration or repair of the affected
Property, in which event such amounts shall be released to the
Obligor in accordance with the terms of the related Debt
Instrument or to the extent not so used, or
(B) in reduction of the Principal Balance of the related
Home Loan, in which event such amounts shall be credited to the
related Servicing Record,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
(ii) Subject to Section 4.14, in the case of amounts received in
respect of any Foreclosed Property, for the restoration or repair of
such Foreclosed Property, unless the Master Servicer determines,
consistent with the servicing standard set forth in Section 4.01, that
such restoration or repair is not in the best economic interest of the
Trust, in which event such amounts shall be credited, as of the date of
receipt, to the applicable Servicing Record, as a Payment received from
the operation of such Foreclosed Property.
Section 4.17. Release of Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
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(ii) the Master Servicer, or the Servicer shall have received,
in escrow, payment in full of such Home Loan in a manner customary for
such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Trust pursuant to Section 3.05;
(iv) such Home Loan or the related Foreclosed Property has been
sold in connection with the termination of the Trust pursuant to Section
11.01;
(v) the FHA has paid a claim with respect to such Home Loan that
is an FHA Loan under the Contract of Insurance; or
(vi) the related Foreclosed Property has been sold pursuant to
Section 4.13.
In each such case, the Servicer shall deliver a certificate to the effect that
the Servicer has complied with all of its obligations under the Servicing
Agreement with respect to such Home Loan and requesting that the Indenture
Trustee release to the Servicer the related Home Loan File, then the Indenture
Trustee shall, within three Business Days or such shorter period as may be
required by applicable law, release, or cause the Custodian to release (unless
such Home Loan File has previously been released), the related Home Loan File to
the Servicer and execute and deliver such instruments of transfer or assignment,
in each case without recourse, as shall be necessary to vest ownership of such
Home Loan in the Servicer or such other Person as may be specified in such
certificate, the forms of any such instrument to be appended to such
certificate.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Home Loan or to effectuate the payment of a claim under the
Contract of Insurance, the Indenture Trustee shall, upon request of the
Servicer, release the related File (or any requested portion thereof) to the
Servicer. Such receipt shall obligate the Servicer, to return the File (or such
portion thereof) to the Indenture Trustee when the need therefor by the
Servicer, no longer exists unless any of the conditions specified in subsection
(a) above, is satisfied prior thereto. The Indenture Trustee shall release such
receipt to the Servicer (i) upon the Servicer's return of the Servicer's Home
Loan File (or such portion thereof) to the Indenture Trustee or (ii) if any of
the conditions specified in subsection (a) has been satisfied, and the Servicer
has not yet returned the Servicer's Home Loan File (or such portion thereof) to
the Indenture Trustee, upon receipt of a certificate certifying that any of such
condition has been satisfied.
Section 4.18. Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by Mego and the Depositor, respectively, with respect to the assets
conveyed to the Trust, Mego and
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the Depositor shall prepare, have executed by the necessary parties and file in
the proper jurisdictions all financing and continuation statements necessary to
maintain the liens, security interests, and priorities of such liens and
security interests that have been granted by Mego and the Depositor,
respectively, and Mego and the Depositor shall continue to file on or before
each fifth anniversary of the filing of any financing and continuation
statements such additional financing and continuation statements until the Trust
has terminated pursuant to Section 9.1 of the Trust Agreement. The Indenture
Trustee agrees to cooperate with Mego and the Depositor in preparing, executing
and filing such statements. The Indenture Trustee agrees to notify Mego and the
Depositor on the third Distribution Date prior to each such fifth anniversary of
the requirement to file such financing and continuation statements. The filing
of any such statement with respect to Mego and the Depositor shall not be
construed as any indication of an intent of any party contrary to the expressed
intent set forth in Section 2.04 hereof. If Mego or the Depositor has ceased to
do business whenever any such financing and continuation statements must be
filed or Mego or the Depositor fails to file any such financing statements or
continuation statements at least one month prior to the expiration thereof, the
Indenture Trustee shall perform the services required under this Section 4.18.
Section 4.19. Fidelity Bond.
The Master Servicer shall maintain a fidelity bond in such form and
amount as is customary for entities acting as custodian of funds and documents
in respect of loans on behalf of institutional investors.
Section 4.20. Errors and Omissions Insurance.
The Master Servicer shall obtain and maintain at all times during the
term of this Agreement errors and omissions insurance coverage covering the
Master Servicer and its employees issued by a responsible insurance company. The
issuer, policy terms and forms and amounts of coverage, including applicable
deductibles, shall be reasonably satisfactory to the Securities Insurer and
shall be in such form and amount as is customary for entities acting as master
servicers. The Master Servicer agrees to notify the Securities Insurer in
writing within five (5) days of the Master Servicer's receipt of notice of the
cancellation or termination of any such errors and omissions insurance coverage.
The Master Servicer shall provide to the Securities Insurer upon request written
evidence of such insurance coverage.
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ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.
(a) (1) Establishment of Collection Account. The Indenture Trustee has
heretofore established or caused to be established and shall hereafter maintain
or cause to be maintained a separate account denominated a Collection Account,
which in each case is and shall continue to be an Eligible Account in the name
of the Indenture Trustee and shall be designated "First Trust of New York,
National Association, as Indenture Trustee in trust for Mego Mortgage Home Loan
Asset Backed Securities, Series 1997-1, Collection Account." The Master Servicer
shall cause all Payments to be deposited by the Servicer in the Collection
Account no later than the second Business Day following the date of receipt
thereof by the Servicer. The Indenture Trustee shall provide to the Master
Servicer and the Servicer a monthly statement of all activity in the Collection
Account. Funds in the Collection Account shall be invested in accordance with
Section 5.04.
(2) Establishment of Note Distribution Account. The Indenture Trustee
has heretofore established with itself in its trust capacity at its corporate
trust department for the benefit of Securityholders and the Securities Insurer
an account referred to herein as a Note Distribution Account. The Indenture
Trustee shall at all times maintain the Note Distribution Account as an Eligible
Account and shall cause such account to be designated "First Trust of New York,
National Association, as Indenture Trustee in trust for Mego Mortgage Home Loan
Asset Backed Securities, Series 1997-1 Note Distribution Account."
(3) FHA Reserve Fund. The Indenture Trustee has heretofore established
or caused to be established and shall hereafter maintain or cause to be
maintained a separate account denominated a FHA Reserve Fund, in the name of the
Indenture Trustee and shall be designated "First Trust of New York, National
Association, as Indenture Trustee of the Mego Mortgage Trusts, FHA Reserve
Fund." The Indenture Trustee shall deposit all amounts required to be deposited
therein pursuant to Section 5.01(c)(x). Amounts on deposit therein shall be
withdrawn by the Indenture Trustee at the direction of the Securities Insurer
and paid or deposited to either the Note Distribution Account, the distribution
account of a Related Series or the holders of the Residual Interest Instrument.
Amounts on deposit in the FHA Reserve Fund shall be invested in accordance with
Section 5.04.
(4) FHA Premium Account. The Indenture Trustee has heretofore
established with itself in its trust capacity at its corporate trust department
a segregated trust account referred to herein as the "FHA Premium Account" for
the benefit of the Securityholders and the Securities Insurer. The Indenture
Trustee shall at all times maintain the FHA Premium Account as an Eligible
Account and shall cause such accounts to be designated as "First Trust of New
York, National Association, as Indenture Trustee for Mego Mortgage Home Loan
Asset Backed Securities, Series 1997-1". No later than the second Business Day
preceding
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each Distribution Date, all amounts on deposit in the Note Distribution Account
and Collection Account representing payments by Obligors on Invoiced Loans in
respect of premium on FHA Insurance shall be withdrawn by the Indenture Trustee
and deposited to the FHA Premium Account. Any and all moneys transferred to the
FHA Premium Account pursuant to this Section 5.01(a)(4) shall be held by the
Indenture Trustee in the FHA Premium Account subject to disbursement and
withdrawal as herein provided. Amounts deposited to an FHA Premium Account shall
be invested in accordance with Section 5.04. Amounts on deposit in an FHA
Premium Account shall be withdrawn by the Indenture Trustee, in the amounts
required, for application as follows:
(i) to payment to the FHA of any premiums due on the Contract of
Insurance in respect of FHA Loans, in such amounts and on such dates as
directed by the Master Servicer or Mego; the Indenture Trustee shall
apply all amounts on deposit in the related FHA Premium Account to
payment to the FHA of any premiums due under the Contract of Insurance
as invoiced by FHA and, if, in connection with an FHA Loan, the FHA
Insurance with respect to which shall not yet have been transferred to
the Contract of Insurance, Mego instructs the Indenture Trustee to pay
FHA insurance with respect to such FHA Loan to the related contract of
insurance holder, the Indenture Trustee shall make such payment, and
Mego and not the Indenture Trustee shall be liable in the event of the
failure of such funds to be applied to payment of the premium with
respect to such FHA Loan; and
(ii) on the Business Day preceding a Distribution Date that is
also the Termination Date, the Indenture Trustee shall withdraw from
each FHA Premium Account and deposit in the Note Distribution Account
all amounts then on deposit in the FHA Premium Account, whereupon the
FHA Premium Account shall terminate.
(b) Withdrawals from Collection Account. No later than the second
Business Day preceding each Distribution Date, the Indenture Trustee shall
withdraw amounts from the Collection Account representing the Payments with
respect to such Distribution Date and deposit such amounts into the Note
Distribution Account and liquidate the Eligible Investments in which such
amounts are invested and distribute all net investment earnings to the Servicer.
(c) Withdrawals from Note Distribution Account. On each Distribution
Date, the Indenture Trustee shall liquidate the Eligible Investments in which
amounts on deposit in the Note Distribution Account are invested and distribute
all net investment earnings to Mego and, to the extent funds are available in
the Note Distribution Account, the Indenture Trustee (based on the information
contained in the Master Servicer Certificate for such Distribution Date) shall
make the following withdrawals from the Note Distribution Account by 10:00 a.m.
(New York City time) on such Distribution Date, in the following order of
priority:
(i) to distribute on such Distribution Date the following
amounts pursuant to the Indenture, from the Collected Amount, in the
following order:
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(a) for deposit in the FHA Premium Account, the FHA
Premium Account Deposit for such Distribution Date;
(b) concurrently, to (x) the Master Servicer, the Master
Servicer Fee, (y) the Servicer, the Servicer Fee, and (z) to the
Indenture Trustee, the Indenture Trustee Fee, in each case for
such Distribution Date.
(c) to the Master Servicer or Servicer, any amount in
respect of reimbursement of Interest Advances or Foreclosure
Advances, to which the Master Servicer or any Servicer is
entitled pursuant to Section 4.09 with respect to such
Distribution Date and to the Claims Administrator, amounts in
reimbursement of any expenses, of filing of any FHA Insurance
claim pursuant to Section 4.12(g);
(d) to the Owner Trustee, the Owner Trustee Fee, for
such Distribution Date;
(e) beginning with the April 1997 Distribution Date, to
the Securities Insurer, the Premium for such Distribution Date;
(ii) to the holders of each Class of Notes, from the Amount
Available remaining after the application of clause (i), an amount equal
to the applicable Noteholders' Interest Distributable Amount for such
Distribution Date;
(iii) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Collected Amount remaining after the application
of clauses (i) through (ii) above, the Noteholders' Principal
Distributable Amount (other than the portion constituting Distributable
Excess Spread) for such Distribution Date; provided, however, with
respect to any Distribution Date as to which (a) the Required OC Amount
has been reduced below the Overcollateralization Amount or (b) a full
distribution pursuant to this Section 5.01(c)(iii) would cause the
Overcollateralization Amount to exceed the Required OC Amount, the
amounts to be distributed pursuant to this Section 5.01(c)(iii) shall be
reduced by the amount of such reduction in the case of clause (a) above
and the amount of such excess in the case of (b) above.
(iv) deposit into the Certificate Distribution Account, for
distribution pursuant to Section 5.03(b) on such Distribution Date, from
the Amount Available remaining after the application of clauses (i)
through (iii) above, the Class S Interest Distribution for such
Distribution Date;
(v) to the Securities Insurer, from the Collected Amount after
application of clauses (i) through (iv) above, the Securities Insurer
Reimbursement Amount;
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(vi) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Collected Amount after application of clauses
(i) through (v) above, the Distributable Excess Spread for such
Distribution Date;
(vii) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Amount Available after application of clauses
(i) through (vi) above, the Noteholders' Guaranteed Principal
Distribution Amount, if any, for such Distribution Date;
(viii) to the Securities Insurer, from the Collected Amount
after application of clauses (i) through (vii) above, any other amounts
owing to the Securities Insurer under the Insurance Agreement;
(ix) to any successor Master Servicer, if any, for such
Distribution Date, from the Collected Amount after application of
clauses (i) through (viii), amounts payable in accordance with Section
10.03(c) in addition to the Master Servicer Fee;
(x) to the FHA Reserve Fund, from the Collected Amount after
application of clauses (i) through (ix), any unpaid Excess Claim Amount;
(xi) to the Person entitled thereto, payments in respect of
Other Fees, from the Collected Amount after application of clauses (i)
through (x); and
(xii) deposit into the Certificate Distribution Account, for
distribution pursuant to Section 5.03(b) on such Distribution Date to
the holders of the Residual Interest Instrument, any remaining Collected
Amount after application of clauses (i) through (xi) above.
(d) Additional Withdrawals from Collection Account. On the third
Business Day prior to each Distribution Date, the Indenture Trustee, at the
direction of the Master Servicer shall also make the following withdrawals from
the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error; and
(ii) to clear and terminate the Collection Account in connection
with the termination of this Agreement.
(e) As to each Distribution Date, any shortfall in the amount of
interest required to be distributed pursuant to Section 5.01(c)(ii) above, shall
be allocated among each Class of Notes, in proportion to the amount each such
Class would have been entitled to receive in the
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absence of such shortfall. As to each Distribution Date, distributions pursuant
to Section 5.01(c)(iii), (v) and (vi) shall be made to the Class of Notes as
follows:
(i) prior to the occurrence and continuance of a Securities
Insurer Default, sequentially, to the holders of the Class A-1 Notes,
Class A-2 Notes, Class A- 3 Notes and Class A-4 Notes, in that order,
until their respective Class Principal Balances have been reduced to
zero; and
(ii) upon the occurrence and continuance of a Securities Insurer
Default and upon the first reduction of the Overcollateralization Amount
thereafter to zero, concurrently, to the holders of each Class of Notes
then outstanding, pro rata, based upon their respective Class Principal
Balances immediately prior to such Distribution Date.
(f) All distributions made on each Class of Notes on each Distribution
Date will be made on a pro rata basis among the Noteholders of such Class of
record on the preceding Record Date based on the Percentage Interest represented
by their respective Notes, and except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of such Noteholder, if such Noteholder shall own of record
Notes representing at least a $1,000,000 Denomination and shall have so notified
the Indenture Trustee, and otherwise by check mailed, via first class mail,
postage prepaid, to the address of such Noteholder appearing in the Note
Register. Notwithstanding anything to the contrary contained herein, for
purposes of the March 1997 Distribution Date, the holder of record of all the
Notes shall be Greenwich Capital Markets, Inc. The final distribution on each
Note will be made in like manner, but only upon presentment and surrender of
such Note at the location specified in the notice to Noteholders of such final
distribution.
Whenever the Indenture Trustee, based on a Master Servicer Certificate,
expects that the final distribution with respect to a Class of Securities will
be made on the next Distribution Date, the Indenture Trustee shall, as soon as
practicable, mail to each Holder of such Class of Securities as of the
applicable Record Date a notice to the effect that:
(i) the Indenture Trustee expects that the final distribution
with respect to such Class of Securities will be made on such
Distribution Date, and
(ii) no interest shall accrue on such Class of Securities after
such Distribution Date provided that the final distribution occurs on
such Distribution Date.
Section 5.02 Claims Under Guaranty Policy.
(a) The Insured Securities will be insured by the Guaranty Policy
pursuant to the terms set forth therein, notwithstanding any provisions to the
contrary contained in the Indenture or this Agreement. All amounts received
under the Guaranty Policy shall be used
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solely for the payment to Securityholders of principal and interest on the Notes
and interest on the Certificates.
(b) (i) On the Determination Date preceding each Distribution Date, the
Indenture Trustee shall determine if a Deficiency Amount exists with respect to
each Class of Insured Securities. If a Deficiency Amount does exist with respect
to a Class of Insured Securities, the Indenture Trustee shall promptly, but in
no event later than 12:00 noon New York City time on the second Business Day
preceding the related Distribution Date, make a claim under the Guaranty Policy
for such Class in accordance with its terms.
(b) (ii) On any date on which the Indenture Trustee receives written
notice from the Holder of a Class of Insured Securities that a Preference Amount
is payable pursuant to the terms of the Guaranty Policy, the Indenture Trustee
shall make a claim for the payment of such Preference Amount and shall deliver
the documents required to be delivered under the Guaranty Policy to the
Securities Insurer with respect thereto in the manner set forth in the Guaranty
Policy.
(c) The Securities Insurer is entitled to the benefit of the following
provisions in the event that an Insured Payment has been made. Notwithstanding
any other provision hereof:
(i) The Indenture Trustee (i) shall receive as attorney-in-fact
of each Securityholder with respect to which a Deficiency Amount has
been determined to exist any Insured Payment from the Securities Insurer
and (ii) shall immediately apply all moneys constituting an Insured
Payment to the payment to Securityholders of principal and interest on
the Notes and Certificates, as applicable, by depositing such amounts in
the Note Distribution Account for Insured Payments payable on the
related Class of Notes or in the Certificate Distribution Account for
Insured Payments payable on the Certificates. All amounts received under
the Guaranty Policy shall be used solely for the payment to
Securityholders of principal and interest on Notes and the Certificates,
as applicable. The Securities Insurer's obligations under the Guaranty
Policy with respect to a particular Insured Payment shall be discharged
to the extent funds equal to the applicable Insured Payment are received
by the Indenture Trustee, whether or not such funds are properly applied
by the Indenture Trustee, the Owner Trustee or Co-Owner Trustee. The
parties hereto recognize that the making of an Insured Payment does not
relieve any of the parties hereto of any obligation hereunder or under
any of the Transaction Documents.
(ii) The parties hereto recognize that, to the extent that the
Securities Insurer makes payments, directly or indirectly, on account of
principal of or interest on the Insured Securities, as applicable, the
Securities Insurer shall be subrogated to the rights of the
Securityholders to receive distributions of principal and interest in
accordance with the terms hereof.
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(iii) To the extent the Securities Insurer is owed any
Securities Insurer Reimbursement Amount (including without limitation
any unreimbursed Insured Payments made under the Guaranty Policy plus
interest accrued thereon as provided in the Insurance Agreement), the
Securities Insurer shall be entitled to distributions pursuant to
Section 5.01(c), and the Indenture Trustee shall otherwise treat the
Securities Insurer as the owner of such rights to distributions of any
Reimbursement Amount.
(iv) The Securities Insurer shall have the right to institute
any suit, action or proceeding at law or in equity under the same terms
as a Securityholder may institute any action.
(d) The Indenture Trustee, as the holder of the Guaranty Policy
providing for the guaranty of the Insured Securities, hereby agrees that with
respect to the Certificates, the Indenture Trustee shall make claims under the
Guaranty Policy at the direction or upon the request of the Owner Trustee or
Co-Owner Trustee to receive Insured Payments distributable to the Class S
Certificateholders as part of the Class S Interest Distribution under this
Agreement.
Section 5.03 Certificate Distribution Account.
(a) Establishment. No later than the Closing Date, the Indenture
Trustee, for the benefit of the Securityholders and the Securities Insurer, will
establish and maintain with Indenture Trustee for the benefit of the Owner
Trustee on behalf of the Certificateholders and the Securities Insurer one or
more separate Eligible Accounts, which while the Indenture Trustee holds such
Trust Account shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT, FIRST TRUST
OF NEW YORK, NATIONAL ASSOCIATION, AS CO-OWNER TRUSTEE, in trust for the Mego
Mortgage Home Loan Asset Backed Securities, Series 1997-1". Funds in the
Certificate Distribution Account shall be invested in accordance with Section
5.04.
(b) Distributions. On each Distribution Date, the Indenture Trustee
shall withdraw from the Note Distribution Account all amounts required to be
deposited in the Certificate Distribution Account with respect to the preceding
Due Period pursuant to Section 5.01(c) and will remit such amount to the Owner
Trustee or the Co-Owner Trustee for deposit into the Certificate Distribution
Account. On each Distribution Date, the Owner Trustee or the Co-Owner Trustee
shall distribute all amounts on deposit in the Certificate Distribution Account
to the extent of amounts due and unpaid on the Certificates and to the other
parties specified below in the amounts and in the following order of priority:
(i) to the Certificateholders, the Class S Interest
Distribution; provided, that if there are not sufficient funds in the
Certificate Distribution Account to pay the entire amount of accrued and
unpaid interest then due on the Certificates, the amount in the
Certificate Distribution Account shall be applied to the payment of
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such interest on the Certificates pro rata on the basis of the total
such interest due on the Certificates; and
(ii) to the holders of the Residual Interest Instruments, from
any remaining amounts in the Certificate Distribution Account after the
distributions pursuant to item (i) above, any remaining amounts.
(c) All distributions made on the Certificates on each Distribution Date
will be made on a pro rata basis among the Certificateholders of record on the
preceding Record Date based on the Percentage Interest represented by their
respective Certificates, and except as otherwise provided in the next succeeding
sentence, shall be made by wire transfer of immediately available funds to the
account of such Certificateholder, if such Certificateholder shall own of record
Certificates representing at least a 30% Percentage Interest and shall have so
notified the Owner Trustee and Co-Owner Trustee, and otherwise by check mailed,
via first class mail, postage prepaid, to the address of such Certificateholder
appearing in the Certificate Register. Notwithstanding anything to the contrary
contained herein, for purposes of the March 1997 Distribution Date, the
Certificateholder of record shall be Greenwich Capital Markets, Inc. The final
distribution on each Certificate will be made in like manner, but only upon
presentment and surrender of such Certificate at the location specified in the
notice to Certificateholders of such final distribution.
(d) All distributions made on the Residual Interest Instruments on each
Distribution Date will be made on a pro rata basis among the Residual Interest
Instruments holders of record on the next preceding Record Date based on the
Percentage Interest represented by their respective Residual Interest
Instruments, and except as otherwise provided in the next succeeding sentence,
shall be made by wire transfer of immediately available funds to the account of
such Residual Interest Instruments holder, if such Residual Interest Instruments
Holder shall own of record Residual Interest Instruments representing at least a
30% Percentage Interest and shall have so notified the Owner Trustee or Co-Owner
Trustee, and otherwise by check mailed, via first class mail, postage prepaid,
to the address of such Residual Interest Instruments Holder appearing in the
Certificate Register. The final distribution on each Residual Interest
Instruments will be made in like manner, but only upon presentment and surrender
of such Residual Interest Instruments at the location specified in the notice to
holders of the Residual Interest Instruments of such final distribution.
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Section 5.04 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. In addition to the
provisions hereunder, each of the Trust Accounts shall also be established and
maintained pursuant to the Indenture. Amounts distributed from each Trust
Account in accordance with the Indenture and this Agreement shall be released
from the lien of the Indenture upon such distribution thereunder or hereunder.
The Indenture Trustee shall possess all right, title and interest in all funds
on deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account) and in all proceeds thereof and all such funds,
investments, proceeds shall be part of the Trust Account Property and the Trust
Estate. If, at any time, any Trust Account ceases to be an Eligible Account, the
Indenture Trustee (or the Master Servicer on its behalf) shall within 10
Business Days (or such longer period, not to exceed 30 calendar days, as to
which each Rating Agency may consent) (i) establish a new Trust Account as an
Eligible Account, (ii) terminate the ineligible Trust Account, and (iii)
transfer any cash and investments from such ineligible Trust Account to such new
Trust Account.
With respect to the Trust Accounts (other than the Certificate
Distribution Account), the Indenture Trustee agrees, by its acceptance hereof,
that each such Trust Account shall be subject to the sole and exclusive custody
and control of the Indenture Trustee for the benefit of the Securityholders, the
Securities Insurer and the Issuer, as the case may be, and the Indenture Trustee
shall have sole signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder also shall be subject to and
established and maintained in accordance with the Trust Agreement. Subject to
rights of the Indenture Trustee hereunder and under the Indenture, the Owner
Trustee and the Co-Owner Trustee shall possess all right, title and interest for
the benefit of the Securityholders and the Securities Insurer in all funds on
deposit from time to time in the Certificate Distribution Account and in all
proceeds thereof (including all income thereon) and all such funds, investments,
proceeds and income shall be part of the Trust Account Property and the Trust
Estate. Subject to the rights of the Indenture Trustee, the Owner Trustee and
Co-Owner Trustee agree, by its acceptance hereof, that such Certificate
Distribution Account shall be subject to the sole and exclusive custody and
control of the Owner Trustee or Co-Owner Trustee for the benefit of the Issuer
and the parties entitled to distributions therefrom, including without
limitation, the Certificateholders and Securities Insurer, and the Owner Trustee
and the Co-Owner Trustee shall have sole signature and withdrawal authority with
respect to the Certificate Distribution Account. Notwithstanding the preceding,
the distribution of amounts from the Certificate Distribution Account in
accordance with Section 5.03(b) also shall be made for the benefit of the
Indenture Trustee (including without limitation as the named insured under the
Guaranty Policy on behalf of all Securityholders, and with respect to its duties
under the Indenture and this Agreement relating to the Trust Estate), and the
Indenture Trustee (in its capacity as Indenture Trustee) shall have the right,
but not the obligation to take custody and control of
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the Certificate Distribution Account and to cause the distribution of amounts
therefrom in the event that the Owner Trustee or Co-Owner Trustee fails to
distribute such amounts in accordance with Section 5.03(b).
The Master Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee or Co-Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee, Co-Owner Trustee or Owner
Trustee to make withdrawals and payments from the Trust Accounts for the purpose
of permitting the Master Servicer to carry out its respective duties hereunder
or permitting the Indenture Trustee or Owner Trustee to carry out its duties
herein or under the Indenture or the Trust Agreement, as applicable.
(b) (1) Investment of Funds. The funds held in any Trust Account may
only be invested (to the extent practicable and consistent with any requirements
of the Code) in Permitted Investments, as directed by a Responsible Officer of
Mego in writing. In any case, funds in any Trust Account must be available for
withdrawal without penalty, and any Permitted Investments and the funds held in
any Trust Account, other than the Note Distribution Account, must mature or
otherwise be available for withdrawal, not later than three (3) Business Days
immediately preceding the Distribution Date next following the date of such
investment and shall not be sold or disposed of prior to its maturity subject to
Section 5.04(b)(2) below. Amounts deposited to the Note Distribution Account
pursuant to Section 5.01(b) prior to each Distribution Date shall be invested in
Eligible Investments which are overnight investments from the date of deposit to
the Business Day preceding each Distribution Date. All interest and any other
investment earnings on amounts or investments held in any Trust Account shall be
deposited into such Trust Account immediately upon receipt by the Indenture
Trustee, or in the case of the Certificate Distribution Account, the Owner
Trustee or Co-Owner Trustee, as applicable. All Permitted Investments in which
funds in any Trust Account (other than the Certificate Distribution Account) are
invested must be held by or registered in the name of "FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, in trust for the Mego Mortgage Home
Loan Asset Backed Securities, Series 1997-1". While the Co-Owner Trustee holds
the Certificate Distribution Account, all Permitted Investments in which funds
in the Certificate Distribution Account are invested shall be held by or
registered in the name of "FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, AS
CO-OWNER TRUSTEE, in trust for the Mego Mortgage Home Loan Asset Backed
Securities, Series 1997-1".
(b) (2) Insufficiency and Losses in Trust Accounts. If any amounts are
needed for disbursement from any Trust Account held by or on behalf of the
Indenture Trustee and sufficient uninvested funds are not available to make such
disbursement, the Indenture Trustee, or Owner Trustee or Co-Owner Trustee in the
case of the Certificate Distribution Account, shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such Trust
Account. The Indenture Trustee, or Owner Trustee or Co-Owner Trustee in the case
of the Certificate Distribution Account, shall not be liable for any investment
loss or other charge resulting therefrom, unless such loss or charge is caused
by
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the failure of the Indenture Trustee or Owner Trustee or Co-Owner Trustee,
respectively, to perform in accordance with this Section 5.04.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then Mego shall
deposit the amount of such losses (to the extent not offset by income from other
investments in such Trust Account) in such Trust Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in any Trust Account shall be taxed to the Issuer and for federal
and state income tax purposes the Issuer shall be deemed to be the owner of each
Trust Account.
(c) Subject to Section 6.1 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Indenture
Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts
shall be held solely in the Eligible Accounts; and each such Eligible
Account shall be subject to the exclusive custody and control of the
Indenture Trustee, and the Indenture Trustee shall have sole signature
authority with respect thereto;
(2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraph (a) of the definition of "Delivery" and shall be held, pending
maturity or disposition, solely by the Indenture Trustee or a financial
intermediary (as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Indenture
Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such
paragraph; and
(4) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (3) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" and shall
be maintained by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
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ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate. On each Determination Date,
the Master Servicer shall deliver to the Indenture Trustee, the Owner Trustee,
Co-Owner Trustee and the Securities Insurer, a certificate containing the items
described in Exhibit B hereto (each, a "Master Servicer Certificate"), prepared
as of the related Determination Date and executed by a Master Servicing Officer.
No later than the Business Day following each Determination Date, the Master
Servicer shall deliver to the Indenture Trustee and the Securities Insurer, in a
format consistent with other electronic loan level reporting supplied by the
Master Servicer in connection with similar transactions, "loan level"
information with respect to the Home Loans as of the related Determination Date,
to the extent that such information has been provided to the Master Servicer by
the Servicer. The Master Servicer shall revise any Master Servicer Certificate
to take into account any payments of which the Master Servicer is notified made
by the Indenture Trustee to FHA after the related Determination Date and before
the related Distribution Date as provided in Section 4.12(e). The Indenture
Trustee may rely on the Master Servicer Certificate with respect to the matters
set forth therein.
Section 6.02 Statement to Securityholders. On or before the third
Business Day following each Distribution Date, the Indenture Trustee shall mail:
to each Holder of a Security (with a copy to the Securities Insurer and the
Rating Agency) at its address shown on the Certificate Register or Note
Register, as applicable, a statement, based on information set forth in the
Master Servicer Certificate for such Distribution Date, substantially in the
form of Statement to Securityholders attached hereto as Exhibit C, respectively,
together with a copy of such related Master Servicer Certificate;
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ARTICLE VII.
CONCERNING THE CONTRACT OF INSURANCE HOLDER
Section 7.01 Compliance with Title I and Filing of FHA Claims.
(a) The Contract of Insurance Holder shall at all times while any
Securities are outstanding have a valid Contract of Insurance with the FHA
covering the FHA Loans. To the extent applicable to the duties of the Contract
of Insurance Holder hereunder, the Contract of Insurance Holder shall comply
with the requirements of Title I and shall take or refrain from taking such
actions as are necessary or appropriate to maintain a valid Contract of
Insurance for the Trust with the FHA covering the FHA Loans.
(b) If and for so long as the Contract of Insurance covers any loans
other than the FHA Loans, and if HUD shall not have earmarked the coverage of
the Contract of Insurance with respect to the FHA Loans, the Contract of
Insurance Holder covenants and agrees not to submit any claim to FHA with
respect to an FHA Loan if the effect of approval of such claim would result in
the amount of claims paid by the FHA in respect of the FHA Loans to exceed the
Trust Designated Insurance Amount. Notwithstanding the foregoing, the Claims
Administrator shall promptly notify the Owner Trustee, the Indenture Trustee,
the Master Servicer and the Securities Insurer if the amount of claims submitted
to FHA in respect of the FHA Loans under the Contract of Insurance exceeds the
Trust Designated Insurance Amount. As of the Closing Date and at all times
thereafter until the Termination Date, the Contract of Insurance Holder
covenants and agrees that the Contract of Insurance will only apply to the FHA
Loans and Related Series Loans, exclusively, or HUD shall have agreed pursuant
to 24 C.F.R. Section 201.32(d)(1) to "earmark" the FHA insurance relating to the
FHA Loans and Related Series Loans, in a manner satisfactory to the Securities
Insurer, in its sole and absolute discretion. Mego, as Claims Administrator and
Servicer, covenants and agrees that it shall not take any action that would
result in the Contract of Insurance applying to loans other than the FHA Loans
and the Related Series Loans, exclusively, unless HUD shall have agreed pursuant
to 24 C.F.R. Section201.32(d)(1) to "earmark" the FHA insurance relating to the
FHA Loans and Related Series Loans in a manner satisfactory to the Securities
Insurer, in its sole and absolute discretion.
(c) The Owner Trustee and Co-Owner Trustee hereby appoint Mego Mortgage
Corporation as Claims Administrator and the Indenture Trustee hereby consents to
such appointment. Mego Mortgage Corporation, as Claims Administrator, shall
perform on behalf of the Contract of Insurance Holder the duties associated with
the submission of claims under Title I in connection with the Contract of
Insurance, except to the extent that certain documents must be signed by the
Contract of Insurance Holder (in which case the Contract of Insurance Holder
shall only sign such documents at the direction of the Claims Administrator) and
shall not, in its capacity as Claims Administrator, take any action or omit to
take any action that would cause the Contract of Insurance Holder to violate
this Section 7.01 or
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otherwise fail to maintain a valid Contract of Insurance or cause any denial by
FHA of an insurance claim under Title I.
(d) The Contract of Insurance Holder shall not be deemed to have
violated this Section 7.01 and shall otherwise incur no liability hereunder if
any failure to maintain a valid Contract of Insurance or to comply with the
requirements of Title I or any denial by FHA of an insurance claim under Title I
shall have been caused by any act or omission of the Master Servicer or Claims
Administrator in the performance of its duties hereunder. The Contract of
Insurance Holder shall be permitted to, or, if directed by the Securities
Insurer, so long as no Securities Insurer Default exists, shall replace the
Claims Administrator for any failure of the Claims Administrator to perform its
duties hereunder. Any successor Claims Administrator shall be subject to the
prior approval of the Securities Insurer, provided no Securities Insurer Default
is then occurring.
(e) The Contract of Insurance Holder hereby represents and warrants to
the Depositor, the Master Servicer, the Seller, the Owner Trustee, the Indenture
Trustee for the benefit of the Securityholders and the Securities Insurer that
First Trust of New York, National Association is an investing lender in good
standing with HUD having authority to purchase, hold, and sell loans insured
under 24 CFR Part 201, pursuant to a valid Contract of Insurance, Number 71400
0000 6.
(f) The Seller shall forward to the Indenture Trustee a fully executed
Transfer of Note Report for each FHA Loan within 20 days of the receipt by the
Seller of such FHA Loan's case number under the Contract of Insurance. The
Trustee shall execute each Transfer of Note Report, as buying lender, and submit
such Transfer of Note Report to HUD within 31 days of the transfer of the FHA
Loans to the Trust.
Section 7.02. Contract of Insurance Holder.
(a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except (i) upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the Contract of Insurance and (ii) the Securities
Insurer (so long as a Securities Insurer Default shall not have occurred and be
continuing) or the Majority Securityholders (if a Securities Insurer Default
shall have occurred and be continuing) does not elect to waive the obligations
of the Contract of Insurance Holder to perform the duties which render it
legally unable to act or to delegate those duties to another Person or if the
circumstances giving rise to such illegality cannot be waived or delegated. Any
such determination permitting the resignation of the Contract of Insurance
Holder shall be evidenced by an Opinion of Counsel to such effect delivered and
acceptable to the Indenture Trustee and the Securities Insurer. Upon receiving
such notice of resignation, the Contract of Insurance shall be transferred to a
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qualified successor with the consent of the Securities Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Contract of Insurance Holder and one copy to the successor Contract of
Insurance Holder. Notwithstanding the foregoing, the Contract of Insurance
Holder may resign, with the prior written consent of the Securities Insurer (so
long as a Securities Insurer Default shall not have occurred and be continuing)
or the Majority Securityholders (if a Securities Insurer Default shall have
occurred and be continuing), which may be withheld in its sole and absolute
discretion, upon transfer of the FHA insurance and related reserves with respect
to the FHA Loans and any Related Series Loans to a contract of insurance held by
a successor Contract of Insurance Holder provided, however, that any Contract of
Insurance held by such successor Contract of Insurance Holder shall satisfy the
criteria set forth in Section 7.01(b), and, at the time of succession, shall
have an FHA insurance coverage reserve account balance not less than that of the
FHA Insurance Coverage Reserve Account at the time of succession.
(b) If at any time (i) the Contract of Insurance shall be revoked,
suspended or otherwise terminated, or (ii) the Contract of Insurance Holder
shall become incapable of acting, or shall be adjudged as bankrupt or insolvent,
or a receiver of the Contract of Insurance Holder or of its property shall be
appointed, or any public officer shall take charge or control of the Contract of
Insurance Holder or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case the
Securities Insurer (so long as a Securities Insurer Default shall not have
occurred and be continuing) or the Majority Securityholders (if a Securities
Insurer Default shall have occurred and be continuing) may remove the Contract
of Insurance Holder and appoint a successor contract of insurance holder by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take any
action required to transfer the benefits of the FHA Insurance Coverage Reserve
Account to the successor contract of insurance holder.
(c) Any resignation or removal of the Contract of Insurance Holder and
appointment of a successor contract of insurance holder pursuant to any of the
provisions of this Section 7.02 shall become effective upon acceptance of
appointment by the successor contract of insurance holder.
(d) On or prior to the Closing Date, the Contract of Insurance Holder
shall have instructed FHA to forward all payments in respect of claims under the
Contract of Insurance made to the Contract of Insurance Holder to First Trust of
New York, National Association, as Indenture Trustee and Co-Owner Trustee. The
Contact of Insurance Holder shall provide no further notification with respect
to which such payments shall be directed unless directed by First Trust of New
York, National Association, as Indenture Trustee.
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ARTICLE VIII.
[Reserved]
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ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Master Servicer shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Master Servicer herein and the representations made by the Master Servicer.
(b) The Master Servicer shall indemnify, defend and hold harmless the
Trust, the Indenture Trustee, Owner Trustee, the Co-Owner Trustee Mego, the
Depositor and the Securities Insurer, their respective officers, directors,
agents and employees and the Securityholders from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage or liability arose out of, or was imposed upon the
Trust, Indenture Trustee, the Owner Trustee, the Co-Owner Trustee, Mego, the
Depositor, the Securities Insurer or the Securityholders through the breach of
this Agreement by the Master Servicer, the negligence, willful misfeasance, or
bad faith of the Master Servicer in the performance of its duties under this
Agreement or by reason of reckless disregard of its obligations and duties under
this Agreement. Such indemnification shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation.
Section 9.02 Merger or Consolidation of the Master Servicer.
The Master Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the Master
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity (i) shall be an
Eligible Servicer, (ii) shall be capable of fulfilling the duties of the Master
Servicer contained in this Agreement and (iii) shall have a long-term debt
rating which is BBB and Baa2 by Standard & Poor's and Moody's respectively. Any
corporation (i) into which the Master Servicer may be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Master Servicer
shall be a party, (iii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Master Servicer, or (iv) succeeding to
the business of the Master Servicer, in any of the foregoing cases shall execute
an agreement of assumption to perform every obligation of the Master Servicer
under this Agreement and, whether or not such assumption agreement is executed,
shall be the successor to the Master Servicer under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties to this Agreement, anything in this Agreement to the contrary
notwithstanding; provided, however, that nothing contained herein shall be
deemed to release the Master Servicer from any obligation. The Master Servicer
shall provide notice of any merger, consolidation or succession pursuant to this
Section 9.02 to the Owner Trustee, the Indenture Trustee, the Securities Insurer
and each Rating Agency.
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Notwithstanding the foregoing, as a condition to the consummation of the
transactions referred to in clauses (i) through (iv) above, (x) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.02 shall have been breached (for purposes hereof, such
representations and warranties shall speak as of the date of the consummation of
such transaction), and (y) the Master Servicer shall have delivered to the Owner
Trustee, the Indenture Trustee and the Securities Insurer an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
9.02 and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with.
Section 9.03 Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties, representations or covenants
made herein or any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in performing or failing to perform
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. The Master Servicer and any of its directors, officers, employees or
agents may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Section 9.04 Master Servicer Not to Resign; Assignment.
(a) The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) with the consent of the Securities Insurer and
the Rating Agencies or (ii) upon determination that by reason of a change in
legal requirements the performance of its duties under this Agreement would
cause it to be in violation of such legal requirements in a manner which would
result in a material adverse effect on the Master Servicer and the Securities
Insurer (so long as a Securities Insurer Default shall not have occurred and be
continuing) does not elect to waive the obligations of the Master Servicer to
perform the duties which render it legally unable to act or to delegate those
duties to another Person. Any such determination permitting the resignation of
the Master Servicer shall be evidenced by an Opinion of Counsel to such effect
delivered and acceptable to the Indenture Trustee and the Securities Insurer
(unless a Securities Insurer Default shall have occurred and be continuing). No
resignation of the Master Servicer shall become effective until the Indenture
Trustee or a successor servicer acceptable to the Securities Insurer shall have
assumed the Master Servicer's servicing responsibilities and obligations in
accordance with Section 10.02.
(b) Notwithstanding anything to the contrary herein, the Master Servicer
shall remain liable for all liabilities and obligations incurred by it as Master
Servicer hereunder prior to the time that any resignation or assignment referred
to in subsection (a) above or
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termination under Section 10.01 becomes effective, including the obligation to
indemnify the Indenture Trustee pursuant to Section 9.01(b) hereof.
(c) The Master Servicer agrees to cooperate with any successor Master
Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Home Loan Files in the possession of the Master
Servicer and the Servicing Record) and all amounts credited to the Servicing
Record or thereafter received with respect to the Loans and not otherwise
permitted to be retained by the Master Servicer pursuant to this Agreement. In
addition, the Master Servicer, at its sole cost and expense, shall prepare,
execute and deliver any and all documents and instruments to the successor
Master Servicer including all Home Loan Files in its possession and do or
accomplish all other acts necessary or appropriate to effect such termination
and transfer of servicing responsibilities, including, without limitation,
assisting in obtaining any necessary approval under Title I from the FHA.
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Agreement) to the Issuer and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the Issuer or the Indenture Trustee.
Section 9.06 Master Servicer May Own Notes.
Each of the Master Servicer and any affiliate of the Master Servicer may
in its individual or any other capacity become the owner or pledgee of Notes
with the same rights as it would have if it were not the Master Servicer or an
affiliate thereof except as otherwise specifically provided herein. Notes so
owned by or pledged to the Master Servicer or such affiliate shall have an equal
and proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Notes, provided that
any Notes owned by the Master Servicer or any affiliate thereof, during the time
such Notes are owned by them, shall be without voting rights for any purpose set
forth in this Agreement. The Master Servicer shall notify the Indenture Trustee
and the Securities Insurer promptly after it or any of its affiliates becomes
the owner or pledgee of a Note.
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ARTICLE X.
DEFAULT
Section 10.01 Events of Default.
For purposes of this Agreement, each of the following shall constitute
an "Event of Default."
(a) (i) failure by the Master Servicer to deposit or cause the Servicer
to deposit all Payments in the related Collection Account no later than the
second Business Day following receipt thereof by the Master Servicer or
Servicer, which failure continues unremedied for two Business Days; (ii) failure
of the Master Servicer to pay when due any amount payable by it under the
Insurance Agreement, which failure continues unremedied for two Business Days;
or (iii) failure of the Master Servicer to pay when due any amount payable by it
under this Agreement and such failure results in a drawing under the Guaranty
Policy; or
(b) failure on the part of the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice of
such failure to the Indenture Trustee or the Securities Insurer pursuant to
Section 4.04(b) and (y) the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master Servicer
by the Indenture Trustee or the Securities Insurer, or to the Master Servicer
and the Indenture Trustee pursuant to the direction of the Majority
Securityholders; or
(c) failure by the Master Servicer to deliver to the Indenture Trustee
and (so long as a Securities Insurer Default shall not have occurred and be
continuing) the Securities Insurer the Master Servicer Certificate by the fourth
Business Day prior to each Distribution Date, or failure on the part of the
Master Servicer to observe its covenants and agreements set forth in Section
3.02(o); or
(d) the entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Master Servicer in 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, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Master Servicer or of
any substantial part of its properties or ordering the winding up or liquidation
of the affairs of the Master Servicer and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days or the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and such case is not dismissed within 60 days; or
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(e) the commencement by the Master Servicer of a voluntary case under
the federal bankruptcy laws, as now or hereinafter in effect, or any other
present or future, federal or state bankruptcy, insolvency or similar law, or
the consent by the Master Servicer to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Master Servicer or of any substantial part of its
property or the making by the Master Servicer of an assignment for the benefit
of creditors or the failure by the Master Servicer generally to pay its debts as
such debts become due or the taking of corporate action by the Master Servicer
in furtherance of any of the foregoing or the admission in writing by the Master
Servicer of an inability to pay its debts as they become due; or
(f) any representation, warranty or statement of the Master Servicer
made in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Indenture Trustee or the Securities Insurer
pursuant to Section 4.04(b) and (y) the date on which written notice thereof
shall have been given to the Master Servicer by the Indenture Trustee or the
Securities Insurer (or, if a Securities Insurer Default shall have occurred and
be continuing, written notice thereof shall have been given by the Majority
Securityholders), the circumstances or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured; or
(g) failure on the part of the Master Servicer to deposit into the Note
Distribution Account within 3 Business Days following the related Determination
Date any Interest Advance pursuant to Section 4.08; or
(h) the Securities Insurer determines that the performance by the Master
Servicer of its servicing duties hereunder with respect to the Home Loans is
not, in the reasonable opinion of the Securities Insurer after consultation with
the Master Servicer, in conformity with acceptable standards after considering
the following factors: (A) the terms and conditions of this Agreement, (B)
conformity with the Servicing Standards, (C) the Master Servicer's practices as
of the Closing Date, provided that such practices are either (i) consistent with
industry standards for the servicing of loans similar to the Home Loans or (ii)
the Master Servicer's historical practices and procedures; or
(i) the Master Servicer shall dissolve or liquidate, in whole or in
part, in any material respects except to the extent that any resulting successor
entity is acceptable to the Securities Insurer; or
(j) the long-term debt rating of the Master Servicer shall be reduced
below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or
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(k) the Annual Default Percentage (Three Month Average) exceeds 6.5% or
the 60+ Delinquency Percentage (Rolling Three Month) exceeds 6.0%.
Section 10.02 Consequences of an Event of Default.
If an Event of Default shall occur and be continuing, the Securities
Insurer (or, if a Securities Insurer Default shall have occurred and be
continuing, the Indenture Trustee at the direction of the Majority
Securityholders), by notice given in writing to the Master Servicer (and to the
Indenture Trustee if given by the Securities Insurer or the Securityholders) may
terminate all of the rights and obligations of the Master Servicer under this
Agreement. On or after the receipt by the Master Servicer of such written
notice, and the appointment of and acceptance by a successor Master Servicer,
all authority, power, obligations and responsibilities of the Master Servicer
under this Agreement, whether with respect to the Securities or the Trust or
otherwise, shall pass to, be vested in and become obligations and
responsibilities of the successor Master Servicer; provided, however, that the
successor Master Servicer shall have no liability with respect to any obligation
which was required to be performed by the prior Master Servicer prior to the
date that the successor Master Servicer becomes the Master Servicer or any claim
of a third party based on any alleged action or inaction of the prior Master
Servicer. The successor Master Servicer is authorized and empowered by this
Agreement to execute and deliver, on behalf of the prior 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. The prior Master Servicer agrees to
cooperate with the successor Master Servicer in effecting the termination of the
responsibilities and rights of the prior Master Servicer under this Agreement,
including, without limitation, the transfer to the successor Master Servicer for
administration by it of all cash amounts that shall at the time be held by the
prior Master Servicer for deposit, or have been deposited by the prior Master
Servicer, in the Collection Account or thereafter received with respect to the
Home Loans and the delivery to the successor Master Servicer of all Home Loan
Files in the Master Servicer's possession and a computer tape in readable form
containing the Servicing Record and any other information necessary to enable
the successor Master Servicer to service the Home Loans. If requested by the
Securities Insurer (unless a Securities Insurer Default shall have occurred and
be continuing), the successor Master Servicer shall direct the Obligors to make
all payments under the Home Loans directly to the successor Master Servicer, or
to a lockbox established by the Master Servicer at the direction of the
Securities Insurer (unless a Securities Insurer Default shall have occurred and
be continuing), at the prior Master Servicer's expense. In addition to any other
amounts that are then payable to the terminated Master Servicer under this
Agreement, the terminated Master Servicer shall then be entitled to receive (to
the extent provided by Section 4.08) out of the Collected Amount, reimbursements
for any outstanding Interest Advances made during the period prior to the notice
pursuant to this Section 10.02 which terminates the obligation and rights of the
terminated Master Servicer under this Agreement. The Indenture Trustee and the
successor Master Servicer may set off and deduct any amounts owed by the
terminated Master Servicer from any amounts payable to the terminated Master
Servicer. The terminated Master Servicer shall grant the Indenture
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Trustee, the successor Master Servicer and the Securities Insurer reasonable
access to the terminated Master Servicer's premises at the terminated Master
Servicer's expense.
Section 10.03 Appointment of Successor.
(a) On or after the time the Master Servicer receives a notice of
termination pursuant to Section 10.02 or upon the resignation of the Master
Servicer pursuant to Section 9.04, the Indenture Trustee shall be the successor
in all respects to the Master Servicer in its capacity as master servicer under
this Agreement and the transactions set forth or provided for in this Agreement,
and shall be subject to all the responsibilities, restrictions, duties,
liabilities and termination provisions relating thereto placed on the Master
Servicer by the terms and provisions of this Agreement. The Indenture Trustee
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. If the Indenture Trustee or any other successor
Master Servicer is acting as Master Servicer hereunder, it shall be subject to
termination under Section 10.02 upon the occurrence of an Event of Default
applicable to it as Master Servicer.
(b) Any successor Master Servicer appointed pursuant to the provisions
of this Agreement must be approved by the Securities Insurer (provided no
Securities Insurer Default is then occurring and continuing) and shall execute,
acknowledge and deliver to the Indenture Trustee, the Securities Insurer and its
predecessor Master Servicer an instrument accepting such appointment hereunder,
and thereupon the resignation or removal of the predecessor Master Servicer
shall become effective.
(c) Any successor Master Servicer shall be entitled to such compensation
(whether payable out of the Collected Amount or otherwise) as the Master
Servicer would have been entitled to under the Agreement if the Master Servicer
had not resigned or been terminated hereunder. The Securities Insurer and a
successor Master Servicer may agree on additional compensation to be paid to
such successor Master Servicer in accordance with Section 5.01(c)(ix). In
addition, any successor Master Servicer shall be entitled, to reasonable
transition expenses incurred in acting as successor Master Servicer pursuant to
Section 5.01(c)(ix).
Section 10.04 Notification to Certificateholders.
Upon any termination of the Master Servicer or appointment of a
successor to the Master Servicer, the Indenture Trustee shall give prompt
written notice thereof to Securityholders at their respective addresses
appearing in the Note Register and Certificate Register.
Section 10.05 Waiver of Past Defaults.
The Securities Insurer (or, if a Securities Insurer Default shall have
occurred and be continuing, the Majority Securityholders) may, on behalf of all
Securityholders, waive any
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default by the Master Servicer in the performance of its obligations hereunder
and its consequences. Upon any such waiver of a past default, such default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.
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ARTICLE XI.
TERMINATION
Section 11.01 Termination.
(a) This Agreement shall terminate upon notice to the Indenture Trustee
of either: (a) the later of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.1 of the Indenture or (ii) the disposition of all funds
with respect to the last Home Loan and the remittance of all funds due hereunder
and the payment of all amounts due and payable to the Indenture Trustee, the
Owner Trustee, the Co-Owner Trustee, the Issuer, the Master Servicer, the
Servicer, the Custodian and the Securities Insurer; or (b) the mutual consent of
the Master Servicer, the Depositor, the Seller, the Securities Insurer and all
Securityholders in writing.
(b) Subject to the provisions of the following sentence, Mego or, if
such option is not exercised by Mego, the Master Servicer may, at its option
(with the prior written consent of the Securities Insurer if such purchase would
result in a claim under the Guaranty Policy), upon not less than thirty days'
prior notice given to the Indenture Trustee at any time on or after the
applicable Early Termination Notice Date, purchase on the Termination Date
specified in such notice, all, but not less than all, the Home Loans, all claims
made under the Contract of Insurance with respect to Home Loans that are pending
with FHA ("FHA Pending Claims") and Foreclosed Properties then included in the
Trust, at a purchase price, payable in cash, equal to the sum of:
(i) the Principal Balance of each Home Loan included in the
Trust as of such Monthly Cut-Off Date;
(ii) all unpaid interest accrued on the Principal Balance of
each such Loan at the related Net Loan Rate to such Monthly Cut-Off
Date;
(iii) the aggregate fair market value of the FHA Pending Claims
for which a claim has been filed with the FHA included in the Trust on
such Monthly Cut-Off Date, as determined by an Independent appraiser
acceptable to the Indenture Trustee as of a date not more than thirty
days prior to such Monthly Cut-Off Date;
(iv) the aggregate fair market value of each Foreclosed Property
included in the Trust on such Monthly Cut-Off Date, as determined by an
Independent appraiser acceptable to the Trustee as of a date not more
than thirty days prior to such Monthly Cut-Off Date; and
(v) any unreimbursed amounts due to the Securities Insurer under
this Agreement or the Insurance Agreement.
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Any amount received from such sale with respect to FHA Pending Claims shall be
considered FHA Insurance Payment Amounts. The expense of any Independent
appraiser required under this Section 11.01(b) shall be a nonreimbursable
expense of Mego. Mego or the Master Servicer shall effect the purchase referred
to in this Section 11.01(b) by deposit of the purchase price into the Collection
Account. The Indenture Trustee shall give written notice of the Early
Termination Notice Date to the Securities Insurer promptly upon the occurrence
thereof.
Section 11.02 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Securities shall be sent (i) by the Indenture Trustee to the
Noteholders and the Securities Insurer in accordance with Section 2.6(b) of the
Indenture and (ii) by the Owner Trustee or Co-Owner Trustee to the
Certificateholders and the Securities Insurer in accordance with Section 9.1(d)
of the Trust Agreement.
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ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders.
Except as otherwise specifically provided herein, whenever
Securityholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Seller and the Issuer by written agreement with notice
thereof to the Securityholders, without the consent of any of the
Securityholders, but with the consent of the Securities Insurer, to cure any
error or ambiguity, to correct or supplement any provisions hereof which may be
defective or inconsistent with any other provisions hereof or to add any other
provisions with respect to matters or questions arising under this Agreement;
provided, however, that such action will not adversely affect in any material
respect the interests of the Securityholders. An amendment described above shall
be deemed not to adversely affect in any material respect the interests of the
Securityholders if either (i) an opinion of counsel is obtained to such effect,
or (ii) the party requesting the amendment obtains a letter from each of the
Rating Agencies confirming that the amendment, if made, would not result in the
downgrading or withdrawal of the rating then assigned by the respective Rating
Agency to any Class of Securities then outstanding. Notwithstanding the
preceding, the Securities Insurer shall have the right to modify the definitions
relating to the calculation of the Required O/C Amount without the requirement
of an amendment to this Agreement.
(b) This Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the Seller and the Issuer by written agreement,
with the prior written consent of the Indenture Trustee, the Majority
Securityholders and the Securities Insurer, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Securityholders;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, collections of payments on Home Loans or
distributions which are required to be made on any Security, without the consent
of the holders of 100% of each Class of Notes or the Certificates affected
thereby and the Securities Insurer, (ii) adversely affect in any material
respect the interests of the holders of any Class of Notes or Certificates or
the Securities Insurer in any manner other than as described in (i), without the
consent of the holders of 100% of such Class of Notes or the Certificates or the
Securities Insurer, respectively, or (iii) reduce the percentage of any Class of
Notes or the Certificates,
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the holders of which are required to consent to any such amendment, without the
consent of the holders of 100% of such Class of Notes or the Certificates and
the Securities Insurer.
(c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer
shall be entitled to receive and rely upon an opinion of counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Issuer may, but shall not be obligated to, enter into any such amendment
which affects the Issuer's own rights, duties or immunities under this
Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Master Servicer at the
Securityholders' expense on direction of the Majority Securityholders or the
Securities Insurer, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Securityholders or is necessary for the administration or servicing of
the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by overnight mail, certified mail or registered mail, postage prepaid, to: (i)
in the case of the Depositor, FINANCIAL ASSET SECURITIES CORP., 600 Steamboat
Road, Greenwich, Connecticut
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06830 Attention: John Anderson, or such other addresses as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Depositor, (ii) in the case of the Issuer, Mego Mortgage Home Loan Owner Trust
1997-1, c/o Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Emmett R. Harmon, or such other
address as may hereafter be furnished to the Securityholders and the other
parties hereto, (iii) in the case of the Seller, Servicer and Claims
Administrator, MEGO MORTGAGE CORPORATION, 1000 Parkwood Circle, Atlanta, Georgia
30339, Attention: Jeff Moore, President, or such other address as may hereafter
be furnished to the Securityholders and the other parties hereto, (iv) in the
case of the Securities Insurer, 113 King Street, Armonk, New York 10504,
Attention: IPM-SF, (v) in the case of the Indenture Trustee or Co-Owner Trustee,
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, 180 East Fifth Street, St. Paul,
Minnesota 55101, Attention: Structured Finance: Mego 1997-1, (vi) in the case of
the Master Servicer, 11000 Broken Land Parkway, Columbia, Maryland 21044-3562,
Attention: Master Servicing Department, Mego Mortgage Home Loan Owner Trust
1997-1; and (vii) in the case of the Securityholders, as set forth in the
applicable Note Register and Certificate Register. Any such notices shall be
deemed to be effective with respect to any party hereto upon the receipt of such
notice by such party, except that notices to the Securityholders shall be
effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Master Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Master Servicer, the Seller, the Depositor, the Issuer, the Indenture Trustee,
and the Securityholders and their respective successors and permitted assigns.
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Section 12.11 Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Master Servicer or the Issuer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Master Servicer and the Issuer if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Master Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Master Servicer, the Issuer or the Securities Insurer in
reliance thereon, whether or not notation of such action is made upon such
Security.
(d) The Depositor, the Master Servicer or the Issuer may require
additional proof of any matter referred to in this Section 12.12 as it shall
deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Master Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger
or consolidation of either the Master Servicer, any Custodian or the
Issuer;
(iv) notice of final payment on the Notes and the Certificates;
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(v) notice of any Event of Default;
(vi) copies of the annual independent auditor's report delivered
pursuant to Section 4.05, and copies of any compliance reports delivered
by the Master Servicer hereunder including Section 4.04; and
(vii) copies of any Master Servicer's Certificate pursuant to
Section
6.02(b); and
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004-1064, Attention: Asset-Backed Monitoring Department; or (ii) if to
Moody's, 99 Church Street, Corporate Department - 4th Floor, New York, New York
10007, Attention: Residential Mortgage Monitoring Department.
Section 12.14 Grant of Securityholder Rights to Securities Insurer.
In consideration for the guarantee of the Securities by the Securities
Insurer pursuant to the Guaranty Policy, the Securityholders hereby grant to the
Securities Insurer the right to act as the holder of 100% of the outstanding
Insured Securities for the purpose of exercising the rights of the holders of
the Insured Securities under this Agreement without the consent of any
Securityholders, including the voting rights of such holders, but excluding
those rights requiring the consent of all such holders under Section 12.02(b),
and any rights of such holders to distributions under Section 8.2 of the
Indenture with respect to the Notes and Section 5.03 hereof with respect to the
Certificates; provided that the preceding grant of rights to the Securities
Insurer by the Securityholders shall be subject to Section 12.16. The rights of
the Securities Insurer to direct certain actions and consent to certain actions
of the Majority Securityholders hereunder will terminate at such time as the
Class Principal Balances of all Classes of Notes and the Certificate Principal
Balance of the Certificates have been reduced to zero and the Securities Insurer
has been reimbursed for all Insured Payments and any other amounts owed under
the Guaranty Policy and Insurance Agreement and the Securities Insurer has no
further obligation under the Guaranty Policy.
Section 12.15 Third Party Beneficiary.
The parties hereto acknowledge that the Securities Insurer is an express
third party beneficiary hereof entitled to enforce any rights reserved to it
hereunder as if it were actually a party hereto.
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Section 12.16 Holders of the Residual Interest Instruments.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Trust Agreement to the holders of the Residual Interest Instruments shall be
paid to such holders pro rata based on their percentage holdings in the Residual
Interest Instruments;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Instruments, such
consent or approval shall be capable of being given by the holder or holders of
not less than 51% of the Percentage Interests of the Residual Interest
Instruments in aggregate.
Section 12.17 Inconsistencies Among Transaction Documents.
In the event certain provisions of a Transaction Document conflict with
the provisions of this Sale and Servicing Agreement, the parties hereto agree
that the provisions of this Sale and Servicing Agreement shall be controlling.
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IN WITNESS WHEREOF, the following have caused their names to be signed
by their respective officers thereunto duly authorized, as of the day and year
first above written, to this SALE AND SERVICING AGREEMENT .
MEGO MORTGAGE HOME LOAN OWNER
TRUST 1997-1,
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee
By: _______________________________________________
Name:
Title:
FINANCIAL ASSET SECURITIES CORP.,
as Depositor
By: _______________________________________________
Name:
Title:
MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims Administrator
By: _______________________________________________
Name:
Title:
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION,
as Indenture Trustee, Co-Owner Trustee and Contract
of Insurance Holder
By: _______________________________________________
Name:
Title:
111
<PAGE> 116
NORWEST BANK MINNESOTA, N.A. as Master
Servicer
By: _______________________________________________
Name:
Title:
112
<PAGE> 117
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared _______________, known to me to be a person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said WILMINGTON TRUST COMPANY, NOT IN ITS INDIVIDUAL
CAPACITY BUT IN ITS CAPACITY AS OWNER TRUSTEE of MEGO MORTGAGE HOME LOAN OWNER
TRUST 1997- 1, as Issuer, and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____
day of March, 1997.
-----------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared _______________________, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said FINANCIAL ASSET SECURITIES CORP., as
the Depositor, and that he executed the same as the act of such corporation for
the purpose and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF FINANCIAL ASSET SECURITIES CORP., this
the ____ day of March, 1997.
-----------------------------------------
Notary Public, State of ________
113
<PAGE> 118
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared _______________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said MEGO MORTGAGE CORPORATION, as the
Seller, Servicer and Claims Administrator, and that he executed the same as the
act of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF MEGO MORTGAGE CORPORATION, this the ____
day of March, 1997.
-----------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared ____________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association, as the Indenture Trustee, Co-Owner
Trustee and Contract of Insurance Holder, and that she executed the same as the
act of such entity for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, this the ____ day of March, 1997.
-----------------------------------------
Notary Public, State of ________
114
<PAGE> 119
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared ____________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said NORWEST BANK MINNESOTA, N.A., as the
Master Servicer, and that he executed the same as the act of such corporation
for the purpose and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF NORWEST BANK MINNESOTA, N.A., this the
____ day of March, 1997.
-----------------------------------------
Notary Public, State of ________
115
<PAGE> 1
EXHIBIT 10.121
EXECUTION COPY
TRUST AGREEMENT
among
FINANCIAL ASSET SECURITIES CORP.,
as Depositor,
MEGO MORTGAGE CORPORATION,
as the Company,
WILMINGTON TRUST COMPANY,
as Owner Trustee
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Co-Owner Trustee
Dated as of February 1, 1997
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
Home Loan Asset Backed Securities, Series 1997-1
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
ARTICLE II
ORGANIZATION
Section 2.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Section 2.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Section 2.3 Purposes and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Section 2.4 Appointment of Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Section 2.5 Initial Capital Contribution of Owner Trust Estate . . . . . . . . . . . . . . . . . . II-2
Section 2.6 Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Section 2.7 Title to Trust Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Section 2.8 Situs of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
Section 2.9 Representations and Warranties of the Depositor and the Company;
Covenant of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
Section 2.10 Federal Income Tax Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Section 3.2 The Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Section 3.3 Execution, Authentication and Delivery of Trust Certificates . . . . . . . . . . . . . III-1
Section 3.4 Registration of Transfer and Exchange of Trust Certificates . . . . . . . . . . . . . III-1
Section 3.5 Mutilated, Destroyed, Lost or Stolen Trust Certificates . . . . . . . . . . . . . . . . III-2
Section 3.6 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-3
Section 3.7 Access to List of Owners' Names and Addresses . . . . . . . . . . . . . . . . . . . . . III-3
Section 3.8 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-3
Section 3.9 Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-3
Section 3.10 Restrictions on Transfer of Trust Certificate . . . . . . . . . . . . . . . . . . . . . III-4
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Owners with Respect to Certain Matters . . . . . . . . . . . . . . . . IV-1
Section 4.2 Action by Owners with Respect to Certain Matters . . . . . . . . . . . . . . . . . . . IV-3
Section 4.3 Action by Owners with Respect to Bankruptcy . . . . . . . . . . . . . . . . . . . . . . IV-3
Section 4.4 Restrictions on Owners' Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-3
Section 4.5 Majority Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-3
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
Section 5.2 Application Of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
Section 5.3 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-2
Section 5.4 Segregation of Moneys; No Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . V-2
Section 5.5 Accounting and Reports to the Certificateholder, Owners, the
Internal Revenue Service and Others . . . . . . . . . . . . . . . . . . . . . . . . . . V-2
Section 5.6 Signature on Returns; Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . V-3
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
Section 6.2 General Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
Section 6.3 Action upon Instruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
Section 6.4 No Duties Except as Specified in this Agreement, the
Transaction Documents or in Instructions . . . . . . . . . . . . . . . . . . . . . . VI-2
Section 6.5 No Action Except Under Specified Documents or Instructions . . . . . . . . . . . . . . VI-3
Section 6.6 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-3
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
Section 7.2 Furnishing of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-2
Section 7.3 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-2
Section 7.4 Reliance; Advice of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-3
Section 7.5 Not Acting in Individual Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . VII-4
Section 7.6 Owner Trustee Not Liable for Trust Certificates or Home Loans . . . . . . . . . . . . . VII-4
Section 7.7 Owner Trustee May Own Trust Certificates and Notes . . . . . . . . . . . . . . . . . . VII-4
Section 7.8 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-5
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Section 7.9 Rights of Co-Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-5
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
Section 8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
Section 8.3 Payments to the Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . X-1
Section 10.2 Resignation or Removal of Owner Trustee or Co-Owner Trustee . . . . . . . . . . . . . . . X-1
Section 10.3 Successor Owner Trustee or Co-Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . X-2
Section 10.4 Merger or Consolidation of Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . X-3
Section 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee . . . . . . . . . . . . . . . . X-3
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-1
Section 11.2 No Legal Title to Owner Trust Estate in Owners . . . . . . . . . . . . . . . . . . . . XI-2
Section 11.3 Limitations on Rights of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
Section 11.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-2
Section 11.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.6 Separate Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.8 No Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.9 Covenants of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.10 No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-3
Section 11.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-4
Section 11.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-4
Section 11.13 Certificate and Residual Interest Instrument Transfer
Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-4
Section 11.14 Grant of Certificateholder and Residual Interest Holder Rights
to Securities Insurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-4
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Section 11.15 Third-Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-5
EXHIBIT A Form of Certificate
EXHIBIT B Form of Residual Interest Instrument
EXHIBIT C Form of Certificate of Trust
</TABLE>
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<PAGE> 6
TRUST AGREEMENT, dated as of February 1, 1997, among FINANCIAL ASSET
SECURITIES CORP., a Delaware corporation, as Depositor (the "Depositor"), MEGO
MORTGAGE CORPORATION, a Delaware corporation (the "Company"), WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as Owner Trustee (the "Owner Trustee")
and FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as Co-Owner Trustee (the
"Co-Owner Trustee").
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms. For all purposes of this Agreement,
the following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be
amended and supplemented from time to time.
"Administration Agreement" shall mean the Administration Agreement,
dated as of February 1, 1997 among the Issuer, the Company, and First Trust of
New York, National Association, as Administrator.
"Administrator" shall mean First Trust of New York, National
Association, or any successor in interest thereto, in its capacity as
Administrator under the Administration Agreement.
"Benefit Plan" shall have the meaning assigned to such term in Section
11.12.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be amended
from time to time.
"Certificate" shall mean any Class S Certificate; a form of which is
attached hereto as Exhibit A.
"Certificate Distribution Account" shall have the meaning assigned to
such term in the Sale and Servicing Agreement.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit C to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Owner" shall mean, with respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as reflected on the books of the Clearing Agency, or on the books
of a Person maintaining an account with such Clearing
I-1
<PAGE> 7
Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing
Agency).
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned in, and the registrar appointed pursuant to, Section 3.4.
"Certificateholder" or "Holder" shall mean a Person in whose name a
Certificate is registered.
"Class Notional Amount" shall have the same meaning as set forth in
the Sale and Servicing Agreement with respect to "Class S Notional Amount".
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Co-Owner Trustee" shall mean First Trust of New York, National
Association.
"Company" shall mean Mego Mortgage Corporation, a Delaware
corporation.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001,
Attention: Corporate Trust Administration; or at such other address in the
State of Delaware as the Owner Trustee may designate by notice to the Owners
and the Company, or the principal corporate trust office of any successor Owner
Trustee (the address (which shall be in the State of Delaware) of which the
successor owner trustee will notify the Owners and the Company).
"Definitive Certificates" means a certificated form of security that
represents a Certificate or a Residual Interest Instrument.
"ERISA" shall have the meaning assigned thereto in Section 11.12.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section
8.2.
"Indenture" shall mean the Indenture, dated as of February 1, 1997, by
and between the Issuer and the Indenture Trustee.
"Indenture Trustee" means First Trust of New York, National
Association, as Indenture Trustee under the Indenture.
"Insurance Agreement" shall mean the Insurance Agreement, dated as of
February 1, 1997, among the Issuer, the Depositor, the Affiliated Holder,
Greenwich Capital Financial
I-2
<PAGE> 8
Products, Inc., the Company as Seller, Servicer and Claims Administrator, the
Master Servicer, the Indenture Trustee as Indenture Trustee, Co- Owner Trustee
and Contract of Insurance Holder and the Securities Insurer.
"Issuer" shall mean Mego Mortgage Home Loan Owner Trust 1997-1, the
Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set forth in
Section 3.10.
"Non-U.S. Person" shall mean an individual, corporation, partnership
or other person other than a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, 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 is able to exercise primary
supervision over the administration of the trust and one or more United States
trustees have authority to control all substantial decisions of the trust..
"Owner" shall mean each Holder of a Certificate and each holder of a
Residual Interest Instrument, as applicable.
"Owner Trust Estate" shall mean the contribution of $1 referred to in
Section 2.5 and the Trust Estate (as defined in the Indenture).
"Owner Trustee" shall mean Wilmington Trust Company, a Delaware
banking corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor owner trustee hereunder.
"Paying Agent" shall mean the Co-Owner Trustee or any successor in
interest thereto or any other paying agent or co-paying agent appointed
pursuant to Section 3.9 and authorized by the Issuer to make payments to and
distributions from the Certificate Distribution Account, including payment of
principal of or interest on the Certificates on behalf of the Issuer.
"Percentage Interest" shall mean with respect to any Certificate, the
portion of the Certificates as a whole evidenced by such single Certificate,
expressed as a percentage rounded to five decimal places, equivalent to a
fraction, the numerator of which is the denomination represented by such single
Certificate and the denominator of which is the original Class Notional Amount.
With respect to each Residual Interest Instrument, the percentage portion of
all of the Residual Interest evidenced thereby as stated on the face of such
Residual Interest Instrument.
"Prospective Owner" shall have the meaning set forth in Section
3.10(a).
"Rating Agency Condition" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such
I-3
<PAGE> 9
shorter period as is acceptable to each Rating Agency) prior notice thereof and
that each of the Rating Agencies shall have notified the Seller, the Servicer,
the Securities Insurer, the Owner Trustee, Co-Owner Trustee, and the Issuer in
writing that such action will not result in a reduction or withdrawal of the
then current rating of the Notes and Certificates.
"Record Date" shall mean as to each Distribution Date the last
Business Day of the month immediately preceding the month in which such
Distribution Date occurs.
"Residual Interest" shall mean the right to receive distributions of
Excess Spread, if any, and certain other funds, if any, on each Distribution
Date, pursuant to Sections 5.01(c) and 5.03 of the Sale and Servicing
Agreement.
"Residual Interest Instrument" shall mean an instrument substantially
in the form attached as Exhibit B hereto and evidencing the Residual Interest.
"Residual Interestholder" shall mean any Holder of a Percentage
Interest of the Residual Interest Instruments.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Trust as Issuer, the
Depositor, the Indenture Trustee as Indenture Trustee, Contract of Insurance
Holder and Co-Owner Trustee, Norwest Bank Minnesota, N.A., as Master Servicer,
and the Company, as Seller, Servicer and Claims Administrator.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Securities Insurer" shall mean MBIA Insurance Corporation.
"Securities Insurer Default" shall mean the failure of the Securities
Insurer to make payments under the Guaranty Policy, if such failure has not
been remedied with ten (10) days of notice thereof, or the entry of an order or
decree with respect to the Securities Insurer in any insolvency or bankruptcy
proceedings which remain unstayed or undischarged for 90 days.
"Transaction Documents" shall have the meaning set forth in the Sale
and Servicing Agreement.
"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.
I-4
<PAGE> 10
"Trust Certificates" shall mean the Certificates and the Residual
Interest Instruments, collectively.
"Underwriter" shall mean Greenwich Capital Markets, Inc.
Section 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise
defined herein have the meanings assigned to them in the Sale and Servicing
Agreement or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent
that the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement; Section and
Exhibit references contained in this Agreement are references to Sections and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to time
amended, modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments incorporated
therein; references to a Person are also to its permitted successors and
assigns.
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<PAGE> 11
ARTICLE II
ORGANIZATION
Section 2.1 Name. The Trust created hereby shall be known as
"Mego Mortgage Home Loan Owner Trust 1997-1", in which name the Owner Trustee
may conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.2 Office. The office of the Trust shall be in care of
the Owner Trustee at the Corporate Trust Office or at such other address in
Delaware as the Owner Trustee may designate by written notice to the Owners,
the Securities Insurer, and the Company.
Section 2.3 Purposes and Powers. (a) The purpose of the Trust
is to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture
and the Certificates pursuant to this Agreement and to sell such Notes
and such Certificates;
(ii) with the proceeds of the sale of the Notes
and the Certificates, to fund start-up and transactional expenses of
the Trust and to pay the balance to the Depositor and the Company, as
their interests may appear pursuant to the Sale and Servicing
Agreement;
(iii) to assign, grant, transfer, pledge, mortgage
and convey the Trust Estate pursuant to the Indenture and to hold,
manage and distribute to the Owners pursuant to the terms of the Sale
and Servicing Agreement any portion of the 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 Transaction Documents to which it is to be a party;
(v) to engage in those activities, including
entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected
therewith;
(vi) subject to compliance with the Transaction
Documents, to engage in such other activities as may be required in
connection with conservation of the Owner Trust Estate and the making
of distributions to the Owners and the Noteholders; and
(vii) to issue the Residual Interest Instruments
pursuant to this Agreement.
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The Trust is hereby authorized to engage in the foregoing activities. The
Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this
Agreement or the Transaction Documents.
Section 2.4 Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
Section 2.5 Initial Capital Contribution of Owner Trust Estate.
The Depositor hereby sells, assigns, transfers, conveys and sets over to the
Owner Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Company
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee.
Section 2.6 Declaration of Trust. The Owner Trustee hereby
declares that it will hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the Owners, subject
to the obligations of the Trust under the Transaction 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 and franchise tax purposes, the Trust shall be
treated as a partnership, with the assets of the partnership being the Home
Loans and other assets held by the Trust, the partners of the partnership being
the holders of the Trust Certificates and the Notes being non-recourse debt of
the partnership. The parties agree that, unless otherwise required by
appropriate tax authorities, 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 in the Business Trust Statute with
respect to accomplishing the purposes of the Trust.
Section 2.7 Title to Trust Property.
(a) Subject to the Indenture, legal title to all the
Owner Trust Estate shall be vested at all times in the Trust as a separate
legal entity except where applicable law in any jurisdiction requires title to
any part of the Owner Trust Estate to be vested in a trustee or trustees, in
which case title shall be deemed to be vested in the Owner Trustee, the
Co-Owner Trustee and/or a separate trustee, as the case may be.
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(b) The Owners shall not have legal title to any part of
the Owner Trust Estate. No transfer by operation of law or otherwise of any
interest of the Owners shall operate to terminate this Agreement or the trusts
hereunder or entitle any transferee to an accounting or to the transfer to it
of any part of the Owner Trust Estate.
Section 2.8 Situs of Trust. The Trust will be located and
administered in the state of Delaware. All bank accounts maintained by the
Owner Trustee on behalf of the Trust shall be located in the State of Delaware
or the State of New York, except with respect to the Co- Owner Trustee. The
Trust shall not have any employees; provided, however, that nothing herein
shall restrict or prohibit the Owner Trustee from having employees within or
without the State of Delaware. Payments will be received by the Trust only in
Delaware or New York, and payments will be made by the Trust only from Delaware
or New York, except with respect to the Co-Owner Trustee. The only office of
the Trust will be at the Corporate Trust Office in Delaware.
Section 2.9 Representations and Warranties of the Depositor and
the Company; Covenant of the Company.
(a) The Depositor hereby represents and warrants to the
Owner Trustee, the Co-Owner Trustee and the Securities Insurer that:
(i) The Depositor is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of Delaware and has all licenses necessary to carry on its
business as now being conducted. The Depositor has the power and
authority to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this
Agreement (including all instruments of transfer to be delivered
pursuant to this Agreement) by the Depositor and the consummation of
the transactions contemplated hereby have been duly and validly
authorized by all necessary action of the Depositor; this Agreement
evidences the valid, binding and enforceable obligation of the
Depositor; and all requisite action has been taken by the Depositor to
make this Agreement valid, binding and enforceable upon the Depositor
in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other, similar laws
relating to or affecting creditors' rights generally or the
application of equitable principles in any proceeding, whether at law
or in equity.;
(ii) The consummation of the transactions
contemplated by this Agreement will not result in (i) the breach of
any terms or provisions of the Articles of Incorporation or Bylaws of
the Depositor, (ii) the breach of any term or provision of, or
conflict with or constitute a default under or result in the
acceleration of any obligation under, any material agreement,
indenture or loan or credit agreement or other material instrument to
which the Depositor, or its property is subject, or (iii) the
violation of any law, rule, regulation, order, judgment or decree to
which the Depositor or its respective property is subject;
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(iii) The Depositor is not in default with respect
to any order or decree of any court or any order, regulation or demand
of any federal, state, municipal or other governmental agency, which
default might have consequences that would materially and adversely
affect the condition (financial or otherwise) or operations of the
Depositor or its properties or might have consequences that would
materially and adversely affect its performance hereunder.
(b) The Company hereby represents and warrants to the
Owner Trustee, the Co-Owner Trustee and the Securities Insurer that:
(i) The Company is duly organized and validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Company is duly qualified to do business
as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business shall
require such qualifications.
(iii) The Company has the power and authority to
execute and deliver this Agreement and to carry out its terms; and the
execution, delivery and performance of this Agreement has been duly
authorized by the Company by all necessary corporate action.
(iv) The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time)
a default under, the articles of incorporation or by-laws of the
Company, or any indenture, agreement or other instrument to which the
Company is a party or by which it is bound; nor result in the creation
or imposition of any lien upon any of its properties pursuant to the
terms of any such indenture, agreement or other instrument (other than
pursuant to the Transaction Documents); nor violate any law or, to the
best of the Company's knowledge, any order, rule or regulation
applicable to the Company of any court or of any Federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its
properties.
(v) There are no proceedings or investigations
pending or, to the Company's best knowledge, threatened, before any
court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its
properties: (i) asserting the invalidity of this Agreement, (ii)
seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or (iii) seeking any determination or
ruling that might materially and
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adversely affect the performance by the Company of its obligations
under, or the validity or enforceability of, this Agreement.
(c) The Company covenants with the Owner Trustee, the
Co-Owner Trustee and the Securities Insurer that during the continuance of this
Agreement it will comply in all respects with the provisions of its Certificate
of Incorporation in effect from time to time.
Section 2.10 Federal Income Tax Allocations. Net income of the
Trust for any month, as determined for Federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation
thereof), shall be allocated to the holders of the Residual Interest
Instruments, on a pro rata basis.
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ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership. Upon the formation of the Trust by
the contribution by the Depositor pursuant to Section 2.5 and until the
issuance of the Trust Certificates, the Depositor shall be the sole Owner of
the Trust.
Section 3.2 The Trust Certificates. The Certificates (other than
the Residual Interest) shall be issued in minimum denominations of $100,000
notional amount and in integral multiples of $1,000 in excess thereof. The
Residual Interest Instruments shall not be issued with a principal or notional
amount. The Trust Certificates shall be executed on behalf of the Trust by
manual or facsimile signature of a Trust Officer of the Owner Trustee or the
Administrator. Trust Certificates bearing the manual or facsimile signatures
of individuals who were, at the time when such signatures shall have been
affixed, authorized to sign on behalf of the Trust, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates.
A transferee of a Trust Certificate shall become an Owner, and shall
be entitled to the rights and subject to the obligations of an Owner hereunder
and under the Sale and Servicing Agreement, upon such transferee's acceptance
of a Trust Certificate duly registered in such transferee's name pursuant to
Section 3.4.
Section 3.3 Execution, Authentication and Delivery of Trust
Certificates. Concurrently with the sale of the Home Loans to the Trust
pursuant to the Sale and Servicing Agreement, the Owner Trustee shall cause the
Certificates, in an aggregate notional amount equal to the initial Class
Notional Amount of the Certificates, and the Residual Interest Instruments
representing 100% of the Percentage Interests of the Residual Interest to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Depositor, signed by its chairman of the board, its
president or any vice president, without further corporate action by the
Depositor, in authorized denominations. No Trust Certificate shall entitle its
holder to any benefit under this Agreement, or shall be valid for any purpose,
unless there shall appear on such Trust Certificate a certificate of
authentication substantially in the form set forth in Exhibits A and B,
executed by the Owner Trustee or the Administrator, as the Owner Trustee's
authenticating agent, by manual or facsimile signature; such authentication
shall constitute conclusive evidence that such Trust Certificate shall have
been duly authenticated and delivered hereunder. All Trust Certificates shall
be dated the date of their authentication.
Section 3.4 Registration of Transfer and Exchange of Trust
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
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as it may prescribe, the Owner Trustee shall provide for the registration of
Trust Certificates and of transfers and exchanges of Trust Certificates as
herein provided. The Administrator shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate
at the office or agency maintained pursuant to Section 3.8, the Owner Trustee
shall execute, authenticate and deliver (or shall cause the Administrator as
its authenticating agent to authenticate and deliver), in the name of the
designated transferee or transferees, one or more new Trust Certificates in
authorized denominations of a like aggregate amount dated the date of
authentication by the Owner Trustee or any authenticating agent. At the option
of an Owner, Trust Certificates may be exchanged for other Trust Certificates
of authorized denominations of a like aggregate amount upon surrender of the
Trust Certificates to be exchanged at the office or agency maintained pursuant
to Section 3.8.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer
in form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Owner or his attorney duly authorized in writing. In addition,
each Residual Interest Instrument presented or surrendered for registration of
transfer and exchange must be accompanied by a letter from the Prospective
Owner certifying as to the representations set forth in Sections 3.10(a) and
(b). Each Trust Certificate surrendered for registration of transfer or
exchange shall be canceled and disposed of by the Owner Trustee in accordance
with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register
transfer or exchanges of Trust Certificates for a period of 15 days preceding
the due date for any payment with respect to the Trust Certificates.
Section 3.5 Mutilated, Destroyed, Lost or Stolen Trust
Certificates. If (a) any mutilated Trust 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 Trust
Certificate and (b) there shall be delivered to the Certificate Registrar and
the Owner Trustee such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Trust
Certificate shall have been acquired by a bona fide purchaser, the Owner
Trustee on behalf of the Trust shall execute and the Owner Trustee, or the
Administrator as the Owner Trustee's authenticating agent, shall authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Trust Certificate, a new Trust Certificate of like tenor and
denomination. In connection with the issuance of any new Trust Certificate
under this Section, the Owner Trustee or the Certificate
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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
Trust Certificate issued pursuant to this Section shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Trust Certificate shall be found at any time.
Section 3.6 Persons Deemed Owners. Prior to due presentation of
a Trust Certificate for registration of transfer, the Owner Trustee or the
Certificate Registrar may treat the Person in whose name any Trust Certificate
shall be registered in the Certificate Register as the owner of such Trust
Certificate for the purpose of receiving distributions pursuant to Section 5.2
and for all other purposes whatsoever, and neither the Owner Trustee nor the
Certificate Registrar shall be bound by any notice to the contrary.
Section 3.7 Access to List of Owners' Names and Addresses. The
Certificate Registrar shall furnish or cause to be furnished to the Master
Servicer, the Servicer, the Depositor and the Indenture Trustee within 15 days
after receipt by the Owner Trustee of a request therefor from the Master
Servicer, the Servicer, the Depositor or the Indenture Trustee in writing, a
list, in such form as the Master Servicer, the Servicer, the Depositor or the
Indenture Trustee may reasonably require, of the names and addresses of the
Owners as of the most recent Record Date. If three or more Certificateholders
or one or more Holders of Certificates together evidencing not less than a 25%
Percentage Interest in the Certificates 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 Owner, by receiving and holding a Trust Certificate,
shall be deemed to have agreed not to hold any of the Depositor, the Company,
the Certificate Registrar or the Owner Trustee accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
Section 3.8 Maintenance of Office or Agency. The Owner Trustee
shall maintain an office or offices or agency or agencies where Trust
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 Trust
Certificates and the Transaction Documents may be served. The Owner Trustee
initially designates the Administrator's office in St. Paul, Minnesota as its
principal corporate trust office for such purposes. The Owner Trustee shall
give prompt written notice to the Company and to the Certificateholders of any
change in the location of the Certificate Register or any such office or
agency.
Section 3.9 Appointment of Paying Agent. The Owner Trustee
hereby appoints the Co-Owner Trustee as Paying Agent under this Agreement. The
Paying Agent shall make distributions to Certificateholders and Residual
Interestholders from the Certificate
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Distribution Account pursuant to Section 5.2 hereof and Section 5.01 of the
Sale and Servicing Agreement and shall report the amounts of such distributions
to the Owner Trustee. The Paying Agent shall have the revocable power to
withdraw funds from the Certificate Distribution Account for the purpose of
making the distributions referred to above. In the event that the Co-Owner
Trustee shall no longer be the Paying Agent hereunder, the Owner Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company) acceptable to the Securities Insurer. The Owner Trustee shall cause
such successor Paying Agent or any additional Paying Agent appointed by the
Owner Trustee to execute and deliver to the Owner Trustee an instrument in
which such successor Paying Agent or additional Paying Agent shall agree with
the Owner Trustee that as Paying Agent, such successor Paying Agent or
additional Paying Agent will hold all sums, if any, held by it for payment to
the Owners in trust for the benefit of the Certificateholders and Residual
Interestholders entitled thereto until such sums shall be paid to such Owners.
The Paying Agent shall return all unclaimed funds to the Owner Trustee, and
upon removal of a Paying Agent, such Paying Agent shall also return all funds
in its possession to the Owner Trustee. The provisions of Sections 7.1, 7.3,
7.4 and 8.1 shall apply to the Co- Owner Trustee also in its role as Paying
Agent, for so long as the Co-Owner Trustee shall act as Paying Agent and, to
the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise. Notwithstanding anything herein
to the contrary, the Co-Owner Trustee and the Paying Agent shall be the same
entity as the Indenture Trustee under the Indenture and the Sale and Servicing
Agreement, unless a Securities Insurer Default has occurred and is continuing.
In such event, the Co-Owner Trustee and the Paying Agent shall resign and the
Owner Trustee shall assume the duties and obligations of the Co-Owner Trustee
and the Paying Agent hereunder and under the Sale and Servicing Agreement;
provided, however, that the Indenture Trustee shall continue to perform its
duties as Contract of Insurance Holder under the Sale and Servicing Agreement.
In addition, in such event, the Indenture Trustee shall agree to continue to
make claims under the Guaranty Policy on behalf of the Owner Trustee for the
benefit of the Certificateholders pursuant to the Sale and Servicing Agreement.
Section 3.10 Restrictions on Transfer of Trust Certificates.
(a) Neither any Certificate nor any Residual Interest
Instrument may 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 described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended, or (iii)
any entity, including an insurance company separate account or general
account, whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding a Trust Certificate, the Owner thereof shall be
deemed to have represented and warranted that it is not a Benefit
Plan.
(b) Each prospective purchaser and any subsequent
transferee of a Trust Certificate (each, a "Prospective Owner"), other
than the Company or a wholly-owned
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subsidiary of the Company, shall represent and warrant, in writing, to
the Owner Trustee and the Certificate Registrar and any of their
respective successors that:
(i) Such Person is (A) a "qualified institutional
buyer" as defined in Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), and is aware that the
seller of such Trust Certificate may be relying on the
exemption from the registration requirements of the Securities
Act provided by Rule 144A and is acquiring such Trust
Certificate for its own account or for the account of one or
more qualified institutional buyers for whom it is authorized
to act, or (B) a Person involved in the organization or
operation of the Trust or an affiliate of such Person within
the meaning of Rule 3a-7 of the Investment Company Act of
1940, as amended (including, but not limited to, the Seller or
the Company).
(ii) Such Person understands that such Trust
Certificate has not been and will not be registered under the
Securities Act and may be offered, sold, pledged or otherwise
transferred only to a person whom the seller reasonably
believes is (A) a qualified institutional buyer or (B) a
Person involved in the organization or operation of the Trust
or an affiliate of such Person, in a transaction meeting the
requirements of Rule 144A under the Securities Act and in
accordance with any applicable securities laws of any state of
the United States.
(iii) Such Person understands that each Trust
Certificate bears a legend to the following effect:
"[THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY
THIS RESIDUAL INTEREST INSTRUMENT] [THIS CERTIFICATE]
HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. THIS [RESIDUAL INTEREST]
[CERTIFICATE] MAY BE DIRECTLY OR INDIRECTLY OFFERED
OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED)
BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
ACT PURSUANT TO RULE 144A OR [(II) A PERSON INVOLVED
IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN
AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF RULE
3a-7 OF THE
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<PAGE> 21
INVESTMENT COMPANY ACT OF 1940], AS AMENDED
(INCLUDING, BUT NOT LIMITED TO, MEGO MORTGAGE
CORPORATION) IN A TRANSACTION THAT IS REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO
REGISTER THIS RESIDUAL INTEREST INSTRUMENT UNDER THE
ACT OR ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions
of Section 3.10(b), as applicable, relating to the ERISA
restrictions with respect to the acceptance or acquisition of
such Residual Interest Instrument.
(c) Each Prospective Owner, other than the Company, shall
either:
(i) represent and warrant, in writing, to the
Owner Trustee and the Certificate Registrar and any of their
respective successors that the Prospective Owner is not (A) an
"employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or (B) a "plan" within the meaning of
Section 4975(e)(1) of the Code (any such plan or employee
benefit plan, a "Plan") or (C) any entity, including an
insurance company separate account or general account, whose
underlying assets include plan assets by reason of a plan's
investment in the entity and is not directly or indirectly
purchasing such Trust Certificate on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with
assets of a Plan; or
(ii) furnish to the Owner Trustee and the
Certificate Registrar and any of their respective successors
an opinion of counsel acceptable to such persons that (A) the
proposed issuance or transfer of such Trust Certificate to
such Prospective Owner will not cause any assets of the Trust
to be deemed assets of a Plan, or (B) the proposed issuance or
transfer of such Trust Certificate will not cause the Owner
Trustee or the Certificate Registrar or any of their
respective successors to be a fiduciary of a Plan within the
meaning of Section 3(21) of ERISA and will not give rise to a
transaction described in Section 406 of ERISA or Section
4975(c)(1) of the Code for which a statutory or administrative
exemption is unavailable.
(d) By its acceptance of a Residual Interest Instrument, each
Prospective Owner agrees and acknowledges that no legal or beneficial interest
in all or any portion of the Residual Interest Instruments may be transferred
directly or indirectly to an individual, corporation, partnership or other
person unless such transferee is not a Non-U.S. Person (any
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such person being referred to herein as a "Non-permitted Foreign Holder"), and
any such purported transfer shall be void and have no effect.
(e) Neither The Owner Trustee nor the Administrator shall execute,
or countersign and deliver, any Trust Certificate in connection with any
transfer thereof unless the transferor shall have provided to the Owner Trustee
or the Administrator a certificate, substantially in the form attached as
Exhibit D to this Agreement, signed by the transferee or a Non-permitted
Foreign Holder, which certificate shall contain the consent of the transferee
to any amendments of this Agreement as may be required to effectuate further
the foregoing restrictions on transfer of any Trust Certificate to
Non-permitted Foreign Holders, and an agreement by the transferee that it will
not transfer any Trust Certificate without providing to Certificate Registrar
on behalf of the Owner Trustee a certificate substantially in the form attached
as Exhibit D to this Agreement.
(f) Each Trust Certificate shall bear an additional legend
referring to the foregoing restrictions contained in paragraphs (c) and (d)
above.
(g) The Prospective Owner of a Residual Interest Instrument shall
obtain an opinion of counsel to the effect that, as a matter of Federal income
tax law, such Prospective Owner is permitted to accept the transfer of a
Residual Interest Instrument.
(h) The Residual Interest Instrument may not be transferred
without an Opinion of Counsel to the effect that such transfer would not
jeopardize the tax treatment of the Trust, would not subject the Trust to an
entity-level tax, and would not jeopardize the status of the Notes as debt for
all purposes.
(i) The Trust Certificates shall not be listed for trading on an
established securities market, nor be readily tradeable on a secondary market,
nor be transferable through the substantial equivalent of a secondary market,
nor shall the Issuer be permitted to have more than 100 partners, for income
tax purposes, all within the meaning of Code Section 7704, and its attendant
regulations, as applicable. If requested, in the discretion of the Owner
Trustee, transfer of a Trust Certificate shall be made only if accompanied by
an opinion of counsel satisfactory to the Owner Trustee or the Co-Owner
Trustee, which opinion of counsel shall not be an expense of the Issuer, the
Owner Trustee, the Servicer or the Seller, to the effect such transfer will not
cause the Issuer to be a publicly traded partnership taxable as a corporation
and will not cause the termination of the Issuer under the federal income tax
rules applicable to partnerships.
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Owners with Respect to Certain
Matters. With respect to the following matters, the Owner Trustee shall not
take action, and the Owners shall not direct the Owner Trustee to take any
action, unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Owners and the Securities Insurer in writing of
the proposed action and the Owners and/or the Securities Insurer shall not have
notified the Owner Trustee in writing prior to the 30th day after such notice
is given that such Owners and/or the Securities Insurer have withheld consent
or the Owners have provided alternative direction (any direction by the Owners
shall require the prior consent of the Securities Insurer):
(a) the initiation of any claim or lawsuit by the Trust
(except claims or lawsuits brought in connection with the collection of the
Home Loans) and the compromise of any action, claim or lawsuit brought by or
against the Trust (except with respect to the aforementioned claims or lawsuits
for collection of the Home Loans);
(b) 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);
(c) the amendment or other change to this Agreement or
any Transaction Document in circumstances where the consent of any Noteholder
or the Securities Insurer is required;
(d) the amendment or other change to this Agreement or
any Transaction Document in circumstances where the consent of any Noteholder
or the Securities Insurer is not required and such amendment materially
adversely affects the interest of the Owners;
(e) the appointment pursuant to the Indenture of a
successor Note Registrar, Paying Agent or Indenture Trustee or pursuant to this
Agreement of a successor Certificate Registrar, or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture Trustee or
Certificate Registrar of its obligations under the Indenture or this Agreement,
as applicable.
(f) the consent to the calling or waiver of any default
of any Transaction Document;
(g) the consent to the assignment by the Indenture
Trustee, the Master Servicer or Servicer of their respective obligations under
any Transaction Document;
(h) except as provided in Article IX hereof, dissolve,
terminate or liquidate the Trust in whole or in part;
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(i) merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's assets to
any other entity;
(j) cause the Trust to incur, assume or guaranty any
indebtedness other than the Notes, as set forth in this Agreement;
(k) do any act that conflicts with any other Transaction
Document;
(l) do any act which would make it impossible to carry on
the ordinary business of the Trust;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set
forth in this Trust Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness, operating expenses from its own
funds, and the Trust shall not pay the indebtedness, operating expenses and
liabilities of any other entity. The Trust shall maintain appropriate minutes
or other records of all appropriate actions and shall maintain its office
separate from the offices of the Company, the Depositor, and any of their
respective affiliates. This Agreement is and shall be the only agreement among
the parties hereto with respect to the creation, operation and termination of
the Trust. For accounting purposes, the Trust shall be treated as an entity
separate and distinct from any Owner. The pricing and other material terms of
all transactions and agreements to which the Trust is a party shall be
intrinsically fair to all parties thereto.
The Owner Trustee shall not have the power, except upon the direction
of the Majority Securityholders with the consent of the Securities Insurer, and
to the extent otherwise consistent with the Transaction Documents, to (i)
remove or replace the Master Servicer, the Servicer or the Indenture Trustee,
(ii) institute proceedings to have the Trust declared or adjudicated a bankrupt
or insolvent, (iii) consent to the institution of bankruptcy or insolvency
proceedings against the Trust, (iv) file a petition or consent to a petition
seeking reorganization or relief on behalf of the Trust under any applicable
federal or state law relating to bankruptcy, (v) consent to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or any similar
official) of the Trust or a substantial portion of the property of the Trust,
(vi) make any assignment for the benefit of the Trust's creditors,
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(vii) cause the Trust to admit in writing its inability to pay its debts
generally as they become due, or (viii) take any action, or cause the Trust to
take any action, in furtherance of any of the foregoing (any of the above, a
"Bankruptcy Action"). So long as the Indenture and the Insurance Agreement
remain in effect and no Securities Insurer Default exists, no Certificateholder
or Residual Interestholder shall have the power to take, and shall not take,
any Bankruptcy Action with respect to the Trust or direct the Owner Trustee to
take any Bankruptcy Action with respect to the Trust.
Section 4.2 Action by Owners with Respect to Certain Matters.
The Owner Trustee shall not have the power, except upon the direction of the
Owners and the consent of the Securities Insurer, to (a) remove the
Administrator pursuant to the Administration Agreement, (b) appoint a successor
Administrator pursuant to the Administration Agreement, (c) remove the Master
Servicer pursuant to the Sale and Servicing Agreement, (d) remove the Servicer
pursuant to the Servicing Agreement, or (e) sell the Home 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 Owners and only after obtaining the consent of the Securities Insurer.
Section 4.3 Action by Owners with Respect to Bankruptcy. The
Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the consent and approval of the
Securities Insurer, the unanimous prior approval of all Owners and the
Securities Insurer and the delivery to the Owner Trustee by each such Owner of
a certificate certifying that such Owner reasonably believes that the Trust is
insolvent.
Section 4.4 Restrictions on Owners' Power. The Owners shall not
direct the Owner Trustee to take or refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust or the
Owner Trustee under this Agreement or any of the Transaction Documents or would
be contrary to Section 2.3 nor shall the Owner Trustee be obligated to follow
any such direction, if given.
Section 4.5 Majority Control. Except as expressly provided
herein, any action that may be taken by the Owners under this Agreement may be
taken by (i) the Holders of Certificates evidencing more than a 50% Percentage
Interest in the Certificates and (ii) the Majority Residual Interestholders.
Except as expressly provided herein, any written notice of the Owners delivered
pursuant to this Agreement shall be effective if signed by Holders of
Certificates evidencing (i) more than a 50% Percentage Interest in the
Certificates and (ii) the Majority Residual Interestholders at the time of the
delivery of such notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account. The Owner Trustee
shall cause the Indenture Trustee, to establish and maintain with First Trust
of New York, National Association for the benefit of the Owner Trustee or
Co-Owner Trustee one or more Eligible Accounts which while the Co-Owner Trustee
holds such Trust Account shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT,
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, AS CO-OWNER TRUSTEE, IN TRUST
FOR THE MEGO MORTGAGE HOME LOAN ASSET BACKED SECURITIES, SERIES 1997-1". Funds
shall be deposited in the Certificate Distribution Account as required by the
Sale and Servicing Agreement.
All of the right, title and interest of the Co-Owner Trustee or Owner
Trustee in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the benefit
of the Owners, the Securities Insurer and such other persons entitled to
distributions therefrom. Except as otherwise expressly provided herein or in
the Sale and Servicing Agreement, the Certificate Distribution Account shall be
under the sole dominion and control of the Owner Trustee or Co-Owner Trustee
for the benefit of the Owners, the Securities Insurer and the Servicer.
In addition to the foregoing, the Certificate Distribution Account is
a Trust Account under the Sale and Servicing Agreement and constitutes part of
the Trust Estate pledged by the Trust to the Indenture Trustee under the
Indenture. The Certificate Distribution Account shall be subject to and
established and maintained in accordance with the applicable provisions of the
Sale and Servicing Agreement and the Indenture, including, without limitation,
the provisions of Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement
regarding distributions from the Certificate Distribution Account.
The Company agrees to direct and shall have the sole authority to
direct the Owner Trustee or Co-Owner Trustee, or their successor in interest,
as to the Permitted Investments in which the funds on deposit in the Trust
Accounts (as such term is defined in the Sale and Servicing Agreement) may be
invested.
Section 5.2 Application Of Trust Funds.
(a) On each Distribution Date, the Owner Trustee or
Co-Owner Trustee shall direct the Paying Agent to make the distributions and
payments set forth in Sections 5.01(c) and 5.03 of the Sale and Servicing
Agreement from amounts on deposit in the Note Distribution Account and the
Certificate Distribution Account, respectively.
(b) On or before the third Business Day following each
Distribution Date, the Owner Trustee shall cause the Paying Agent to send to
each Owner the Statement to
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Securityholders prepared pursuant to Section 6.02 of the Sale and Servicing
Agreement with respect to such Distribution Date.
(c) In the event that any withholding tax is imposed on
the Trust's payment (or allocations of income) to an Owner, such tax shall
reduce the amount otherwise distributable to the Owner in accordance with this
Section. The Owner Trustee is hereby authorized and directed to retain from
amounts otherwise distributable to the Owners sufficient funds for the payment
of any tax that is legally owed by the Trust (but such authorization shall not
prevent the Owner Trustee from contesting any such tax in appropriate
proceedings, and withholding payment of such tax, if permitted by law, pending
the outcome of such proceedings). The amount of any withholding tax imposed
with respect to an Owner shall be treated as cash distributed to such Owner at
the time it is withheld by the Trust and remitted to the appropriate taxing
authority. If there is a possibility that withholding tax is payable with
respect to a distribution (such as a distribution to a non-U.S. Owner), the
Owner Trustee may in its sole discretion withhold such amounts in accordance
with this paragraph (c). In the event that an Owner wishes to apply for a
refund of any such withholding tax, the Owner Trustee shall reasonably
cooperate with such owner in making such claim so long as such Owner agrees to
reimburse the Owner Trustee for any out-of-pocket expenses incurred.
Section 5.3 Method of Payment. Distributions required to be made
to Owners on any Distribution Date shall be made to each Owner of record on the
preceding Record Date in the manner set forth in Section 5.03 of the Sale and
Servicing Agreement.
Section 5.4 Segregation of Moneys; No Interest. Subject to
Sections 4.1 and 5.2, moneys received by the Owner Trustee hereunder and
deposited into the Certificate Distribution Account will be segregated except
to the extent required otherwise by law or the Sale and Servicing Agreement and
shall be invested in Permitted Investments at the direction of the Company.
The Owner Trustee shall not be liable for payment of any interest in respect of
such moneys.
Section 5.5 Accounting and Reports to the Certificateholder,
Owners, the Internal Revenue Service and Others. The Owner Trustee shall (a)
maintain (or cause to be maintained) the books of the Trust on a calendar year
basis on the accrual method of accounting, and such books shall be maintained
separate from those of any other entity and reflect the separate interest of
the Trust, (b) deliver to each Owner, as may be required by the Code and
applicable Treasury Regulations, such information as may be required to enable
each Owner to prepare its federal and state income tax returns, (c) file such
tax return relating to the Trust (including a partnership information return,
IRS Form 1065), and make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a partnership for
Federal income tax purposes, (d) cause such tax returns to be signed in the
manner required by law and (e) collect or cause to be collected any withholding
tax as described in and in accordance with Section 5.2(c) with respect to
income or distributions to Owners. The Owner Trustee shall elect under Section
1278 of the Code to include in income
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currently any market discount that accrues with respect to the Home Loans. The
Owner Trustee shall not make the election provided under Section 754 of the
Code.
Section 5.6 Signature on Returns.
The Owner Trustee shall sign on behalf of the Trust the tax
returns of the Trust, unless applicable law requires an Owner to sign such
documents, in which case such documents shall be signed by the Company.
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ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority. The Owner Trustee is authorized
and directed to execute and deliver or cause to be executed and delivered the
Notes, the Trust Certificates and the Transaction Documents to which the Trust
is to be a party and each certificate or other document attached as an exhibit
to or contemplated by the Transaction Documents to which the Trust is to be a
party and any amendment or other agreement or instrument described in Article
III, in each case, in such form as the Company shall approve, as evidenced
conclusively by the Owner Trustee's execution thereof, and, on behalf of the
Trust, to direct the Indenture Trustee to authenticate and deliver Classes of
Notes in the following aggregate principal amounts: Class A-1 Notes,
$23,300,000; Class A-2 Notes, $25,950,000; Class A-3 Notes, $10,300,000; and
Class A-4 Notes, $26,603,605. The Administrator on behalf of the Owner Trustee
shall authenticate and deliver the Certificates and the Residual Interest
Instruments. 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 Transaction Documents.
Section 6.2 General Duties. It shall be the duty of the Owner
Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Transaction
Documents to which the Trust is a party and to administer the Trust in the
interest of the Owners, subject to the Transaction 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 Transaction Documents to the extent
the Administrator or the Co-Owner Trustee has agreed in the Administration
Agreement or this Agreement, respectively, to perform any act or to discharge
any duty of the Owner Trustee or the Trust hereunder or under any Transaction
Document, and the Owner Trustee shall not be held liable for the default or
failure of the Administrator or the Co-Owner Trustee to carry out its
obligations under the Administration Agreement or this Agreement, respectively;
and
(b) to obtain and preserve, the Issuer's qualification to
do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indenture, the
Notes, the Trust Estate and each other instrument and agreement included in the
Trust Estate.
Section 6.3 Action upon Instruction.
(a) Subject to Article IV and in accordance with the
terms of the Transaction Documents, the Owners may by written instruction
direct the Owner Trustee in the management of the Trust but only to the extent
consistent with the limited purpose of the Trust. Such direction may be
exercised at any-time by written instruction of the Owners pursuant to Article
IV.
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(b) The Owner Trustee shall not be required to take any
action hereunder or under any Transaction 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 Transaction Document or is otherwise
contrary to law.
(c) Whenever the Owner Trustee is unable to decide
between alternative courses of action permitted or required by the terms of
this Agreement or under any Transaction Document, the Owner Trustee shall
promptly give notice (in such form as shall be appropriate under the
circumstances) to the Owners and the Securities Insurer requesting instruction
from the Owners 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 Owners received, the Owner Trustee shall not be liable on account of such
action to any Person. If the Owner Trustee shall not have received appropriate
instruction within 10 days of such notice (or within such shorter period of
time as reasonably may be specified in such notice or may be necessary under
the circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Transaction
Documents, as it shall deem to be in the best interests of the Owners, and
shall have no liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to
the application of any provision of this Agreement or any Transaction 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
Owners requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, 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
Transaction Documents, as it shall deem to be in the best interests of the
Owners, and shall have no liability to any Person for such action or inaction.
Section 6.4 No Duties Except as Specified in this Agreement, the
Transaction Documents or in Instructions. The Owner Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to
otherwise take or refrain from taking any action under, or in connection with,
any document contemplated hereby to which the Owner Trustee is a party, except
as expressly provided by the terms of this Agreement, any Transaction Document
or in any document or written instruction received by the Owner Trustee
pursuant to Section 6.3;
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and no implied duties or obligations shall be read into this Agreement or any
Transaction Document against the Owner Trustee. The Owner Trustee shall have
no responsibility for filing any financing or continuation statement in any
public office at any time or to otherwise perfect or maintain the perfection of
any security interest or lien granted to it hereunder or to prepare or file any
Securities and Exchange Commission filing for the Trust or to record this
Agreement or any Transaction Document. The Owner Trustee nevertheless agrees
that it will, at its own cost and expense, promptly take all action as may be
necessary to discharge any liens on any part of the Owner Trust Estate that
result from actions by, or claims against, the Owner Trustee that are not
related to the ownership or the administration of the Owner Trust Estate.
Section 6.5 No Action Except Under Specified Documents or
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose
of or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the
Owner Trustee pursuant to this Agreement, (ii) in accordance with the
Transaction Documents and (iii) in accordance with any document or instruction
delivered to the Owner Trustee pursuant to Section 6.3.
Section 6.6 Restrictions. The Owner Trustee shall not take any
action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation for Federal income tax
purposes. The Owners shall not direct the Owner Trustee to take action that
would violate the provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement and the
Transaction Documents. The Owner Trustee also agrees to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Transaction Documents and this Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Transaction Document
under any circumstances, except (i) for its own willful misconduct or gross
negligence or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.3 expressly made by the Owner Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error
of judgment made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in accordance with the
instructions of the Administrator or the Owners;
(c) no provision of this Agreement or any Transaction
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 Transaction 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 Transaction
Documents, including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Depositor or the Company or for the form, character,
genuineness, sufficiency, value or validity of any of the Owner Trust Estate or
for or in respect of the validity or sufficiency of the Transaction Documents,
other than the certificate of authentication on the Trust Certificates, and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Noteholder or to any Owner, other than as expressly provided
for herein and in the Transaction Documents;
(f) the Owner Trustee shall not be liable for the default
or misconduct of the Administrator, the Seller, the Company, the Indenture
Trustee, the Master Servicer or the Servicer under any of the Transaction
Documents or otherwise and the Owner Trustee shall
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have no obligation or liability to perform the obligations of the Trust under
this Agreement or the Transaction Documents that are required to be performed
by the Administrator under the Administration Agreement, the Indenture Trustee
under the Indenture, the Master Servicer under the Sale and Servicing
Agreement, or the Servicer under the 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 Transaction Document, at the request,
order or direction of any of the Owners, unless such Owners have offered to the
Owner Trustee security or indemnity satisfactory to it against the costs,
expenses and liabilities that may be incurred by the Owner Trustee therein or
thereby. The right of the Owner Trustee to perform any discretionary act
enumerated in this Agreement or in any Transaction Document shall not be
construed as a duty, and the Owner Trustee shall not be answerable for other
than its gross negligence or willful misconduct in the performance of any such
act provided, that the Owner Trustee shall be liable for its negligence or
willful misconduct in the event that it assumes the duties and obligations of
the Co-Owner Trustee under the Sale and Servicing Agreement pursuant to Section
10.5 hereof.
Section 7.2 Furnishing of Documents. The Owner Trustee shall
furnish (a) to the Owners 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 Transaction Documents and (b) to Noteholders promptly upon written
request therefor, copies of the Sale and Servicing Agreement, the
Administration Agreement and the Trust Agreement.
Section 7.3 Representations and Warranties.
(a) The Owner Trustee hereby represents and warrants to
the Depositor and the Company, for the benefit of the Owners, that:
(i) It is a banking corporation duly organized
and validly existing in good standing under the laws of the State of
Delaware. It has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary
to authorize the execution and delivery by it of this Agreement, and
this Agreement will be executed and delivered by one of its officers
who is duly authorized to execute and deliver this Agreement on its
behalf.
(iii) Neither the execution nor the delivery by it
of this Agreement nor the consummation by it of the transactions
contemplated hereby nor compliance by it with any of the terms or
provisions hereof will contravene any Federal or Delaware law,
governmental rule or regulation governing the banking or trust powers
of the
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<PAGE> 34
Owner Trustee or any judgment or order binding on it, or constitute
any default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(b) The Co-Owner Trustee hereby represents and warrants
to the Depositor and the Company and the Securities Insurer, for the benefit of
the Owners, that:
(i) It is a national banking association duly
organized and validly existing in good standing under the laws of the
United States. It has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary
to authorize the execution and delivery by it of this Agreement, and
this Agreement will be executed and delivered by one of its officers
who is duly authorized to execute and deliver this Agreement on its
behalf.
(iii) Neither the execution nor the delivery by it
of this Agreement nor the consummation by it of the transactions
contemplated hereby nor compliance by it with any of the terms or
provisions hereof will contravene any Federal or Minnesota law,
governmental rule or regulation governing the banking or trust powers
of the Co-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 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 Transaction Documents, the Owner Trustee (i) may act directly
or through its agents or attorneys pursuant to agreements entered into with any
of them, and the Owner Trustee shall not be liable for the
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<PAGE> 35
conduct or misconduct of such agents or attorneys if such agents or attorneys
shall have been selected by the Owner Trustee with reasonable care, and (ii)
may consult with counsel, accountants and other skilled persons to be selected
with reasonable care and employed by it. The Owner Trustee shall not be liable
for anything done, suffered or omitted in good faith by it in accordance with
the written opinion or advice of any such counsel, accountants or other such
persons and not contrary to this Agreement or any Transaction Document.
Section 7.5 Not Acting in Individual Capacity. Except as
provided in this Article VII, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason
of the transactions contemplated by this Agreement or any Transaction Document
shall look only to the Owner Trust Estate for payment or satisfaction thereof.
Section 7.6 Owner Trustee Not Liable for Trust Certificates or
Home Loans. The recitals contained herein and in the Trust Certificates (other
than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Depositor and the
Company, and the Owner Trustee assumes no responsibility for the correctness
thereof. The Owner Trustee makes no representations as to the validity or
sufficiency of this Agreement, of any Transaction Document or of the Trust
Certificates (other than the signature and countersignature of the Owner
Trustee on the Trust Certificates and as specified in Section 7.3) or the
Notes, or of any Home Loans or related documents. The Owner Trustee shall at
no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Home Loan, or the perfection and
priority of any security interest created by any Home Loan or the maintenance
of any such perfection and priority, or for or with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to Owners under this Agreement or the Noteholders under the
Indenture, including, without limitation: the existence, condition and
ownership of any Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Home Loan on any computer or other
record thereof; the validity of the assignment of any Home Loan to the Trust or
of any intervening assignment; the completeness of any Home Loan; the
performance or enforcement of any Home Loan; the compliance by the Depositor,
the Company, the Master Servicer or the Servicer with any warranty or
representation made under any Transaction Document or in any related document
or the accuracy of any such warranty or representation or any action of the
Administrator, the Indenture Trustee, the Master Servicer or the Servicer or
any subservicer taken in the name of the Owner Trustee.
Section 7.7 Owner Trustee May Own Trust Certificates and Notes.
The Owner Trustee in its individual or any other capacity may become the owner
or pledgee of Trust Certificates or Notes and may deal with the Depositor, the
Company, the Administrator, the Indenture Trustee and the Servicer in banking
transactions with the same rights as it would have if it were not Owner
Trustee.
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Section 7.8 Licenses. The Owner Trustee shall cause the Trust to
use its best efforts to obtain and maintain the effectiveness of any licenses
required in connection with this Agreement and the Transaction Documents and
the transactions contemplated hereby and thereby until such time as the Trust
shall terminate in accordance with the terms hereof.
Section 7.9 Rights of Co-Owner Trustee. The Co-Owner Trustee shall
be entitled to all the rights and benefits conferred upon the Owner Trustee in
Article VII of this Agreement.
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ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Company and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Company for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
Section 8.2 Indemnification. The Company shall be liable as
primary obligor, and the Servicer as secondary obligor pursuant to the
Administration Agreement, for, and shall indemnify the Owner Trustee, the
Co-Owner Trustee and their successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Transaction Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee or the Co-Owner Trustee hereunder, except only that the
Company shall not be liable for or required to indemnify an Indemnified Party
from and against Expenses arising or resulting from any of the matters
described in the third sentence of Section 7.1 hereof. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the termination of this Agreement. In any event of any claim,
action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee's or Co-Owner Trustee's choice of legal counsel
shall be subject to the approval of the Company, which approval shall not be
unreasonably withheld.
Section 8.3 Payments to the Owner Trustee. 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.
VIII-1
<PAGE> 38
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the
Trust shall terminate and be of no further force or effect on the earlier of
(i) the satisfaction and discharge of the Indenture pursuant to Section 4.01 of
the Indenture and the termination of the Sale and Servicing Agreement and (ii)
the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy (the late ambassador of the United States to
the Court of St. James's) alive on the date hereof. The bankruptcy,
liquidation, dissolution, death or incapacity of any Owner shall not (x)
operate to terminate this Agreement or the Trust, nor (y) entitle such Owner's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Owner Trust Estate nor (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.
(b) The Certificates shall be subject to an early
redemption or termination at the option of the Company, the Master Servicer or
the Securities Insurer in the manner and subject to the provisions of Section
11.01 of the Sale and Servicing Agreement.
(c) Except as provided in Sections 9.1(a) and (b) above,
none of the Depositor, the Company, the Securities Insurer nor any Owner shall
be entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying
the Distribution Date upon which the Certificateholders shall surrender their
Certificates to the Paying Agent for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Certificateholders,
the Securities Insurer and the Rating Agencies mailed within five Business Days
of receipt by the Owner Trustee of notice of such termination pursuant to
Section 9.1(a) or (b) above, which notice given by the Owner Trustee shall
state (i) the Distribution 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 Paying Agent therein designated, (ii) the
amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made
only upon presentation and surrender of the Trust Certificates at the office of
the Paying Agent therein specified. The Owner Trustee shall give such notice
to the Certificate Registrar (if other than the Owner Trustee) and the Paying
Agent at the time such notice is given to Certificateholders. Upon
presentation and surrender of the Certificates, the Paying Agent shall cause to
be distributed to Certificateholders amounts distributable on such Distribution
Date pursuant to Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement.
IX-1
<PAGE> 39
In the event that all of the Certificateholders shall not
surrender their Trust Certificates for cancellation within six months after the
date specified in the above mentioned written notice, the Co-Owner Trustee
shall give a second written notice to the remaining Certificateholders to
surrender their Trust Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Trust Certificates shall not have been surrendered for cancellation,
the Co-Owner Trustee may take appropriate steps, or may appoint an agent to
take appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Trust Certificates, and the cost thereof shall be paid out
of the funds and other assets that shall remain subject to this Agreement. Any
funds remaining in the Trust after exhaustion of such remedies shall be
distributed by the Co-Owner Trustee to the Residual Interestholders on a pro
rata basis.
(e) Upon the winding up of the Trust and its termination,
the Owner Trustee shall cause the Certificate of Trust to be canceled by filing
a certificate of cancellation with the Secretary of State in accordance with
the provisions of Section 3820 of the Business Trust Statute.
IX-2
<PAGE> 40
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee. The
Owner Trustee shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Business Trust Statute; authorized to exercise
corporate powers; having a combined capital and surplus of at least $50,000,000
and subject to supervision or examination by Federal or state authorities; and
having (or having a parent which has) a long-term rating of at least "A-1" by
Standard & Poor's and "Baa3" by Moody's and being acceptable to the Securities
Insurer. If such corporation shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purpose of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital 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 or Co-Owner
Trustee. The Owner Trustee or Co-Owner Trustee may at any time resign and be
discharged from the trusts hereby created by giving written notice thereof to
the Administrator, the Indenture Trustee, the Securities Insurer and the
Company. Upon receiving such notice of resignation, the Administrator shall
promptly appoint a successor Owner Trustee or Co-Owner Trustee (acceptable to
the Securities Insurer) by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to
the successor Owner Trustee or Co-Owner Trustee. If no successor Owner Trustee
or Co- 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 Co-Owner Trustee or the Securities Insurer may petition any
court of competent jurisdiction for the appointment of a successor Owner
Trustee or Co-Owner Trustee.
If at any time the Owner Trustee or Co-Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail to
resign after written request therefor by the Administrator, or if at any time
the Owner Trustee or Co-Owner Trustee shall be legally unable to act, or shall
be adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or
Co-Owner Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Owner Trustee or Co-Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Securities Insurer, or the Administrator with the consent
of the Securities Insurer, may remove the Owner Trustee or Co-Owner Trustee. If
the Administrator or the Securities Insurer shall remove the Owner Trustee or
Co-Owner Trustee under the authority of the immediately preceding sentence, the
Securities Insurer, or the Administrator with the consent of the Securities
Insurer, shall promptly appoint a successor Owner Trustee or Co-Owner Trustee
by written instrument in duplicate, one copy of which instrument shall be
delivered to the
X-1
<PAGE> 41
outgoing Owner Trustee or Co-Owner Trustee so removed and one copy to the
successor Owner Trustee or Co-Owner Trustee and payment of all fees owed to the
outgoing Owner Trustee or Co-Owner Trustee.
Any resignation or removal of the Owner Trustee or Co-Owner Trustee
and appointment of a successor Owner Trustee or Co-Owner Trustee pursuant to
any of the provisions of this Section shall not become effective until (i)
acceptance of appointment by the successor Owner Trustee or Co-Owner Trustee
pursuant to Section 10.3 written approval by the Securities Insurer and payment
of all fees and expenses owed to the outgoing Owner Trustee or Co-Owner
Trustee. The Administrator shall provide notice of such resignation or removal
of the Owner Trustee or Co- Owner Trustee to each of the Rating Agencies and
the Securities Insurer.
Section 10.3 Successor Owner Trustee or Co-Owner Trustee. Any
successor Owner Trustee or Co-Owner Trustee appointed pursuant to Section 10.2
shall execute, acknowledge and deliver to the Administrator, the Securities
Insurer and to its predecessor Owner Trustee or Co- Owner Trustee an instrument
accepting such appointment under this Agreement, and thereupon the resignation
or removal of the predecessor Owner Trustee or Co-Owner Trustee shall become
effective and such successor Owner Trustee or Co-Owner Trustee (if acceptable
to the Securities Insurer), without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties, and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Owner Trustee or Co-Owner Trustee. The predecessor Owner Trustee or Co-Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee or Co-Owner Trustee all documents and statements and monies held
by it under this Agreement; and the Administrator and the predecessor Owner
Trustee or Co-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 or Co-Owner Trustee all such
rights, powers, duties, and obligations.
No successor Owner Trustee or Co-Owner Trustee shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor Owner Trustee or Co-Owner Trustee shall be eligible pursuant to
Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee or
Co-Owner Trustee pursuant to this Section, the Administrator shall mail notice
of the successor of such Owner Trustee or Co-Owner Trustee to all Owners, the
Indenture Trustee, the Noteholders, the Securities Insurer and the Rating
Agencies. If the Administrator fails to mail such notice within 10 days after
acceptance of appointment by the successor Owner Trustee or Co-Owner Trustee,
the successor Owner Trustee or Co-Owner Trustee shall cause such notice to be
mailed at the expense of the Administrator.
X-2
<PAGE> 42
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, and for the purpose of performing certain duties and obligations of
the Owner Trustee with respect to the Trust and the Certificates under the Sale
and Servicing Agreement, the Administrator and the Owner Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Owner Trustee and acceptable to the
Securities Insurer to act as co-owner trustee, jointly with the Owner Trustee,
or separate owner trustee or separate owner trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the
Administrator, the Securities Insurer and the Owner Trustee may consider
necessary or desirable. If the Administrator shall not have joined in such
appointment within 25 days after the receipt by it of a request so to do, the
Owner Trustee (with the consent of the Securities Insurer) shall have the power
to make such appointment. No Co-Owner Trustee or separate Owner Trustee under
this Section 10.5 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-owner trustee or separate Owner Trustee shall be required pursuant to
Section 10.3.
The Owner Trustee hereby appoints the Indenture Trustee as Co-Owner
Trustee for the purpose of (i) establishing and maintaining the Certificate
Distribution Account and making the distributions therefrom to the Persons
entitled thereto pursuant to Sections 5.01(c) and 5.03 of the Sale and
Servicing Agreement and (ii) holding the Contract of Insurance on behalf of the
Trust, facilitating claims under the Contract of Insurance and for purposes of
holding record ownership of each FHA Loan. The Owner Trustee and the Co-Owner
Trustee each agree that upon the occurrence and continuation of a Securities
Insurer Default, the Co-Owner Trustee shall resign and the Owner Trustee shall
assume the duties and obligations of the Co-Owner Trustee under the Sale and
Servicing Agreement (other than its duties as Contract of Insurance Holder
thereunder) and this Agreement, including without limitation, the obligations
of the Co-Owner Trustee as Paying Agent pursuant to Section 3.9 hereof.
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
X-3
<PAGE> 43
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred upon
and exercised or performed by the Owner Trustee and such separate
owner trustee or co-owner trustee jointly (it being understood that
such separate owner trustee or co-owner trustee is not authorized to
act separately without the Owner Trustee joining in such act), except
to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Owner Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties, and obligations (including the holding of
title to the Trust or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate owner trustee
or co-owner trustee but solely at the direction of the Owner Trustee;
provided that Co-Owner Trustee, in performing its duties and
obligations under the Sale and Servicing Agreement, may act separately
in its capacity as Co-Owner Trustee without the Owner Trustee joining
in such Acts.
(ii) no owner trustee under this Agreement shall
be personally liable by reason of any act or omission of any other
owner trustee under this Agreement; and
(iii) the Administrator and the Owner Trustee
acting jointly may at any time accept the resignation of or remove any
separate owner trustee or co-owner trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to the separate owner trustees and co-owner
trustees, as if given to each of them. Every instrument appointing any
separate owner trustee or co-owner trustee, other than this Agreement, shall
refer to this Agreement and to the conditions of this Article. Each separate
owner trustee and co-owner trustee, upon its acceptance of appointment, shall
be vested with the estates specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the liability
of, or affording protection to, the Owner Trustee. Each such instrument shall
be filed with the Owner Trustee and a copy thereof given to the Administrator.
Any separate owner trustee or co-owner trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
owner trustee or co-owner trustee shall die, become incapable of acting, resign
or be removed, all of its estates, properties, rights, remedies and trusts
shall vest in and be exercised by the Owner Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
X-4
<PAGE> 44
The Co-Owner Trustee, in its capacity as Co-Owner Trustee, shall not
have any rights, duties or obligations except as expressly provided in this
Agreement and the Sale and Servicing Agreement.
X-5
<PAGE> 45
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments. This Agreement may be
amended by the Depositor, the Company and the Owner Trustee, with the prior
consent of the Securities Insurer, and with prior written notice to the Rating
Agencies and the Securities Insurer, but without the consent of any of the
Noteholders or the Owners or the Indenture Trustee, to cure any ambiguity, to
correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or of modifying in any manner the rights of the
Noteholders or the Owners provided, however, that such action shall not
adversely affect in any material respect the interests of any Noteholder or
Owner or the rights of the Securities Insurer. An amendment described above
shall be deemed not to adversely affect in any material respect the interests
of any Noteholder or Owner if (i) an opinion of counsel is obtained to such
effect, and (ii) the party requesting the amendment satisfies the Rating Agency
Condition with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with the prior written consent of the Rating
Agencies and with the prior written consent of the Indenture Trustee, the
Securities Insurer, the Holders (as defined in the Indenture) of Notes
evidencing more than 50% of the Percentage Interests in the Notes, the Holders
of Certificates evidencing more than 50% of the Percentage Interests in the
Certificates and the Majority Residual Interestholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Owners; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the Home Loans or distributions that
shall be required to be made for the benefit of the Noteholders or the
Certificateholders or the Securities Insurer (b) reduce the aforesaid
percentage of the Outstanding Amount of the Notes and the Class Notional
Balance of the Certificates or the Percentage Interests required to consent to
any such amendment, in either case of clause (a) or (b) without the consent of
the holders of all the outstanding Notes and Certificates and the Securities
Insurer, and in the case of clause (b) without the consent of the holders of
all the outstanding Residual Interest Instruments.
Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Securities Insurer and each of the Rating Agencies.
It shall not be necessary for the consent of Owners, the Noteholders
or the Indenture Trustee pursuant to this Section to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The
XI-1
<PAGE> 46
manner of obtaining such consents (and any other consents of Owners provided
for in this Agreement or in any other Transaction Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Owner
Trustee's own rights, duties or immunities under this Agreement or otherwise.
Section 11.2 No Legal Title to Owner Trust Estate in Owners. The
Owners shall not have legal title to any part of the Owner Trust Estate. The
Owners shall be entitled to receive distributions with respect to their
undivided ownership interest therein only in accordance with Articles V and IX.
No transfer, by operation of law or otherwise, of any right, title, or interest
of the Owners to and in their ownership interest in the Owner Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or entitle
any transferee to an accounting or to the transfer to it of legal title to any
part of the Owner Trust Estate.
Section 11.3 Limitations on Rights of Others. The provisions of
this Agreement are solely for the benefit of the Owner Trustee, the Co-Owner
Trustee, the Depositor, the Company, the Owners, the Administrator, the
Securities Insurer and, to the extent expressly provided herein, 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 by the intended recipient or three Business Days
after mailing if mailed by certified mail, postage prepaid (except that notice
to the Owner Trustee shall be deemed given only upon actual receipt by the
Owner Trustee), at the following addresses: (i) if to the Owner Trustee, its
Corporate Trust Office; (ii) if to the Depositor, Financial Asset Securities
Corp., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: John
Anderson, Senior Vice President; (iii) if to the Company, Mego Mortgage
Corporation, 1000 Parkwood Circle, Suite 500 Atlanta, Georgia 30339, Attention:
Jeff S. Moore, President; (iv) if to the Securities Insurer, MBIA Insurance
Corporation, 113 King Street, Armonk, New York 10504, Attention: IPM-SF,
telephone: 914-765-3810, confirmation: 914-765-3781; (v) if to the Co- Owner
Trustee, First Trust of New York, National Association, 180 East Fifth Street,
St. Paul, Minnesota 55101, Attention: Structured Finance/Mego Mortgage 1997-1
Corporate Trust
XI-2
<PAGE> 47
Department; or, as to each such party, at such other address as shall be
designated by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to an Owner shall
be given by first-class mail, postage prepaid, at the address of such Owner as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Owner receives such notice.
Section 11.5 Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
Section 11.6 Separate Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 11.7 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company, the Securities Insurer, the Owner Trustee, the Co-Owner
Trustee and its successors and each owner and its successors and permitted
assigns, all as herein provided. Any request, notice, direction, consent,
waiver or other instrument or action by an Owner shall bind the successors and
assigns of such Owner.
Section 11.8 No Petition. The Owner Trustee, by entering into
this Agreement, each Owner, by accepting a Trust Certificate, and the Indenture
Trustee and each Noteholder by accepting the benefits of this Agreement, hereby
covenant and agree that they will not at any time institute against the
Company, any wholly-owned subsidiary of the Company, the Depositor or the
Trust, or join in any institution against the Company, any wholly-owned
subsidiary of the Company, or the Trust of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or law in connection with any
obligations relating to the Trust Certificates, the Notes, this Agreement or
any of the Transaction Documents.
Section 11.9 Covenants of Company. The Company shall not
institute at any time any Bankruptcy proceeding against the Trust or any
wholly-owned subsidiary of the Company, under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Trust Certificates, the Notes, the Trust Agreement or any of the
Transaction Documents.
Section 11.10 No Recourse. Each Owner by accepting a Trust
Certificate acknowledges that such Owner's Trust Certificate represents a
beneficial interest in the Trust
XI-3
<PAGE> 48
only and does not represent an interest in or an obligation of the Seller, the
Servicer, the Company, the Depositor, the Administrator, the Owner Trustee, the
Co-Owner Trustee or any Affiliate thereof and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Trust Certificates or the Transaction
Documents.
Section 11.11 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 11.12 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 11.13 Section 11.13 [Reserved].
Section 11.14 Grant of Certificateholder and Residual Interest
Holder Rights to Securities Insurer.
(a) In consideration for the guarantee of the
Certificates by the Securities Insurer pursuant to the Guaranty Policy, the
Certificateholders hereby grant to the Securities Insurer the right to act as
the Holder of 100% of the outstanding Certificates for the purpose of
exercising the rights of the Certificateholders under this Agreement without
the consent of the Certificateholders, including the voting rights of such
holders hereunder, but excluding those rights requiring the consent of all such
Holders under Section 11.1 and any rights of such Holders to distributions
under Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement; provided
that the preceding grant of rights to the Securities Insurer by the
Certificateholders shall be subject to Section 11.16.
(b) In consideration for the issuance of the Residual
Interest Instruments and for the guarantee of the Certificates by the
Securities Insurer pursuant to the Guaranty Policy, the holders of the Residual
Interest Instruments hereby grant to the Securities Insurer the right to act as
the holder of 100% of the Residual Interest Instruments for the purpose of
exercising the rights of the holders of the Residual Interest under this
Agreement, including the voting rights of such holders hereunder, but excluding
those rights requiring the consent of all such holders under Section 11.1 and
any rights of such holders to Distributions under Sections 5.01(c) and 5.03 of
the Sale and Servicing Agreement; provided that the preceding grant of rights
to the Securities Insurer by the holders of the Residual Interest shall be
subject to Section 11.15.
(c) The rights of the Securities Insurer to direct
certain actions and consent to certain actions of the Certificateholders
hereunder will terminate at such time as the
XI-4
<PAGE> 49
Notional Balance of the Certificates has been reduced to zero and the
Securities Insurer has been reimbursed for all Guaranteed Payments and any
other amounts owed under the Guaranty Policy and the Insurance Agreement and
the Securities Insurer has no further obligation under the Guaranty Policy.
Section 11.15 Third-Party Beneficiary. The parties hereto
acknowledge that the Securities Insurer is an express third party beneficiary
hereof entitled to enforce any rights reserved to it hereunder as if it were
actually a party hereto.
Section 11.16 Suspension and Termination of Securities Insurer's
Rights.
(a) During the continuation of a Securities Insurer
Default, rights granted or reserved to the Securities Insurer hereunder shall
vest instead in the Owners; provided that the Securities Insurer shall be
entitled to any distributions in reimbursement of the Securities Insurer
Reimbursement Amount, and the Securities Insurer shall retain those rights
under Section 11.1 to consent to any amendment of this Agreement.
At such time as either (i) the Class Notional Amount has been
reduced to zero or (ii) the Guaranty Policy has been terminated and in either
case of (i) or (ii) the Securities Insurer has been reimbursed for all
Guaranteed Payments and any other amounts owed under the Guaranty Policy and
the Insurance Agreement (and the Securities Insurer no longer has any
obligation under the Guaranty Policy, except for breach thereof by the
Securities Insurer), then the rights and benefits granted or reserved to the
Securities Insurer hereunder (including the rights to direct certain actions
and receive certain notices) shall terminate and the Owner shall be entitled to
the exercise of such rights and to receive such benefits of the Securities
Insurer following such termination to the extent that such rights and benefits
are applicable to the Owners.
Section 11.17 Inconsistencies with Sale and Servicing Agreement.
In the event certain provisions of this Agreement conflict with the
provisions of the Sale and Servicing Agreement, the parties hereto agree that
the provisions of the Sale and Servicing Agreement shall be controlling.
XI-5
<PAGE> 50
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.
FINANCIAL ASSET SECURITIES CORP.,
Depositor
By:
--------------------------------------
Name:
Title:
MEGO MORTGAGE CORPORATION
By:
--------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:
--------------------------------------
Name:
Title:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Co-Owner Trustee and Paying Agent
By:
--------------------------------------
Name:
Title:
<PAGE> 51
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF FINANCIAL
ASSET SECURITIES CORP., MEGO MORTGAGE CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES, EXCEPT TO THE EXTENT DESCRIBED BELOW.
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
____% HOME LOAN ASSET BACKED CERTIFICATE
evidencing a [fractional undivided interest] in the Trust, as defined below,
the property of which includes a pool of Home Loans sold to the Trust by
Financial Asset Securities Corp.
NUMBER:______ FRACTIONAL UNDIVIDED INTEREST: __________/_________th
CUSIP NO. ______ ___
(See Reverse Pages for certain definitions)
THIS CERTIFIES THAT___________ is the
registered owner of a _________/__________th nonassessable, fully-paid,
fractional undivided interest in MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
(the "Trust") formed by Financial Asset Securities Corp., a Delaware
corporation (the "Seller").
The Trust was created pursuant to a
Trust Agreement dated as of February 1, 1997 (as amended and supplemented from
time to time, the "Trust Agreement"), among the Seller, Financial Asset
Securities Corp., a Delaware corporation (the "Company"), Wilmington Trust
Company, as owner trustee (the "Owner Trustee") and First Trust of New York
National Association, as Co-Owner Trustee (the "Co-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 or the Sale and Servicing
Agreement dated as of February 1, 1997 (as amended and supplemented from time
to time, the "Sale and Servicing Agreement"), among the Trust, the Seller, Mego
Mortgage Corporation, as servicer (the "Servicer") and the Co-Owner Trustee, as
applicable.
This Certificate is one of the duly
authorized Certificates designated as "Mego Mortgage Home Loan Asset Backed
Certificates, Series 1997-1" (herein called the "Certificates") issued under
the Trust Agreement. Also issued under an Indenture dated as of February 1,
1997, between the Trust and First Trust of New York, National Association, as
Indenture Trustee, are the _____ classes of Notes designated as "Mego Mortgage
Asset Backed Notes, Series 1997-1, Class A-1, Class A-2, Class A-3 and Class
A-4 (collectively, the "Notes"). This Certificate is issued under and is
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. Payments of interest on this
Certificate shall be made by First Trust of New York,
<PAGE> 52
National Association, in its capacity as Co-Owner Trustee under the Sale and
Servicing Agreement. The property of the Trust includes a pool of Initial Home
Loans and Subsequent Home Loans (collectively, the "Home Loans"), all monies
due thereunder on or after the respective Cut-off Dates thereof, certain bank
accounts and the proceeds thereof, proceeds from claims on certain insurance
policies and certain other rights under the Trust Agreement and the Sale and
Servicing Agreement and all proceeds of the foregoing. The rights of the
holders of the Certificates are subordinated to the rights of the holders of
the Notes, as set forth in the Sale and Servicing Agreement and the Indenture.
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, (each, a "Distribution Date"), commencing
in March, 1997, to the person in whose name this Certificate is registered at
the close of business on the last Business Day of the month immediately
preceding the month in which each Distribution Date occurs (the "Record Date")
such Certificateholder's fractional undivided interest in the Certificateholder
Distributable Amount to Certificateholders on such Distribution Date pursuant
to Section 5.01 of the Sale and Servicing Agreement.
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 and the Indenture.
It is the intent of the Seller, the
Company, the Servicer and the Certificateholders that, for purposes of Federal,
state and local income and single business tax and any other income taxes, the
Trust will be treated as a partnership and the Certificateholders (including
the Company) will be treated as partners in that partnership. The Company and
the 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 or Certificate
Owner, by its acceptance of a Certificate or, in the case of a Certificate
Owner, a beneficial interest in a Certificate, covenants and agrees that such
Certificateholder or Certificate Owner, as the case may be, will not at any
time institute against the Company, or join in any institution against the
Company 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 Transaction
Documents.
Distributions on this Certificate will
be made as provided in the Trust 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 that
<PAGE> 53
with respect to Certificates 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. 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 Co-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 Co-Owner
Trustee in the Borough of Manhattan, The City of New York.
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.
[Remainder of page intentionally left blank]
<PAGE> 54
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.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement
By:
----------------------------------
Authorized Signatory
DATED:_________________
<PAGE> 55
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Trust Agreement.
FIRST TRUST ON NEW YORK, NATIONAL
ASSOCIATION, as Authenticating Agent
By:_____________________________
Authorized Signatory
<PAGE> 56
(REVERSE OF TRUST CERTIFICATE)
The Certificates do not represent an obligation of, or an interest in,
the Seller, the Servicer, the Company, the Depositor, the Owner Trustee, the
Co-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 or the Transaction Documents. In
addition, this Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections and
recoveries respecting the Home Loans (and certain other amounts), all 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, the Indenture
and the Trust Agreement may be examined during normal business hours at the
principal office of the Seller, and at such other places, if any, designated by
the Seller, by any Certificateholder upon written request.
MBIA Insurance Corporation, as the Securities Insurer, has issued a
Guaranty Policy in the name of the Indenture Trustee for the benefit of the
Certificateholders, which policy guarantees payments on each Distribution Date
to the Indenture Trustee for the benefit of the Certificateholders of the
related Certificateholders' Interest Distributable Amount then payable on the
Certificates. Unless a Securities Insurer Default shall be continuing, the
Securities Insurer shall be deemed to be the Holder of 100% of the outstanding
Certificates for the purpose of exercising the rights, including voting rights,
of the Certificateholders under the Trust Agreement and the Sale and Servicing
Agreement. In addition, on each Distribution Date, after the
Certificateholders have been paid all amounts to which they are entitled, the
Securities Insurer will be entitled to be reimbursed for any unreimbursed
Guaranteed Payments and any other amounts owed under the Guaranty Policy.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Seller and the Company and the rights of the Certificateholders under the Trust
Agreement at any time by the Seller, the Company and the Owner Trustee with the
consent of the holders of the Notes and the Certificates each voting as a class
evidencing not less than a majority of the outstanding Notes and the Class
Notional Balance of 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 herefor 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.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable 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 Co-Owner Trustee in the Borough of Manhattan, The City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Co-Owner Trustee and the Certificate Registrar duly executed by the holder
hereof or such holder's attorney duly
<PAGE> 57
authorized in writing, and thereupon one or more new Certificates of 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 the Co-Owner Trustee.
The Certificates are issuable only as registered Certificates without
coupons in denominations of $100,000 and in 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 of 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
Co-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 Co-Owner Trustee, the Certificate Registrar and
any agent of the Owner Trustee, the Co-Owner Trustee or the Certificate
Registrar 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 Co-Owner
Trustee, the Certificate Registrar or 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 and the Sale and Servicing Agreement shall
terminate eighteen months after the payment to Certificateholders of all
amounts required to be paid to them pursuant to the Trust Agreement and the
Sale and Servicing Agreement and the disposition of all property held as part
of the Trust. The Majority Residual Interestholders may at their option
purchase the corpus of the Trust at a price specified in the Sale and Servicing
Agreement, and such purchase of the Home Loans and other property of the Trust
will effect early retirement of the Certificates; however, such right of
purchase is exercisable only on a Distribution Date on which the Pool Principal
Balance is less than or equal to 10% of the Original Pool Principal Balance of
the Home Loans.
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c)
any entity, including an insurance company separate account, whose underlying
assets include plan assets by reason of a plan's investment in the entity
(each, a "Benefit Plan"). By accepting and holding this Certificate, the
Holder hereof shall be deemed to have represented and warranted that it is not
a Benefit Plan.
<PAGE> 58
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
Attorney to transfer said Certificate on the books of the Certificate
Registrar, with full power of substitution in the premises.
Dated:____________________
_____________________________________*/
Signature Guaranteed:
_____________________________________*/
__________________________
*/ NOTICE: The signature to this assignment must correspond with the
name as it appears upon the face of the within Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE> 59
EXHIBIT A-2
TO THE TRUST AGREEMENT
[FORM OF CERTIFICATE ISSUED TO THE COMPANY]
<PAGE> 60
EXHIBIT B
TO THE TRUST AGREEMENT
(FORM OF RESIDUAL INTEREST INSTRUMENT]
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INTEREST MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF
(INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A
PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE
OF SUCH A PERSON WITHIN THE MEANING OF RULE 3A-7 OF THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED (INCLUDING, BUT NOT LIMITED TO, MEGO MORTGAGE CORPORATION)
IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INTEREST UNDER
THE ACT OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS RESIDUAL INTEREST INSTRUMENT OR ANY BENEFICIAL INTEREST
THEREIN SHALL BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A
CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT A
PERSON WHICH IS AN EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO TITLE I
OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR
SECTION 4975 OF THE CODE OR A GOVERNMENTAL PLAN, DEFINED IN SECTION 3(32) OF
ERISA SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL
EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE (ANY SUCH
PERSON BEING A "PLAN") AND (II) IS NOT AN ENTITY, INCLUDING AN INSURANCE
COMPANY SEPARATE ACCOUNT OR GENERAL ACCOUNT, WHOSE UNDERLYING ASSETS INCLUDE
PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY.
[THIS AGREEMENT IS NONTRANSFERABLE. NOTWITHSTANDING ANYTHING HEREIN OR IN THE
TRUST AGREEMENT TO THE CONTRARY, ANY ATTEMPTED TRANSFER OF THIS RESIDUAL
INTEREST INSTRUMENT SHALL BE NULL AND VOID FOR ALL PURPOSES.]
<PAGE> 61
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
RESIDUAL INTEREST CERTIFICATE
No. _____
THIS CERTIFIES THAT __________________________________ (the "Owner")
is the registered owner of a _____% residual interest in MEGO MORTGAGE HOME
LOAN OWNER TRUST 1997-1 (the "Trust") existing under the laws of the State of
Delaware and created pursuant to the Trust Agreement dated as of February 1,
1997 (the "Trust Agreement") between FINANCIAL ASSET SECURITIES CORP., as
Depositor, MEGO MORTGAGE CORPORATION, as the Company, WILMINGTON TRUST COMPANY,
not in its individual capacity but solely in its fiduciary capacity as owner
trustee under the Trust Agreement (the "Owner Trustee") and First Trust of New
York, National Association, as Co-Owner Trustee (the "Co-Owner Trustee").
Initially capitalized terms used but not defined herein have the meanings
assigned to them in the Trust Agreement. The Owner Trustee, on behalf of the
Issuer and not in its individual capacity, has executed this Residual Interest
Instrument by one of its duly authorized signatories as set forth below. This
Residual Interest Instrument is one of the Residual Interest Instruments
referred to in the Trust Agreement and is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which the holder of
this Residual Interest Instrument by virtue of the acceptance hereof agrees and
by which the holder hereof is bound. Reference is hereby made to the Trust
Agreement and the Sale and Servicing Agreement for the rights of the holder of
this Residual Interest Instrument, as well as for the terms and conditions of
the Trust created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Residual Interest Instrument [except in accordance with terms and provisions of
the Agreement].
<PAGE> 62
THIS RESIDUAL INTEREST INSTRUMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Residual Interest Instrument to be
duly executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST
1997-1
By: Wilmington Trust Company, not
in its individual capacity but
solely as Owner Trustee under
the Trust Agreement
By:___________________________
Authorized Signatory
DATED: February __, 1997
CERTIFICATE OF AUTHENTICATION
This is one of the Residual Interest referred to in the
within-mentioned Agreement.
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, as Authenticating Agent
By:_____________________________
Authorized Signatory
<PAGE> 63
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
Attorney to transfer said Instrument on the books of the Certificate
Registrar, with full power of substitution in the premises.
Dated:____________________
________________________________________*/
Signature Guaranteed:
________________________________________*/
__________________________
*/ NOTICE: The signature to this assignment must correspond with the name
as it appears upon the face of the within Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE> 64
EXHIBIT C
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
THIS Certificate of Trust of MEGO MORTGAGE HOME LOAN OWNER TRUST
1997-1 (the "Trust"), dated as of February 1, 1997, is being duly executed and
filed by Wilmington Trust Company, a Delaware banking corporation, as trustee,
to form a business trust under the Delaware Business Trust Act (12 Del. Code,
Section 3801 et seq.).
1. Name. The name of the business trust formed hereby is MEGO
MORTGAGE HOME LOAN OWNER TRUST 1997-1.
2. Delaware Trustee. The name and business address of the trustee
of the Trust in the State of Delaware is Wilmington Trust Company of Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890.
Attention:___________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
Wilmington Trust Company, not in its
individual capacity but solely as
Owner Trustee under a Trust Agreement
dated as of February 1, 1997.
By:_________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.122
EXECUTION COPY
- --------------------------------------------------------------------------------
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser,
and
MEGO MORTGAGE CORPORATION,
as Seller,
HOME LOAN PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Dated as of May 1, 1997
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions.............................................. 1
ARTICLE II.
SALE OF HOME LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Home Loans....................................... 2
Section 2.2 [Reserved]............................................... 2
Section 2.3 Obligations of Seller Upon Sale.......................... 2
Section 2.4 Payment of Purchase Price for the Home Loans............. 5
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties.................... 5
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller.................................. 7
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification.......................................... 7
Section 5.2 Limitation on Liability of the Seller.............. 8
ARTICLE VI.
TERMINATION
Section 6.1 Termination.............................................. 10
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment................................................ 10
Section 7.2 Governing Law............................................ 11
Section 7.3 Notices.................................................. 11
Section 7.4 Severability of Provisions............................... 11
Section 7.5 Counterparts............................................. 11
Section 7.6 Further Agreements....................................... 11
Section 7.7 Intention of the Parties................................. 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 7.8 Successors and Assigns; Assignment of Purchase Agreement. 12
Section 7.9 Survival................................................. 12
Section 7.10 Third-Party Beneficiaries................................ 12
</TABLE>
EXHIBITS AND SCHEDULES
Schedule I Schedule of Home Loans
ii
<PAGE> 4
HOME LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated as of
May 1, 1997, between Mego Mortgage Corporation ("Mego" or the "Seller") and
FINANCIAL ASSET SECURITIES CORP., ("FASCO" and together with any assignee of
FASCO, the "Purchaser").
W I T N E S S E T H
WHEREAS, the Seller is the owner of a pool of (i) fixed-rate home
improvement and debt consolidation loans and retail installment sale contracts
(the "Mortgage Loans") secured by first and junior mortgages, deeds of trust and
security deeds on certain residential and investment properties (the
"Properties") and (ii) fixed-rate home improvement loans and retail installment
sale contracts unsecured by an interest in real property (the "Unsecured Loans"
and together with the Mortgage Loans, the "Home Loans") as listed on Schedule I
attached hereto and the Related Documents thereto (as defined below);
WHEREAS, certain of the Home Loans will be partially insured under
the FHA Title I program (the "FHA Loans") and the remaining Home Loans are home
improvement or debt consolidation or retail installment contracts that have been
originated by the Seller and are not insured under the FHA Title I program;
WHEREAS, the parties hereto desire that the Seller sell all its
right, title and interest in and to the Home Loans and the Related Documents to
the Purchaser pursuant to the terms of this Purchase Agreement; and
WHEREAS, pursuant to the terms of a Sale and Servicing Agreement,
dated as of May 1, 1997 (the "Sale and Servicing Agreement"), among Mego
Mortgage Home Loan Owner Trust 1997-2, as issuer (the "Trust"), FASCO, as
depositor (the "Depositor"), Mego, as Seller, servicer (the "Servicer") and
claims administrator (the "Claims Administrator"), Norwest Bank Minnesota, N.A.,
as master servicer (the "Master Servicer"), and First Trust of New York,
National Association, as Indenture Trustee (the "Indenture Trustee"), co-owner
trustee (the "Co-Owner Trustee") and contract of insurance holder (the "Contract
of Insurance Holder"), the Purchaser will sell, transfer, assign and otherwise
convey to the Trust all its right, title and interest in and to the Home Loans
and this Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not defined
herein have the meanings assigned thereto in the Sale and Servicing Agreement.
Registration Statement. The Purchaser's registration statement on
Form S-3 (No. 333-21071), in the form in which it became effective under the
Securities Act of 1933, as amended, on March 25, 1997 including any documents
incorporated by reference therein.
1
<PAGE> 5
Base Prospectus. The prospectus, dated May 21, 1997 attached to the
Prospectus Supplement relating to the Notes.
ARTICLE II.
SALE OF HOME LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Home Loans. The Seller, concurrently with the
execution and delivery of this Purchase Agreement, does hereby sell, assign, set
over, and otherwise convey to the Purchaser, without recourse other than as
expressly provided herein and in the Sale and Servicing Agreement, and with
respect to the FHA Loans, in accordance with the requirements for transfer of an
insured loan under Title I and 24 CFR Section 201.32(c), all of its right, title
and interest in, to and under the following, whether now existing or hereafter
acquired and wherever located: (i) as of the Cut-Off Date, the Home Loans
delivered to the Indenture Trustee on the Closing Date, including the related
Principal Balance and all payments of principal in respect of Home Loans
received on or after the Cut-Off Date and payments of interest in respect of
Home Loans due on or after the Cut-Off Date, (ii) the rights to the FHA
Insurance reserves attributable to the FHA Loans as of the Cut-Off Date under
Title I, (iii) the Home Loan Files, (iv) any Insurance Policies and related
Insurance Proceeds, (v) the Mortgages and security interests in Mortgaged
Properties which secure the Mortgage Loans, (vi) any and all documents or
electronic records relating to the Home Loans, (vii) all proceeds of any of the
foregoing.
Section 2.2 [Reserved].
Section 2.3 Obligations of Seller Upon Sale. In connection with any
transfer pursuant to Section 2.1 hereof, the Seller further agrees, at its own
expense, on or prior to the Closing Date (a) to indicate in its books and
records that the Home Loans have been sold to the Purchaser pursuant to this
Purchase Agreement and (b) to deliver to the Purchaser a computer file
containing a true and complete list of all Home Loans specifying for each Home
Loan, as of the Cut-Off Date, (i) its account number and (ii) its Principal
Balance. Such file, which forms a part of Exhibit A to the Sale and Servicing
Agreement, shall also be marked as Schedule I to this Purchase Agreement and is
hereby incorporated into and made a part of this Purchase Agreement.
The Seller agrees to prepare, execute and file UCC-1 financing
statements with the County Clerk of Cobb (which shall have been filed on or
before the Closing Date with respect to the Home Loans describing the Home Loans
and naming the Seller as debtor and, the Purchaser as secured party (and
indicating that such loans have been assigned to the Trust) all necessary
continuation statements and any amendments to the UCC-1 financing statements
required to reflect a change in the name or corporate structure of the Seller or
the filing of any additional UCC-1 financing statements due to the change in the
principal office of the Seller, as are necessary to perfect the sale of the
Seller's interest in each Home Loan and the proceeds thereof.
In connection with any conveyance by the Seller, the Seller shall on
behalf of the Purchaser deliver to, and deposit with the Custodian, on behalf of
the Indenture Trustee, as assignee of the Purchaser, on or before the Closing
Date the following documents or
2
<PAGE> 6
instruments with respect to each Home Loan (the "Related Documents"); provided,
that the documents or instruments listed in clause (f) below may be held in the
custody of the Seller on behalf of the Indenture Trustee.
With respect to each Home Loan:
(a) The original Debt Instrument, showing a complete chain of
endorsements or assignments from the named payee to the Trust and endorsed
as follows: "Pay to the order of First Trust of New York, National
Association, as Indenture Trustee and Co-Owner Trustee for Mego Mortgage
Home Loan Owner Trust 1997-2 without recourse";
(b) If such Home Loan is a Mortgage Loan, the original Mortgage
with evidence of recording indicated thereon (except that a true copy
thereof certified by an appropriate public official may be substituted);
provided, however, that if the Mortgage with evidence of recording thereon
cannot be delivered concurrently with the execution and delivery of this
Purchase Agreement solely because of a delay caused by the public
recording office where such Mortgage has been delivered for recordation,
there shall be delivered to the Indenture Trustee a copy of such Mortgage
certified as a true copy in an Officer's Certificate which shall certify
that such Mortgage has been delivered to the appropriate public recording
office for recordation, and there shall be promptly delivered to the
Indenture Trustee such Mortgage with evidence of recording indicated
thereon upon receipt thereof from the public recording official (or a true
copy thereof certified by an appropriate public official may be delivered
to the Indenture Trustee);
(c) If such Home Loan is a Mortgage Loan, an original
Assignment of the Mortgage, in recordable form. Such assignment may be a
blanket assignment, to the extent that blanket assignments are effective
under applicable law, for Mortgages covering Properties situated in the
same county. If the assignment of Mortgage is in blanket form, an
assignment of Mortgage need not be included in the individual Home Loan
File;
(d) If such Home Loan is a Mortgage Loan, all original
intermediate assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Indenture
Trustee, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted); provided,
however, that if the intervening assignments of mortgage with evidence of
recording thereon cannot be delivered concurrently with the execution and
delivery of this Purchase Agreement solely because of a delay caused by
the public recording office where such Assignments of Mortgage have been
delivered for recordation, there shall be delivered to the Indenture
Trustee a copy of each such assignment of Mortgage certified as a true
copy in an Officer's Certificate which shall certify that each such
assignment of Mortgage has been delivered to the appropriate public
recording office for recordation, and there shall be promptly delivered to
the Indenture Trustee such assignments of Mortgage with evidence of
recording indicated thereon upon its receipt thereof from the public
recording official (or true copies thereof certified by an appropriate
public official may be delivered to the Indenture Trustee);
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(e) An original of each assumption or modification agreement,
if any, relating to such Home Loan; and
(f) (i) If such Home Loan is an FHA Loan, an original or copy
of a notice signed by the Obligor acknowledging HUD insurance, (ii) an
original or copy of truth-in-lending disclosure, (iii) an original or copy
of the credit application, (iv) an original or copy of the consumer credit
report, (v) an original or copy of verification of employment and income,
or verification of self-employment income, (vi) if such Home Loan is an
FHA Loan and a Mortgage Loan, an original or copy of evidence of the
Obligor's interest in the Property, (vii) an original or copy of contract
of work or written description with cost estimates, (viii)(A) if such Home
Loan is an FHA Loan either (1) an original or copy of the completion
certificate or an original or copy of notice of non-compliance, if
applicable or (2) an original or copy of report of inspection of
improvements to the Property or an original or copy of notice of
non-compliance, if applicable, or (B) if such Home Loan is a Mortgage Loan
and a home improvement loan, an original or copy of report of inspection
of improvements to the Property, (ix) if such Home Loan is a Mortgage
Loan, to the extent not included in (iii), an original or a copy of a
written verification that the Obligor at the time of origination was not
more than 30 days delinquent on any senior mortgage or deed of trust on
the Property, (x) (A) if such Home Loan is an FHA Loan for which an
appraisal is required pursuant to the applicable regulations, an original
or a copy of an appraisal of the Property as of the time of origination of
such FHA Loan or (B) if such Home Loan is a Non-FHA Loan and secured by a
Mortgage (1) if the original principal balance is between $35,001 and
$40,000, (A) evidence that the borrower has a FICO Score of at least 640,
a debt to income ratio no greater than 45%, and disposable income of at
least $1,500, or (B) (I) a copy of the HUD-1 Closing Statement indicating
the sale price, or (II) an Uniform Residential Appraisal Report, or (III)
a Drive-By Appraisal documented on either FHLMC Form 704 or FNMA Form
2055, or (IV) a tax assessment, or (V) a broker's price opinion; (2) if
the original principal balance is between $40,001 and $50,000, (A) a copy
of the HUD-1 Closing Statement indicating the sale price, or (B) an
Uniform Residential Appraisal, or (C) a Drive-By Appraisal documented on
either FHLMC Form 704 or FNMA Form 2055, or (D) a tax assessment, or (E) a
broker's price opinion, or (3) if the original principal balance exceeds
$50,000, a full Uniform Residential Appraisal Report prepared by a
national appraisal firm, (xi) an original or a copy of a title search as
of the time of origination with respect to the Property, and (xii) if such
Home Loan is an FHA Loan, any other documents required for the submission
of a claim with respect to such FHA Loan to the FHA.
With respect to any documents referred to clauses (b) and (d) above
that are not delivered to the Custodian on behalf of the Indenture Trustee
because of a delay caused by the public recording office, such documents shall
be delivered to the Custodian on behalf of the Indenture Trustee in accordance
with the terms of such clauses by the Seller if such documents are received by
it or by the Purchaser if such documents are received by it.
The Seller further hereby confirms to the Purchaser that, as of the
Closing Date it has caused the portions of the Seller's electronic ledger
relating to the Home Loans to be clearly and unambiguously marked to indicate
that the Home Loans have been sold to the Purchaser.
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The Purchaser hereby acknowledges its acceptance of all right, title
and interest to the Home Loans and other property, now existing and hereafter
created, conveyed to it pursuant to Section 2.1 hereof.
The parties hereto intend that each of the transactions set forth
herein be a sale by the Seller to the Purchaser of all the Seller's right, title
and interest in and to the Home Loans and other property described above. In the
event the transactions set forth herein are deemed not to be a sale, the Seller
hereby grants to the Purchaser a security interest in all of the Seller's right,
title and interest in, to and under the Home Loans and other property described
above, whether now existing or hereafter created, to secure all of the Seller's
obligations hereunder; and this Purchase Agreement shall constitute a security
agreement under applicable law.
Section 2.4 Payment of Purchase Price for the Home Loans. (a) In
consideration of the sale of the Home Loans from the Seller to the Purchaser on
the Closing Date, the Purchaser agrees to pay to the Seller on the Closing Date
by transfer of immediately available funds, an amount equal to $58,305,617.43
(plus accrued interest) (before deducting expenses payable by the Seller to the
Purchaser) (the "Purchase Price").
(b) Within 60 days of the Closing Date, the Seller, at its own
expense, shall cause the Indenture Trustee to record each Assignment of Mortgage
in favor of the Indenture Trustee (which may be a blanket assignment if
permitted by applicable law) in the appropriate real property or other records;
provided, however, the Indenture Trustee need not record any assignment which
relates to a Home Loan in any jurisdiction under the laws of which, as evidenced
by an Opinion of Counsel delivered by the Seller (at the Seller's expense) to
the Indenture Trustee and the Securities Insurer, the recordation of such
Assignment is not necessary to protect the Indenture Trustee's, the Securities
Insurer's and the Securityholders' interest in the related Home Loan. With
respect to any Assignment of Mortgage as to which the related recording
information is unavailable within 60 days following the Closing Date, such
Assignment of Mortgage shall be submitted for recording within 30 days after
receipt of such information but in no event later than one year after the
Closing Date. The Indenture Trustee shall be required to retain a copy of each
Assignment of Mortgage submitted for recording. In the event that any such
Assignment of Mortgage is lost or returned unrecorded because of a defect
therein, the Seller shall promptly prepare a substitute Assignment of Mortgage
or cure such defect, as the case may be, and thereafter the Trustee shall be
required to submit each such Assignment of Mortgage for recording.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties. (a) The Seller
represents and warrants to the Purchaser as of the Cut-Off Date and the Closing
Date that:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with
full power and authority to own its properties and conduct its business as
such properties are presently owned and such business is presently
conducted;
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(ii) The Seller has full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
required of it by this Purchase Agreement and each other Transaction
Document to which it is a party; has duly authorized the execution,
delivery and performance of this Purchase Agreement and each other
Transaction Document to which it is a party; has duly executed and
delivered this Purchase Agreement and each other Transaction Document to
which it is a party; when duly authorized, executed and delivered by the
other parties hereto, this Purchase Agreement and each other Transaction
Document to which it is a party will constitute a legal, valid and binding
obligation of the Seller enforceable against it in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law;
(iii) Neither the execution and delivery of this Purchase
Agreement or any of the other Transaction Documents to which the Seller is
a party, the consummation of the transactions required of it herein or
under any other Transaction Document, nor the fulfillment of or compliance
with the terms and conditions of this Purchase Agreement or any of the
other Transaction Documents will conflict with or result in a breach of
any of the terms, conditions or provisions of the Seller's charter or
by-laws or any legal restriction or any material agreement or instrument
to which the Seller is now a party or by which it is bound, or which would
adversely affect the creation and administration of the Trust as
contemplated hereby, or constitute a material default or result in an
acceleration under any of the foregoing, or result in the violation of any
law, rule, regulation, order, judgment or decree to which the Seller or
its property is subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against the Seller or, to its knowledge, threatened,
which, if determined adversely to the Seller, would materially adversely
affect the sale of the Home Loans, the execution, delivery or
enforceability of this Purchase Agreement or any other Transaction
Document, or which would have a material adverse affect on the financial
condition of the Seller;
(v) No consent, approval, authorization or order of any court
or governmental agency or body is required for: (a) the execution,
delivery and performance by the Seller of, or compliance by the Seller
with, this Purchase Agreement, (b) the sale of the Home Loans or (c) the
consummation of the transactions required of it by this Purchase
Agreement;
(vi) The Seller is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Seller or its properties or
might have consequences that would materially and adversely affect its
performance hereunder;
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(vii) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the Home Loans to the
Purchaser;
(viii) The Seller is a non-supervised lender in good standing
under 24 CFR Section 202.5 and is authorized to originate, purchase, hold,
service and/or sell loans insured under 24 CFR part 201; and
(ix) The Seller has transferred the Home Loans without any
intent to hinder, delay or defraud any of its creditors.
(b) The Seller further represents and warrants to the Purchaser that
with respect to the Home Loans as of the Closing Date each of the
representations and warranties contained in Section 3.03(b) of the Sale and
Servicing Agreement are true and correct.
It is understood and agreed that the representations and warranties
set forth in this Section 3.1(b) shall survive delivery of the respective Home
Loan Files to the Indenture Trustee on behalf of the Purchaser. In the event
that (a) any of the representations and warranties of the Seller in Section
3.03(b) of the Sale and Servicing Agreement are determined to be untrue in a
manner that materially and adversely affects the interests of the
Securityholders or the Securities Insurer in any Home Loan with respect to which
such representation or warranty is made and (b) the Seller shall fail to cure
such breach within the time period specified in Section 3.05 of the Sale and
Servicing Agreement, the Seller shall be obligated to repurchase or substitute
the affected Home Loan(s) in accordance with the provisions of Section 3.05 of
the Sale and Servicing Agreement.
With respect to representations and warranties made by Mego pursuant
to this Section 3.1(b) that are made to the Seller's best knowledge, if it is
discovered by any of the Depositor, the Seller, the Indenture Trustee, the Owner
Trustee or the Securities Insurer that the substance of such representation and
warranty is inaccurate and such inaccuracy materially and adversely affects the
value of the related Home Loan, notwithstanding the Seller's lack of knowledge,
such inaccuracy shall be deemed a breach of the applicable representation and
warranty.
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller. The Seller hereby covenants
that except for the transfer hereunder, the Seller will not sell, pledge, assign
or transfer to any other Person, or grant, create, incur, assume or suffer to
exist any lien on, any Home Loan, or any interest therein; and the Seller will
defend the right, title and interest of the Trust, as assignee of the Purchaser,
in, to and under the Home Loans, against all claims of third parties claiming
through or under the Seller.
ARTICLE V.
INDEMNIFICATION BY THE SELLER
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Section 5.1 Indemnification. The Seller agrees to indemnify and hold
harmless the Purchaser from and against any loss, liability, expense, damage,
claim or injury (other than those resulting solely from defaults on the Home
Loans) arising out of or based on this Agreement including, without limitation,
in connection with the origination or prior servicing of the Home Loans by
reason of any acts, omissions, or alleged acts or omissions arising out of
activities of the Seller, originator or prior servicer, including reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim; provided that
the Seller shall not indemnify the Purchaser if such loss, liability, expense,
damage or injury is due to the Purchaser's willful misfeasance, bad faith or
negligence or by reason of the Purchaser's reckless disregard of its obligations
hereunder. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
Section 5.2 Limitation on Liability of the Seller. None of the
directors or trustees or officers or employees or agents of the Seller shall be
under any liability to the Purchaser, it being expressly understood that all
such liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Purchase Agreement; provided, however,
that this provision shall not protect any such Person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder. Except as expressly provided
herein and in the Sale and Servicing Agreement, the Seller shall not be under
any liability to the Trust, the Trustee or the Securityholders. The Seller and
any director or officer or employee or agent of the Seller may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder.
Section 5.3 Indemnification (a) The Seller agrees to indemnify and
hold harmless the Purchaser, the directors of the Purchaser and each person, if
any, who controls the Purchaser within the meaning of Section 15 of the
Securities Act of 1933 (the "Act") or Section 20 of the Securities Exchange Act
of 1934 (the "Exchange Act"), from and against any and all losses, claims,
damages, liabilities or judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action, suit
or proceeding or any claim asserted) arising out of (i) any untrue statement or
alleged untrue statement of a material fact contained under any of the captions
"Mego Mortgage Corporation", "The Title I Loan Program and the Contract of
Insurance" and "The Pool" in the Prospectus Supplement or caused by any 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 in which they were made, not misleading or (ii) any information
concerning the Seller, the Home Loans or the Seller's operations based on any
untrue statement or alleged untrue statement of a fact contained in any
information provided by the Seller to the Purchaser, or any material omission
from the information purported to be provided thereby, and disseminated to any
Rating Agency, the Securities Insurer, Deloitte & Touche or prospective
investors (directly or indirectly through available information systems) in
connection with the issuance, marketing or offering of the Notes. This indemnity
agreement will be in addition to any liability which the Seller may otherwise
have pursuant to this Agreement.
(b) The Purchaser agrees to indemnify and hold harmless the Seller
and each person, if any, who controls the Seller within the meaning of Section
15 of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities
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caused by (A) any untrue statement or alleged untrue statement of a material
fact contained in (i) the Prospectus Supplement under the caption "Description
of the Securities", "Description of the Transfer and Servicing Agreements", and
"Prepayment and Yield Considerations"; (ii) the Base Prospectus; or (iii) the
Registration Statement (other than the information with respect to the Seller
contained in the Prospectus Supplement) or (B) any omission or alleged omission
to state a material fact, in the case of the Registration Statement (other than
the information with respect to the Seller contained in the Prospectus
Supplement), required to be stated therein or necessary to make the statements
therein not misleading, and in the case of the section of the Prospectus
Supplement specified in clause (A) (i) of this sentence and the Base Prospectus,
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. This indemnity
agreement will be in addition to any liability which the Purchaser may have
pursuant to Agreement.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be instituted involving any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (hereinafter called the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(hereinafter called the "indemnifying party") in writing and the indemnifying
party, upon request of the indemnified party, shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying party
may designate and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such action or proceeding, any indemnified party
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (1) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (2) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for any indemnified party and each person, if any, who controls
such indemnified party within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, and it is also understood that expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for any
indemnified party and any director, officer and control person of the
indemnified party, such firm shall be designated in writing by such indemnified
party. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
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(d) If the indemnification provided for in this Section 5.3 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnified party on the one hand
and the indemnifying party on the other from the sale of the Home Loans or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnified party on the one hand and the indemnifying party on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. For purposes of the foregoing, the benefit received by
the Seller from the sale of the Home Loans shall be deemed to equal the amount
of the gross proceeds received by the Seller from such sale, and the benefit
received by the Purchaser for such sale shall be deemed to equal the amount
specified in the paragraph below. The relative fault of the Purchaser on the one
hand and the Seller on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Purchaser or by the Seller and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Seller and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 5.3(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.3(d), in no event shall the
Purchaser be required to contribute any amount in excess of $480,279.87. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
ARTICLE VI.
TERMINATION
Section 6.1 Termination. The respective obligations and
responsibilities of the Seller and the Purchaser created hereby shall terminate,
except for the Seller's and Purchaser's indemnity obligations as provided
herein, upon the termination of the Trust as provided in Article XI of the Sale
and Servicing Agreement.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
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Section 7.1 Amendment. This Purchase Agreement may be amended from
time to time by the Seller and the Purchaser, with the consent of the Securities
Insurer, by written agreement signed by the Seller and the Purchaser.
Section 7.2 Governing Law. This Purchase Agreement shall be governed
by and construed in accordance with the laws of the State of New York and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Section 7.3 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by registered mail, postage prepaid, addressed
as follows:
(a) if to the Seller:
Mego Mortgage Corporation
1000 Parkwood Circle, Suite 500
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President
or, such other address as may hereafter be furnished to the Purchaser in writing
by the Seller.
(b) if to FASCO
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: General Counsel
or such other address as may hereafter be furnished to the Seller in writing by
the Purchaser.
Section 7.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions of terms of this Purchase Agreement shall be
held invalid for any reason whatsoever, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Purchase Agreement and shall in no way
affect the validity of enforceability of the other provisions of this Purchase
Agreement.
Section 7.5 Counterparts. This Purchase Agreement may be executed in
one or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an original
and such counterparts, together, shall constitute one and the same agreement.
Section 7.6 Further Agreements. The Purchaser and the Seller each
agree to execute and deliver to the other such amendments to documents and such
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the
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purposes of this Purchase Agreement or in connection with the offering of
securities representing interests in the Home Loans.
Without limiting the generality of the foregoing, as a further
inducement for the Purchaser to purchase the Home Loans from the Seller, the
Seller will cooperate with the Purchaser in connection with the sale of any of
the securities representing interests in the Home Loans. In that connection, the
Seller will provide to the Purchaser any and all information and appropriate
verification of information, whether through letters of its auditors and counsel
or otherwise, as the Purchaser shall reasonably request and will provide to the
Purchaser such additional representations and warranties, covenants, opinions of
counsel, letters from auditors, and certificates of public officials or officers
of the Seller as are reasonably required in connection with such transactions
and the offering of securities rated "Aaa" and "AAA" by Moody's Investors
Service, Inc. and Standard & Poor's Rating Services, respectively.
Section 7.7 Intention of the Parties. It is the intention of the
parties that the Purchaser is purchasing, and the Seller is selling, the Home
Loans rather than pledging the Home Loans to secure a loan by the Purchaser to
the Seller. Accordingly, the parties hereto each intend to treat the transaction
for federal income tax purposes and all other purposes as a sale by the Seller,
and a purchase by the Purchaser, of the Home Loans. The Purchaser will have the
right to review the Home Loans and the related Home Loan Files to determine the
characteristics of the Home Loans which will affect the federal income tax
consequences of owning the Home Loans and the Seller will cooperate with all
reasonable requests made by the Purchaser in the course of such review.
Section 7.8 Successors and Assigns; Assignment of Purchase
Agreement. The Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the
Purchaser and the Trustee. The obligations of the Seller under this Purchase
Agreement cannot be assigned or delegated to a third party without the consent
of the Purchaser, which consent shall be at the Purchaser's sole discretion,
except that the Purchaser acknowledges and agrees that the Seller may assign its
obligations hereunder to any Person into which the Seller is merged or any
corporation resulting from any merger, conversion or consolidation to which the
Seller is a party or any Person succeeding to the business of the Seller. The
parties hereto acknowledge that FASCO is acquiring the Home Loans for the
purpose of contributing them to the Trust that will issue (i) the Residual
Certificates representing undivided interests in such Home Loans and (ii) the
Notes which will be secured by such Home Loans. As an inducement to FASCO to
purchase the Home Loans, the Seller acknowledges and consents to the assignment
by FASCO to the Trust of all of FASCO's rights against the Seller pursuant to
this Purchase Agreement and to the enforcement or exercise of any right or
remedy against the Seller pursuant to this Purchase Agreement by the Owner
Trustee and Co-Owner Trustee under the Sale and Servicing Agreement. Such
enforcement of a right or remedy by the Owner Trustee and Co-Owner Trustee shall
have the same force and effect as if the right or remedy had been enforced or
exercised by FASCO directly.
Section 7.9 Survival. The representations and warranties set forth
in Article III and the provisions of Article V shall survive the purchase of the
Home Loans hereunder.
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Section 7.10 Third-Party Beneficiaries. This Purchase Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as otherwise provided in
this Section 7.10 no other Person shall have the right or obligation hereunder.
Upon issuance of the Guaranty Policy (as defined in the Sale and Servicing
Agreement), this Purchase Agreement shall also inure to the benefit of the
Securities Insurer. Without limiting the generality of the foregoing, all
covenants and agreements in this Purchase Agreement which expressly confer
rights upon the Securities Insurer shall be for the benefit of and run directly
to the Securities Insurer, and the Securities Insurer shall be entitled to rely
on and enforce such covenants to the same extent as if it were a party to this
Purchase Agreement. The Securities Insurer may disclaim any of its rights and
powers under this Purchase Agreement (but not its duties and obligations under
the Guaranty Policy) upon delivery of a written notice to the Indenture Trustee.
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IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Home Loan Purchase Agreement to be duly executed on their behalf by their
respective officers thereunto duly authorized as of the day and year first above
written.
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser
By:__________________________________________
Name: Peter McMullin
Title: Vice President
MEGO MORTGAGE CORPORATION,
as Seller
By:__________________________________________
Name: James L. Belter
Title: Executive Vice President
<PAGE> 18
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 22nd day of May 1997 before me, a Notary Public in and for
said State, personally appeared Peter McMullin known to me to be a Vice
President of FINANCIAL ASSET SECURITIES CORP., the corporation that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------------------
Notary Public
<PAGE> 19
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 22nd day of May 1997 before me, a Notary Public in and for
said State, personally appeared James L. Belter, known to me to be the Executive
Vice President of MEGO MORTGAGE CORPORATION, the company that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
---------------------------------------------
Notary Public
<PAGE> 20
SCHEDULE I
Loan Schedule
See Exhibit A to Sale and Servicing Agreement
<PAGE> 1
EXHIBIT 10.123
EXECUTION COPY
================================================================================
SALE AND SERVICING AGREEMENT
Dated as of May 1, 1997
among
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2
(Issuer)
FINANCIAL ASSET SECURITIES CORP.
(Depositor)
MEGO MORTGAGE CORPORATION
(Seller, Servicer and Claims Administrator)
NORWEST BANK MINNESOTA, N.A.
(Master Servicer)
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION (Indenture
Trustee, Co-Owner Trustee and Contract of Insurance Holder)
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2
HOME LOAN ASSET-BACKED NOTES, SERIES 1997-2
HOME LOAN ASSET-BACKED RESIDUAL CERTIFICATES, SERIES 1997-2
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions.................................................... 1
Section 1.02 Other Definitional Provisions.................................. 28
Section 1.03 Interest Calculations.......................................... 29
ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans................................... 30
Section 2.02 Reserved....................................................... 30
Section 2.03 Ownership and Possession of Home Loan Files.................... 30
Section 2.04 Books and Records.............................................. 31
Section 2.05 Delivery of Home Loan Documents................................ 31
Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
Substitutions; Initial Certification by Custodian.............. 34
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor
Section 3.02 Representations, Warranties and Covenants of the Master
Servicer....................................................... 37
Section 3.03 Representations and Warranties of Mego......................... 40
Section 3.04 [Reserved]..................................................... 51
Section 3.05 Purchase and Substitution...................................... 51
ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS;
CLAIMS ADMINISTRATION
Section 4.01 Servicing Standard............................................. 55
Section 4.02 Servicing Arrangements......................................... 56
Section 4.03 Servicing Record............................................... 57
Section 4.04 Annual Statement as to Compliance; Notice of Event of Default.. 61
Section 4.05 Annual Independent Accountants' Report; Servicer Review
Report......................................................... 61
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans..................................................... 63
Section 4.07 [Reserved]..................................................... 63
Section 4.08 Advances....................................................... 63
Section 4.09 Reimbursement of Interest Advances and Foreclosure Advances.... 65
Section 4.10. Modifications, Waivers, Amendments and Consents................ 65
Section 4.11. Due-On-Sale; Due-on-Encumbrance................................ 66
</TABLE>
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<TABLE>
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Section 4.12. Collection Procedures; Claim for FHA Insurance and Foreclosure
Procedures..................................................... 67
Section 4.13. Sale of Foreclosed Properties.................................. 72
Section 4.14. Management of Real Estate Owned................................ 73
Section 4.15. Inspections.................................................... 74
Section 4.16. Maintenance of Insurance....................................... 74
Section 4.17. Release of Files............................................... 75
Section 4.18. Filing of Continuation Statements.............................. 76
Section 4.19. Fidelity Bond.................................................. 76
Section 4.20. Errors and Omissions Insurance................................. 76
ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account............... 78
Section 5.02 Claims Under Guaranty Policy................................... 82
Section 5.03 Certificate Distribution Account............................... 83
Section 5.04 Trust Accounts; Trust Account Property......................... 84
ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate................................... 88
Section 6.02 Statement to Securityholders................................... 88
ARTICLE VII.
CONCERNING THE CONTRACT OF INSURANCE HOLDER
Section 7.01 Compliance with Title I and Filing of FHA Claims............... 89
Section 7.02. Contract of Insurance Holder................................... 90
ARTICLE VIII.
[Reserved]
ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims............................ 93
Section 9.02 Merger or Consolidation of the Master Servicer................. 93
Section 9.03 Limitation on Liability of the Master Servicer and Others...... 94
Section 9.04 Master Servicer Not to Resign; Assignment...................... 94
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee........................................................ 95
Section 9.06 Master Servicer May Own Notes.................................. 95
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE X.
DEFAULT
Section 10.01 Events of Default............................................. 96
Section 10.02 Consequences of an Event of Default........................... 98
Section 10.03 Appointment of Successor...................................... 98
Section 10.04 Notification to Certificateholders............................ 99
Section 10.05 Waiver of Past Defaults....................................... 99
ARTICLE XI.
TERMINATION
Section 11.01 Termination.................................................. 100
Section 11.02 Notice of Termination........................................ 101
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders...................................... 102
Section 12.02 Amendment.................................................... 102
Section 12.03 Recordation of Agreement..................................... 103
Section 12.04 Duration of Agreement........................................ 103
Section 12.05 Governing Law................................................ 103
Section 12.06 Notices...................................................... 103
Section 12.07 Severability of Provisions................................... 104
Section 12.08 No Partnership............................................... 104
Section 12.09 Counterparts................................................. 104
Section 12.10 Successors and Assigns....................................... 104
Section 12.11 Headings..................................................... 105
Section 12.12 Actions of Securityholders................................... 105
Section 12.13 Reports to Rating Agencies................................... 105
Section 12.14 Grant of Securityholder Rights to Securities Insurer......... 106
Section 12.15 Third Party Beneficiary...................................... 106
Section 12.16 Holders of the Residual Certificates......................... 106
Section 12.17 Inconsistencies Among Transaction Documents.................. 107
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A Home Loan Schedule
EXHIBIT B Form of Master Servicer Certificate
EXHIBIT C Form of Monthly Statement to Securityholders
EXHIBIT D Underwriting Guidelines
EXHIBIT E Form of Servicing Agreement
</TABLE>
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<PAGE> 5
This Sale and Servicing Agreement is entered into effective as of May 1,
1997, among MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2, a Delaware business
trust (the "Issuer" or the "Trust"), FINANCIAL ASSET SECURITIES CORP., a
Delaware corporation, as Depositor (the "Depositor"), MEGO MORTGAGE CORPORATION,
a Delaware corporation ("Mego"), as Seller (in such capacity, the "Seller"),
Servicer (in such capacity, the "Servicer") and Claims Administrator (in such
capacity, the "Claims Administrator"), NORWEST BANK MINNESOTA, N.A., as Master
Servicer (the "Master Servicer"), and FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee"), as Co-Owner Trustee
on behalf of the Certificateholders (in such capacity, the "Co-Owner Trustee")
and as Contract of Insurance Holder (in such capacity, the "Contract of
Insurance Holder").
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Home Loans which were
originated or purchased by the Seller and sold to the Depositor in the ordinary
course of business of the Seller;
WHEREAS, the Depositor is willing to purchase from the Seller and sell
such Home Loans to the Issuer; and
WHEREAS, the Master Servicer is willing to service such Home Loans in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Amount Available: With respect to any Distribution Date and the related
Determination Date, an amount equal to the sum of (i) the Collected Amount in
respect of such Distribution Date, plus (ii) Insured Payments relating to clause
(i) of the definition thereof, if any, received by the Indenture Trustee with
respect to such Distribution Date.
Annual Default Percentage (Three Month Average): With respect to any
Determination Date or related Distribution Date, the average of the percentage
equivalents of the fractions for
1
<PAGE> 6
each of the three immediately preceding Due Periods, the numerator of which is
the product of (i) the aggregate of the Principal Balances of all Home Loans
that became Credit Support Multiple Defaulted Loans during the Due Period
immediately prior to such Home Loans becoming Credit Support Multiple Defaulted
Loans and (ii) 12, and the denominator of which is the Pool Principal Balance as
of the end of such Due Period.
Assignment of Mortgage: With respect to each Home Loan secured by a
Mortgage, an assignment, notice of transfer or equivalent instrument sufficient
under the laws of the jurisdiction wherein the related Property is located to
reflect of record the sale of the related Home Loan to the Trust as follows:
"First Trust of New York, National Association, as Indenture Trustee and
Co-Owner Trustee for the Mego Mortgage Home Loan Owner Trust 1997-2".
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in New York City or in the city in which the
Securities Insurer or the Corporate Trust Office of the Indenture Trustee is
located or the city in which the Master Servicer's or Servicer's servicing
operations are located and are authorized or obligated by law or executive order
to be closed.
Certificate Distribution Account: The account established and maintained
pursuant to Section 5.03.
Certificateholder: A holder of any Residual Certificate.
Certificate Register: The register established pursuant to Section 3.4
of the Trust Agreement.
Civil Relief Act Interest Shortfall: With respect to any Distribution
Date, for any Home Loan as to which there has been a reduction in the amount of
interest collectible thereon on the Due Date during the most recently ended Due
Period as a result of the application of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Civil Relief Act"), the amount by which (i)
interest collectible on such Home Loan on such Due Date is less than (ii) one
month's interest on the Principal Balance of such Home Loan immediately
preceding such Due Date at the Home Loan Interest Rate for such Home Loan before
giving effect to the application of the Civil Relief Act.
Class: With respect to the Notes, all Notes bearing the same class
designation, and with respect to the Certificates, the Certificates with the
same class designation.
Class A-1 Note: Any Class A-1 Note in the form attached to the Indenture
as Exhibit A-1.
Class A-2 Note: Any Class A-2 Note in the form attached to the Indenture
as Exhibit A-2.
2
<PAGE> 7
Class A-3 Note: Any Class A-3 Note in the form attached to the Indenture
as Exhibit A-3.
Class A-4 Note: Any Class A-4 Note in the form attached to the Indenture
as Exhibit A-4.
Class A-5 Note: Any Class A-5 Note in the form attached to the Indenture
as Exhibit A-5.
Class Principal Balance: With respect to each Class of Notes and as of
any date of determination, the Original Class Principal Balance of each such
Class reduced by all amounts previously distributed to Noteholders of such Class
in reduction of the principal balance of such Class on all previous Distribution
Dates pursuant to Section 5.01(c).
Closing Date: May 22, 1997.
Code: The Internal Revenue Code of 1986, as amended from time to time,
and Treasury Regulations promulgated thereunder.
Collateral Performance Percentages: The Annual Default Percentage (Three
Month Average), the 30+ Delinquency Percentage (Rolling Three Month), the 60+
Day Delinquency
(Rolling Three Month) and the Cumulative Default Percentage.
Collected Amount. With respect to any Determination Date or related
Distribution Date, the sum of the amount on deposit in the Note Distribution
Account on such Determination Date plus the amounts required to be deposited
into the Note Distribution Account pursuant to Sections 5.01(a)(3) and 5.01(b).
Collection Account: The account denominated as a Collection Account and
maintained or caused to be maintained by the Indenture Trustee pursuant to
Section 5.01.
Contract of Insurance Holder: First Trust of New York, National
Association, its successors in interest, and any successor thereto pursuant to
the terms of this Agreement.
Contract of Insurance: The contract of insurance under Title I covering
the FHA Loans held under the name First Trust of New York, National Association,
or any successor thereto, as Contract of Insurance Holder hereunder.
Corporate Trust Office: The office of the Indenture Trustee at which any
particular time its corporate business shall be principally administered,
located on the Closing Date at First Trust of New York, National Association,
180 East 5th Street, St. Paul, Minnesota 55101, Attention:
Structured Finance.
3
<PAGE> 8
Co-Owner Trustee: First Trust of New York, National Association, a
national banking association, in its capacity as the Co-Owner Trustee under the
Trust Agreement acting on behalf of the Securityholders, or any successor
co-owner trustee under the Trust Agreement.
Credit Support Multiple Defaulted Loan: A Home Loan with respect to
which (a) a claim has been submitted to the FHA in respect of such Loan pursuant
to the Contract of Insurance, (b) foreclosure proceedings have been commenced on
the related Property, (c) any portion of a Monthly Payment is more than 180
calendar days past due and unpaid by the Obligor; or (d) the Servicer has
determined in accordance with customary servicing practices, that the Home Loan
is uncollectible.
Cumulative Default Percentage: As of any Determination Date, the
aggregate of the Principal Balances of all Credit Support Multiple Defaulted
Loans (such Principal Balances to be calculated immediately prior to such Home
Loans becoming Credit Support Multiple Defaulted Loans) as of the related
Monthly Cut-Off Date since the Closing Date, divided by the Initial Pool
Principal Balance.
Custodial Agreement: The custodial agreement dated as of May 1, 1997 by
and between the Issuer, the Depositor, Mego, as the Seller and Servicer, the
Indenture Trustee, and First Trust National Association, as Custodian, and any
subsequent custodial agreement, in similar form and substance, providing for the
retention of the Indenture Trustee's Home Loan Files by the Custodian on behalf
of the Indenture Trustee.
Custodian: Any custodian acceptable to the Securities Insurer and
appointed by the Indenture Trustee pursuant to the Custodial Agreement, which
shall not be affiliated with the Servicer, the Seller, any Servicer, or the
Depositor. First Trust National Association shall be the initial Custodian
pursuant to the terms of the Custodial Agreement.
Cut-Off Date: With respect to any Home Loan, either the opening of
business on May 1, 1997 or if such Home Loan is originated on or after May 1,
1997, such Home Loan's date of origination.
Debt Instrument: The note or other evidence of indebtedness evidencing
the indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: A Home Loan with respect to which: (i) a claim has
been paid or finally rejected pursuant to the Contract of Insurance, (ii) the
Property has been repossessed and sold, or (iii) any portion of a Monthly
Payment is more than 180 calendar days past due (without giving effect to any
grace period).
Defective Home Loan: A Home Loan required to be repurchased pursuant to
Section 3.05 hereof.
4
<PAGE> 9
Deficiency Amount: As to any Determination Date and the related
Distribution Date, an amount equal to the sum of (a) the amount by which the sum
of the Noteholders' Interest Distributable Amount for each Class of Notes for
such related Distribution Date exceeds the amount on deposit in the Note
Distribution Account available to be distributed therefor on such Distribution
Date (without taking into account any Insured Payments to be made relating to
such Distribution Date) and (b) the Noteholders' Guaranteed Principal
Distribution Amount for such Distribution Date.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and
are susceptible of physical delivery, transfer thereof to the Indenture
Trustee or its nominee or custodian by physical delivery to the
Indenture Trustee or its nominee or custodian endorsed to, or registered
in the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of
such certificated security endorsed to, or registered in the name of,
the Indenture Trustee or its nominee or custodian or endorsed in blank
to a financial intermediary (as defined in Section 8-313 of the UCC) and
the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the
Indenture Trustee or its nominee or custodian and the sending by such
financial intermediary of a confirmation of the purchase of such
certificated security by the Indenture Trustee or its nominee or
custodian, or (ii) by delivery thereof to a "clearing corporation" (as
defined in Section 8-102(3) of the UCC) and the making by such clearing
corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate
securities account of a financial intermediary by the amount of such
certificated security, the identification by the clearing corporation of
the certificated securities for the sole and exclusive account of the
financial intermediary, the maintenance of such certificated securities
by such clearing corporation or a "custodian bank" (as defined in
Section 8-102(4) of the UCC) or the nominee of either subject to the
clearing corporation's exclusive control, the sending of a confirmation
by the financial intermediary of the purchase by the Indenture Trustee
or its nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying
such certificated securities as belonging to the Indenture Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"),
and, in any event, any such Physical Property in registered form shall
be in the name of the Indenture Trustee or its nominee or custodian; and
such additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such
Trust Account Property (as defined herein) to the Indenture Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof;
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<PAGE> 10
(b) with respect to any securities issued by the U.S. Treasury,
FNMA or FHLMC that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Trust Account Property to an appropriate book-entry
account maintained with a Federal Reserve Bank by a financial
intermediary that is also a "depository" pursuant to applicable federal
regulations and issuance by such financial intermediary of a deposit
advice or other written confirmation of such book-entry registration to
the Indenture Trustee or its nominee or custodian of the purchase by the
Indenture Trustee or its nominee or custodian of such book-entry
securities; the making by such financial intermediary of entries in its
books and records identifying such book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations as
belonging to the Indenture Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property solely
as agent for the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate
to effect complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or custodian,
consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of
the issuer thereof in the name of the financial intermediary, the
sending of a confirmation by the financial intermediary of the purchase
by the Indenture Trustee or its nominee or custodian of such
uncertificated security, the making by such financial intermediary of
entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or
custodian.
Depositor: Financial Asset Securities Corp., a Delaware corporation, and
any successor thereto.
Determination Date: With respect to any Distribution Date, the fifth
Business Day preceding such Distribution Date.
Distributable Excess Spread: As to any Distribution Date, the lesser of
(i) the amount of Excess Spread for such Distribution Date and (ii) the portion
of Excess Spread required to be distributed pursuant to Section 5.01(c)(iv) such
that the Overcollateralization Amount for such Distribution Date is equal to the
Required OC Amount for such Distribution Date.
Distribution Date: The 25th day of any month or if such 25th day is not
a Business Day, the first Business Day immediately following such day,
commencing in June 1997.
DTC: The Depository Trust Company.
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<PAGE> 11
Due Date: With respect to any Monthly Payment, the date on which such
Monthly Payment is required to be paid pursuant to the related Debt Instrument.
Due Period: With respect to any Determination Date or Distribution Date,
the calendar month immediately preceding such Determination Date or Distribution
Date, as the case may be.
Early Termination Notice Date: Any date on which the Pool Principal
Balance is less than 10% of the Initial Principal Balance.
Eligible Account: At any time, an account which is any of the following:
(i) A segregated trust account that is maintained with the corporate trust
department of a depository institution acceptable to the Securities Insurer (so
long as a Securities Insurer Default shall not have occurred and be continuing),
or (ii) a segregated direct deposit account maintained with a depository
institution or trust company organized under the laws of the United States of
America, or any of the States thereof, or the District of Columbia, having a
certificate of deposit, short term deposit or commercial paper rating of at
least A-1+ by Standard & Poor's and P-1 by Moody's and (so long as a Securities
Insurer Default shall not have occurred and be continuing) acceptable to the
Securities Insurer.
Eligible Servicer: A Person that (i) is servicing a portfolio of
mortgage loans, (ii) is legally qualified to service, and is capable of
servicing, the Home Loans and has all licenses required to service mortgage
loans (including Title I mortgage loans), (iii) has demonstrated the ability
professionally and competently to service a portfolio of mortgage loans similar
to the Home Loans (including the FHA Loans) with reasonable skill and care, (iv)
has a net worth calculated in accordance with generally accepted accounting
principles of at least $500,000 and (v) if other than Mego, Norwest Bank
Minnesota, N.A. or Preferred Equities Corporation, is acceptable to the
Securities Insurer.
Event of Default: As described in Section 10.01 hereof.
Excess Claim Amount: With respect to any Distribution Date, an amount
equal to (A) 90% of the excess of (x) claims paid under the Contract of
Insurance in respect of the FHA Loans over (y) the Trust Designated Insurance
Amount less (B) the amount deposited to the FHA Reserve Fund on previous
Distribution Dates.
Excess Spread. With respect to any Distribution Date, the positive
excess, if any, of (x) the Collected Amount with respect to such Distribution
Date over (y) the amount required to be distributed pursuant to priorities (i)
through (iii) of Section 5.01(c) on such Distribution Date.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHA: The Federal Housing Administration and any successor thereto.
7
<PAGE> 12
FHA Insurance: Insurance issued by FHA pursuant to Title I of the
National Housing Act of 1934, as amended.
FHA Insurance Coverage Insufficiency: At the time of a prospective claim
for reimbursement under the Contract of Insurance for an FHA Loan pursuant to
Section 4.12, the amount by which the sum of all claims previously paid by the
FHA in respect of all FHA Loans and the amount expected to be received in
respect of such prospective claim for such FHA Loan exceeds the Trust Designated
Insurance Amount.
FHA Insurance Coverage Reserve Account: The account established by the
FHA pursuant to the Contract of Insurance which is adjusted and maintained under
Title I (see 24 C.F.R. 201.32(a)).
FHA Insurance Payment Amount: With respect to any Distribution Date and
with respect to an FHA Loan for which an insurance claim has been made by the
Contract of Insurance Holder or the Claims Administrator and paid by the FHA or
rejected, by the FHA, an amount equal to the sum of such of the following as are
appropriate: (i) the amount, if any, received from the FHA, (ii) with respect to
claims rejected, the amount, if any, received from Mego or the Master Servicer
pursuant to Section 4.12 and (iii) the amount received from the sale of FHA
Pending Claims sold pursuant to Section 11.01(b).
FHA Loans: The Home Loans designated as FHA Loans on the Home Loan
Schedule.
FHA Pending Claims: As defined in Section 11.01(b).
FHA Premium Account: The account which is an Eligible Account
established and maintained by the Indenture Trustee pursuant to Section
5.01(a)(4).
FHA Premium Account Deposit: With respect to any Distribution Date, an
amount equal to the greater of (i) 1/12 times .75% times the aggregate Principal
Balance of all FHA Loans other than Invoiced Loans as of the first day of the
calendar month preceding the month of such Distribution Date (or the aggregate
Principal Balance of such Loans as of the applicable Cut-Off Date with respect
to the first Distribution Date) and (ii) the positive excess, if any, of (A) the
projected amount of premium and other charges due under the Contract of
Insurance for the next succeeding Due Period over (B) the balance in the FHA
Premium Account as of the related Distribution Date.
FHA Reserve Amount: As to each FHA Loan, 10% of the Principal Balance as
of the Cut-Off Date of such FHA Loan.
FHA Reserve Fund: The account which is an Eligible Account denominated
as the FHA Reserve Fund to be established by the Indenture Trustee pursuant to
Section 5.01(a)(3) hereof.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
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<PAGE> 13
FICO Score: The credit evaluation scoring methodology developed by Fair,
Isaac and Company.
Final Maturity Date: With respect to the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes and the Class A-5 Notes, May 25,
2023.
FNMA: The Federal National Mortgage Association and any successor
thereto.
Foreclosure Advances: As defined in Section 4.08(b).
Foreclosed Loan. As of any date of determination, any Mortgage Loan,
other than a Mortgage Loan for which a claim is pending under the Contract of
Insurance, that has been discharged as a result of (i) the completion of
foreclosure or comparable proceedings; (ii) the Owner Trustee's acceptance of
the deed or other evidence of title to the related Property in lieu of
foreclosure or other comparable proceeding; or (iii) the acquisition by the
Owner Trustee of title to the related Property by operation of law.
Foreclosed Property. With respect to any Mortgage Loan, any Property
acquired by the Trust as a result of:
(i) the completion of foreclosure or comparable proceedings with
respect to the related Mortgage Loan;
(ii) the Co-Owner Trustee's acceptance of the deed or other
evidence of title to the related Property in lieu of foreclosure or
other proceeding with respect to the related Loan; or
(iii) the acquisition by the Co-Owner Trustee of title thereto
by operation of law.
Grant: As defined in the Indenture.
Guaranty Policy: That certain guaranty insurance policy for the Insured
Securities, dated May 22, 1997, and issued by the Securities Insurer to the
Indenture Trustee and guaranteeing payment of any Insured Payment.
HUD: The United States Department of Housing and Urban Development and
any successor thereto.
Home Loan: An individual Home Loan that is conveyed to the Issuer
pursuant to this Agreement on the Closing Date, together with the rights and
obligations of a holder thereof and payments of principal in respect of such
Home Loan received on or after the Cut-Off Date and payments of interest in
respect of such Home Loan due on or after the Cut-Off Date, the Home
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<PAGE> 14
Loans subject to this Agreement being identified on the Home Loan Schedule as
amended from time to time and annexed hereto as Exhibit A.
Home Loan File: The Indenture Trustee's Home Loan File and the
Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a
Debt Instrument, as shown on the related Home Loan Schedule (not including any
amounts payable as premium for FHA Insurance with respect to Invoiced Loans).
Home Loan Pool: The pool of Home Loans.
Home Loan Purchase Agreement: The home loan purchase agreement between
the Seller, as seller, and the Depositor, as purchaser, dated as of May 1, 1997.
Home Loan Schedule: The schedule of Home Loans specifying with respect
to each Home Loan, the information set forth on Exhibit A attached hereto, as
amended or supplemented from time to time.
Indemnification Agreement: The Indemnification Agreement, dated as of
May 21, 1997, by and among the Securities Insurer, the Seller and Greenwich
Capital Markets, Inc., as Underwriter.
Indenture: The Indenture, dated as of May 1, 1997, between the Issuer
and the Indenture Trustee.
Indenture Trustee: First Trust of New York, National Association, a
national banking association, as Indenture Trustee under the Indenture and this
Agreement acting on behalf of the Noteholders, or any successor indenture
trustee under the Indenture and this Agreement.
Indenture Trustee Fee: With respect to any Distribution Date, the
greater of (A) one-twelfth of .0045% times the Pool Principal Balance of the
Home Loans as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (or, with respect to the
first Distribution Date, the Initial Pool Principal Balance); and (B) $667.
Indenture Trustee's Home Loan File: As defined in Section 2.05.
Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of Mego, the Master Servicer, the Depositor or any of
their respective affiliates, (ii) does not have any direct financial interest in
or any material indirect financial interest in any of Mego, the Master Servicer,
the Depositor or any of their respective affiliates and (iii) is not connected
with any of Mego, the Master Servicer, the Depositor or any of their respective
affiliates, as an officer, employee, promoter, underwriter, trustee, partner,
director or Person
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<PAGE> 15
performing similar functions; provided, however, that a Person shall not fail to
be Independent of Mego, the Master Servicer, the Depositor or any of their
respective affiliates merely because such Person is the beneficial owner of 1%
or less of any class of securities issued by Mego, the Master Servicer, the
Depositor or any of their respective affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified
public accountants which is Independent.
Initial Pool Principal Balance: $63,459,083.77, which is the Pool
Principal Balance as of the opening of business on the Cut-Off Date.
Insurance Agreement: The Insurance Agreement, dated as of May 1, 1997,
between the Securities Insurer, Mego, as the Seller, Servicer and Claims
Administrator, Mego Mortgage Home Loan Acceptance Corporation, as affiliated
holder, the Depositor, the Issuer, the Master Servicer, the Indenture Trustee,
as Indenture Trustee, Co-Owner Trustee and Contract of Insurance Holder and
Greenwich Capital Financial Products, Inc.
Insurance Policies: With respect to any Property, any related insurance
policy other than the Contract of Insurance or the Guaranty Policy.
Insurance Proceeds: With respect to any Property, all amounts collected
in respect of Insurance Policies and not required to be applied to the
restoration of the related Property or paid to the related Obligor.
Insurance Record: The record established and maintained by the Claims
Administrator (in a manner consistent with the Title I provisions set forth in
24 C.F.R. Section 201.32) setting forth the FHA insurance coverage attributable
to the FHA Loans hereunder and for Related Series Loans. To the extent
consistent with adjustments pursuant to Title I to the FHA Insurance Coverage
Reserve Account, the Insurance Record shall be reduced by the amount of claims
approved for payment by the FHA with respect to any FHA Loan or Related Series
Loan after the date of transfer of the related FHA reserve account to the
Contract of Insurance Holder.
Insured Payment: With respect to the Guaranty Policy, the sum of (i) as
of any Distribution Date, any Deficiency Amount and (ii) any unpaid Preference
Amount.
Insured Securities: Each of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3, the Class A-4 Notes and the Class A-5 Notes.
Interest Advance: As defined in Section 4.08(a).
Invoiced Loan: An FHA Loan with respect to which the related Obligor is
required to pay the premium on FHA Insurance with respect to such FHA Loan.
Issuer: The Trust.
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<PAGE> 16
Late Payment Rate: For any Distribution Date, the lesser of (i) the rate
of interest, as it is publicly announced by Citibank, N.A., as its prime rate
(any change in such prime rate of interest to be effective on the date such
change is announced by Citibank, N.A.) plus 2% and (ii) the maximum rate
permissible under any applicable law limiting interest rates. The Late Payment
Rate shall be computed on the basis of a year of 365 days calculating the actual
number of days elapsed.
Majority Securityholders: Subject to Section 12.14, (i) until such time
as the sum of the Class Principal Balances of all Classes of Notes has been
reduced to zero, the holder or holders of in excess of 50% of the Class
Principal Balance of all Classes of Notes (accordingly, the holders of the
Residual Certificates shall be excluded from any rights or actions of the
Majority Securityholders during such period); and (ii) thereafter, the holder or
holders of in excess of 50% of the Percentage Interest of the Residual
Certificates.
Master Servicer: Norwest Bank Minnesota, N.A., a national banking
association, its successors in interest or any successor master servicer
appointed as herein provided.
Master Servicer Certificate: As defined in Section 6.01.
Master Servicer Fee: With respect to any Distribution Date, 1/12 times
0.08% times the Pool Principal Balance as of the opening of business on the
first day of the month preceding the month of such Distribution Date (or, with
respect to the first Distribution Date, the Initial Pool Principal Balance).
Master Servicer Termination Event: Any event specified in Section 10.01.
Master Servicing Officer: Any officer of the Master Servicer responsible
for the administration and servicing of the Home Loans whose name and specimen
signature appears on a list of servicing officers furnished to the Indenture
Trustee by the Master Servicer, as such list may from time to time be amended.
Maturity Date: With respect to any Home Loan and as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Debt Instrument.
Monthly Cut-Off Date: The last day of any calendar month, and with
respect to any Distribution Date or related Determination Date, the last day of
the calendar month immediately preceding such Distribution Date or related
Determination Date.
Monthly Payment: With respect to any Home Loan and any Due Period, the
payment of principal and interest due in such Due Period from the Obligor
pursuant to the related Debt Instrument (as amended or modified, if applicable,
pursuant to Section 4.10). The Monthly Payment related to a Determination Date
or a Distribution Date shall be the Monthly Payment due for the preceding Due
Period.
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<PAGE> 17
Moody's: Moody's Investors Service, Inc. or any successor thereto.
Mortgage: With respect to any Mortgage Loan, the mortgage, deed of trust
or other instrument creating a mortgage lien (and in a title theory state the
document conveying title to the Property as security for the related Loan) or
other security interest on the related Property.
Mortgage Loan: As of any date of determination, each of the Home Loans,
secured by an interest in a Property, transferred and assigned to the Indenture
Trustee pursuant to Section 2.01(a).
Mortgagee or Obligee: With respect to any Home Loan as of any date of
determination, the holder of the related Debt Instrument and any related
Mortgage as of such date.
Mortgagor or Obligor: With respect to any Home Loan, the obligor(s) on
the related Debt Instrument.
Net Loan Rate: With respect to each Home Loan, the related Home Loan
Interest Rate, less the rate at which the Servicer Fee is calculated.
Net Prepayment Interest Shortfall: As to any Distribution Date, the
amount by which aggregate Prepayment Interest Shortfalls during the preceding
Due Period exceed the Servicer Fee for such Distribution Date (before reduction
of the Servicer Fee in respect of such Prepayment Interest Shortfalls).
Non-FHA Loans: The Home Loans designated as Non-FHA Loans on the Home
Loan Schedule.
Nonrecoverable Advances: With respect to any Home Loan, (i) any Interest
Advance previously made and not reimbursed pursuant to Section 5.01(c)(i)(c), or
(ii) an Interest Advance proposed to be made in respect of a Home Loan which, in
either case, in the good faith business judgment of the Master Servicer, as
evidenced by an Officer's Certificate delivered to the Securities Insurer, Mego
and the Indenture Trustee no later than the Business Day following such
determination, would not be recoverable ultimately from the Payments received in
subsequent Due Periods in respect of that Home Loan.
Note(s): One or more of the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, Class A-4 Notes or Class A-5 Notes.
Note Distribution Account: The account established and maintained
pursuant to Section 5.01(a)(2).
Noteholder: A holder of a Note.
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<PAGE> 18
Noteholders' Guaranteed Principal Distribution Amount: With respect to
any Distribution Date, the positive excess, if any, of (i) the aggregate Class
Principal Balances of the Notes as of such Distribution Date (taking into
account the amount of the distributions required to be distributed pursuant to
Sections 5.01(c)(iii) and (iv) on such Distribution Date) over (ii) the Pool
Principal Balance as of the end of the related Due Period; provided, that on the
Final Maturity Date for any Class of Notes, the Noteholders' Guaranteed
Principal Distribution Amount for such Class of Notes shall equal the amount
necessary to reduce the Class Principal Balance thereof to zero (taking into
account the amount of the distributions required to be paid on such Class of
Notes pursuant to Sections 5.01(c)(iii) and (iv) on such Final Maturity Date).
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and each Class of Notes, the sum of (i) excess of (A) the
applicable Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Noteholders' Interest Carry-Forward Amount
for such Class on such preceding Distribution Date, over (B) the amount in
respect of interest that is actually paid on such Class of Notes on such
preceding Distribution Date plus (ii) interest on such excess, to the extent
permitted by law, at the applicable Note Interest Rate from such preceding
Distribution Date through the current Distribution Date.
Noteholders' Interest Distributable Amount: With respect to each
Distribution Date and each Class of Notes, the sum of the applicable
Noteholders' Monthly Interest Distributable Amount and the applicable
Noteholders' Interest Carry-Forward Amount for such Class of Notes, if any, for
such Distribution Date.
Noteholders' Monthly Interest Distributable Amount: With respect to each
Distribution Date and each Class of Notes, the amount of thirty (30) days'
accrued interest at the respective Interest Rate for such Class of Notes on the
Class Principal Balance of such Class immediately preceding such Distribution
Date (or, in the case of the first Distribution Date, on the Closing Date), in
each case reduced by an amount equal to such Class' pro rata share (based on the
amount of interest to which such Class would have otherwise been entitled) of
the sum of (i) the aggregate of Civil Relief Act Interest Shortfalls and (ii)
the Net Prepayment Interest Shortfall, if any, in each case for such
Distribution Date.
Noteholders' Monthly Principal Distributable Amount: With respect to
each Distribution Date, the amount equal to the sum of the following amounts
(without duplication) with respect to the immediately preceding Due Period: that
portion of all Payments received on Home Loans allocable to principal for such
Distribution Date, including all full and partial principal prepayments
(including (i) such payments in respect of such Home Loans that became Defaulted
Home Loans on or prior to the end of the preceding Due Period, (ii) the portion
of the Purchase Price allocable to principal of all Defective Loans or Defaulted
Loans and the portion of the Termination Price, if any, set forth in Section
11.01(b) allocable to principal with respect to the Home Loans, and (iii) any
Substitution Adjustments deposited to the Note Distribution Account pursuant to
Section 3.05 on the previous Determination Date); provided, however, that the
Noteholders' Monthly Principal Distributable Amount on any Distribution Date
shall not exceed
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<PAGE> 19
the outstanding principal balance of the Notes; and provided, further, that the
Noteholders' Monthly Principal Distributable Amount on the Final Maturity Date
shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
aggregate Class Principal Balances of the Notes to zero.
Note Interest Rate: With respect to each Class of Notes, the per annum
rate of interest payable to the holders of such Class of Notes. The Note
Interest Rate with respect to the Class A-1 Notes is equal to 6.87% per annum;
the Note Interest Rate with respect to the Class A-2 Notes is equal to 6.88% per
annum; the Note Interest Rate with respect to the Class A-3 Notes is equal to
7.00% per annum; the Note Interest Rate with respect to the Class A-4 Notes is
equal to 7.17% per annum; and the Note Interest Rate with respect to the Class
A-5 Notes is equal to 7.63% per annum.
Note Register: The register established pursuant to Section 2.3 of the
Indenture.
Obligee: See Mortgagee.
Obligor: See Mortgagor.
OC Floor: The product of 1% times the Initial Pool Principal Balance,
which product is equal to $634,590.84.
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<PAGE> 20
OC Multiple. As to any Distribution Date and related Determination Date,
the highest OC Multiple based upon the data set forth in the Master Servicer's
Certificate for such Distribution Date as set forth in the following chart:
<TABLE>
<CAPTION>
30+ Day 60+ Day Annual Default
OC Delinquency Percentage Delinquency Percentage %
Multiple (Rolling 3 Month) (Rolling 3 Month) (3 Month Average)
-------- ---------------------- ---------------------- -----------------
<S> <C> <C> <C>
1.00 0.00% to 7.99% 0.00% to 3.49% 0.00% to 4.99%
1.25 8.00% to 8.99% 3.50% to 4.99% 5.00% to 5.99%
1.50 9.00% to 11.99% 5.00% to 6.99% 6.00% to 6.99%
2.50 **=12.00% **=7.00% **=7.00%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE DEFAULT PERCENTAGE
-----------------------------------------------------------------------------
Months* Months 0 Months
012 024 Maturity
-------- ---------------------- ---------------------- -----------------
<S> <C> <C> <C>
2.50 **5.0% **8.0% **12.0%
</TABLE>
- ----------
* Month 0 is May, 1997.
** Greater Than
OC Reduction Date. shall be the later of (i) the Distribution Date
occurring in May 2000 and (ii) the Distribution Date on which the Pool Principal
Balance of the Home Loans as of the end of the previous Due Period is equal to
or less than one-half of the Initial Pool Principal Balance, provided no OC
Reduction Date shall occur if there has been an OC Multiple greater than 1.00 on
any of the three (3) previous Distribution Dates.
Officer's Certificate: A certificate signed by (i) any Master Servicing
Officer or (ii) the Chairman of the Board, the Vice Chairman of the Board, the
President, a Vice President, an Assistant Vice President, the Treasurer, the
Secretary or one of the Assistant Treasurers or Assistant Secretaries of the
Depositor or Mego, as the case may be, as required by this Agreement.
Opinion of Counsel. A written opinion of counsel (who is acceptable to
the Securities Insurer and the Rating Agencies), who may be employed by Mego,
the Master Servicer, the Depositor or any of their respective affiliates.
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<PAGE> 21
Original Class Principal Balance: In the case of the Class A-1 Notes,
$15,950,000; in the case of the Class A-2 Notes, $8,100,000; in the case of the
Class A-3 Notes, $6,750,000; in the case of the Class A-4 Notes, $13,600,000 and
in the case of the Class A-5 Notes, $14,394,841.
Other Fees. With respect to any Distribution Date, (i) amounts in
respect of fees and expenses due to any provider of services to the Trust,
except the Indenture Trustee, the Master Servicer, the Servicer, the Claims
Administrator, the Contract of Insurance Holder and also except any Person, the
fees of which are required by this Agreement to be paid by the Master Servicer,
the Servicer, the Claims Administrator, the Contract of Insurance Holder or the
Indenture Trustee; (ii) any taxes assessed against the Trust; and (iii) the
reasonable transition expenses of a successor Master Servicer incurred in acting
as successor Master Servicer.
Overcollateralization Amount: As of any Distribution Date the amount, if
any, by which the Pool Principal Balance as of the end of the related Due Period
exceeds the Class Principal Balances of the Notes after giving effect to
payments of principal to be made on such Distribution Date.
Ownership Interest: As to any Security, any ownership or security
interest in such Security, including any interest in such Security as the holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial, as owner or as pledgee.
Owner Trustee: Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor owner trustee under the Trust Agreement.
Owner Trustee Fee: $4,000.
Owner Trustee Fee Reserve: With respect to any Distribution Date,
$333.33.
Payment: With respect to any Home Loan or the related Foreclosed
Property and any Distribution Date or related Determination Date, all amounts
received or collected on account of principal and interest by or on behalf of
the Master Servicer during the preceding Due Period (or with respect to the
interest component of any Monthly Payment due during such Due Period, received
or collected by or on behalf of the Master Servicer during the period commencing
on the first day of the preceding Due Period and ending prior to such
Determination Date) in respect of such Home Loan or Foreclosed Property from
whatever source, including without limitation, amounts received or collected
from, or representing:
(i) the related Obligor;
(ii) the application to amounts due on such Home Loan (or, in
the case of any Foreclosed Property, to amounts previously due on the
related Foreclosed Loan) of any related Insurance Proceeds, any related
condemnation awards or settlements or any payments made by any related
guarantor or third-party credit-support provider;
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<PAGE> 22
(iii) FHA Insurance Payment Amounts with respect to such Home
Loan;
(iv) the operation or sale of the related Foreclosed Property;
(v) the Purchase Price with respect to such Home Loan or
Substitution Adjustment Amounts with respect thereto; or
(vi) the Termination Price pursuant to Section 11.01(b);
provided, however, that any amount the Servicer shall be entitled to retain as
additional servicer compensation pursuant to Section 6.05(a) of the Servicing
Agreement shall be excluded from the calculation of Payment.
Percentage Interest: As defined in the Trust Agreement.
Permitted Investments: Each of the following:
(a) Direct obligations of the United States of America (including
obligations issued or held in book-entry form on the books of the Department of
the Treasury, and CATS and TIGRS) or obligations the principal of and interest
on which are unconditionally guaranteed by the United States of America.
(b) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped by
the agency itself):
1. U.S. Export-Import Bank (Eximbank)
A. Direct obligations or fully guaranteed
certificates of beneficial ownership
2. Farmers Home Administration (FmHA)
A. Certificates of beneficial ownership
3. Federal Financing Bank
4. Federal Housing Administration (FHA)
A. Debentures
5. General Services Administration
A. Participation certificates
6. U.S. Maritime Administration
A. Guaranteed Title XI financing
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<PAGE> 23
7. U.S. Department of Housing and Urban Development (HUD)
A. Project Notes
B. Local Authority Bonds
C. New Communities Debentures - U.S. government
guaranteed debentures
D. U.S. Public Housing Notes and Bonds - U.S.
government guaranteed public housing notes and
bonds
(c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies that are rated by both Rating Agencies in one of the top two
long-term rating categories (stripped securities are only permitted if they have
been stripped by the agency itself):
1. Federal Home Loan Bank System
A. Senior debt obligations
2. Federal Home Loan Mortgage Corporation (FHLMC)
A. Participation Certificates
B. Senior debt obligations
3. Federal National Mortgage Association (FNMA)
A. Mortgage-backed securities and senior debt
obligations
4. Student Loan Marketing Association
A. Senior debt obligations
5. Resolution Funding Corp. obligations
6. Farm Credit System
A. Consolidated systemwide bonds and notes
(d) Money market funds registered under the Investment Company
Act of 1940, as amended, whose shares are registered under the Securities Act,
and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm and a rating by
Moody's of Aaa.
(e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1. The collateral must be held by a
third party and the Indenture Trustee must have a perfected first security
interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts
or money market deposits which are fully insured by FDIC, including BIF and
SAIF.
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<PAGE> 24
(g) Investment agreements, including guaranteed investment
contracts, acceptable to the Securities Insurer and each Rating Agency.
(h) Commercial paper rated "Prime - 1" by Moody's and "A-1" or
better by Standard & Poor's.
(i) Bonds or notes issued by any state or municipality which are
rated by Moody's and Standard & Poor's in one of the two highest long term
rating categories assigned by such agencies.
(j) Federal funds or bankers acceptances with a maximum term of
one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by S&P.
(k) Repurchase agreements providing for the transfer of
securities from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm will
repay the cash plus a yield to the Trust in exchange for the securities at a
specified date.
Repurchase agreements ("repos") must satisfy the following
criteria or be approved by the Securities Insurer.
1. Repos must be between the Trust and a dealer bank or
securities firm which are:
A. Primary dealers on the Federal Reserve reporting
dealer list which are rated A or better by
Standard & Poor's and P-1 by Moody's, or
B. Banks rated "A" or above by Standard & Poor's
and P-1 by Moody's.
2. The written repo contract trust must include the
following:
A. Securities which are acceptable for transfer
are:
(1) Direct U.S. governments, or
(2) Federal agencies backed by the full
faith and credit of the U.S. government
(or FNMA or FHLMC) other than mortgage
backed securities.
B. The term of the repo may be up to 30 days
20
<PAGE> 25
C. The collateral must be delivered to the
Indenture Trustee (if the Indenture Trustee is
not supplying the collateral) or third party
acting as agent for the Indenture Trustee (if
the Indenture Trustee is supplying the
collateral) before/simultaneous with payment
(perfection by possession of certificated
securities).
D. Valuation of Collateral
(1) The securities must be valued weekly,
marked-to-market at current market price
plus accrued interest.
(a) The value of collateral must be equal to
104% of the amount of cash transferred
by the Trust to the dealer bank or
security firm under the repo plus
accrued interest. If the value of
securities held as collateral slips
below 104% of the value of the cash
transferred by the Trust, then
additional cash and/or acceptable
securities must be transferred. If,
however, the securities used as
collateral are FNMA or FHLMC, then the
value of collateral must equal 105%.
3. Legal opinion which must be delivered to the Indenture
Trustee:
a. Repo meets guidelines under state law for legal
investment of public funds.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to Standard & Poor's and
Moody's.
Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
sum of the Principal Balances for all Home Loans as of such date.
Preference Amount: Any amount previously distributed to the holder of an
Insured Security that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code, in accordance with a final, non-appealable order of a court having
competent jurisdiction.
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<PAGE> 26
Premium: The premium, payable monthly, that is specified in the
commitment letter between Mego Mortgage Corporation and the Securities Insurer
dated as of May 22, 1997 relating to the Guaranty Policy issued by the
Securities Insurer with respect to the Notes.
Prepayment Interest Shortfall: As to any Home Loan and Principal
Prepayment, the amount by which one month's interest at the related Home Loan
Interest Rate (or such lower rate as may be in effect from a Home Loan because
of the application of the Civil Relief Act) minus the rate at which the
Servicing Fee is calculated on such Principal Prepayment exceeds the amount of
interest paid by the Mortgagor in connection with such Principal Prepayment.
Principal Balance: With respect to any Home Loan, and for any date of
determination, the Principal Balance of such Home Loan as of the Cut-Off Date
reduced by all amounts previously received or collected in respect of principal
on such Home Loan on or subsequent to the Cut-Off Date for such Home Loan;
provided, that with respect to any Defaulted Home Loan, the Principal Balance
shall be zero as of the end of the Due Period in which such Home Loan becomes a
Defaulted Home Loan.
Principal Prepayment: Any payment or other receipt of principal in full
due on a Home Loan made by an Obligor which is received in advance of the
scheduled Maturity Date of such Home Loan.
Property: The property (real, personal or mixed) encumbered by the
Mortgage which secures the Debt Instrument evidencing a secured Home Loan.
Prospectus: The Depositor's final Prospectus, dated May 21, 1997, as
supplemented by the Prospectus Supplement.
Prospectus Supplement: The Prospectus Supplement dated as of May 21,
1997, prepared by the Seller and the Depositor in connection with the issuance
and sale of the Securities.
Purchase Price: With respect to a Home Loan, means the Principal Balance
of such Home Loan as of the date of purchase, plus unpaid accrued interest at
the related Home Loan Interest Rate to the last day of the month in which such
purchase occurs (without regard to any Interest Advance that may have been made
with respect to such Home Loan).
Qualified Substitute Home Loan: A Home Loan: (i) having characteristics
such that the representations and warranties made pursuant to Section 3.03(b)
with respect to the Home Loans are true and correct as of the date of
substitution with respect to such Home Loan; (ii) each Monthly Payment with
respect to such Home Loan shall be greater than or equal to the Monthly Payments
due in the same Due Period on the Home Loan for which such Qualified Substitute
Home Loan is replacing; (iii) the Maturity Date with respect to such Home Loan
shall be no later than the Maturity Date of the Home Loan for which such
Qualified Substitute Home Loan is replacing; (iv) as of the date of
substitution, the Principal Balance of such Home Loan is less than or equal to
(but not more than 1% less than) the Principal Balance of the Home Loan for
which
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<PAGE> 27
such Qualified Substitute Home Loan is replacing; (v) the Home Loan Interest
Rate with respect to such Home Loan is at least equal to the Home Loan Interest
Rate of the Home Loan for which such Qualified Substitute Home Loan is replacing
and (vi) the FICO score for such Home Loan must not be more than ten points
lower than the FICO score for such Home Loan for which such Qualified Substitute
Home Loan is replacing; provided however, in the event more than one Qualified
Substitute Home Loan is replacing one or more Defective Home Loans on any date,
in which case (i) the weighted average Home Loan Interest Rate for such
Qualified Substitute Home Loans must equal or exceed the weighted average Home
Loan Interest Rate of the Defective Home Loans immediately prior to giving
effect to the substitution, in each case weighted on the basis of the
outstanding Principal Balance of such loans as of such day, (ii) the sum of the
Monthly Payments with respect to such Qualified Substitute Home Loans shall be
greater than or equal to the Monthly Payments due in the same Due Period on the
Defective Home Loans being replaced, and (iii) as of the date of substitution,
the aggregate Principal Balances of such Qualified Substitute Home Loans are
less than or equal to (but not more than 1% less than) the aggregate Principal
Balances of the Defective Home Loans being replaced.
Rating Agency or Rating Agencies: Either or both of (i) Standard &
Poor's, or (ii) Moody's, provided that when the terms Rating Agency or Rating
Agencies are used in reference to the Insured Securities, such terms shall mean
one or both of Standard & Poor's or Moody's. If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person designated
by the Issuer and approved by the Securities Insurer, notice of which
designation shall have been given to the Indenture Trustee, the Securities
Insurer, the Issuer and the Master Servicer.
Ratings: The ratings initially assigned to the Notes and the
Certificates by the Rating Agencies, as evidenced by letters from the Rating
Agencies.
Record Date: With respect to each Distribution Date, the close of
business on the last Business Day of the month immediately preceding the month
in which such Distribution Date occurs.
Rejected Claim. With respect to any FHA Loan, a claim for payment made
to the FHA under the Contract of Insurance that has been finally rejected after
all appeals with FHA have been exhausted for any reason (including a rejection
of a previously paid claim and a demand by the FHA of a return of the FHA
Insurance Payment Amount for the related FHA Loan) other than a refusal or
rejection due to clerical error in computing the claim amount or because the
amount of the FHA Insurance Coverage Reserve Account as shown in the Insurance
Record is zero.
Related Series. Means (i) the Trust, (ii) Mego Mortgage Home Loan Owner
Trust 1997-1, (iii) Mego Mortgage Home Loan Trust 1996-3, (iv) Mego Mortgage FHA
Title I Loan Trust 1996-2, (v) Mego Mortgage FHA Title I Loan Trust 1996-1, and
(vi) each of the subsequent series of trusts, of which the Indenture Trustee is
either the trustee or indenture trustee and the Securities Insurer is the
insurer of related notes or certificates, to which Related Series Loans are
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sold directly or indirectly by Mego, pursuant to pooling and servicing
agreements or sale and servicing agreements.
Related Series Loans. Means FHA Title I loans included in the Related
Series which: (i) are sold by Mego, directly or indirectly, to a trust and (ii)
the Title I insurance coverage attributable to which is made available to cover
claims with respect to the FHA Loans and the Related Series Loans in each other
Related Series by virtue of terms relating to the administration of the FHA
Insurance Coverage Reserve Account substantially similar to the terms hereof.
Required OC Amount: With respect to each Distribution Date, the greater
of (a) the OC Floor or (b) the product of (i) the OC Multiple for such
Distribution Date and (ii)(x) if such Distribution Date is prior to the OC
Reduction Date, the product of 13.10% and the Initial Pool Principal Balance, or
(y) if such Distribution Date is on or after the OC Reduction Date, the lesser
of (A) the product of 13.10% times the Initial Pool Principal Balance and (B)
the product of 26.20% times the Pool Principal Balance of the Home Loans as of
the end of the related Due Period, or such lower amount as may be established by
the Securities Insurer in its sole discretion after notice to and written
approval by the Rating Agencies.
Residual Certificates: The Certificates representing the interest which
represents the right to the amount remaining, if any, after all prior
distributions have been made under this Agreement, the Indenture and the Trust
Agreement on each Distribution Date and certain other rights to receive amounts
hereunder and under the Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer in the
Corporate Trust Administration Department of the Owner Trustee with direct
responsibility for the administration of the Trust Agreement and this Agreement
on behalf of the Issuer. When used with respect to the Depositor, the Seller,
the Master Servicer, or the Custodian, the President or any Vice President,
Assistant Vice President, or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Securities: The Notes and/or the Certificates, as applicable.
Securities Act: The Securities Act of 1933, as amended.
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Securities Insurer: MBIA Insurance Corporation, as issuer of the
Guaranty Policy, and its successors and assigns.
Securities Insurer Default: The existence and continuance of any of the
following:
(a) the Securities Insurer fails to make a payment
required under the Guaranty Policy in accordance with its terms;
or
(b) (i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the
Securities Insurer in an involuntary case or proceeding under
any applicable United States federal or state bankruptcy,
insolvency, rehabilitation, reorganization or other similar law
or (B) a decree or order adjudging the Securities Insurer a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, rehabilitation, arrangement, adjustment
or composition of or in respect of the Securities Insurer under
any applicable United States federal or state law, or appointing
a custodian, receiver, liquidator, rehabilitator, assignee,
trustee, sequestrator or other similar official of the
Securities Insurer or of any substantial part of its property,
or ordering the winding-up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period
of 60 consecutive days; or (ii) the commencement by the
Securities Insurer of a voluntary case or proceeding under any
applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Securities Insurer to the entry of a decree
or order for relief in respect of the Securities Insurer in an
involuntary case or proceeding under any applicable United
States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Securities Insurer, or
the filing by the Securities Insurer of a petition or answer or
consent seeking reorganization or relief under any applicable
United States federal or state law, or the consent by the
Securities Insurer to the filing of such petition or to the
appointment of or the taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Securities Insurer or of any substantial part of
its property, or the making by the Securities Insurer of an
assignment for the benefit of its creditors, or the failure by
the Securities Insurer to pay debts generally as they become
due, or the admission by the Securities Insurer in writing of
its inability to pay its debts generally as they become due, or
the taking of corporate action by the Securities Insurer in
furtherance of any such action.
Securities Insurer Reimbursement Amount: As of any Distribution Date,
the sum of (i) Insured Payments previously received by the Indenture Trustee and
not previously re-paid to the Securities Insurer pursuant to Section 5.01(c)(vi)
hereof plus (ii) interest accrued on such Insured Payment not previously repaid
calculated at the Late Payment Rate from the date the Indenture
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Trustee received such Insured Payment. The Securities Insurer shall notify the
Indenture Trustee and the Owner Trustee of the amount of any Securities Insurer
Reimbursement Amount.
Securityholder: A holder of a Note or Certificate, as applicable;
provided that the exercise of any rights by such holder shall be subject to
Section 12.14.
Seller: Mego, in its capacity as the seller hereunder.
Series or Series 1997-2: Mego Mortgage Home Loan Asset Backed
Securities, Series 1997-2.
Servicer: Mego, in its capacity as the servicer hereunder, or any other
Eligible Servicer with whom the Master Servicer has entered into a Servicing
Agreement pursuant to Section 4.02.
Servicer Fee. With respect to any Distribution Date, 1/12 times 1.00%
times the Pool Principal Balance, as of the opening of business on the first day
of the month preceding the month of such Distribution Date (or, with respect to
the first Distribution Date, the Initial Pool Principal Balance), reduced (but
not below zero) by the aggregate Prepayment Interest Shortfall for the related
Due Period.
Servicer Review Report. As defined in Section 4.05(d).
Servicer Termination Event. With respect to the Servicing Agreement, the
events specified in Section 7.02 therein.
Servicer's Home Loan Files: As defined in Section 2.05(b).
Servicing Agreement: The servicing agreement dated as of May 1, 1997
between Mego, as Servicer, the Master Servicer, the Indenture Trustee and the
Trust and any other agreement entered into in accordance with Section 4.02.
Standard & Poor's: Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
Servicing Record. The records for each Home Loan maintained by the
Master Servicer pursuant to Section 4.03.
Servicing Standard. The standard set forth in Section 4.01(a).
60+ Day Delinquent Loan. With respect to any Determination Date or
related Distribution Date, a Home Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the related Monthly Cut-Off Date, 61 days or more past due (without giving
effect to any grace period) and unpaid by the Obligor.
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60+ Delinquency Percentage (Rolling Three Month). With respect to any
Determination Date or related Distribution Date, the average of the percentage
equivalents of the fractions determined for each of the three immediately
preceding Due Periods the numerator of each of which is equal to the aggregate
Principal Balance of Home Loans that are 60+ Day Delinquent Loans as of the end
of such Due Period and the denominator of which is the Pool Principal Balance as
of the end of such Due Period.
Substitution Adjustment Amount: The meaning assigned to such term in
Section 3.05.
Substitution Date: As defined in Section 3.05.
Termination Date: The earlier of (a) the Distribution Date in May 2023
and (b) the Distribution Date next following the Monthly Cut-Off Date coinciding
with or next following the date of the liquidation or disposition of the last
asset held by the Trust pursuant to Sections 4.13 or 11.01.
Termination Price: As defined in Section 11.01(b).
30+ Day Delinquent Loan. With respect to any Determination Date or
related Distribution Date, a Home Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the related Monthly Cut-Off Date, 31 days or more past due (without giving
effect to any grace period) and unpaid by the Obligor.
30+ Delinquency Percentage (Rolling Three Month). With respect to any
Determination Date or related Distribution Date, the average of the percentage
equivalents of the fractions determined for each of the three immediately
preceding Due Periods the numerator of which is equal to the aggregate Principal
Balance of Home Loans that are 30+ Day Delinquent Loans as of the end of such
Due Period, and the denominator of which is the Pool Principal Balance of the
Home Loans as of the end of such Due Period.
Title Document. The evidence of title to or ownership of the Property
required by Title I. (See 24 C.F.R. 201.26(a)(1) and 201.20).
Title I. Section 2 of Title I of the National Housing Act of 1934, as
amended, and the rules and regulations promulgated thereunder as each may be
amended from time to time and any successor statute, rules or regulations
thereto.
Transaction Documents. This Agreement, the Home Loan Purchase Agreement,
the Trust Agreement, the Servicing Agreement, the Custodial Agreement, the
Indenture, the Administration Agreement, the Insurance Agreement and the
Indemnification Agreement.
Trust: The Issuer.
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Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in any Trust Account and all proceeds of the foregoing.
Trust Accounts: The Note Distribution Account, the Certificate
Distribution Account, the Collection Account and the FHA Premium Account.
Trust Agreement: The Trust Agreement dated as of May 1, 1997, among the
Depositor, the Co-Owner Trustee, the Owner Trustee and Mego Mortgage
Corporation.
Trust Designated Insurance Amount: $273,578 or such greater amount
approved in advance in writing by the Securities Insurer.
Trust Estate: The assets subject to this Agreement, the Trust Agreement
and the Indenture and assigned to the Indenture Trustee, which assets consist
of: (i) such Home Loans as from time to time are subject to this Agreement,
including Qualified Substitute Home Loans added to the Trust from time to time,
together with the Servicer's Home Loan Files and the Indenture Trustee's Home
Loan Files relating thereto and all proceeds thereof, (ii) the Mortgages and
security interests in Properties, (iii) all payments of principal in respect of
Home Loans received on or after the Cut-Off Date and payments of interest in
respect of Home Loans due on or after the Cut-Off Date, (iv) the rights to FHA
Insurance reserves attributable to the FHA Loans as of the Cut-Off Date, (v)
such assets as from time to time are identified as Foreclosed Property, (vi)
such assets and funds as are from time to time deposited in the Collection
Account, the Note Distribution Account, the Certificate Distribution Account and
the FHA Reserve Account, including amounts on deposit in such accounts which are
invested in Permitted Investments, (vii) the Issuer's rights under the Insurance
Policies and any Insurance Proceeds, and (viii) all right, title and interest of
the Depositor in and to the obligations of the Seller under the Home Loan
Purchase Agreement in which the Depositor acquired the Home Loans from the
Seller.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture and the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles,
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the definitions contained in this Agreement or in any such certificate or other
document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03 Interest Calculations.
Except as otherwise set forth herein, all calculations of accrued
interest on the Home Loans, the Notes, the Certificates and accrued fees shall
be made on the basis of a 360-day year consisting of twelve 30-day months.
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ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes and Certificates to the Depositor or its designee, upon the order of
the Depositor, the Depositor, as of the Closing Date and concurrently with the
execution and delivery hereof, does hereby sell, transfer, assign, set over and
otherwise convey to the Issuer, without recourse, but subject to the other terms
and provisions of this Agreement, all of the right, title and interest of the
Depositor in and to the Trust Estate. The foregoing sale, transfer, assignment,
set over and conveyance does not and is not intended to result in a creation or
an assumption by the Issuer of any obligation of the Depositor, the Seller or
any other person in connection with the Trust Estate or under any agreement or
instrument relating thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it
of the Trust Estate, including from the Depositor all right, title and interest
of the Depositor in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer, and the acceptance of which is made in good faith
and without notice or knowledge of any adverse claims or liens. Concurrently
with such delivery and in exchange therefor, the Issuer has pledged to the
Indenture Trustee the Trust Estate and the Indenture Trustee, pursuant to the
written instructions of the Issuer, has executed and caused to be authenticated
and delivered the Notes to the Depositor or its designee, upon the order of the
Issuer. In addition, concurrently with such delivery and in exchange therefor,
the Owner Trustee, pursuant to the instructions of the Depositor, has executed
(not in its individual capacity, but solely as Owner Trustee on behalf of the
Issuer) and caused to be authenticated and delivered the Certificates to the
Depositor or its designee, upon the order of the Depositor.
Section 2.02 Reserved.
Section 2.03 Ownership and Possession of Home Loan Files.
Upon the issuance of the Securities, with respect to the Home Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of the
related Servicer's Home Loan File and the Indenture Trustee's Home Loan File
shall be vested in the Owner Trustee and the Co-Owner Trustee and pledged to the
Indenture Trustee for the benefit of the Noteholders and the Securities Insurer,
although possession of the Servicer's Home Loan Files (other than items required
to be maintained in the Indenture Trustee's Home Loan Files) on behalf of and
for the benefit of the Securityholders and the Securities Insurer shall remain
with Mego, and the Custodian shall take possession of the Indenture Trustee's
Home Loan Files as contemplated in Section 2.06.
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Section 2.04 Books and Records.
The sale of each Home Loan shall be reflected on the Depositor's or the
Seller's, as the case may be, balance sheets and other financial statements as a
sale of assets by the Depositor or the Seller, as the case may be, under
generally accepted accounting principles ("GAAP"). The Master Servicer shall
maintain, or cause to be maintained pursuant to Section 4.03, a complete set of
books and records for each Home Loan which shall be clearly marked to reflect
the ownership of each Home Loan by the Owner Trustee and the Co-Owner Trustee
and the pledge to the Indenture Trustee for the benefit of the Securityholders
and the Securities Insurer.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Home
Loans and the other property specified in Section 2.01(a) from the Depositor to
the Trust and such property shall not be property of the Depositor. If the
assignment and transfer of the Home Loans and the other property specified in
this Section 2.01(a) to the Owner Trustee and Co-Owner Trustee pursuant to this
Agreement or the conveyance of the Home Loans or any of such other property to
the Owner Trustee and Co-Owner Trustee is held or deemed not to be a sale or is
held or deemed to be a pledge of security for a loan, the Depositor intends that
the rights and obligations of the parties shall be established pursuant to the
terms of the Agreement and that, in such event, (i) the Depositor shall be
deemed to have granted and does hereby grant to the Owner Trustee and Co-Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Home Loans and all other property
conveyed to the Owner Trustee and Co-Owner Trustee pursuant to Section 2.01 and
all proceeds thereof, and (ii) this Agreement shall constitute a security
agreement under applicable law. Within five days of the Closing Date, the
Depositor shall cause to be filed UCC-1 financing statements naming the Owner
Trustee and Co-Owner Trustee as "secured parties" and describing the Home Loans
being sold by the Depositor to the Trust with the office of the Secretary of
State of the State in which the Depositor is located.
Section 2.05 Delivery of Home Loan Documents.
(a) With respect to each Home Loan, on the Closing Date the Seller, at
the direction of the Depositor, shall have delivered or caused to be delivered
to the Custodian as the designated agent of the Indenture Trustee each of the
following documents (collectively, the "Indenture Trustee's Home Loan Files"):
(i) The original Debt Instrument, showing a complete chain of
endorsements or assignments from the named payee to the Trust and
endorsed as follows: "Pay to the order of First Trust of New York,
National Association, as Indenture Trustee and Co-Owner Trustee for Mego
Mortgage Home Loan Owner Trust 1997-2, without recourse";
(ii) If such Home Loan is a Mortgage Loan, the original Mortgage
with evidence of recording indicated thereon (except that a true copy
thereof certified by an appropriate public official may be substituted);
provided, however, that if the Mortgage
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with evidence of recording thereon cannot be delivered concurrently with
the execution and delivery of this Agreement solely because of a delay
caused by the public recording office where such Mortgage has been
delivered for recordation, there shall be delivered to the Indenture
Trustee a copy of such Mortgage certified as a true copy in an Officer's
Certificate which shall certify that such Mortgage has been delivered to
the appropriate public recording office for recordation, and there shall
be promptly delivered to the Indenture Trustee such Mortgage with
evidence of recording indicated thereon upon receipt thereof from the
public recording official (or a true copy thereof certified by an
appropriate public official may be delivered to the Indenture Trustee);
(iii) If such Home Loan is a Mortgage Loan, the original
Assignment of Mortgage, in recordable form. Such assignments may be
blanket assignments, to the extent such assignments are effective under
applicable law, for Mortgages covering Mortgaged Properties situated
within the same county. If the Assignment of Mortgage is in blanket form
an assignment of Mortgage need not be included in the individual Home
Loan File;
(iv) If such Home Loan is a Mortgage Loan, all original
intervening assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Indenture
Trustee, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with evidence
of recording thereon cannot be delivered concurrently with the execution
and delivery of this Agreement solely because of a delay caused by the
public recording office where such assignments of Mortgage have been
delivered for recordation, there shall be delivered to the Indenture
Trustee a copy of each such assignment of Mortgage certified as a true
copy in an Officer's Certificate of Mego, which shall certify that each
such assignment of Mortgage has been delivered to the appropriate public
recording office for recordation, and there shall be promptly delivered
to the Indenture Trustee such assignments of Mortgage with evidence of
recording indicated thereon upon its receipt thereof from the public
recording official (or true copies thereof certified by an appropriate
public official may be delivered to the Indenture Trustee);
(v) An original of each assumption or modification agreement, if
any, relating to such Home Loan.
(b) With respect to each Home Loan, on the Closing Date, the Seller, at
the direction of the Depositor, shall have delivered or caused to be delivered
to Mego, as the designated agent of the Indenture Trustee each of the following
documents (collectively, the "Servicer's Home Loan Files"): (A) If such Home
Loan is an FHA Loan, an original or copy of notice signed by the Obligor
acknowledging HUD insurance, (B) an original or copy of truth-in-lending
disclosure, (C) an original or copy of the credit application, (D) an original
or copy of the consumer credit report, (E) an original or copy of verification
of employment and income, or verification of self-employment income, (F) if such
Home Loan is an FHA Loan, an original or copy of evidence
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of the Obligor's interest in the Property, (G) an original or copy of contract
of work or written description with cost estimates, (H)(i) if such Home Loan is
an FHA Loan either (a) an original or copy of the completion certificate or an
original or copy of notice of non-compliance, if applicable or (b) an original
or copy of report of inspection of improvements to the Property or an original
or copy of notice of non-compliance, if applicable, or (ii) if such Home Loan is
a Non-FHA Loan in respect of a home improvement, an original or copy of report
of inspection of improvements to the Property, (I) to the extent not included in
(C), an original or a copy of a written verification that the Mortgagor at the
time of origination was not more than 30 days delinquent on any senior mortgage
or deed of trust on the Property, (J) (i) if such Home Loan is an FHA Loan for
which an appraisal is required pursuant to the applicable regulations, an
original or a copy of an appraisal of the Property as of the time of origination
of such FHA Loan or (ii) if such Home Loan is a Non-FHA Loan and secured by a
Mortgage, (a) if the original principal balance is between $35,001 and $40,000,
(1) evidence that the borrower has a FICO Score of at least 640, a debt to
income ratio no greater than 45%, and disposable income of at least $1,500, or
(2) (I) a copy of the HUD-1 Closing Statement indicating the sale price, or (II)
an Uniform Residential Appraisal Report, or (III) a Drive-By Appraisal
documented on either FHLMC Form 704 or FNMA Form 2055, or (IV) a tax assessment,
or (V) a broker's price opinion; (b) if the original principal balance is
between $40,001 and $50,000, (1) a copy of the HUD-1 Closing Statement
indicating the sale price, or (2) an Uniform Residential Appraisal Report, or
(3) a Drive-By Appraisal documented on either FHLMC Form 704 or FNMA Form 2055,
or (4) a tax assessment, or (5) a broker's price opinion; or (c) if the original
principal balance exceeds $50,000, a full Uniform Residential Appraisal Report
prepared by a national appraisal firm, (K) an original or a copy of a title
search as of the time of origination with respect to the Property, and (L) if
such Home Loan is an FHA Loan, any other documents required for the submission
of a claim with respect to such FHA Loan to the FHA.
(c) Mego, at the direction of the Depositor, concurrently with the
execution and delivery hereof, has delivered to the Indenture Trustee cash in an
amount equal to (i) the accrued annual FHA premium due on each FHA Loan to the
applicable Cut-Off Date, and (ii) the amount of FHA premium collected in respect
of the Invoiced Loans after the applicable Cut-Off Date. The Indenture Trustee
shall deposit the amount referred to in clause (ii) of the previous sentence
into the FHA Premium Account and shall deposit the amount referred to in clause
(i) of the previous sentence into the Note Distribution Account.
(d) The Indenture Trustee shall cause the Custodian to take and maintain
continuous physical possession of the Indenture Trustee's Home Loan Files in the
State of Minnesota, and in connection therewith, shall act solely as agent for
the holders of the Securities and the Securities Insurer in accordance with the
terms hereof and not as agent for Mego or any other party.
(e) In addition to the documents delivered to the Indenture Trustee
pursuant to Section 2.01, on or prior to the Closing Date, the Guaranty Policy
will be delivered to the Indenture Trustee for the benefit of the Holders of the
Securities (other than the Residual Certificateholders).
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(f) Within 60 days of the Closing Date, Mego, at its own expense, shall
cause the Indenture Trustee to record each Assignment of Mortgage (which may be
a blanket assignment if permitted by applicable law) in the appropriate real
property or other records; provided, however, the Indenture Trustee need not
cause to be recorded any such Assignment of Mortgage which relates to a Mortgage
Loan in any jurisdiction under the laws of which, as evidenced by an Opinion of
Counsel delivered by Mego (at Mego's expense) to the Indenture Trustee, the
Securities Insurer and the Rating Agencies, the recordation of such Assignment
of Mortgage is not necessary to protect the Indenture Trustee's interest in the
related Mortgage Loan; provided further, however, notwithstanding the delivery
of any Opinion of Counsel, each Assignment of Mortgage shall be recorded (at
Mego's expense) upon the earliest to occur of (i) direction by the Securities
Insurer, (ii) the occurrence of an event of default under the Transaction
Documents, or (iii) any bankruptcy, insolvency or foreclosure with respect to
the related Mortgagor. With respect to any Assignment of Mortgage as to which
the related recording information is unavailable within 60 days following the
Closing Date, such Assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Indenture Trustee shall be required to retain a
copy of each Assignment of Mortgage submitted for recording. In the event that
any such Assignment of Mortgage is lost or returned unrecorded because of a
defect therein, Mego shall promptly prepare a substitute Assignment of Mortgage
or cure such defect, as the case may be, and thereafter the Indenture Trustee
shall be required to submit each such Assignment of Mortgage Loan for recording.
Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
Substitutions; Initial Certification by Custodian.
(a) The Indenture Trustee agrees to cause the Custodian to execute and
deliver on the Closing Date an acknowledgment of receipt of the Indenture
Trustee's Home Loan File for each Home Loan. The Indenture Trustee declares that
it will cause the Custodian to hold such documents and any amendments,
replacements or supplements thereto, as well as any other assets included in the
Trust Estate and delivered to the Custodian in trust, upon and subject to the
conditions set forth herein for the benefit of the Securityholders and the
Securities Insurer in good faith and without notice of any adverse claims or
liens. The Indenture Trustee agrees, for the benefit of the Securityholders and
the Securities Insurer, to cause the Custodian to review each Indenture
Trustee's Home Loan File within 45 days after the Closing Date (or, with respect
to any Qualified Substitute Home Loan, within 45 days after the conveyance of
the related Home Loan to the Trust) and to cause the Custodian to deliver to the
Seller, the Depositor, the Indenture Trustee, the Issuer, the Securities Insurer
and the Master Servicer a certification to the effect that, as to each Home Loan
listed in the Home Loan Schedule (other than any Home Loan paid in full or any
Home Loan specifically identified in such certification as not covered by such
certification), (i) all documents required to be delivered to the Indenture
Trustee pursuant to this Agreement are in its possession or in the possession of
the Custodian on its behalf (other than as expressly permitted in Section 2.05),
(ii) all documents delivered by the Depositor and the Seller to the Custodian
pursuant to Section 2.05 have been reviewed by the Custodian and have not been
mutilated or damaged and appear regular on their face (handwritten additions,
changes
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or corrections shall not constitute irregularities if initialed by the Obligor)
and relate to such Home Loan, (iii) based on the examination of the Custodian on
behalf of the Indenture Trustee, and only as to the foregoing documents, the
information set forth on the Home Loan Schedule accurately reflects the
information set forth in the Indenture Trustee's Home Loan File and (iv) each
Debt Instrument has been endorsed as provided in Section 2.05. Neither the
Issuer nor the Custodian shall be under any duty or obligation (i) to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine that they are genuine, enforceable, or appropriate for the
represented purpose or that they are other than what they purport to be on their
face or (ii) to determine whether any Indenture Trustee's Home Loan File should
include any of the documents specified in Section 2.05(a)(v).
(b) The Servicer's Home Loan File shall be held in the custody of Mego
for the benefit of, and as agent for, the Securityholders and the Indenture
Trustee as the owner thereof and the Securities Insurer. It is intended that by
Mego's agreement pursuant to this Section 2.06(b) the Indenture Trustee shall be
deemed to have possession of the Servicer's Home Loan Files for purposes of
Section 9-305 of the Uniform Commercial Code of the State in which such
documents or instruments are located. Mego shall promptly report to the
Indenture Trustee and the Securities Insurer any failure by it to hold the
Servicer's Home Loan File as herein provided and shall promptly take appropriate
action to remedy any such failure. In acting as custodian of such documents and
instruments, Mego agrees not to assert any legal or beneficial ownership
interest in the Home Loans or such documents or instruments. Mego agrees to
indemnify the Securityholders, the Securities Insurer and the Indenture Trustee
for any and all liabilities, obligations, losses, damages, payments, costs, or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Securityholders, the Securities Insurer or the Indenture Trustee as
the result of any act or omission by Mego relating to the maintenance and
custody of such documents or instruments which have been delivered to Mego;
provided, however, that Mego will not be liable for any portion of any such
amount resulting from the negligence or misconduct of any Securityholder, the
Securities Insurer or the Indenture Trustee and provided, further, that Mego
will not be liable for any portion of any such amount resulting from Mego's
compliance with any instructions or directions consistent with this Agreement
issued to Mego by the Indenture Trustee. The Indenture Trustee shall have no
duty to monitor or otherwise oversee Mego's performance as custodian hereunder.
(c) Upon determination by the Master Servicer, the Securities Insurer,
the Depositor, Mego or the Indenture Trustee that any document constituting a
part of any Home Loan File was not delivered to the Indenture Trustee or, with
respect to any document constituting the Servicer's Home Loan File, to Mego, as
custodian for the Indenture Trustee, the Securities Insurer and Securityholders,
by the time required hereby (which in the case of (A) a failure to deliver a
recorded mortgage or recorded assignment pursuant to Section 2.05(a)(ii) or
(a)(iv) (only under the circumstances in which a delay is caused by the public
recording office and an Officer's Certificate is required to be provided
thereunder) shall be the 20 month anniversary of the Closing Date, (B) failure
to deliver a completion certificate or inspection report pursuant to Section
2.05(b)(H)(i) shall be the 14 month anniversary of the Closing Date (C) a
failure to deliver an inspection report pursuant to Section 2.05(b)(H)(ii) shall
be the 12 month anniversary
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of the Closing Date, (D) a failure to deliver each other document constituting a
part of any Indenture Trustee's Home Loan File shall be the Closing Date and (E)
a failure to deliver each document (other than those described in clause (B)
above) specified in Section 2.05(b) shall be 45 Business Days after the Closing
Date) to be so delivered or was defective in any material respect when delivered
to the Indenture Trustee, the party identifying any of the foregoing shall give
prompt written notice to the other parties and the Securities Insurer. Nothing
contained herein shall require the Indenture Trustee to undertake any
independent investigation or to make any review of any Home Loan File other than
as provided for in this Section 2.06. Mego, upon receipt of such notice, shall
comply with the cure, substitution and repurchase provisions of Section 3.05
hereof.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants with and to the
Issuer, and the Indenture Trustee, on behalf of the Securityholders, and the
Master Servicer, as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has all licenses
necessary to carry on its business as now being conducted. The Depositor has the
power and authority to execute and deliver this Agreement and to perform in
accordance herewith; the execution, delivery and performance of this Agreement
(including all instruments of transfer to be delivered pursuant to this
Agreement) by the Depositor and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action of the Depositor; this Agreement evidences the valid, binding and
enforceable obligation of the Depositor; and all requisite action has been taken
by the Depositor to make this Agreement valid, binding and enforceable upon the
Depositor in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other, similar laws relating to or
affecting creditors' rights generally or the application of equitable principles
in any proceeding, whether at law or in equity;
(b) The consummation of the transactions contemplated by this Agreement
will not result in (i) the breach of any terms or provisions of the Articles of
Incorporation or Bylaws of the Depositor, (ii) the breach of any term or
provision of, or conflict with or constitute a default under or result in the
acceleration of any obligation under, any material agreement, indenture or loan
or credit agreement or other material instrument to which the Depositor, or its
property is subject, or (iii) the violation of any law, rule, regulation, order,
judgment or decree to which the Depositor or its respective property is subject;
(c) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or other governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or its properties or might have consequences that
would materially and adversely affect its performance hereunder.
Section 3.02 Representations, Warranties and Covenants of the Mater
Servicer.
The Master Servicer hereby represents, warrants and covenants with and
to the Depositor, the Issuer, Mego, the Indenture Trustee, the Securities
Insurer and the Securityholders as of the Closing Date:
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(a) The Master Servicer is a national banking association duly organized
and validly existing under the laws of the United States of America, with full
power and authority to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted;
(b) The Master Servicer has the full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which it
is a party, has duly authorized the execution, delivery and performance of this
Agreement and each other Transaction Document to which it is a party, has duly
executed and delivered this Agreement and each other Transaction Document to
which it is a party, and this Agreement and each other Transaction Document to
which it is a party, when duly authorized, executed and delivered by the other
parties thereto, will constitute a legal, valid and binding obligation of the
Master Servicer, enforceable against it in accordance with its terms;
(c) Neither the execution and delivery of this Agreement or any other
Transaction Document to which the Master Servicer is a party, the consummation
of the transactions required of the Master Servicer herein or therein, nor the
fulfillment of or compliance with the terms and conditions of this Agreement or
any other Transaction Document to which the Master Servicer is a party will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Master Servicer's charter or bylaws or any legal restriction
or any material agreement or instrument to which the Master Servicer is now a
party or by which it is bound, or which would adversely affect the
administration of the Trust as contemplated hereby, or constitute a material
default or result in an acceleration under any of the foregoing, or result in
the violation of any law, rule, regulation, order, judgment or decree to which
the Master Servicer or its property is subject;
(d) The Master Servicer is not in default, and the execution and
delivery of this Agreement and each other Transaction Document to which it is a
party and its performance of and compliance with the terms hereof and thereof
will not constitute a violation of, any law, any order or decree of any court,
or any order, regulation or demand of any federal, state or local governmental
or regulatory authority;
(e) No action, suit or other proceeding or investigation is pending or,
to the Master Servicer's knowledge, threatened before any court or any federal,
state or local governmental or regulatory authority (A) asserting the invalidity
of this Agreement or any other Transaction Document to which the Master Servicer
is a party, (B) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or any other Transaction Document to which the
Master Servicer is a party, or (C) seeking any determination or ruling that
would materially and adversely affect the ability of the Master Servicer to
perform its obligations under this Agreement or any other Transaction Document
to which the Master Servicer is a party (including any threatened or pending
action, suit, proceeding or investigation which might result in the suspension,
revocation or modification of the Contract of Insurance);
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(f) No consent, approval, authorization or order of, registration or
filing with or notice to, any court or any federal, state or local government or
regulatory authority is required for the execution, delivery and performance by
the Master Servicer of this Agreement or any other Transaction Document to which
the Master Servicer is a party (other than those that have been obtained or will
be obtained prior to the Closing Date);
(g) Neither this Agreement nor any other Transaction Document to which
the Master Servicer is a party nor any statement, report or other document
furnished or to be furnished by the Master Servicer pursuant to this Agreement
or any other Transaction Document to which the Master Servicer is a party or in
connection with the transactions contemplated hereby and thereby contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading;
(h) The statements contained in the section of the Prospectus Supplement
entitled "The Master Servicer" which describe the Master Servicer are true and
correct in all material respects, and such section of the Prospectus Supplement
does not contain any untrue statement of a material fact with respect to the
Master Servicer and does not omit to state a material fact necessary to make the
statements contained therein with respect to the Master Servicer not misleading;
(i) The Master Servicer is solvent, and the Master Servicer will not be
rendered insolvent as a result of the performance of its obligations pursuant to
this Agreement and any other Transaction Document to which the Master Servicer
is a party;
(j) The Servicing Agreement conforms to the requirements for a Servicing
Agreement contained in this Agreement;
(k) Each FHA Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;
(l) The Master Servicer, or an affiliate thereof that has been
previously approved by the Securities Insurer, the primary business of which is
the servicing of home loans such as the Home Loans, is an Eligible Servicer, and
the Master Servicer or such affiliate possesses all state and federal licenses
necessary for servicing the Home Loans in accordance with this Agreement;
(m) The Master Servicer has not waived any default, breach, violation or
event of acceleration existing under any Debt Instrument or the related
Mortgage;
(n) The Master Servicer will cause to be performed any and all acts
required to be performed by the Master Servicer or Servicer to preserve the
rights and remedies of the Trust and the Indenture Trustee in any Insurance
Policies applicable to the Home Loans or with respect to any FHA Loan, any
Insurance Policy required to be maintained pursuant to Title I, including,
without limitation, in each case, any necessary notifications of insurers,
assignments of policies
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or interests therein, and establishments of co-insured, joint loss payee and
mortgagee rights in favor of the Trust and the Indenture Trustee;
(o) The Master Servicer shall comply with, and shall service, or cause
to be serviced, each Home Loan, in accordance with all applicable laws, and, in
particular, in accordance with any applicable provisions of the National Housing
Act, as amended and supplemented, all rules and regulations issued thereunder,
and all administrative publications published pursuant thereto including, in the
case of the FHA Loans, all FHA requirements of FHA Title I loans; and
(p) The Master Servicer agrees that, so long as it shall continue to
serve in the capacity contemplated under the terms of this Agreement, it shall
remain in good standing under the laws governing its creation and existence and
qualified under the laws of each state in which it is necessary to perform its
obligations under this Agreement or in which the nature of its business requires
such qualification, it shall maintain or cause an affiliate previously approved
of by the Securities Insurer to maintain all licenses, permits and other
approvals required by any law or regulations, including, without limitation
Title I, as may be necessary to perform its obligations under this Agreement and
to retain all rights to service the Loans, and it shall not dissolve or
otherwise dispose of all or substantially all of its assets.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive the issuance and delivery of the
Securities and shall be continuing as long as any Security shall be outstanding
or this Agreement has not been terminated.
Section 3.03 Representations and Warranties of Mego.
(a) The Seller hereby represents and warrants to the Depositor, the
Issuer, the Indenture Trustee, the Master Servicer, the Securities Insurer and
the Securityholders, that as of the Closing Date:
(i) Mego is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Mego is duly
qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and the performance of its obligations under the
Transaction Documents, in each jurisdiction in which the failure to be
so qualified or to obtain such approvals would render any Transaction
Document unenforceable in any respect or would have a material adverse
effect upon the Transaction;
(ii) Mego has full power and authority to execute, deliver and
perform, and to enter into and consummate all transactions required of
it by this Agreement and each other Transaction Document to which it is
a party; has duly authorized the execution, delivery and performance of
this Agreement and each other Transaction Document to which it is a
party; has duly executed and delivered this Agreement and each other
Transaction Document to which it is a party; when duly authorized,
executed and
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delivered by the other parties hereto, this Agreement and each other
Transaction Document to which it is a party will constitute a legal,
valid and binding obligation of Mego enforceable against it in
accordance with its terms, except as such enforceability may be limited
by general principles of equity (whether considered in a proceeding at
law or in equity);
(iii) Neither the execution and delivery of this Agreement or
any of the other Transaction Documents to which Mego is a party, the
consummation of the transactions required of it herein or under any
other Transaction Document, nor the fulfillment of or compliance with
the terms and conditions of this Agreement or any of the other
Transaction Documents will conflict with or result in a breach of any of
the terms, conditions or provisions of Mego's charter or by-laws or any
legal restriction or any material agreement or instrument to which Mego
is now a party or by which it is bound, or which would adversely affect
the creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any of
the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Mego or its respective property is
subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against Mego or, to its knowledge, threatened, which,
if determined adversely to Mego, would materially adversely affect the
sale of the Loans, the issuance of the Certificates, the execution,
delivery or enforceability of this Agreement or any other Transaction
Document, or which would have a material adverse affect on the financial
condition of Mego;
(v) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (a) the execution, delivery
and performance by Mego of, or compliance by Mego with, this Agreement,
(b) the transfer of all FHA insurance reserves relating to the FHA Loans
to the Contract of Insurance Holder, (c) the issuance of the
Certificates, (d) the sale of the Home Loans under the Home Loan
Purchase Agreement or (e) the consummation of the transactions required
of it by this Agreement, except: (A) such as shall have been obtained
before the Closing Date, (B) the transfer of the FHA insurance reserves
by the FHA to the Contract of Insurance Holder with respect to the FHA
Loans as to which an FHA case number has not been assigned as of the
Closing Date, and (C) such as may be required under state securities or
"Blue Sky" laws in connection with the sale of the Notes by the
Underwriter;
(vi) Mego is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
other) or operations of Mego or its properties or might have
consequences that would materially and adversely affect its performance
hereunder;
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(vii) Mego received fair consideration and reasonably equivalent
value in exchange for the sale of the Home Loans to the Depositor;
(viii) HUD has approved in writing the transfer to the Contract
of Insurance Holder of the FHA Reserve Amount relating to each FHA Loan
and all actions have been taken by Mego (other than the filing of the
Transfer of Note Report Form 27030 with HUD) and all required consents
have been obtained (other than approval upon HUD's receipt of such
Transfer of Note Report), in either case, necessary to effect transfer
to the Contract of Insurance Holder of the FHA Reserve Amount relating
to each FHA Loan (except for FHA Loans with respect to which a case
number has not been assigned as of the Closing Date). The FHA Reserve
Amounts with respect to the FHA Loans transferred to the Contract of
Insurance Holder both prior to and following the transfer of the FHA
Loans to the Co-Owner Trustee and Owner Trustee will be available to
satisfy claims with respect to such FHA Loans. As of the Cut-off Date,
the amount in the FHA Insurance Coverage Reserve Account, together with
all amounts to be requested for transfer with respect to the FHA Loans,
will equal $19,440,100 less approximately $4,252,273 representing claims
paid, filed or pending filing as of the Cutoff Date against the Contract
of Insurance. The amount to be requested for transfer with respect to
the FHA Loans is $273,578, which is the sum of approximately 10% of the
aggregate of the Principal Balances of the FHA Loans as of the Cut-Off
Date;
(ix) Mego is a non-supervised lender in good standing with HUD
under 24 CFR Section202.5 and is authorized to originate, purchase,
hold, service and/or sell loans insured under 24 CFR Part 201 pursuant
to a valid contract of insurance, Number 70497-00003;
(x) Mego has transferred the Home Loans without any intent to
hinder, delay or defraud any of its creditors;
(b) Mego hereby agrees for the benefit of the Depositor, the Issuer, the
Indenture Trustee, the Securities Insurer and the Securityholders that the
failure of any of the following representations and warranties to be true and
correct as to any Home Loan (and the related Debt Instrument and Mortgage, if
applicable) as of the Cut-Off Date for such Home Loan, or such later date if so
specified in such representation and warranty, gives rise to the remedy
specified in Section 3.05;
(i) The information pertaining to each Home Loan set forth in
the Home Loan Schedule was true and correct in all material respects as
of the Cut-Off Date;
(ii) As of the Closing Date at least 99.44% of the Home Loans
(by aggregate Initial Pool Principal Balance) are between 0 and 30 days
past due and not more than 0.56% of the Home Loans (by aggregate Initial
Principal Balance) are between 31 and 60 days past due (without giving
effect to any grace period); Mego has not advanced funds, induced,
solicited or knowingly received any advance of funds from a
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party other than the Obligor, directly or indirectly, for the payment of
any amount required by the Home Loan;
(iii) The terms of the Debt Instrument and any related Mortgage
contain the entire agreement of the parties and have not been impaired,
waived, altered or modified in any respect, except by written
instruments reflected in the related File and recorded, if necessary, to
maintain the lien priority of the any related Mortgage; if such Home
Loan is an FHA Loan the substance of each such waiver, alteration and
modification has been approved by the FHA to the extent required under
Title I; no other instrument of waiver, alteration, expansion or
modification has been executed, and no Obligor has been released, in
whole or in part, except in connection with an assumption agreement
which assumption agreement is part of the related Home Loan File and the
payment terms of which are reflected in the related Home Loan Schedule
and; if such Home Loan is an FHA Loan, has been approved by the FHA to
the extent required under Title I;
(iv) The Debt Instrument and any related Mortgage are not
subject to any set-off, claims, counterclaim or defense and will not
have such in the future with respect to the goods and services provided
under the Debt Instrument, including the defense of usury or of fraud in
the inducement, nor will the operation of any of the terms of the Debt
Instrument and any related Mortgage, or the exercise of any right
thereunder, render such Debt Instrument or 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;
(v) Any and all requirements of any federal, state or local law
applicable to the Home Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto)
have been complied with;
(vi) No Debt Instrument or Mortgage has been satisfied,
cancelled, rescinded or subordinated, in whole or part; and Mego has not
waived the performance by the Obligor of any action, if the Obligor's
failure to perform such action would cause the Debt Instrument or
Mortgage Loan to be in default, except as otherwise permitted by clause
(iii); and with respect to a Mortgage Loan, the related Property has not
been released from the lien of the Mortgage, in whole or in part, nor
has any instrument been executed that would effect any such
satisfaction, subordination, release, cancellation or rescission;
(vii) Each related Mortgage is a valid, subsisting and
enforceable lien on the related Property, including the land and all
buildings on the Property;
(viii) The Debt Instrument and any related Mortgage are genuine
and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance
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with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors'
rights in general and by general principles of equity;
(ix) To Mego's best knowledge, all parties to the Debt
Instrument and any related Mortgage had legal capacity at the time to
enter into the Home Loan and to execute and deliver the Debt Instrument
and any related Mortgage, and the Debt Instrument and any related
Mortgage have been duly and properly executed by such parties;
(x) As of the applicable Cut-Off Date, the proceeds of the Home
Loan have been fully disbursed and there is no requirement for future
advances thereunder, and any and all applicable requirements set forth
in the Home Loan documents have been complied with; the Obligor is not
entitled to any refund of any amounts paid or due under the Debt
Instrument or any related Mortgage;
(xi) Immediately prior to the sale, transfer and assignment to
the Depositor, Mego will have good and indefeasible legal title to the
Home Loan, the related Debt Instrument and any related Mortgage and the
full right to transfer such Home Loan, the related Debt Instrument and
any related Mortgage, and Mego will have been the sole owner thereof,
subject to no liens, pledges, charges, mortgages, encumbrances or rights
of others, except for such liens as will be released simultaneously with
the transfer and assignment of the Home Loans to the Depositor (and the
Home Loan File will contain no evidence inconsistent with the
foregoing); and immediately upon the sale, transfer and assignment
contemplated by the Home Loan Purchase Agreement, the Depositor will
hold good title to, and be the sole owner of each Home Loan, the related
Debt Instrument and any related Mortgage, free of all liens, pledges,
charges, mortgages, encumbrances or rights of others;
(xii) Except for those Home Loans referred to in Section
3.03(b)(ii) above that are delinquent as of the Closing Date, there is
no default, breach, violation or event of acceleration existing under
the Home Loan, the related Debt Instrument and any related Mortgage and
there is no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration and neither Mego nor its
predecessors have waived any default, breach, violation or event of
acceleration;
(xiii) The Debt Instrument and any related Mortgage contain
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
Property of the benefits of the security provided thereby, including,
(A) in the case of any Mortgage designated as a deed of trust, by
trustee's sale, and (B) otherwise by judicial foreclosure;
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(xiv) Each FHA Loan is an FHA Title I property improvement loan
(as defined in 24 C.F.R. Section 201.2) underwritten and originated by
Mego in accordance with FHA requirements for the Title I Loan program as
set forth in 24 C.F.R. Parts 201 and 202, and Mego has transmitted a
loan report with respect to such FHA Loan to FHA so that such FHA Loan
will be included in the Title I program;
(xv) Each Home Loan is a fixed rate loan; the Debt Instrument
shall mature within not more than (a) for an FHA Loan, 20 years and 32
days and (b) for a Non-FHA Loan, 25 years, from the date of origination
of the Home Loan; the Debt Instrument is payable in substantially equal
Monthly Payments, with interest payable in arrears, and requires a
Monthly Payment which is sufficient to fully amortize the original
principal balance over the original term and to pay interest at the
related Home Loan Interest Rate; interest on each Home Loan is
calculated on the basis of a 360 day year consisting of twelve 30-day
months, and the Debt Instrument does not provide for any extension of
the original term;
(xvi) The related Debt Instrument is not and has not been
secured by any collateral except, in the case of a Mortgage Loan, the
lien of the corresponding Mortgage;
(xvii) With respect to any Mortgage Loan, if the related
Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees or
expenses are or will become payable to the trustee under the deed of
trust, except in connection with default proceedings and a trustee's
sale after default by the Obligor;
(xviii) With respect to any Mortgage Loan, Mego has no knowledge
of any circumstances or conditions not reflected in the representations
set forth herein, or in the Home Loan Schedule, or in the related Home
Loan File with respect to the related Mortgage, the related Property or
the Obligor which could reasonably be expected to materially and
adversely affect the value of the related Property, or the marketability
of the Mortgage Loan or to cause the Mortgage Loan to become delinquent
or otherwise in default;
(xix) Assuming no material change to the applicable law or
regulations in effect as of the Closing Date, after the consummation of
the transactions contemplated by this Agreement, the Master Servicer on
behalf of the Trust and the Indenture Trustee will have the ability to
foreclose or otherwise realize upon a Property, if the Home Loan is a
Mortgage Loan, or to enforce the provisions of the related Home Loan
against the Obligor thereunder, if the foreclosure upon any such
Property or enforcement of the provisions of the related Home Loan
against the Obligor are undertaken as set forth in Section 4.12;
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(xx) With respect to any FHA Loan that is a Mortgage Loan, the
improvements to the Property relating to such FHA Loan, have been or
shall be completed and inspected by the Servicer within the time period
and to the extent required under the applicable Title I regulations, and
evidence of such inspection shall be placed in the Servicer's Home Loan
File or, if not, a letter of non-compliance shall be delivered to HUD
(with a copy placed in the Servicer's Home Loan File) promptly upon the
completion of such inspection;
(xxi) Each FHA Loan has been originated in compliance with the
provisions of 24 C.F.R. Section 201.20, and, if required by Title I, the
market value of the any related Property has been ascertained in
accordance with the procedures established by HUD;
(xxii) There exists a Home Loan File relating to each Home Loan
and such Home Loan File contains all of the original or certified
documentation listed in Section 2.05 for such Home Loan, subject to
applicable grace periods set forth in Section 2.06(c). Each Indenture
Trustee's Home Loan File has been delivered to the Custodian and each
Servicer's Home Loan File is being held in trust by Mego for the benefit
of, and as agent for, the Securityholders, the Securities Insurer and
the Indenture Trustee as the owner thereof. Each document included in
the Home Loan File which is required to be executed by the Obligor has
been executed by the Obligor in the appropriate places. With respect to
each Mortgage Loan, the related Assignment of Mortgage to the Indenture
Trustee is in recordable form and is acceptable for recording under the
laws of the jurisdiction in which the Property is located. All blanks on
any form required to be completed have been so completed;
(xxiii) Each FHA Loan is in respect of a home improvement loan
or a retail installment sale contract, and each Property is improved by
a residential dwelling and is not a Home Loan in respect of a
manufactured home or mobile home or the land on which a manufactured
home or mobile home has been placed;
(xxiv) Each FHA Loan was originated by Mego in accordance with
the applicable underwriting criteria established by the FHA and HUD;
each Non-FHA Loan was originated by Mego in accordance with Mego's
"Express 35/Swift 60 Loan Program", "Debt Consolidation 125 Loan
Program", and "Renovator 125 Loan Program" underwriting guidelines, as
applicable, attached hereto as Exhibit D;
(xxv) Any Property securing an FHA Loan is covered by any
insurance required by Title I; if the Property securing any Mortgage
Loan is in an area identified by the Federal Emergency Management Agency
("FEMA") as having special flood hazards, unless the community in which
the area is situated is participating in the National Flood Insurance
Program and the regulations thereunder or less than a year has passed
since FEMA notification regarding such hazards, a flood insurance policy
is in effect with respect to such Property with a generally acceptable
carrier which complies with Section
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102(a) of the Flood Disaster Protection Act of 1973; all improvements
upon each Property securing a Non-FHA Loan are insured by a generally
acceptable insurer against loss by fire hazards of extended coverage and
such other hazards as are customary in the area where the Property is
located pursuant to insurance policies conforming to the requirements of
the Agreement; all such policies contain a standard mortgage clause
naming Mego, its successors and assigns, as loss payee;
(xxvi) All costs, fees and expenses incurred in originating and
closing the Home Loan and in recording any related Mortgage were paid
and the Obligor is not entitled to any refund of any amounts, paid or
due to the Obligee pursuant to the Debt Instrument or any related
Mortgage;
(xxvii) Except for the related FHA Premium Amount, if
applicable, there is no obligation on the part of Mego or any other
party other than the Obligor to make payments with respect to the Home
Loan;
(xxviii) At the time of origination of the Home Loan, each
related prior lien, if any, was not 30 or more days delinquent;
(xxix) All parties which have had any interest in the Home Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during
the period in which they held and disposed of such interest, were) (i)
in compliance with any and all applicable licensing requirements of the
laws of the state wherein the Property is located, and (ii) (A)
organized under the laws of such state, or (B) qualified to do business
in such state, or (C) federal savings and loan associations or national
banks having principal offices in such state, or (D) not doing business
in such state;
(xxx) With respect to each Mortgage Loan, the related Mortgage
contains an enforceable provision requiring the consent of the Mortgagee
to assumption of the related Mortgage Loan upon sale of the Property;
(xxxi) With respect to any Mortgage Loan, there is no homestead
or other exemption available to the Mortgagor which would materially
interfere with the right to sell the related Property at a trustee's
sale or the right to foreclose the Mortgage; no relief has been
requested or allowed to the Mortgagor under the Civil Relief Act;
(xxxii) Subject to Section 3.05, each FHA Loan has been
submitted to the FHA for insurance pursuant to the FHA Title I loan
program and each FHA Loan has been or will be assigned a case number by
the FHA for the FHA Title I loan program;
(xxxiii) Subject to Section 3.05, the FHA Reserve Amount with
respect to each FHA Loan, has been or will be transferred to the FHA
Insurance Coverage Reserve Account;
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(xxxiv) The related Home Loan File for each Home Loan that is a
Mortgage Loan contains a title document with respect to such Home Loan
reflecting that title to the related Property is vested at least 50% in
the Obligor under such Home Loan;
(xxxv) Each Property (including each residential dwelling
improvement thereon) is free of damage which materially and adversely
affects the value thereof and, if the related Home Loan is an FHA Loan,
impairs the ability to insure the related Home Loan under the Title I
program;
(xxxvi) Each Home Loan was originated in compliance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith
or, if the related loan is an FHA Loan, in the application for any
insurance required by Title I in relation to such FHA Loan;
(xxxvii) Each Home Loan has been serviced in accordance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(xxxviii) The transfer, assignment and conveyance of the Debt
Instruments and the Mortgages by Mego to the Depositor were not subject
to the bulk transfer laws or any similar statutory provisions in effect
in any applicable jurisdiction;
(xxxix) Any Home Loan originated in the State of Texas, was
originated pursuant to either Chapter 3 or Chapter 6 of the Texas
Consumer Credit Code;
(xl) As of the applicable Cut-Off Date, no Obligor is a debtor
under proceedings under the Bankruptcy Code, and no such Obligor has
defaulted in payments on a Home Loan after the filing of such bankruptcy
case, whether under a plan or reorganization or otherwise;
(xli) Mego has not advanced funds, or induced, solicited or
knowingly received any advance of loan payments from a party other than,
with respect to a Mortgage Loan, the owner of the Property subject to
the Mortgage;
(xlii) Mego originated the Home Loans through its network of
dealers and correspondents;
(xliii) Each Home Loan conforms, and all such Home Loans in the
aggregate conform, to the description thereof set forth in the
Prospectus Supplement;
(xliv) With respect to FHA Loans secured by a Mortgage, the
representations and warranties of the Mortgagor in each mortgage loan
application and in connection with the related FHA Loan are true and
correct in all material respects (and it shall be deemed that a breach
is material only if a claim for payment made to the FHA
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under the Contract of Insurance in respect of such FHA Loan is a
Rejected Claim as a result of such breach);
(xlv) Each Home Loan either complies with the Home Ownership and
Equity Protection Act of 1994 or is not subject to such act;
(xlvi) Mego has caused to be performed or shall cause to be
performed within 15 Business Days of the Closing Date any and all acts
required to preserve the rights and remedies of the Trust and the
Indenture Trustee in any insurance policies applicable to each Home Loan
or, if such Home Loan is an FHA Loan, only if required by Title I,
including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishment of
coinsured, joint loss payee and mortgagee rights in favor of the
Indenture Trustee;
(xlvii) With respect to any Mortgage Loan, to Mego's best
knowledge, there exists no violation of any environmental law (either
local, state or federal), rule or regulation in respect of the Property
which violation has or could have a material adverse effect on the
market value of such Property. Mego has no knowledge of any pending
action or proceeding directly involving the related Property in which
compliance with any environmental law, rule or regulation is in issue;
and, to Mego's best knowledge, nothing further remains to be done to
satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Property;
(xlviii) Not more than 0.089% of the FHA Loans (by aggregate
Initial Principal Balance) and none of the Non-FHA Loans are secured by
Mortgages on nonowner occupied Mortgaged Properties;
(xlix) On the Closing Date, 55% or more (by aggregate Principal
Balance) of the Home Loans do not constitute "real estate mortgages" for
the purpose of Treasury Regulation Section301.7701 under the Code. For
this purpose a Home Loan does not constitute a "real estate mortgage"
if:
(i) The Home Loan is not secured by an interest in real
property, or
(ii) The Home Loan is not an "obligation principally secured by
an interest in real property." For this purpose an "obligation is
principally secured by an interest in real property" if it satisfies
either test set out in paragraph (1) or paragraph (2) below.
(1) The 80-percent test. An obligation is principally
secured by an interest in real property if the fair
market value of the interest in real property securing
the obligation
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(A) was at least equal to 80 percent of the adjusted
issue price of the obligation at the time the
obligation was originated (or, if later, the
time the obligation was significantly modified);
or
(B) is at least equal to 80 percent of the adjusted
issue price of the obligation on the Closing
Date.
For purposes of this paragraph (1), the fair market
value of the real property interest must be first
reduced by the amount of any lien on the real property
interest that is senior to the obligation being tested,
and must be further reduced by a proportionate amount of
any lien that is in parity with the obligation being
tested, in each case before the percentages set forth in
(1)(A) and (1)(B) are determined. The adjusted issue
price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of
the date of determination.
(2) Alternative test. An obligation is principally secured
by an interest in real property if substantially all of
the proceeds of the obligation were used to acquire or
to improve or protect an interest in real property that,
at the origination date, is the only security for the
obligation. For purposes of this test, loan guarantees
made by the United States or any state (or any political
subdivision, agency, or instrumentality of the United
States or of any state), or other third party credit
enhancement are not viewed as additional security for a
loan. An obligation is not considered to be secured by
property other than real property solely because the
obligor is personally liable on the obligation. For this
purpose only, substantially all of the proceeds of the
obligations means 66 2/3% or more of the gross proceeds.
(l) No Home Loan was selected from Mego's assets in a manner which would
cause it to be adversely selected as to credit risk from the pool of home loans
owned by Mego. The parties to this Agreement hereby acknowledge that Mego is not
selling approximately $18,000,000 of secured Title I loans within its inventory
to the Trust;
(li) With respect to each Home Loan that is not a first mortgage loan,
either (i) no consent for the Home Loan is required by the holder of the related
prior lien or (ii) such consent has been obtained and has been delivered to the
Indenture Trustee;
(lii) Each Home Loan is either a retail installment contract for goods
or services, home improvement loan for goods or services, debt consolidation
loan or a home equity loan. All Home Loans that are not debt consolidation loans
are either retail installment sale contracts for goods and services or home
improvement loans for goods
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and services that are either "consumer credit contracts" or "purchase
money loans" as such terms are defined in 16 C.F.R. Part 433.1; and
(liii) Each Debt Instrument is comprised of an original promissory note
and each promissory note constitutes an "instrument" or "chattel paper" for
purposes of Article 9 of the UCC. Each Debt Instrument has been delivered to the
Custodian.
Section 3.04 [Reserved].
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and warranties
set forth in Sections 3.03 shall survive the conveyance of the Home Loans to the
Issuer, the Grant of the Home Loans to the Indenture Trustee and the delivery of
the Securities to the Securityholders and shall be continuing as long as any
Security is outstanding. Upon discovery by the Depositor, the Master Servicer,
the Seller, the Custodian, the Issuer, the Indenture Trustee, the Securities
Insurer or any Securityholder of a breach of any of such representations and
warranties which materially and adversely affects the value of the Home Loans or
the interest of the Securityholders or the Securities Insurer, or which
materially and adversely affects the interests of the Securityholders or the
Securities Insurer in the related Home Loan in the case of a representation and
warranty relating to a particular Home Loan (notwithstanding that such
representation and warranty was made to the Seller's best knowledge), the party
discovering such breach shall give prompt written notice to the others. Except
with respect to a breach of the representations made by Mego pursuant to Section
3.03(b)(xxxii) and (xxxiii), in the event of a determination in Section 2.06(c)
or a breach of a representation and warranty made pursuant to Section 3.03(b)
that materially and adversely affects the interests of the Securityholders or
the Security Insurer in the Home Loan with respect to which such representation
is made or in the Home Loans and a failure within sixty Business Days of
discovery or receipt of notice of such failure to effect a cure of the
circumstances giving rise to such defect, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding the expiration of such sixty-day period, to
repurchase (or substitute for, to the extent permitted by subsection (b) below)
the affected Home Loan. The Securities Insurer and the Indenture Trustee on
behalf of the Securityholders agree that if an FHA Loan is a Defective Home Loan
because a document is not included in the Servicer's Home Loan File as of the
60th Business Day after the discovery or receipt of notice thereof, such defect
shall be deemed to be cured if the Indenture Trustee shall have received during
the sixty-day period after such date a written statement addressed to it from
the Director of HUD Title I Insurance Division that such document would not be
required in connection with a claim for FHA Insurance with respect to such FHA
Loan. Except as set forth in Section 5 of the Indemnification Agreement, it is
understood and agreed that the obligation of Mego to repurchase or substitute
any such Home Loan pursuant to this Section shall constitute the sole remedy
against it with respect to such breach of the foregoing representations or
warranties or the existence of the foregoing conditions. For purposes of
calculating Business Days with respect to a Defective Home Loan that is an FHA
Loan because a document is not included in the Servicer's Home Loan File in this
Section 3.05(a), a Business Day shall not include any day on which the FHA is
officially closed for
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reasons other than as specified in the definition of Business Day. With respect
to representations and warranties made by Mego pursuant to Section 3.03(b) that
are made to Mego's best knowledge, if it is discovered by any of the Depositor,
Mego, the Indenture Trustee, the Owner Trustee or the Securities Insurer that
the substance of such representation and warranty is inaccurate and such
inaccuracy materially and adversely affects the value of the related Home Loan,
notwithstanding Mego's lack of knowledge, such inaccuracy shall be deemed a
breach of the applicable representation and warranty.
With respect to a breach of the representations made by Mego pursuant to
Section 3.03(b)(xxxii) or (xxxiii) if the FHA has not assigned a case number
under the Contract of Insurance to an FHA Loan to indicate that such FHA Loan is
eligible for Title I Insurance coverage under the Contract of Insurance on or
before the 120th day after the Closing Date, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding such 120th day, to repurchase such FHA
Loan. If the FHA Reserve Amount with respect to an FHA Loan has not been
transferred to the FHA Insurance Coverage Reserve Account on or before the 150th
day after the Closing Date, Mego shall be obligated, on the Monthly Cut-Off Date
next succeeding such 150th day, to repurchase such FHA Loan. The Claims
Administrator shall give notice in writing to each of the Master Servicer, the
Securities Insurer, the Depositor, Mego and the Indenture Trustee, the Owner
Trustee of (i) any FHA Loan with respect to which there has not been assigned a
case number under the Contract of Insurance on or before the 120th day after the
Closing Date and (ii) any FHA Loan that has not been transferred to the FHA
Insurance Coverage Reserve Account on or before the 150th day after the Closing
Date. For purposes of calculating either 120 or 150 days from the Closing Date
in this Section 3.05(a), any day on which the FHA is officially closed for
reasons other than such day being a Saturday, Sunday or a day on which banking
institutions in Washington, D.C. are authorized or obligated by law, executive
order or governmental decree to be closed, shall not be counted in making such
calculation.
If Mego is required to repurchase any Home Loan on a Monthly Cut-Off
Date that is not a Business Day, such repurchase shall be made on the last
Business Day preceding such Monthly Cut-Off Date. Any Home Loan required to be
purchased or repurchased pursuant to this Section 3.05(a) is referred to as a
"Defective Home Loan".
(b) Mego shall be obligated to repurchase a Defective Home Loan for the
Purchase Price, payable to the Indenture Trustee in cash on the Monthly Cut-Off
Date specified in Section 3.05(a) above, for deposit in the Note Distribution
Account. Notwithstanding the foregoing, Mego may elect in lieu of the purchase
or repurchase of a Defective Home Loan as provided in this Section 3.05, to
substitute, as of the Monthly Cut-off Date specified in Section 3.05(a), a
Qualified Substitute Home Loan for the Defective Home Loan in accordance with
the provisions of this Section 3.05.
(c) Mego shall notify the Master Servicer, the Indenture Trustee and the
Securities Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Home
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Loan pursuant to Section 3.05(a) of its intention to effect a substitution under
this Section. On such Determination Date (the "Substitution Date"), Mego shall
deliver to the Indenture Trustee and the Securities Insurer a list of the Home
Loans to be substituted for by such Qualified Substitute Home Loans, and
attaching as an exhibit a supplemental Home Loan Schedule (the "Supplemental
Loan Schedule") setting forth the same type of information appearing on the Home
Loan Schedule and representing as to the accuracy thereof. In connection with
any substitution pursuant to this Section 3.05, to the extent that the aggregate
Principal Balance of any Qualified Substitute Home Loan or Home Loans is less
than the aggregate Principal Balance of the corresponding Home Loan or Home
Loans as of the end of the Due Period prior to the Determination Date on which
the substitution is being made, Mego shall deposit such difference (a
"Substitution Adjustment Amount") to the Note Distribution Account on such date.
(d) Concurrently with the satisfaction of the conditions set forth in
this Section 3.05 and the Grant of such Qualified Substitute Home Loans to the
Indenture Trustee pursuant to Section 3.05(b), Exhibit A to this Agreement shall
be deemed to be amended to exclude all Home Loans being replaced by such
Qualified Substitute Home Loans and to include the information set forth on the
Supplemental Loan Schedule with respect to such Qualified Substitute Home Loans,
and all references in this Agreement to Home Loans shall include such Qualified
Substitute Home Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Qualified Substitute Home
Loans.
(e) Notwithstanding the provisions of Section 3.05(a), the Securities
Insurer, in its sole discretion, may extend, by not more than 150 days from the
date of the notice described in Section 3.05(a), the sixty-day period available,
pursuant to Section 3.05(a), to Mego to cure the circumstances giving rise to a
defect with respect to any Home Loan described in Section 3.05.
(f) With respect to all Defective Home Loans or other Home Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the Purchase
Price therefor to the Note Distribution Account, the Indenture Trustee shall
assign to Mego, without recourse, representation or warranty, all the Indenture
Trustee's right, title and interest in and to such Defective Home Loans or Home
Loans, which right, title and interest were conveyed to the Indenture Trustee
pursuant to Section 2.01, including, without limitation, the rights to any FHA
Insurance reserves attributable to such Home Loans. The Indenture Trustee shall
take any actions as shall be reasonably requested by Mego to effect the
repurchase of any such Home Loans.
(g) The Servicer may, at its option, purchase from the Trust any
Defaulted Home Loan or substitute a Qualified Substitute Home Loan for any
Defaulted Home Loan, provided, however, that the aggregate of Principal Balances
of Defaulted Loans purchased or replaced pursuant to this Section 3.05(g) shall
not exceed 10% of the Initial Pool Principal Balance. If the Servicer elects to
purchase a Defaulted Loan, the Servicer shall deposit the Purchase Price in the
Note Distribution Account on the Monthly Cut-Off Date following the date on
which such election is made. Any substitution of a Defaulted Home Loan for a
Qualified Substitute Home Loan by the Servicer shall be performed in accordance
with the substitution provisions set forth in Section 3.05(c) and Section
3.05(d).
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ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS;
CLAIMS ADMINISTRATION
Section 4.01 Servicing Standard.
(a) The Master Servicer is hereby authorized to act as agent for the
Trust and in such capacity shall manage, service, administer and make
collections on the Home Loans, and perform the other actions required by the
Master Servicer under this Agreement. In performing its obligations hereunder
the Master Servicer shall at all times act in good faith in a commercially
reasonable manner in accordance with all requirements of the FHA applicable to
the servicing of the FHA Loans and otherwise in accordance with applicable law
and the Debt Instruments and Mortgages. The Master Servicer shall at all times
service and administer the FHA Loans in accordance with Title I, and shall have
full power and authority, acting alone and/or through the Servicer as provided
in Section 4.02, subject only to this Agreement, the respective Home Loans, and,
in the case of the FHA Loans, the specific requirements and prohibitions of
Title I, to do any and all things in connection with such servicing and
administration which are consistent with the ordinary practices of prudent
mortgage lending institutions and, in the case of the FHA Loans, prudent FHA
Title I home improvement loan servicers, but without regard to:
(i) any relationship that the Master Servicer, the Servicer or
any affiliate of the Master Servicer or any Servicer may have with the
related Obligor:
(ii) Mego's obligations to repurchase or substitute for a
Defective Home Loan pursuant to Section 3.05(b) or any FHA Loans
pursuant to Section 4.12(b);
(iii) the ownership of any Securities by the Master Servicer or
any affiliate of the Master Servicer;
(iv) the Master Servicer's obligation to make Interest Advances
pursuant to Section 4.08(a), to make Foreclosure Advances pursuant to
Section 4.08(b), or repurchase any FHA Loans pursuant to Section 4.12;
or
(v) the Master Servicer's right to receive compensation for its
services as provided in Section 5.01(c)(i)(b).
The Master Servicer may take any action hereunder, including exercising
any remedy under any Home Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of any Obligor, without the consent or approval of the
Indenture Trustee or the Securities Insurer, unless any such consent or approval
is expressly required hereunder or under applicable law.
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(b) The Indenture Trustee shall cause the Custodian to execute and
return to the Master Servicer or the Servicer designated in a written
instruction from the Master Servicer to the Indenture Trustee, within 5 days of
the Indenture Trustee's receipt any and all documents or instruments necessary
to maintain the lien created by any Mortgage on the related Property or any
portion thereof, and, within 5 days of request by the Master Servicer or the
Servicer therefor a power of attorney in favor of the Servicer with respect to
any modification, waiver, or amendment to any document contained in any Home
Loan File and any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, with
respect to the Home Loans and with respect to the related Mortgaged Properties
prepared and delivered to the Indenture Trustee by the Master Servicer or any
Servicer, all in accordance with the terms of this Agreement.
(c) The Indenture Trustee shall cause the Custodian to furnish the
Master Servicer or Servicer within 5 days of request of a Master Servicing
Officer therefor any powers of attorney and other documents necessary and
appropriate to carry out its servicing and administrative duties hereunder,
including any documents or powers of attorney necessary to foreclose any Home
Loan. The forms of any such powers or documents shall be appended to such
requests.
(d) The Servicer hereby incorporates by reference the representations,
warranties and covenants made by it in Section 2.02 of the Servicing Agreement.
Section 4.02 Servicing Arrangements.
(a) On or prior to the date hereof, the Master Servicer has entered into
a Servicing Agreement with respect to all of the Home Loans, in substantially
the form of the Form of the Servicing Agreement attached hereto as Exhibit E
with Mego, as Servicer. So long as no Securities Insurer Default shall have
occurred and be continuing, upon the termination of the Servicing Agreement, the
Master Servicer may only appoint or consent to the appointment or succession of
a successor Servicer under the Servicing Agreement and may only enter into a
substitute servicing agreement which is in form and substance as the Servicing
Agreement attached hereto as Exhibit E (which, with the consent of the
Securities Insurer, may differ in material respects from the Form of Servicing
Agreement attached hereto as Exhibit E) and with a Person acceptable to the
Securities Insurer and the Indenture Trustee. So long as no Securities Insurer
Default exists, the Master Servicer shall not consent to any material amendment,
modification or waiver of the provisions of a Servicing Agreement without the
consent of the Securities Insurer and the Indenture Trustee.
(b) No provision of this Agreement or the Servicing Agreement shall be
deemed to relieve the Master Servicer of any of its duties and obligations to
the Indenture Trustee on behalf of Securityholders and the Securities Insurer
with respect to the servicing and administration of the Home Loans as provided
hereunder; it being understood that the Master Servicer shall be obligated with
respect thereto to the same extent and under the same terms and conditions as if
it alone were performing all duties and obligations set forth in this Agreement
in connection with the collection, servicing and administration of such Home
Loans.
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(c) Without limitation of the provisions of Section 4.02(b), the Master
Servicer shall (i) review the servicing reports prepared by the Servicer in
order to ensure the accuracy thereof, (ii) review the reports submitted by the
Servicer to confirm that the Servicer is collecting and appropriately accounting
for Obligor payments of premium on FHA Insurance on Invoiced Loans, (iii)
otherwise monitor the performance by the Servicer under the Servicing Agreement
and notify the Indenture Trustee and the Securities Insurer of any Servicer
Termination Event, and (iv) be obligated to ensure that the Servicer deposits
Payments into the Collection Account. In the event the Servicer fails to make
such deposit, the Master Servicer will deposit such amounts as set forth in
Section 5.01(a)(1).
(d) The Master Servicer agrees that it shall at all times be prepared
(and shall take all steps reasonably required by the Securities Insurer to
ensure such preparation), to perform the obligations of the Servicer if the
Servicer fails to perform its duties and obligations under the Servicing
Agreement.
(e) The Servicing Agreement may provide that the Servicer may retain, as
additional compensation, prepayment penalties, assumption and processing fees
paid by any Obligor and all similar fees customarily associated with the
servicing of the Home Loans, including, but not limited to late charges, paid by
any Obligor.
(f) At the direction of the Securities Insurer, so long as no Securities
Insurer Default exists, the Master Servicer shall terminate the Servicer upon
the occurrence and continuance of Servicer Termination Event pursuant to the
terms of the Servicing Agreement.
(g) Mego, as Servicer, shall provide information to the Master Servicer
monthly in a mutually agreeable format in order to enable the Master Servicer to
independently reconfirm the loan-by-loan reconciliation of the outstanding
Principal Balance of each Home Loan included in such information. The Master
Servicer shall prepare exception reports, if necessary, showing all Principal
Balance differences between the information provided by the Servicer and the
confirmations prepared by the Master Servicer and shall furnish such reports to
the Indenture Trustee for distribution to the Securities Insurer. If requested
by the Securities Insurer, the Servicer shall provide to the Securities Insurer
all information provided to the Master Servicer pursuant to this Section
4.02(g).
Section 4.03 Servicing Record.
(a) The Master Servicer shall establish and maintain books and records
for the Home Loans (the "Servicing Record"), in which the Master Servicer shall
record: (i) all Payments received or collected by or on behalf of the Master
Servicer (through the Servicer or otherwise) or received by the Indenture
Trustee in respect of each Home Loan and each Foreclosed Property and (ii) all
amounts owing to the Master Servicer in compensation for services rendered by
the Master Servicer hereunder or in reimbursement of costs and expenses incurred
by the Master Servicer hereunder. In addition, the Master Servicer shall
establish and maintain records for the Insurance Record (which shall be part of
each Servicing Record) in which the Master Servicer
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shall record all claims made under the Contract of Insurance, all payments
received by or on behalf of the Contract of Insurance Holder from the FHA for
each such claim and the amount of insurance coverage available in the Insurance
Record.
(b) Except as otherwise provided herein, amounts received or collected
by or on behalf of the Master Servicer or the Indenture Trustee from or on
behalf of any Obligor or in respect of any Foreclosed Property or from FHA with
respect to a claim made under the Contract of Insurance shall be credited to the
Servicing Record:
(i) promptly following direct receipt or direct collection by
the Master Servicer;
(ii) in the case of a Home Loan directly serviced by a Servicer,
promptly following deposit of the receipt or collection in the related
Collection Account; or
(iii) in the case of any amount received directly by the
Indenture Trustee, promptly following the Master Servicer's actual
knowledge of receipt by the Indenture Trustee pursuant to the notice
required by Section 4.12(d) or otherwise;
but in any event not later than the Determination Date next following the date
of receipt or collection by or on behalf of the Master Servicer (through the
Servicer or otherwise) or receipt by the Indenture Trustee. Amounts received or
collected by the Master Servicer in connection with the purchase or repurchase
of any Home Loan or any Foreclosed Property shall be so recorded on and as of
the date of receipt. The Servicing Record shall separately reflect amounts so
received or collected by the Master Servicer in each Due Period. All Payments
from Obligors received on FHA Loans from or on behalf of an Obligor shall be
allocated in accordance with Title I.
(c) The Master Servicer shall credit to the Servicing Record relating to
each Determination Date, on a Home Loan-by-Home Loan basis, each of the
following Payments collected or received by or on behalf of the Master Servicer
(through the Servicer or otherwise) or received by the Indenture Trustee in
respect of each Home Loan and each Foreclosed Property:
(i) all payments on account of principal;
(ii) all payments on account of interest;
(iii) all proceeds of the purchase or repurchase of any Home
Loan pursuant to Section 3.05(a) or, with respect to FHA Loans, Section
4.12(b) and all Substitution Adjustment Amounts;
(iv) all amounts paid by or on behalf of the related Obligor in
respect of Foreclosure Advances previously advanced by the Master
Servicer or the Servicer;
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(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 4.13;
(vi) all proceeds of the sale of the Home Loans and any
Foreclosed Properties pursuant to Section 11.01;
(vii) all FHA Insurance Payment Amounts; and
(viii) all Insurance Proceeds, any condemnation awards or
settlements or any payments made by any related guarantor or third-party
credit-support provider and any and all other amounts received in
respect of Home Loans and not specified above.
(d) Notwithstanding anything to the contrary herein, the Master Servicer
shall not be required to credit to the Servicing Record, and neither the Master
Servicer nor any Securityholder shall have any right or interest in any amount
due or received with respect to any Home Loan or any related Foreclosed Property
subsequent to the date of repurchase of such Home Loan or Foreclosed Property
from the Trust.
(e) The Master Servicer shall separately record in each Servicing Record
the items required to be included in the Master Servicer Certificate and
additionally the following items to the extent not included therein:
(i) on or before each Determination Date, the related unpaid
Master Servicer Fee due the Master Servicer on the next Distribution
Date;
(ii) on or before each Determination Date, all amounts retained
by the Servicer in respect of the preceding Due Period in respect of
amounts due Independent Contractors hired by the Master Servicer to
operate and manage a Foreclosed Property pursuant to Section 4.14(b);
(iii) on or before each Determination Date, the amount of
unreimbursed Interest Advances in respect of prior Distribution Dates
and the amount which the Master Servicer or the Servicer is entitled to
be reimbursed therefor in accordance with Section 4.08;
(iv) on or before each Determination Date, all amounts due as of
the preceding Monthly Cut-Off Date in reimbursement of Foreclosure
Advances previously advanced by the Master Servicer or the Servicer
(separately identifying the type and amount of each then due);
(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Indenture Trustee,
all Other Fees distributable pursuant to Section 5.01(c)(x), as
applicable on the next succeeding Distribution Date;
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(vi) promptly following each Distribution Date, the aggregate
amount of the Master Servicer Fee, Servicer Fee and the Indenture
Trustee Fee paid to the Master Servicer, Servicer and Indenture Trustee
respectively, on such Distribution Date pursuant to Section
5.01(c)(i)(b) and the aggregate amount of the Owner Trustee Fee Reserve
paid to the Servicer, on such Distribution Date pursuant to Section
5.01(c)(i)(d);
(vii) promptly following each Distribution Date, the aggregate
amount of Interest Advances and Foreclosure Advances reimbursed to the
Master Servicer or the Servicer on such Distribution Date;
(viii) on or before each Determination Date, the Principal
Balance of Home Loans that became Defaulted Home Loans during the prior
Due Period;
(ix) on or before each Determination Date, each Collateral
Performance Percentage,
(x) on or before each Determination Date, the amount deposited
into each Collection Account representing payments by the related
Obligors on Invoiced Loans in respect of premium on FHA Insurance;
(xi) on or before each Determination Date, the amount remaining
in the FHA Insurance Coverage Reserve Account with respect to all FHA
Loans and the Related Series Loans, if any;
(xii) on or before each Determination Date, identification by
loan number, Obligor name, address of Property and Principal Balance of
such Home Loan with respect to which the Master Servicer has requested
that the Indenture Trustee obtain the environmental report required by
Section 4.12 in connection with deciding pursuant to Section 4.12 to
foreclose on or otherwise acquire title to the related Property;
(xiii) on or before each Determination Date, the Principal
Balance of each such Home Loan with respect to which the Master Servicer
has determined under the circumstances described in the penultimate
sentence of Section 4.12(a) in good faith in accordance with customary
mortgage loan servicing practices that all amounts which it expects to
receive with respect to such Home Loan have been received; and
(xiv) on or before each Determination Date, any other
information with respect to the Home Loans reasonably required by the
Indenture Trustee or the Securities Insurer to determine the amount
required to be distributed pursuant to Section 5.01(c) and determinable
by the Master Servicer without undue burden from the Servicer or the
items otherwise required to be maintained in each Servicing Record.
(f) On or before each Distribution Date, the Master Servicer will
determine, based on the date of origination of the FHA Loans as set forth in the
Home Loan Schedule, the amount
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of FHA insurance premium, if any, due on or prior to the next succeeding
Distribution Date with respect to each FHA Loan. On or before such Distribution
Date, the Master Servicer will compare such amounts with respect to each FHA
Loan against amounts invoiced by FHA with respect to the Contract of Insurance
as due on or prior to such next succeeding Distribution Date and report all
discrepancies to the Indenture Trustee. Mego will assist the Indenture Trustee
with the transfer of FHA Insurance with respect to each FHA Loan to the Contract
of Insurance Holder. The Master Servicer is not responsible for the transfer of
FHA Insurance or the payment of any premium for FHA Insurance.
Section 4.04 Annual Statement as to Compliance; Notice of Event of
Default.
(a) The Master Servicer will deliver to the Indenture Trustee, the
Depositor and the Securities Insurer on or before May 31 of each year, beginning
in 1998 an Officer's Certificate signed by two Responsible Officers of the
Master Servicer stating with respect to the Trust, that:
(i) a review of the activities of the Master Servicer during the
preceding calendar year (or in connection with the first such Officer's
Certificate the period from the Closing Date through the end of 1997)
and of the Master Servicer's performance under this Agreement with
respect to such Trust has been made under the supervision of the signer
of such Officer's Certificate; and
(ii) to the best of such signer's knowledge, based on such
review, the Master Servicer has fulfilled all its obligations under this
Agreement throughout such year (or such portion of such year), or there
has been a default in the fulfillment of any such obligation, in which
case such Officer's Certificate shall specify each such default known to
such signer and the nature and status thereof and what action the Master
Servicer proposes to take with respect thereto.
(b) The Master Servicer shall deliver to the Indenture Trustee, the
Securities Insurer and the Depositor, promptly after having obtained knowledge
thereof, but in no event later than 2 Business Days thereafter, written notice
in an Officer's Certificate of any event which with the giving of notice or
lapse of time, or both, would become an Event of Default under Section 10.01.
Each of Mego, the Depositor, the Securities Insurer, the Indenture Trustee, the
Owner Trustee and the Master Servicer shall deliver to the other of such Persons
promptly after having obtained knowledge thereof, but in no event later than 2
Business Days thereafter, written notice in an Officer's Certificate of any
event which with the giving of notice or lapse of time, or both, would become an
Event of Default under Section 10.01.
Section 4.05 Annual Independent Accountants' Report; Servicer Review
Report.
(a) The Master Servicer shall cause a firm of Independent Accountants,
who may also render other services to the Master Servicer, to deliver to the
Indenture Trustee, Owner Trustee, the Depositor and the Securities Insurer on or
before May 31 (or 150 days after the end of the Master Servicer's fiscal year)
of each year, beginning on the first May 31 (or other applicable
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date) after the date that is six months after the Closing Date, with respect to
the twelve months ended the immediately preceding December 31 (or other
applicable date) (or such other period as shall have elapsed from the Closing
Date to the date of such certificate) a report, conducted in accordance with
generally accepted accounting principles (the "Accountant's Report") including:
(i) an opinion on the financial position of the Master Servicer at the end of
its most recent fiscal year, and the results of operations and changes in
financial position of the Master Servicer for such year then ended on the basis
of an examination conducted in accordance with generally accepted auditing
standards, and (ii) a statement to the effect that, based on an examination of
certain specified documents and records relating to the servicing of the Master
Servicer's mortgage loan portfolio or the affiliate of the Master Servicer
principally engaged in the servicing of mortgage loans conducted in compliance
with the audit program for mortgages serviced for FNMA, the United States
Department of Housing and Urban Development Mortgagee Audit Standards or the
Uniform Single Attestation Program for Mortgage Bankers (the "Applicable
Accounting Standards") such firm is of the opinion that such servicing has been
conducted in compliance with the Applicable Accounting Standards except for such
exceptions as such firm shall believe to be immaterial and such other exceptions
as shall be set forth in such statement.
(b) In addition, the Master Servicer will provide a report of a firm of
Independent Accountants which shall state that (1) a review in accordance with
agreed upon procedures (determined by the Securities Insurer) was made of such
number of Master Servicer Certificates which the Independent Accountants deem
necessary to carry out their review of Master Servicer performance, but in no
case less than two and (2) except as disclosed in the Accountant's Report, no
exceptions or errors in the Master Servicer Certificates so examined were found.
The Accountant's Report shall also indicate that the firm is independent of the
Master Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
(c) The Master Servicer shall mail a copy of the Servicer Review Report
and any report or statement of the Servicer prepared pursuant to Section 6.04 of
the Servicing Agreement to the Indenture Trustee.
(d) (1) The Master Servicer shall, unless otherwise directed by the
Securities Insurer, cause a firm of Independent Accountants chosen with the
consent of the Securities Insurer to review, annually within 90 days after each
anniversary of the Closing Date, in accordance with agreed upon procedures
(determined by the Securities Insurer) the performance of the Servicer under the
Servicing Agreement in order to confirm that the records of the Servicer
accurately reflect collections, delinquencies and other relevant data with
respect to the Loans reported to the Master Servicer for the purpose of
preparation of the Servicing Record, and that such data is accurately reported
to the Master Servicer for reflection in the Servicing Record. Any exceptions or
errors disclosed by such procedures shall be included in a report delivered to
the Master Servicer, the Indenture Trustee, Owner Trustee, the Securities
Insurer and the Depositor (the "Servicer Review Report").
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(2) If the Securities Insurer, upon receipt and review of the
Servicer Review Report, determines in its sole discretion that the errors or
exceptions disclosed by the Servicer Review Report warrant further review of the
performance of the Servicer, then the Securities Insurer may, so long as no
Securities Insurer Default exists, direct the Master Servicer to cause such firm
of Independent Accountants to perform such further review with respect to the
performance of Servicer as is reasonably requested by the Securities Insurer.
(3) In addition to the foregoing, the Securities Insurer may at
any time and from time to time, so long as no Securities Insurer Default exists,
direct the Master Servicer to cause such firm of Independent Accountants to
conduct such additional reviews and prepare such additional reports with respect
to the performance of any Servicer as the Securities Insurer deems reasonably
appropriate.
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans.
The Master Servicer shall provide to representatives of the Indenture
Trustee or the Securities Insurer reasonable access to (a) the documentation
regarding the Home Loans and to those employees of the Master Servicer who are
responsible for the performance of the Master Servicer's duties hereunder and
(b) the books of account, records, reports and other papers of the Master
Servicer and to discuss its affairs, finances and accounts with its employees
and Independent accountants for the purpose of reviewing or evaluating the
financial condition of the Master Servicer. The Master Servicer shall provide
such access to any Securityholder only in such cases where the Master Servicer
is required by applicable statutes or regulations (whether applicable to the
Master Servicer or to such Securityholder) to permit such Securityholder to
review such documentation. In each case, such access shall be afforded without
charge but only upon reasonable request and during normal business hours.
Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of the Master Servicer to provide access
as provided in this Section as a result of such obligation shall not constitute
a breach of this Section. Any Securityholder, by its acceptance of a Security
(or by acquisition of its beneficial interest therein), shall be deemed to have
agreed to keep confidential and not to use for its own benefit any information
obtained by it pursuant to this Section, except as may be required by applicable
law or by any applicable regulatory authority.
Section 4.07 [Reserved]
Section 4.08 Advances.
(a) With respect to the Home Loans (other than Defaulted Home Loans) and
each Distribution Date, the Master Servicer shall advance from its own funds and
deposit into the Note Distribution Account or from funds on deposit in the
related Collection Account in respect of amounts available for distribution on
future Distribution Dates, no later than the related Determination Date, the
excess, if any, of (i) the aggregate of the portions of the Monthly Payments due
with respect to all Home Loans in the related Due Period allocable to interest
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(calculated at a rate equal to the Net Loan Rate) less any Civil Relief Act
Interest Shortfalls over (ii) the aggregate amount to be deposited into the Note
Distribution Account with respect to all Home Loans and such Distribution Date
and allocated in accordance with Section 4.03(c) to interest (such amounts,
"Interest Advances"). Any funds so applied from funds on deposit in the
Collection Account in respect of amounts available for distribution on future
Distribution Dates shall be reimbursed by the Master Servicer on or before any
future Distribution Date to the extent that funds on deposit in the Note
Distribution Account applied in the order of priority set forth in such Section
5.01(c) would be less than the amount required to be distributed pursuant to
Section 5.01(c) on such dates as a result of such Interest Advances.
Notwithstanding anything herein to the contrary, no Interest Advance
shall be required to be made hereunder if the Master Servicer determines that
such Interest Advance would, if made, constitute a Nonrecoverable Advance.
(b) The Master Servicer shall advance from its own funds the following
amounts in respect of any Mortgage Loan or Foreclosed Property, as applicable
(collectively, "Foreclosure Advances"):
(i) all third party costs and expenses (including legal fees and
costs and expenses relating to bankruptcy or insolvency proceedings in
respect of any Obligor) associated with the institution of foreclosure
or other similar proceedings in respect of any Home Loan pursuant to
Section 4.12;
(ii) all insurance premiums due and payable in respect of each
Foreclosed Property, prior to the date on which the related Insurance
Policy would otherwise be terminated;
(iii) all real estate taxes and assessments in respect of each
Foreclosed Property that have resulted in the imposition of a lien
thereon, other than amounts that are due but not yet delinquent;
(iv) all costs and expenses necessary to maintain each
Foreclosed Property;
(v) all fees and expenses payable to any Independent Contractor
hired to operate and manage a Foreclosed Property pursuant to Section
4.14(b); and
(vi) all fees and expenses of any Independent appraiser or other
real estate expert retained by the Indenture Trustee pursuant to Section
4.13(a).
The Master Servicer shall advance the Foreclosure Advances described in clauses
(i) through (v) above if, but only if, it has approved the foreclosure or other
similar proceeding in writing and the Master Servicer would make such an advance
if it or an affiliate held the affected Mortgage Loan or Foreclosed Property for
its own account and, in the Master Servicer's good faith
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judgment, such advance would not constitute a nonrecoverable advance. In making
such assessment with respect to the institution of such proceedings, the Master
Servicer shall not advance funds with respect to a Mortgage Loan unless the
appraised value of the related Property exceeds the sum of (i) the amounts
necessary to satisfy any liens prior to the liens on Mortgages securing such
Mortgage Loan and (ii) the reasonably anticipated costs of foreclosure or
similar proceedings.
Section 4.09 Reimbursement of Interest Advances and Foreclosure
Advances.
(a) The Master Servicer shall be entitled to be reimbursed pursuant to
Section 5.01(c) for previously unreimbursed Interest Advances made from its own
funds or any such previously unreimbursed Interest Advance by the Servicer with
respect to a Home Loan on Distribution Dates subsequent to the Distribution Date
in respect of which such Interest Advance was made from Payments with respect to
such Home Loan. If an Interest Advance shall become a Nonrecoverable Advance or
if a Home Loan shall become a Defaulted Home Loan and the Master Servicer or
Servicer shall not have been fully reimbursed for any such Interest Advances
with respect to such Home Loan, the Master Servicer or Servicer, as applicable,
shall be entitled to be reimbursed for the outstanding amount of such Interest
Advances from unrelated Home Loans pursuant to Section 5.01(c)(i)(c). No
interest shall be due to the Master Servicer in respect of any Interest Advance
for any period prior to the reimbursement thereof.
(b) The Master Servicer shall be entitled to be reimbursed pursuant to
Section 5.01(c)(i)(c) from related Payments for Foreclosure Advances advanced on
or prior to the related Monthly Cut-Off Date but only to the extent the Master
Servicer has satisfied the requirements of Section 4.08. No interest shall be
due to the Master Servicer in respect of any Foreclosure Advance for any period
prior to the reimbursement thereof.
(c) The Indenture Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 5.01(c), amounts, if
any, which were required to be deposited in any Collection Account pursuant to
Section 5.01(c) with respect to the related Due Period but which were not so
deposited.
Section 4.10. Modifications, Waivers, Amendments and Consents.
(a) The Master Servicer shall not agree to any modification, waiver or
amendment of any provision of any Home Loan unless, in the Master Servicer's
good faith judgment, (i) such modification, waiver or amendment (a) would
minimize the loss that might otherwise be experienced with respect to such Home
Loan, and (b) in the case of any FHA Loan, complies with the requirements of
Title I or is required by Title I and (ii) such Home Loan has experienced a
payment default or a payment default is reasonably foreseeable by the Master
Servicer. The Master Servicer may agree to subordinate the position of the
security interest in the Property which secures any Mortgage Loan, provided such
subordination (i) would permit the Obligor to refinance a senior lien to take
advantage of a lower interest rate or (ii) would permit the Obligor to extend
the term of the senior lien and, with respect to any FHA Loan, the Master
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Servicer receives prior written approval of HUD to such subordination or written
certification by the Servicer that such proposed subordination complies with
current published HUD requirements. Notwithstanding the foregoing, at no time
shall the aggregate of the Principal Balances of Home Loans modified, waived or
amended without the prior or subsequent approval of the Securities Insurer
exceed 3% of the aggregate of the Initial Pool Principal Balance and no
modification or amendment of a Home Loan shall involve the execution by the
Obligor of a new Debt Instrument or, with respect to any Mortgage Loan, of a new
Mortgage. At the request of the Master Servicer, the Securities Insurer, at its
discretion, may approve an increase in or waiver of the percentage referred to
in the previous sentence, such approval not to be unreasonably withheld.
(b) The Master Servicer shall notify the Indenture Trustee and the
Securities Insurer of any modification, waiver or amendment of any provision of
any Home Loan and the date thereof, and shall deliver to the Indenture Trustee
for deposit in the related Home Loan File, an original counterpart of the
agreement relating to such modification, waiver or amendment, promptly following
the execution thereof. Such notice shall state that the conditions contained in
this Section 4.10 have been satisfied.
Section 4.11. Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the Obligee's
option) become due and payable upon the sale or other transfer of an
interest in the related Property; or
(ii) provides that such Home Loan may not be assumed without the
consent of the related Obligee in connection with any such sale or other
transfer,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Indenture Trustee, shall exercise any right the Trust
or the Indenture Trustee may have as the Obligee of record with respect to such
Home Loan (x) to accelerate the payments thereon, or (y) to withhold its consent
to any such sale or other transfer, in a manner consistent with the servicing
standard set forth in Section 4.01.
(b) If any Home Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the Obligee's
option) become due and payable upon the creation of any lien or other
encumbrance on the related Property; or
(ii) requires the consent of the related Obligee to the creation
of any such lien or other encumbrance on the related Property,
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then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Trust or the Indenture Trustee, shall exercise any
right the Indenture Trustee may have as the Obligee of record with respect to
such Home Loan (x) to accelerate the payments thereon, or (y) to withhold its
consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in Section 4.01.
(c) Nothing in this Section 4.11 shall constitute a waiver of the
Indenture Trustee's right to receive notice of any assumption of a Home Loan,
any sale or other transfer of the related Property or the creation of any lien
or other encumbrance with respect to such Property.
(d) Except as otherwise permitted by Section 4.10, the Master Servicer
shall not agree to modify, waive or amend any term of any Home Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 4.11.
Section 4.12. Collection Procedures; Claim for FHA Insurance and
Foreclosure Procedures.
(a) (x) If any Monthly Payment due under any FHA Loan is not paid when
the same becomes due and payable, or if the Obligor fails to perform any other
covenant or obligation under such FHA Loan and such failure continues beyond any
applicable grace period, the Master Servicer shall take such action (consistent
with Title I, including efforts to cure the default of such FHA Loan pursuant to
24 C.F.R. Section 201.50) as it shall deem to be in the best interest of the
Trust. If the maturity of the related Debt Instrument has been accelerated
pursuant to the requirements under Title I following the Master Servicer's
efforts to cure the default of such FHA Loan (and such FHA Loan is not required
to be purchased pursuant to Section 4.12(b)), and (i) if an FHA Insurance
Coverage Insufficiency does not exist at the time, the Claims Administrator
shall initiate, on behalf of the Trust and the Contract of Insurance Holder, a
claim under the Contract of Insurance for reimbursement for loss on such FHA
Loan pursuant to Title I (see 24 C.F.R. Section 201.54), or (ii) if an FHA
Insurance Coverage Insufficiency exists at the time, the Master Servicer shall
determine within 90 days in accordance with Section 4.12(c) whether or not to
proceed against the Property securing such FHA Loan, if such FHA Loan is a
Mortgage Loan or against the Obligor, if such FHA Loan is unsecured, and if
thereafter an FHA Insurance Coverage Insufficiency does not exist, the Claims
Administrator may submit a claim under the Contract of Insurance with respect to
such FHA Loan if it has obtained the prior approval of the Secretary of HUD
pursuant to 24 C.F.R. Section 201.51; or (y) if any Monthly Payment due under
any Non-FHA Loan is not paid when the same is due and payable, or if the Obligor
fails to perform any other covenant or obligation under such Non-FHA Loan and
such failure continues beyond any applicable grace period, the Master Servicer
shall take such action as it shall deem to be in the best interest of the Trust;
including but not limited to proceeding against the Property securing such
Non-FHA Loan.
In the event that in accordance with clauses (a)(x)(ii) or (y) above, as
applicable, the Master Servicer determines not to proceed against the Property
or Obligor, as applicable, on or before the Determination Date following such
determination the Master Servicer shall determine
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in good faith in accordance with customary servicing practices that all amounts
which it expects to receive with respect to such Loan have been received. If the
Master Servicer makes such a determination, it shall give notice to such effect
pursuant to Section 4.03(e)(xiii).
(b) If the Claims Administrator initiates a claim for reimbursement for
loss on any FHA Loan under this Section, the Claims Administrator shall comply
with applicable provisions of Title I and diligently pursue such claim and, in
any event, shall initiate such claim no later than the last day permitted under
Title I (see 24 C.F.R. Section 201.54(b)). For purposes of this Agreement, the
term "initiate a claim for reimbursement" shall mean the filing of the claim
application pursuant to the requirements set forth in 24 C.F.R. Section 201.54,
including the filing of all related assignments and documents and materials
required for file review. For the purposes of such filing, the Claims
Administrator shall request, and the Co-Owner Trustee within 5 calendar days of
request shall deliver to the Claims Administrator, the Debt Instrument and the
related Mortgage for such FHA Loan and each other item in the related Home Loan
File necessary to make such claim. Each Securityholder hereby consents to the
assignment of such FHA Loan for the sole purpose of initiating a claim under the
Contract of Insurance for reimbursement with respect to such FHA Loan. Pursuant
to Section 4.12(h), the Contract of Insurance Holder shall furnish the Claims
Administrator a power of attorney to file claims under the Contract of
Insurance. The Co-Owner Trustee and Contract of Insurance Holder agree to
execute and deliver to the Claims Administrator, within 5 Business Days of
receipt from the Claims Administrator, all documents, if any, necessary to
initiate and file a claim under the Contract of Insurance for such FHA Loan,
which documents shall be prepared by the Claims Administrator. If any claim to
the FHA becomes a Rejected Claim, upon receipt of the FHA's rejection notice by
the Claims Administrator directly from the FHA or from the Contract of Insurance
Holder pursuant to Section 4.12(e) and a determination by the Claims
Administrator that the rejection was not due to clerical error, then the Claims
Administrator shall promptly notify the Contract of Insurance Holder (if such
notice has not already been given), the Indenture Trustee and the Securities
Insurer of the notice of a Rejected Claim.
If the FHA indicates in writing that the claim is a Rejected Claim due
to reasons other than a failure to service the related FHA Loan in accordance
with Title I after the Closing Date, Mego shall repurchase the FHA Loan on or
before the Monthly Cut-Off Date next following the date of such notice from the
Claims Administrator to repurchase such FHA Loan, either directly from FHA or
from the Trust, for the Purchase Price. If FHA indicates in writing that the
claim is a Rejected Claim due to a failure to service such FHA Loan in
accordance with Title I after the Closing Date, the Claims Administrator shall
immediately notify Mego, the Master Servicer, the Contract of Insurance Holder,
the Trust, the Indenture Trustee and the Securities Insurer of such
determination, and the Master Servicer shall on or before the later to occur of
(i) the next succeeding Monthly Cut-Off Date and (ii) ten Business Days from the
date on which such rejection notice is received by the Claims Administrator,
purchase such FHA Loan either directly from FHA or from the Trust, for the
Purchase Price. In the event that the FHA fails to indicate in writing why the
claim is a Rejected Claim, the Claims Administrator shall determine why the
claim is a Rejected Claim. If the Claims Administrator determines that the claim
is a Rejected Claim for reasons other than a servicing failure that occurred
after the Closing Date, Mego shall
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be obligated to repurchase such FHA Loan for the Purchase Price. If the Claims
Administrator determines that the claim is a Rejected Claim due to a servicing
failure that occurred after the Closing Date, the Master Servicer shall be
obligated to repurchase such FHA Loan for the Purchase Price. Notwithstanding
any provisions herein to the contrary, neither Mego nor the Master Servicer
shall be required to repurchase or purchase, as applicable, any FHA Loan subject
to a Rejected Claim as a result of the depletion of the amount of the FHA
Insurance Coverage Reserve Account as shown in the Insurance Record.
(c) In accordance with the criteria for proceeding against the Property
set forth in Section 4.12(a), with respect to an FHA Loan that is a Mortgage
Loan that has been accelerated pursuant to the requirements of Title I following
the Master Servicer's efforts to cure the default of the FHA Loan, and with
respect to a Non-FHA Loan that is a Mortgage Loan, unless otherwise prohibited
by applicable law or court or administrative order, the Master Servicer, on
behalf of the Trust and the Indenture Trustee, may, at any time, institute
foreclosure proceedings, exercise any power of sale to the extent permitted by
law, obtain a deed in lieu of foreclosure, or otherwise acquire possession of or
title to the related Property, by operation of law or otherwise.
In accordance with the criteria for proceeding against the Property set
forth in Section 4.12(a), with respect to FHA Loans that are Mortgage Loans and
with respect to the Non-FHA Loans, the Master Servicer shall be permitted to
institute foreclosure proceedings, repossess, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure, or otherwise
acquire possession of or title to any Property, by operation of law or otherwise
only in the event that in the Master Servicer's reasonable judgement such action
is likely to result in a positive economic benefit to the Trust by creating net
liquidation proceeds (after reimbursement of all amounts owed with respect to
such Home Loan to the Master Servicer or the Servicer) and provided that, with
respect to any Property, prior to taking title thereto, the Master Servicer has
requested that the Indenture Trustee obtain, and the Indenture Trustee shall
have obtained, an environmental review to be performed on such Property by a
company with recognized expertise, the scope of which is limited to the review
of public records and documents for information regarding whether such Property
has on it, under it or is near, hazardous or toxic material or waste. If such
review reveals that such Property has on it, under it or is near hazardous or
toxic material or waste or reveals any other environmental problem, the
Indenture Trustee shall provide a copy of the related report to the Master
Servicer and the Securities Insurer and title shall be taken to such Property
only after obtaining the written consent of the Securities Insurer.
In connection with any foreclosure proceeding on a Mortgage Loan, the
Master Servicer shall comply with the requirements under Title I, if such
Mortgage Loan is an FHA Loan, and shall follow such practices and procedures in
a manner which is consistent with the Master Servicer's procedure for
foreclosure with respect to similar loans held in the Master Servicer's
portfolio for its own account or, if there are no such loans, such loans
serviced by the Master Servicer for others, giving due consideration to accepted
servicing practices of prudent lending institutions. To the extent required by
Section 4.08, the Master Servicer shall advance all necessary and proper
Foreclosure Advances until final disposition of the Foreclosed Property and
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shall manage such Foreclosed Property pursuant to Section 4.14. If, in following
such foreclosure procedures, title to the Foreclosed Property is acquired, the
deed or certificate of sale shall be issued to the Co-Owner Trustee and the
Indenture Trustee.
(d) With respect to any FHA Loan, each of the Co-Owner Trustee, Owner
Trustee, Indenture Trustee and the Contract of Insurance Holder shall deposit in
the Note Distribution Account on the day of receipt all amounts received from
the FHA or any other Person with respect to such FHA Loans or any other assets
of the Trust and shall transmit by facsimile, or such other method requested by
the Master Servicer, Claims Administrator or the Securities Insurer, to the
Master Servicer, Claims Administrator and the Securities Insurer on each such
day the letter of transmittal received from the FHA and any other documents with
respect to such receipt. Each of the Co-Owner Trustee, Owner Trustee, Indenture
Trustee and the Contract of Insurance Holder shall also promptly deliver to the
Claims Administrator copies of any other correspondence received from the FHA or
sent to the FHA by the Co-Owner Trustee, Owner Trustee, Indenture Trustee or the
Contract of Insurance Holder, as the case may be, including, but not limited to,
any correspondence regarding the balance of the FHA Insurance Coverage Reserve
Account, premiums due and claims rejected.
(e) If, prior to the Termination Date, the FHA rejects an insurance
claim, in whole or part, under the Contract of Insurance after previously paying
such insurance claim and the FHA demands that the Contract of Insurance Holder
repurchase such FHA Loan, the Claims Administrator shall pursue such appeals
with the FHA as are reasonable. If the FHA continues to demand that the Contract
of Insurance Holder repurchase such FHA Loan after the Claims Administrator
exhausts such administrative appeals as are reasonable, then notwithstanding
that Mego, the Master Servicer or any other person is required to repurchase
such FHA Loan under this Agreement, the Claims Administrator shall notify the
Contract of Insurance Holder of such fact and the Contract of Insurance Holder
in its capacity as Co-Owner Trustee and the Indenture Trustee shall repurchase
such FHA Loan from funds available in the Note Distribution Account. The Claims
Administrator shall, to the extent possible, direct the Indenture Trustee to
make all such repurchases of FHA Loans once a month and to repurchase any and
all such FHA Loans from the FHA in that portion of the calendar month after each
Distribution Date. If the Indenture Trustee withdraws any amounts from the Trust
for such purpose between the Determination Date and Distribution Date of any
month, the Master Servicer shall prepare the Master Servicer Certificate
provided under Section 6.01 for such Distribution Date (or promptly revise the
Master Servicer Certificate if already prepared for such Distribution Date) to
reflect such withdrawals as if made on such Determination Date and the Indenture
Trustee shall revise its determination pursuant to Section 6.01 accordingly. To
the extent allowed by FHA, Mego may repurchase directly from FHA any FHA Loan
for which an insurance claim has been paid and later rejected by FHA. If the FHA
indicates in writing in connection with its rejection or refusal to pay a claim
that such rejection or refusal is due to other than (i) a failure to service the
FHA Loan in accordance with Title I after the Closing Date or (ii) the amount in
the FHA Insurance Coverage Reserve Account is insufficient to pay such claim, or
if the FHA does not indicate in writing the reason for its rejection or refusal,
Mego shall be liable to reimburse the Trust for any amounts paid by the
Indenture Trustee to the FHA in order to repurchase such FHA Loan. Subject to
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Section 4.12(b), if the FHA indicates in writing, or it is agreed by the Master
Servicer, in connection with its rejection or refusal to pay a claim that such
rejection or refusal is due to a failure to service such FHA Loan in accordance
with Title I after the Closing Date, the Master Servicer shall be liable to
reimburse the Trust or Mego for any amounts paid by the Trust or Mego, as the
case may be, to FHA in order to repurchase FHA Loans for which the FHA has
rejected an insurance claim as a result of a failure to service such FHA Loan in
accordance with Title I.
(f) If, after the Termination Date, the FHA rejects an insurance claim,
in whole or part, under the Contract of Insurance after previously paying such
insurance claim and the FHA demands that the Contract of Insurance Holder
repurchase such FHA Loan, the Claims Administrator shall pursue such appeals
with the FHA as are reasonable. If the FHA continues to demand that the Contract
of Insurance Holder repurchase such FHA Loan after the Claims Administrator
exhausts such administrative appeals as are reasonable, then notwithstanding
that Mego or any other person is required to repurchase such FHA Loan under this
Agreement, the Claims Administrator shall notify the Contract of Insurance
Holder of such fact and the Contract of Insurance Holder shall repurchase such
FHA Loan from the FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than (i) a failure to service the FHA Loan in accordance with Title I
after the Closing Date or (ii) the amount in the FHA Insurance Coverage Reserve
Account is insufficient to pay such claim, or if FHA does not indicate in
writing the reason for its rejection or refusal, Mego shall be liable to
reimburse the Contract of Insurance Holder for any amounts paid by the Contract
of Insurance Holder to the FHA in order to repurchase such FHA Loan. Subject to
Section 4.12(b), if the FHA indicates in writing, or it is agreed by the Master
Servicer, in connection with its rejection or refusal to pay a claim that such
rejection or refusal is due to a failure to service such FHA Loan in accordance
with Title I after the Closing Date, the Master Servicer shall be liable to
reimburse the Contract of Insurance Holder or Mego for any amounts paid by the
Contract of Insurance Holder or Mego to FHA in order to repurchase FHA Loans for
which the FHA has rejected an insurance claim as a result of a failure to
service such FHA Loan in accordance with Title I.
(g) The Claims Administrator shall be entitled to reimbursement of
expenses associated with the filing of any FHA Insurance claim from and to the
extent that such amounts are reimbursed by HUD.
(h) The Indenture Trustee shall furnish the Claims Administrator or the
Servicer, as applicable, within 5 days of request of the Claims Administrator or
the Servicer therefor any powers of attorney and other documents necessary and
appropriate to carry out its respective duties hereunder, including any
documents or powers of attorney necessary to foreclose or file a claim with
respect to any FHA Loan and to file claims with the FHA under the Contract of
Insurance. The forms of any such powers or documents shall be appended to such
requests. The Contract of Insurance Holder shall furnish the Claims
Administrator or the Servicer, as applicable, within 5 days of request of the
Claims Administrator or the Servicer therefor any powers of
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attorney and other documents necessary and appropriate to carry out its
administrative duties pursuant to Section 4.12.
Section 4.13. Sale of Foreclosed Properties.
(a) The Master Servicer may offer to sell to any Person any Foreclosed
Property, if and when the Master Servicer determines consistent with the
Servicing Standard and that such a sale would be in the best interests of the
Trust, but shall, with respect to the FHA Loans, in any event, so offer to sell
any Foreclosed Property in accordance with the criteria set forth in Section
4.12. The Master Servicer shall give the Indenture Trustee and the Securities
Insurer not less than five days' prior notice of its intention to sell any
Foreclosed Property, and shall accept the highest bid received from any Person
for any Foreclosed Property in an amount at least equal to the sum of:
(i) the Principal Balance of the related foreclosed Home Loan,
unreimbursed Foreclosure Advances plus the outstanding amount of any
liens superior in priority, if any, to the lien of the foreclosed Home
Loan; and
(ii) all unpaid interest accrued thereon at the related Home
Loan Interest Rate through the date of sale.
In the absence of any such bid, the Master Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
that is Independent, or by an Independent appraiser retained by the Master
Servicer, if the highest bidder is a Person that is not Independent. In the
absence of any bid determined to be fair as aforesaid, the Master Servicer shall
offer the affected Foreclosed Property for sale to any Person, other than an
Interested Person, in a commercially reasonable manner for a period of not less
than 10 or more than 30 days, and shall accept the highest cash bid received
therefor in excess of the highest bid previously submitted. If no such bid is
received, any Interested Person may resubmit its original bid, and the Master
Servicer shall accept the highest outstanding cash bid, regardless of from whom
received. No Interested Person shall be obligated to submit a bid to purchase
any Foreclosed Property, and notwithstanding anything to the contrary herein,
neither the Indenture Trustee, in its individual capacity, nor any of its
affiliates may bid for or purchase any Foreclosed Property pursuant hereto.
(b) In determining whether any bid constitutes a fair price for any
Foreclosed Property or to effectuate the payment of a claim under the Contract
of Insurance, the Master Servicer shall take into account, and any appraiser or
other expert in real estate matters shall be instructed to take into account, as
applicable, among other factors, the financial standing of any tenant of the
Foreclosed Property, the physical condition of the Foreclosed Property, and the
state of the local and national economies.
(c) Subject to the provision of Section 4.12, the Master Servicer shall
act on behalf of the Indenture Trustee in negotiating and taking any other
action necessary or appropriate in
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connection with the sale of any Foreclosed Property, including the collection of
all amounts payable in connection therewith. Any sale of a Foreclosed Property
shall be without recourse to the Indenture Trustee, the Master Servicer or the
Trust, and if consummated in accordance with the terms of this Agreement,
neither the Master Servicer nor the Indenture Trustee shall have any liability
to any Securityholder with respect to the purchase price therefor accepted by
the Master Servicer or the Indenture Trustee.
Section 4.14. Management of Real Estate Owned.
(a) If the Trust acquires any Foreclosed Property pursuant to Section
4.12, the Master Servicer shall have full power and authority, subject only to
the specific requirements and prohibitions of this Agreement, to do any and all
things in connection therewith as are consistent with the manner in which the
Master Servicer manages and operates similar property owned by the Master
Servicer or any of its affiliates, all on such terms and for such period as the
Master Servicer deems to be in the best interests of Securityholders.
(b) The Master Servicer may contract with any Independent Contractor for
the operation and management of any Foreclosed Property, provided that:
(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered
to require, that the Independent Contractor remit all related Payments
to the Master Servicer as soon as practicable, but in no event later
than two Business Days following the receipt thereof by such Independent
Contractor;
(iii) none of the provisions of this Section 4.14(b) relating to
any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Master Servicer of any of its
duties and obligations to the Indenture Trustee for the benefit of
Securityholders with respect to the operation and management of any such
Foreclosed Property; and
(iv) the Master Servicer shall be obligated with respect thereto
to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such
Foreclosed Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, but shall be entitled to
be reimbursed for all such fees advanced by it pursuant to Section 4.08(b)(v) in
the manner provided in Section 4.09(b).
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Section 4.15. Inspections.
The Master Servicer shall inspect or cause to be inspected each Property
that secures any Home Loan at such times and in such manner as are consistent
with the servicing standard set forth in Section 4.01.
Section 4.16. Maintenance of Insurance.
(a) The Master Servicer shall maintain or cause to be maintained with
respect to each Property securing an FHA Loan such insurance as is required with
respect thereto by Title I. The Master Servicer shall cause to be maintained for
each Foreclosed Property acquired by the Trust such types and amounts of
insurance coverage as the Master Servicer shall deem reasonable. The Master
Servicer shall cause to be maintained for each Non-FHA Loan, fire and hazard
insurance naming Mego as loss payee thereunder providing extended coverage in an
amount which is at least equal to the least of (i) the maximum insurable value
of the improvements securing such Non-FHA Loan from time to time, (ii) the
combined principal balance owing on such Non-FHA Loan and any mortgage loan
senior to such Non-FHA Loan and (iii) the minimum amount required to compensate
for damage or loss on a replacement cost basis. In cases in which any Property
securing a Non-FHA Loan is located in a federally designated flood area, the
hazard insurance to be maintained for the related Non-FHA Loan shall include
flood insurance to the extent such flood insurance is available and the Master
Servicer has determined such insurance to be necessary in accordance with
accepted mortgage loan servicing standards for mortgage loans similar to the
Mortgage Loans. All such flood insurance shall be in amounts equal to the least
of (A) the maximum insurable value of the improvement securing such Non-FHA
Loan, (B) the combined principal balance owing on such Non-FHA Loan and any
mortgage loan senior to such Non-FHA Loan and (c) the maximum amount of
insurance available to the lender under the National Flood Insurance Act of
1968, as amended.
(b) Any amounts collected by the Master Servicer under any Insurance
Policies, shall be paid over or applied by the Master Servicer as follows:
(i) In the case of amounts received in respect of any Home Loan:
(A) for the restoration or repair of the affected
Property, in which event such amounts shall be released to the
Obligor in accordance with the terms of the related Debt
Instrument or to the extent not so used, or
(B) in reduction of the Principal Balance of the related
Home Loan, in which event such amounts shall be credited to the
related Servicing Record,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
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(ii) Subject to Section 4.14, in the case of amounts received in
respect of any Foreclosed Property, for the restoration or repair of
such Foreclosed Property, unless the Master Servicer determines,
consistent with the servicing standard set forth in Section 4.01, that
such restoration or repair is not in the best economic interest of the
Trust, in which event such amounts shall be credited, as of the date of
receipt, to the applicable Servicing Record, as a Payment received from
the operation of such Foreclosed Property.
Section 4.17. Release of Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
(ii) the Master Servicer, or the Servicer shall have received,
in escrow, payment in full of such Home Loan in a manner customary for
such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Trust pursuant to Section 3.05;
(iv) such Home Loan or the related Foreclosed Property has been
sold in connection with the termination of the Trust pursuant to Section
11.01;
(v) the FHA has paid a claim with respect to such Home Loan that
is an FHA Loan under the Contract of Insurance; or
(vi) the related Foreclosed Property has been sold pursuant to
Section 4.13.
In each such case, the Servicer shall deliver a certificate to the effect that
the Servicer has complied with all of its obligations under the Servicing
Agreement with respect to such Home Loan and requesting that the Indenture
Trustee release to the Servicer the related Home Loan File, then the Indenture
Trustee shall, within three Business Days or such shorter period as may be
required by applicable law, release, or cause the Custodian to release (unless
such Home Loan File has previously been released), the related Home Loan File to
the Servicer and execute and deliver such instruments of transfer or assignment,
in each case without recourse, as shall be necessary to vest ownership of such
Home Loan in the Servicer or such other Person as may be specified in such
certificate, the forms of any such instrument to be appended to such
certificate.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Home Loan or to effectuate the payment of a claim under the
Contract of Insurance, the Indenture Trustee shall, upon request of the
Servicer, release the related Home Loan File (or any requested
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portion thereof) to the Servicer. Such receipt shall obligate the Servicer, to
return the Home Loan File (or such portion thereof) to the Indenture Trustee
when the need therefor by the Servicer, no longer exists unless any of the
conditions specified in subsection (a) above, is satisfied prior thereto. The
Indenture Trustee shall release such receipt to the Servicer (i) upon the
Servicer's return of such Home Loan File (or such portion thereof) to the
Indenture Trustee or (ii) if any of the conditions specified in subsection (a)
has been satisfied, and the Servicer has not yet returned such Home Loan File
(or such portion thereof) to the Indenture Trustee, upon receipt of a
certificate certifying that any of such condition has been satisfied.
Section 4.18. Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by Mego and the Depositor, respectively, with respect to the assets
conveyed to the Trust, Mego and the Depositor shall prepare, have executed by
the necessary parties and file in the proper jurisdictions all financing and
continuation statements necessary to maintain the liens, security interests, and
priorities of such liens and security interests that have been granted by Mego
and the Depositor, respectively, and Mego and the Depositor shall continue to
file on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Trust has terminated pursuant to Section 9.1 of the Trust Agreement.
The Indenture Trustee agrees to cooperate with Mego and the Depositor in
preparing, executing and filing such statements. The Indenture Trustee agrees to
notify Mego and the Depositor on the third Distribution Date prior to each such
fifth anniversary of the requirement to file such financing and continuation
statements. The filing of any such statement with respect to Mego and the
Depositor shall not be construed as any indication of an intent of any party
contrary to the expressed intent set forth in Section 2.04 hereof. If Mego or
the Depositor has ceased to do business whenever any such financing and
continuation statements must be filed or Mego or the Depositor fails to file any
such financing statements or continuation statements at least one month prior to
the expiration thereof, the Indenture Trustee shall perform the services
required under this Section 4.18.
Section 4.19. Fidelity Bond.
The Master Servicer shall maintain a fidelity bond in such form and
amount as is customary for entities acting as custodian of funds and documents
in respect of loans on behalf of institutional investors.
Section 4.20. Errors and Omissions Insurance.
The Master Servicer shall obtain and maintain at all times during the
term of this Agreement errors and omissions insurance coverage covering the
Master Servicer and its employees issued by a responsible insurance company. The
issuer, policy terms and forms and amounts of coverage, including applicable
deductibles, shall be reasonably satisfactory to the Securities Insurer and
shall be in such form and amount as is customary for entities acting as master
servicers. The Master Servicer agrees to notify the Securities Insurer in
writing within
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five (5) days of the Master Servicer's receipt of notice of the cancellation or
termination of any such errors and omissions insurance coverage. The Master
Servicer shall provide to the Securities Insurer upon request written evidence
of such insurance coverage.
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ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.
(a) (1) Establishment of Collection Account. The Indenture Trustee has
heretofore established or caused to be established and shall hereafter maintain
or cause to be maintained a separate account denominated a Collection Account,
which in each case is and shall continue to be an Eligible Account in the name
of the Indenture Trustee and shall be designated "First Trust of New York,
National Association, as Indenture Trustee in trust for Mego Mortgage Home Loan
Asset Backed Securities, Series 1997-2, Collection Account." The Master Servicer
shall cause all Payments received by the Servicer to be deposited to the
Collection Account no later than the second Business Day following the date of
receipt thereof by the Servicer. The Master Servicer shall cause the Servicer to
deposit to the Collection Account all amounts representing payments by Obligors
on Invoiced Loans in respect of premium on FHA Insurance no later than the
second Business Day following receipt thereof by the Servicer. The Indenture
Trustee shall provide to the Master Servicer and the Servicer a monthly
statement of all activity in the Collection Account. Funds in the Collection
Account shall be invested in accordance with Section 5.04.
(2) Establishment of Note Distribution Account. The Indenture Trustee
has heretofore established with itself in its trust capacity at its corporate
trust department for the benefit of Securityholders and the Securities Insurer
an account referred to herein as a Note Distribution Account. The Indenture
Trustee shall at all times maintain the Note Distribution Account as an Eligible
Account and shall cause such account to be designated "First Trust of New York,
National Association, as Indenture Trustee in trust for Mego Mortgage Home Loan
Asset Backed Securities, Series 1997-2 Note Distribution Account."
(3) FHA Reserve Fund. The Indenture Trustee has heretofore established
or caused to be established and shall hereafter maintain or cause to be
maintained a separate account denominated a FHA Reserve Fund, in the name of the
Indenture Trustee and shall be designated "First Trust of New York, National
Association, as Indenture Trustee of the Mego Mortgage Trusts, FHA Reserve
Fund." The Indenture Trustee shall deposit all amounts required to be deposited
therein pursuant to Section 5.01(c)(ix). Amounts on deposit therein shall be
withdrawn by the Indenture Trustee at the direction of the Securities Insurer
and paid or deposited to either the Note Distribution Account, the distribution
account of a Related Series or the holders of the Residual Certificates. Amounts
on deposit in the FHA Reserve Fund shall be invested in accordance with Section
5.04.
(4) FHA Premium Account. The Indenture Trustee has heretofore
established with itself in its trust capacity at its corporate trust department
a segregated trust account referred to herein as the "FHA Premium Account" for
the benefit of the Securityholders and the Securities Insurer. The Indenture
Trustee shall at all times maintain the FHA Premium Account as an Eligible
Account and shall cause such accounts to be designated as "First Trust of New
York, National
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Association, as Indenture Trustee for Mego Mortgage Home Loan Asset Backed
Securities, Series 1997-2, FHA Premium Account". No later than the second
Business Day preceding each Distribution Date, all amounts on deposit in the
Collection Account representing payments by Obligors on Invoiced Loans in
respect of premium on FHA Insurance shall be withdrawn by the Indenture Trustee
and deposited to the FHA Premium Account. Any and all moneys transferred to the
FHA Premium Account pursuant to this Section 5.01(a)(4) and Section
5.01(c)(i)(a) shall be held by the Indenture Trustee in the FHA Premium Account
subject to disbursement and withdrawal as herein provided. Amounts deposited to
the FHA Premium Account shall be invested in accordance with Section 5.04.
Amounts on deposit in the FHA Premium Account shall be withdrawn by the
Indenture Trustee, in the amounts required, for application as follows:
(i) to payment to the FHA of any premiums due on the Contract of
Insurance in respect of FHA Loans, in such amounts and on such dates as
directed by the Master Servicer or Mego; the Indenture Trustee shall
apply all amounts on deposit in the related FHA Premium Account to
payment to the FHA of any premiums due under the Contract of Insurance
as invoiced by FHA and, if, in connection with an FHA Loan, the FHA
Insurance with respect to which shall not yet have been transferred to
the Contract of Insurance, Mego instructs the Indenture Trustee to pay
FHA insurance with respect to such FHA Loan to the related contract of
insurance holder, the Indenture Trustee shall make such payment, and
Mego and not the Indenture Trustee shall be liable in the event of the
failure of such funds to be applied to payment of the premium with
respect to such FHA Loan; and
(ii) on the Business Day preceding a Distribution Date that is
also the Termination Date, the Indenture Trustee shall withdraw from the
FHA Premium Account and deposit in the Note Distribution Account all
amounts then on deposit in the FHA Premium Account, whereupon the FHA
Premium Account shall terminate.
(b) Withdrawals from Collection Account. No later than the second
Business Day preceding each Distribution Date, the Indenture Trustee shall
withdraw amounts from the Collection Account representing the Payments with
respect to the related Determination Date on deposit therein and deposit such
amounts into the Note Distribution Account and liquidate the Permitted
Investments in which such amounts are invested and distribute all net investment
earnings to the Servicer.
(c) Withdrawals from Note Distribution Account. On each Distribution
Date, the Indenture Trustee shall liquidate the Permitted Investments in which
amounts on deposit in the Note Distribution Account are invested and distribute
all net investment earnings to the Servicer and, to the extent funds are
available in the Note Distribution Account, the Indenture Trustee (based on the
information contained in the Master Servicer Certificate for such Distribution
Date) shall make the following withdrawals from the Note Distribution Account by
10:00 a.m. (New York City time) on such Distribution Date, in the following
order of priority:
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(i) to distribute on such Distribution Date the following
amounts pursuant to the Indenture, from the Collected Amount, in the
following order:
(a) for deposit in the FHA Premium Account, the FHA
Premium Account Deposit for such Distribution Date;
(b) concurrently, to (x) the Master Servicer, the Master
Servicer Fee, (y) the Servicer, the Servicer Fee, and (z) to the
Indenture Trustee, the Indenture Trustee Fee, in each case for
such Distribution Date;
(c) to the Master Servicer or Servicer, any amount in
respect of reimbursement of Interest Advances or Foreclosure
Advances, to which the Master Servicer or any Servicer is
entitled pursuant to Section 4.09 with respect to such
Distribution Date and to the Claims Administrator, amounts in
reimbursement of any expenses, of filing of any FHA Insurance
claim pursuant to Section 4.12(g);
(d) to the Servicer, the Owner Trustee Fee Reserve, for
such Distribution Date;
(e) to the Securities Insurer, the sum of (a) the
Premium for such Distribution Date for so long as no default in
payment under the Guaranty Policy has occurred and is continuing
and (b) any due and unpaid Premium for a previous Distribution
Date required to be paid pursuant to Section 5.01(c)(i)(e) plus
interest on such amount at the Late Payment Rate;
(ii) to the holders of each Class of Notes, from the Amount
Available remaining after the application of clause (i), an amount equal
to the applicable Noteholders' Interest Distributable Amount for such
Distribution Date;
(iii) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Collected Amount remaining after the application
of clauses (i) through (ii) above, the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date; provided, however, with
respect to any Distribution Date as to which a full distribution
pursuant to this Section 5.01(c)(iii) would cause the
Overcollateralization Amount to exceed the Required OC Amount, the
amounts to be distributed pursuant to this Section 5.01(c)(iii) shall be
reduced by the amount of such excess;
(iv) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Collected Amount after application of clauses
(i) through (iii) above, the Distributable Excess Spread for such
Distribution Date;
(v) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Amount Available after application of clauses
(i) through (iv) above, the
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Noteholders' Guaranteed Principal Distribution Amount, if any, for such
Distribution Date;
(vi) to the Securities Insurer, from the Amount Available after
application of clauses (i) through (v) above, the Securities Insurer
Reimbursement Amount;
(vii) to the Securities Insurer, from the Collected Amount after
application of clauses (i) through (vi) above, any other amounts owing
to the Securities Insurer under the Insurance Agreement;
(viii) to any successor Master Servicer, if any, for such
Distribution Date, from the Collected Amount after application of
clauses (i) through (vii), amounts payable in accordance with Section
10.03(c) in addition to the Master Servicer Fee;
(ix) to the FHA Reserve Fund, from the Collected Amount after
application of clauses (i) through (viii), any unpaid Excess Claim
Amount;
(x) to the Person entitled thereto, payments in respect of Other
Fees, from the Collected Amount after application of clauses (i) through
(ix); and
(xi) for deposit into the Certificate Distribution Account, for
distribution pursuant to Section 5.03(b) on such Distribution Date to
the holders of the Residual Certificates, any remaining Collected Amount
after application of clauses (i) through (x) above.
(d) Additional Withdrawals from Collection Account. On the third
Business Day prior to each Distribution Date, the Indenture Trustee, at the
direction of the Master Servicer shall also make the following withdrawals from
the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error; and
(ii) to clear and terminate the Collection Account in connection
with the termination of this Agreement.
(e) As to each Distribution Date, any shortfall in the amount of
interest required to be distributed pursuant to Section 5.01(c)(ii) above, shall
be allocated among each Class of Notes, in proportion to the amount each such
Class would have been entitled to receive in the absence of such shortfall. As
to each Distribution Date, distributions pursuant to Section 5.01(c)(iii), (iv)
and (v) shall be made to the Class of Notes as follows:
(i) prior to the occurrence and continuance of a Securities
Insurer Default, sequentially, to the holders of the Class A-1 Notes,
Class A-2 Notes, Class A-3
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Notes, Class A-4 Notes and Class A-5 Notes in that order, until their
respective Class Principal Balances have been reduced to zero; and
(ii) upon the occurrence and continuance of a Securities Insurer
Default and upon the first reduction of the Overcollateralization Amount
thereafter to zero after such Securities Insurer Default, concurrently,
to the holders of each Class of Notes then outstanding, pro rata, based
upon their respective Class Principal Balances immediately prior to such
Distribution Date.
(f) All distributions made on each Class of Notes on each Distribution
Date will be made on a pro rata basis among the Noteholders of such Class of
record on the preceding Record Date based on the Percentage Interest represented
by their respective Notes, and except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of such Noteholder, if such Noteholder shall own of record
Notes representing at least a $1,000,000 Denomination and shall have so notified
the Indenture Trustee, and otherwise by check mailed, via first class mail,
postage prepaid, to the address of such Noteholder appearing in the Note
Register. The final distribution on each Note will be made in like manner, but
only upon presentment and surrender of such Note at the location specified in
the notice to Noteholders of such final distribution.
Whenever the Indenture Trustee, based on a Master Servicer Certificate,
expects that the final distribution with respect to a Class of Securities will
be made on the next Distribution Date, the Indenture Trustee shall, as soon as
practicable, mail to each Holder of such Class of Securities as of the
applicable Record Date a notice to the effect that:
(i) the Indenture Trustee expects that the final distribution
with respect to such Class of Securities will be made on such
Distribution Date, and
(ii) no interest shall accrue on such Class of Securities after
such Distribution Date provided that the final distribution occurs on
such Distribution Date.
Section 5.02 Claims Under Guaranty Policy.
(a) The Insured Securities will be insured by the Guaranty Policy
pursuant to the terms set forth therein, notwithstanding any provisions to the
contrary contained in the Indenture or this Agreement. All amounts received
under the Guaranty Policy shall be used solely for the payment to
Securityholders of principal and interest on the Notes.
(i) On the Determination Date preceding each Distribution Date, the
Indenture Trustee shall determine if a Deficiency Amount exists with respect to
each Class of Insured Securities. If a Deficiency Amount does exist with respect
to a Class of Insured Securities, the Indenture Trustee shall promptly, but in
no event later than 12:00 noon New York City time on the second Business Day
preceding the related Distribution Date, make a claim under the Guaranty Policy
for such Class in accordance with its terms.
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(ii) On any date on which the Indenture Trustee receives written notice
from the Holder of a Class of Insured Securities that a Preference Amount is
payable pursuant to the terms of the Guaranty Policy, the Indenture Trustee
shall make a claim for the payment of such Preference Amount and shall deliver
the documents required to be delivered under the Guaranty Policy to the
Securities Insurer with respect thereto in the manner set forth in the Guaranty
Policy.
(b) The Securities Insurer is entitled to the benefit of the following
provisions in the event that an Insured Payment has been made. Notwithstanding
any other provision hereof:
(i) The Indenture Trustee (i) shall receive as attorney-in-fact
of each Securityholder with respect to which a Deficiency Amount has
been determined to exist any Insured Payment from the Securities Insurer
and (ii) shall immediately apply all moneys constituting an Insured
Payment to the payment to Securityholders of principal and interest on
the Notes, by depositing such amounts in the Note Distribution Account
for Insured Payments payable on the related Class of Notes, on the
immediately succeeding Distribution Date. All amounts received under the
Guaranty Policy shall be used solely for the payment to Securityholders
of principal and interest on Notes. The Securities Insurer's obligations
under the Guaranty Policy with respect to a particular Insured Payment
shall be discharged to the extent funds equal to the applicable Insured
Payment are received by the Indenture Trustee, whether or not such funds
are properly applied by the Indenture Trustee. The parties hereto
recognize that the making of an Insured Payment does not relieve any of
the parties hereto of any obligation hereunder or under any of the
Transaction Documents.
(ii) The parties hereto recognize that, to the extent that the
Securities Insurer makes payments, directly or indirectly, on account of
principal of or interest on the Insured Securities, as applicable, the
Securities Insurer shall be subrogated to the rights of the
Securityholders to receive distributions of principal and interest in
accordance with the terms hereof.
(iii) With respect to any Distribution Date, to the extent the
Securities Insurer is owed any Securities Insurer Reimbursement Amount
(including without limitation any unreimbursed Insured Payments made
under the Guaranty Policy plus interest accrued thereon as provided in
the Insurance Agreement), the Securities Insurer shall be entitled to
distributions pursuant to Sections 5.01(c)(vi) and (vii), and the
Indenture Trustee shall otherwise treat the Securities Insurer as the
owner of such rights to distributions of any Securities Insurer
Reimbursement Amount.
(iv) The Securities Insurer shall have the right to institute
any suit, action or proceeding at law or in equity under the same terms
as a Securityholder may institute any action.
Section 5.03 Certificate Distribution Account.
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(a) Establishment. No later than the Closing Date, the Indenture
Trustee, for the benefit of the Securityholders and the Securities Insurer, will
establish and maintain with Indenture Trustee for the benefit of the Owner
Trustee on behalf of the Certificateholders and the Securities Insurer one or
more separate Eligible Accounts, which while the Indenture Trustee holds such
Trust Account shall be entitled "Certificate Distribution Account, First Trust
of New York, National Association, as Co-Owner Trustee, in trust for the Mego
Mortgage Home Loan Asset Backed Securities, Series 1997-2". Funds in the
Certificate Distribution Account shall be invested in accordance with Section
5.04.
(b) Distributions. On each Distribution Date, the Indenture Trustee
shall withdraw from the Note Distribution Account all amounts required to be
deposited in the Certificate Distribution Account with respect to the preceding
Due Period pursuant to Section 5.01(c)(xi) and will remit such amount to the
Owner Trustee or the Co-Owner Trustee for deposit into the Certificate
Distribution Account. On each Distribution Date, the Owner Trustee or the
Co-Owner Trustee shall distribute all amounts on deposit in the Certificate
Distribution Account to the Residual Certificateholders.
(c) All distributions made on the Residual Certificates on each
Distribution Date will be made on a pro rata basis among the Residual
Certificateholders of record on the next preceding Record Date based on the
Percentage Interest represented by their respective Residual Certificates, and
except as otherwise provided in the next succeeding sentence, shall be made by
wire transfer of immediately available funds to the account of such Residual
Certificateholder, if such Residual Certificateholder shall own of record
Residual Certificates representing at least a 30% Percentage Interest and shall
have so notified the Owner Trustee or Co-Owner Trustee, and otherwise by check
mailed, via first class mail, postage prepaid, to the address of such Residual
Certificateholder appearing in the Certificate Register. The final distribution
on each Residual Certificate will be made in like manner, but only upon
presentment and surrender of such Residual Certificate at the location specified
in the notice to holders of the Residual Certificates of such final
distribution.
Section 5.04 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. In addition to the
provisions hereunder, each of the Trust Accounts shall also be established and
maintained pursuant to the Indenture. Amounts distributed from each Trust
Account in accordance with the Indenture and this Agreement shall be released
from the lien of the Indenture upon such distribution thereunder or hereunder.
The Indenture Trustee shall possess all right, title and interest in all funds
on deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account) and in all proceeds thereof and all such funds,
investments, proceeds shall be part of the Trust Account Property and the Trust
Estate. If, at any time, any Trust Account ceases to be an Eligible Account, the
Indenture Trustee (or the Master Servicer on its behalf) shall within 10
Business Days (or such longer period, not to exceed 30 calendar days, as to
which each Rating Agency may consent) (i) establish a new Trust
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Account as an Eligible Account, (ii) terminate the ineligible Trust Account, and
(iii) transfer any cash and investments from such ineligible Trust Account to
such new Trust Account.
With respect to the Trust Accounts (other than the Certificate
Distribution Account), the Indenture Trustee agrees, by its acceptance hereof,
that each such Trust Account shall be subject to the sole and exclusive custody
and control of the Indenture Trustee for the benefit of the Securityholders, the
Securities Insurer and the Issuer, as the case may be, and the Indenture Trustee
shall have sole signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder also shall be subject to and
established and maintained in accordance with the Trust Agreement. Subject to
rights of the Indenture Trustee hereunder and under the Indenture, the Owner
Trustee and the Co-Owner Trustee shall possess all right, title and interest for
the benefit of the Securityholders and the Securities Insurer in all funds on
deposit from time to time in the Certificate Distribution Account and in all
proceeds thereof (including all income thereon) and all such funds, investments,
proceeds and income shall be part of the Trust Account Property and the Trust
Estate. Subject to the rights of the Indenture Trustee, the Owner Trustee and
Co-Owner Trustee agree, by its acceptance hereof, that such Certificate
Distribution Account shall be subject to the sole and exclusive custody and
control of the Owner Trustee or Co-Owner Trustee for the benefit of the Issuer
and the parties entitled to distributions therefrom, including without
limitation, the Certificateholders and Securities Insurer, and the Owner Trustee
and the Co-Owner Trustee shall have sole signature and withdrawal authority with
respect to the Certificate Distribution Account. Notwithstanding the preceding,
the distribution of amounts from the Certificate Distribution Account in
accordance with Section 5.03(b) also shall be made for the benefit of the
Indenture Trustee (including without limitation as the named insured under the
Guaranty Policy on behalf of all Securityholders, and with respect to its duties
under the Indenture and this Agreement relating to the Trust Estate), and the
Indenture Trustee (in its capacity as Indenture Trustee) shall have the right,
but not the obligation to take custody and control of the Certificate
Distribution Account and to cause the distribution of amounts therefrom in the
event that the Owner Trustee or Co-Owner Trustee fails to distribute such
amounts in accordance with Section 5.03(b).
The Master Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee or Co-Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee, Co-Owner Trustee or Owner
Trustee to make withdrawals and payments from the Trust Accounts for the purpose
of permitting the Master Servicer to carry out its respective duties hereunder
or permitting the Indenture Trustee or Owner Trustee to carry out its duties
herein or under the Indenture or the Trust Agreement, as applicable.
(b) (1) Investment of Funds. The funds held in any Trust Account may
only be invested (to the extent practicable and consistent with any requirements
of the Code) in Permitted Investments, as directed by a Responsible Officer of
Mego in writing. In any case, funds in any Trust Account must be available for
withdrawal without penalty, and any Permitted Investments and the funds held in
any Trust Account, other than the Note Distribution Account, must mature
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or otherwise be available for withdrawal, not later than three (3) Business Days
immediately preceding the Distribution Date next following the date of such
investment and shall not be sold or disposed of prior to its maturity subject to
Section 5.04(b)(2) below. Amounts deposited to the Note Distribution Account
pursuant to Section 5.01(b) prior to each Distribution Date (other than proceeds
under the Guaranty Policy) shall be invested in Permitted Investments which are
overnight investments from the date of deposit to the Business Day preceding
each Distribution Date. All interest and any other investment earnings on
amounts or investments held in any Trust Account shall be deposited into such
Trust Account immediately upon receipt by the Indenture Trustee, or in the case
of the Certificate Distribution Account, the Owner Trustee or Co-Owner Trustee,
as applicable. All Permitted Investments in which funds in any Trust Account
(other than the Certificate Distribution Account) are invested must be held by
or registered in the name of "First Trust of New York, National Association, as
Indenture Trustee, in trust for the Mego Mortgage Home Loan Asset Backed
Securities, Series 1997-2". While the Co-Owner Trustee holds the Certificate
Distribution Account, all Permitted Investments in which funds in the
Certificate Distribution Account are invested shall be held by or registered in
the name of "First Trust of New York, National Association, as Co-Owner Trustee,
in trust for the Mego Mortgage Home Loan Asset Backed Securities, Series
1997-2".
(2) Insufficiency and Losses in Trust Accounts. If any amounts are
needed for disbursement from any Trust Account and sufficient uninvested funds
are not available to make such disbursement, the Indenture Trustee, or Owner
Trustee or Co-Owner Trustee in the case of the Certificate Distribution Account,
shall cause to be sold or otherwise converted to cash a sufficient amount of the
investments in such Trust Account. The Indenture Trustee, or Owner Trustee or
Co-Owner Trustee in the case of the Certificate Distribution Account, shall not
be liable for any investment loss or other charge resulting therefrom, unless
such loss or charge is caused by the failure of the Indenture Trustee or Owner
Trustee or Co-Owner Trustee, respectively, to perform in accordance with this
Section 5.04.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then Mego shall
deposit the amount of such losses (to the extent not offset by income from other
investments in such Trust Account) in such Trust Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in any Trust Account shall be taxed to the Seller.
(c) Subject to Section 6.1 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Indenture
Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts
shall be held solely in the Eligible Accounts; and each such Eligible
Account shall be subject to the
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exclusive custody and control of the Indenture Trustee, and the
Indenture Trustee shall have sole signature authority with respect
thereto;
(2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraph (a) of the definition of "Delivery" and shall be held, pending
maturity or disposition, solely by the Indenture Trustee or a financial
intermediary (as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Indenture
Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such
paragraph; and
(4) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (3) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" and shall
be maintained by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
Section 5.05 Servicer to Pay Owner Trustee Fee. On the Distribution Date
occuring in May each year during the term of this Agreement, commencing in May
1998, the Servicer shall pay to the Owner Trustee, the Owner Trustee Fee.
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ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate. On each Determination Date,
the Master Servicer shall deliver to the Indenture Trustee, the Owner Trustee,
Co-Owner Trustee and the Securities Insurer, a certificate containing the items
described in Exhibit B hereto (each, a "Master Servicer Certificate"), prepared
as of the related Determination Date and executed by a Master Servicing Officer.
No later than the Business Day following each Determination Date, the Master
Servicer shall deliver to the Indenture Trustee and the Securities Insurer, in a
format consistent with other electronic loan level reporting supplied by the
Master Servicer in connection with similar transactions, "loan level"
information with respect to the Home Loans as of the related Determination Date,
to the extent that such information has been provided to the Master Servicer by
the Servicer. The Master Servicer shall revise any Master Servicer Certificate
to take into account any payments of which the Master Servicer is notified made
by the Indenture Trustee to FHA after the related Determination Date and before
the related Distribution Date as provided in Section 4.12(e). The Indenture
Trustee may rely on the Master Servicer Certificate with respect to the matters
set forth therein.
Section 6.02 Statement to Securityholders. On or before the third
Business Day following each Distribution Date, the Indenture Trustee shall mail:
to each Holder of a Security (with a copy to the Securities Insurer, the
Depositor and the Rating Agency) at its address shown on the Certificate
Register or Note Register, as applicable, a statement, based on information set
forth in the Master Servicer Certificate for such Distribution Date,
substantially in the form of Statement to Securityholders attached hereto as
Exhibit C, respectively, together with a copy of such related Master Servicer
Certificate.
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ARTICLE VII.
CONCERNING THE CONTRACT OF INSURANCE HOLDER
Section 7.01 Compliance with Title I and Filing of FHA Claims.
(a) The Contract of Insurance Holder shall at all times while any
Securities are outstanding have a valid Contract of Insurance with the FHA
covering the FHA Loans. To the extent applicable to the duties of the Contract
of Insurance Holder hereunder, the Contract of Insurance Holder shall comply
with the requirements of Title I and shall take or refrain from taking such
actions as are necessary or appropriate to maintain a valid Contract of
Insurance for the Trust with the FHA covering the FHA Loans.
(b) If and for so long as the Contract of Insurance covers any loans
other than the FHA Loans, and if HUD shall not have earmarked the coverage of
the Contract of Insurance with respect to the FHA Loans, the Contract of
Insurance Holder covenants and agrees not to submit any claim to FHA with
respect to an FHA Loan if the effect of approval of such claim would result in
the amount of claims paid by the FHA in respect of the FHA Loans to exceed the
Trust Designated Insurance Amount. Notwithstanding the foregoing, the Claims
Administrator shall promptly notify the Owner Trustee, the Indenture Trustee,
the Master Servicer and the Securities Insurer if the amount of claims submitted
to FHA in respect of the FHA Loans under the Contract of Insurance exceeds the
Trust Designated Insurance Amount. As of the Closing Date and at all times
thereafter until the Termination Date, the Contract of Insurance Holder
covenants and agrees that the Contract of Insurance will only apply to the FHA
Loans and Related Series Loans, exclusively, or HUD shall have agreed pursuant
to 24 C.F.R. Section 201.32(d)(1) to "earmark" the FHA insurance relating to the
FHA Loans and Related Series Loans, in a manner satisfactory to the Securities
Insurer, in its sole and absolute discretion. Mego, as Claims Administrator and
Servicer, covenants and agrees that it shall not take any action that would
result in the Contract of Insurance applying to loans other than the FHA Loans
and the Related Series Loans, exclusively, unless HUD shall have agreed pursuant
to 24 C.F.R. Section201.32(d)(1) to "earmark" the FHA insurance relating to the
FHA Loans and Related Series Loans in a manner satisfactory to the Securities
Insurer, in its sole and absolute discretion.
(c) The Owner Trustee and Co-Owner Trustee hereby appoint Mego Mortgage
Corporation as Claims Administrator and the Indenture Trustee hereby consents to
such appointment. Mego Mortgage Corporation, as Claims Administrator, shall
perform on behalf of the Contract of Insurance Holder the duties associated with
the submission of claims under Title I in connection with the Contract of
Insurance, except to the extent that certain documents must be signed by the
Contract of Insurance Holder (in which case the Contract of Insurance Holder
shall only sign such documents at the direction of the Claims Administrator) and
shall not, in its capacity as Claims Administrator, take any action or omit to
take any action that would cause the Contract of Insurance Holder to violate
this Section 7.01 or otherwise fail to maintain a valid Contract of Insurance or
cause any denial by FHA of an insurance claim under Title I.
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(d) The Contract of Insurance Holder shall not be deemed to have
violated this Section 7.01 and shall otherwise incur no liability hereunder if
any failure to maintain a valid Contract of Insurance or to comply with the
requirements of Title I or any denial by FHA of an insurance claim under Title I
shall have been caused by any act or omission of the Master Servicer or Claims
Administrator in the performance of its duties hereunder. The Contract of
Insurance Holder shall be permitted to, or, if directed by the Securities
Insurer, so long as no Securities Insurer Default exists, shall replace the
Claims Administrator for any failure of the Claims Administrator to perform its
duties hereunder. Any successor Claims Administrator shall be subject to the
prior approval of the Securities Insurer, provided no Securities Insurer Default
is then occurring.
(e) The Contract of Insurance Holder hereby represents and warrants to
the Depositor, the Master Servicer, the Seller, the Owner Trustee, the Indenture
Trustee for the benefit of the Securityholders and the Securities Insurer that
First Trust of New York, National Association is an investing lender in good
standing with HUD having authority to purchase, hold, and sell loans insured
under 24 CFR Part 201, pursuant to a valid Contract of Insurance, Number 71400
0000 6.
(f) The Seller shall forward to the Indenture Trustee a fully executed
Transfer of Note Report for each FHA Loan within 20 days of the receipt by the
Seller of such FHA Loan's case number under the Contract of Insurance. The
Trustee shall execute each Transfer of Note Report, as buying lender, and submit
such Transfer of Note Report to HUD within 31 days of the transfer of the FHA
Loans to the Trust.
Section 7.02. Contract of Insurance Holder.
(a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except (i) upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the Contract of Insurance and (ii) the Securities
Insurer (so long as a Securities Insurer Default shall not have occurred and be
continuing) or the Majority Securityholders (if a Securities Insurer Default
shall have occurred and be continuing) does not elect to waive the obligations
of the Contract of Insurance Holder to perform the duties which render it
legally unable to act or to delegate those duties to another Person or if the
circumstances giving rise to such illegality cannot be waived or delegated. Any
such determination permitting the resignation of the Contract of Insurance
Holder shall be evidenced by an Opinion of Counsel to such effect delivered and
acceptable to the Indenture Trustee and the Securities Insurer. Upon receiving
such notice of resignation, the Contract of Insurance shall be transferred to a
qualified successor with the consent of the Securities Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
resigning Contract of Insurance Holder and one copy to the successor Contract of
Insurance Holder. Notwithstanding the foregoing, the Contract of Insurance
Holder may
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resign, with the prior written consent of the Securities Insurer (so long as a
Securities Insurer Default shall not have occurred and be continuing) or the
Majority Securityholders (if a Securities Insurer Default shall have occurred
and be continuing), which may be withheld in its sole and absolute discretion,
upon transfer of the FHA insurance and related reserves with respect to the FHA
Loans and any Related Series Loans to a contract of insurance held by a
successor Contract of Insurance Holder provided, however, that any Contract of
Insurance held by such successor Contract of Insurance Holder shall satisfy the
criteria set forth in Section 7.01(b), and, at the time of succession, shall
have an FHA insurance coverage reserve account balance not less than that of the
FHA Insurance Coverage Reserve Account at the time of succession.
(b) If at any time (i) the Contract of Insurance shall be revoked,
suspended or otherwise terminated, or (ii) the Contract of Insurance Holder
shall become incapable of acting, or shall be adjudged as bankrupt or insolvent,
or a receiver of the Contract of Insurance Holder or of its property shall be
appointed, or any public officer shall take charge or control of the Contract of
Insurance Holder or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case the
Securities Insurer (so long as a Securities Insurer Default shall not have
occurred and be continuing) or the Majority Securityholders (if a Securities
Insurer Default shall have occurred and be continuing) may remove the Contract
of Insurance Holder and appoint a successor contract of insurance holder by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take any
action required to transfer the benefits of the FHA Insurance Coverage Reserve
Account to the successor contract of insurance holder.
(c) Any resignation or removal of the Contract of Insurance Holder and
appointment of a successor contract of insurance holder pursuant to any of the
provisions of this Section 7.02 shall become effective upon acceptance of
appointment by the successor contract of insurance holder.
(d) On or prior to the Closing Date, the Contract of Insurance Holder
shall have instructed FHA to forward all payments in respect of claims under the
Contract of Insurance made to the Contract of Insurance Holder to First Trust of
New York, National Association, as Indenture Trustee and Co-Owner Trustee. The
Contact of Insurance Holder shall provide no further notification with respect
to which such payments shall be directed unless directed by First Trust of New
York, National Association, as Indenture Trustee.
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ARTICLE VIII.
[Reserved]
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ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Master Servicer shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Master Servicer herein and the representations made by the Master Servicer.
(b) The Master Servicer shall indemnify, defend and hold harmless the
Trust, the Indenture Trustee, Owner Trustee, the Co-Owner Trustee, Mego, the
Depositor and the Securities Insurer, their respective officers, directors,
agents and employees and the Securityholders from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage or liability arose out of, or was imposed upon the
Trust, Indenture Trustee, the Owner Trustee, the Co-Owner Trustee, Mego, the
Depositor, the Securities Insurer or the Securityholders through the breach of
this Agreement by the Master Servicer, the negligence, willful misfeasance, or
bad faith of the Master Servicer in the performance of its duties under this
Agreement or by reason of reckless disregard of its obligations and duties under
this Agreement. Such indemnification shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation.
Section 9.02 Merger or Consolidation of the Master Servicer.
The Master Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the Master
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity (i) shall be an
Eligible Servicer, (ii) shall be capable of fulfilling the duties of the Master
Servicer contained in this Agreement and (iii) shall have a long-term debt
rating which is BBB and Baa2 by Standard & Poor's and Moody's respectively. Any
corporation (i) into which the Master Servicer may be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Master Servicer
shall be a party, (iii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Master Servicer, or (iv) succeeding to
the business of the Master Servicer, in any of the foregoing cases shall execute
an agreement of assumption to perform every obligation of the Master Servicer
under this Agreement and, whether or not such assumption agreement is executed,
shall be the successor to the Master Servicer under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties to this Agreement, anything in this Agreement to the contrary
notwithstanding; provided, however, that nothing contained herein shall be
deemed to release the Master Servicer from any obligation. The Master Servicer
shall provide notice of any merger, consolidation or succession pursuant to this
Section 9.02 to the Owner Trustee, the Indenture Trustee, the Securities Insurer
and each Rating Agency. Notwithstanding the foregoing, as a condition to the
consummation of the
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transactions referred to in clauses (i) through (iv) above, (x) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.02 shall have been breached (for purposes hereof, such
representations and warranties shall speak as of the date of the consummation of
such transaction), and (y) the Master Servicer shall have delivered to the Owner
Trustee, the Indenture Trustee and the Securities Insurer an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
9.02 and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with.
Section 9.03 Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties, representations or covenants
made herein or any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in performing or failing to perform
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. The Master Servicer and any of its directors, officers, employees or
agents may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Section 9.04 Master Servicer Not to Resign; Assignment.
(a) The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) with the consent of the Securities Insurer and
the Rating Agencies or (ii) upon determination that by reason of a change in
legal requirements the performance of its duties under this Agreement would
cause it to be in violation of such legal requirements in a manner which would
result in a material adverse effect on the Master Servicer and the Securities
Insurer (so long as a Securities Insurer Default shall not have occurred and be
continuing) does not elect to waive the obligations of the Master Servicer to
perform the duties which render it legally unable to act or to delegate those
duties to another Person. Any such determination permitting the resignation of
the Master Servicer by reason of a change in such legal requirements shall be
evidenced by an Opinion of Counsel to such effect delivered and acceptable to
the Indenture Trustee and the Securities Insurer (unless a Securities Insurer
Default shall have occurred and be continuing). No resignation of the Master
Servicer shall become effective until the Indenture Trustee or a successor
master servicer acceptable to the Securities Insurer shall have assumed the
Master Servicer's servicing responsibilities and obligations in accordance with
Section 10.02.
(b) Notwithstanding anything to the contrary herein, the Master Servicer
shall remain liable for all liabilities and obligations incurred by it as Master
Servicer hereunder prior to the time that any resignation or assignment referred
to in subsection (a) above or termination under Section 10.01 becomes effective,
including the obligation to indemnify the Indenture Trustee pursuant to Section
9.01(b) hereof.
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(c) The Master Servicer agrees to cooperate with any successor Master
Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Home Loan Files in the possession of the Master
Servicer and the Servicing Record) and all amounts credited to the Servicing
Record or thereafter received with respect to the Home Loans and not otherwise
permitted to be retained by the Master Servicer pursuant to this Agreement. In
addition, the Master Servicer, at its sole cost and expense, shall prepare,
execute and deliver any and all documents and instruments to the successor
Master Servicer including all Home Loan Files in its possession and do or
accomplish all other acts necessary or appropriate to effect such termination
and transfer of servicing responsibilities, including, without limitation,
assisting in obtaining any necessary approval under Title I from the FHA.
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Agreement) to the Issuer and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the Issuer or the Indenture Trustee.
Section 9.06 Master Servicer May Own Notes.
Each of the Master Servicer and any affiliate of the Master Servicer may
in its individual or any other capacity become the owner or pledgee of Notes
with the same rights as it would have if it were not the Master Servicer or an
affiliate thereof except as otherwise specifically provided herein. Notes so
owned by or pledged to the Master Servicer or such affiliate shall have an equal
and proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Notes, provided that
any Notes owned by the Master Servicer or any affiliate thereof, during the time
such Notes are owned by them, shall be without voting rights for any purpose set
forth in this Agreement. The Master Servicer shall notify the Indenture Trustee
and the Securities Insurer promptly after it or any of its affiliates becomes
the owner or pledgee of a Note.
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ARTICLE X.
DEFAULT
Section 10.01 Events of Default.
For purposes of this Agreement, each of the following shall constitute
an "Event of Default."
(a) (i) failure by the Master Servicer to deposit or cause the Servicer
to deposit all Payments in the Collection Account no later than the second
Business Day following receipt thereof by the Master Servicer or Servicer, which
failure continues unremedied for two Business Days; (ii) failure of the Master
Servicer to pay when due any amount payable by it under the Insurance Agreement,
which failure continues unremedied for two Business Days; or (iii) failure of
the Master Servicer to pay when due any amount payable by it under this
Agreement and such failure results in a drawing under the Guaranty Policy; or
(b) failure on the part of the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice of
such failure to the Indenture Trustee or the Securities Insurer pursuant to
Section 4.04(b) and (y) the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master Servicer
by the Indenture Trustee or the Securities Insurer, or to the Master Servicer
and the Indenture Trustee pursuant to the direction of the Majority
Securityholders; or
(c) failure by the Master Servicer to deliver to the Indenture Trustee
and (so long as a Securities Insurer Default shall not have occurred and be
continuing) the Securities Insurer the Master Servicer Certificate by the fourth
Business Day prior to each Distribution Date, or failure on the part of the
Master Servicer to observe its covenants and agreements set forth in Section
3.02(o); or
(d) the entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Master Servicer in 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, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Master Servicer or of
any substantial part of its properties or ordering the winding up or liquidation
of the affairs of the Master Servicer and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days or the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and such case is not dismissed within 60 days; or
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(e) the commencement by the Master Servicer of a voluntary case under
the federal bankruptcy laws, as now or hereinafter in effect, or any other
present or future, federal or state bankruptcy, insolvency or similar law, or
the consent by the Master Servicer to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Master Servicer or of any substantial part of its
property or the making by the Master Servicer of an assignment for the benefit
of creditors or the failure by the Master Servicer generally to pay its debts as
such debts become due or the taking of corporate action by the Master Servicer
in furtherance of any of the foregoing or the admission in writing by the Master
Servicer of an inability to pay its debts as they become due; or
(f) any representation, warranty or statement of the Master Servicer
made in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Indenture Trustee or the Securities Insurer
pursuant to Section 4.04(b) and (y) the date on which written notice thereof
shall have been given to the Master Servicer by the Indenture Trustee or the
Securities Insurer (or, if a Securities Insurer Default shall have occurred and
be continuing, written notice thereof shall have been given by the Majority
Securityholders), the circumstances or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured; or
(g) failure on the part of the Master Servicer to deposit into the Note
Distribution Account within 3 Business Days following the related Determination
Date any Interest Advance pursuant to Section 4.08; or
(h) the Securities Insurer determines that the performance by the Master
Servicer of its servicing duties hereunder with respect to the Home Loans is
not, in the reasonable opinion of the Securities Insurer after consultation with
the Master Servicer, in conformity with acceptable standards after considering
the following factors: (A) the terms and conditions of this Agreement, (B)
conformity with the Servicing Standards, (C) the Master Servicer's practices as
of the Closing Date, provided that such practices are either (i) consistent with
industry standards for the servicing of loans similar to the Home Loans or (ii)
the Master Servicer's historical practices and procedures; or
(i) the Master Servicer shall dissolve or liquidate, in whole or in
part, in any material respects except to the extent that any resulting successor
entity is acceptable to the Securities Insurer; or
(j) the long-term debt rating of the Master Servicer shall be reduced
below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or
(k) the Annual Default Percentage (Three Month Average) exceeds 6.5% or
the 60+ Delinquency Percentage (Rolling Three Month) exceeds 6.0%.
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Section 10.02 Consequences of an Event of Default.
If an Event of Default shall occur and be continuing, the Securities
Insurer (or, if a Securities Insurer Default shall have occurred and be
continuing, the Indenture Trustee at the direction of the Majority
Securityholders), by notice given in writing to the Master Servicer (and to the
Indenture Trustee if given by the Securities Insurer or the Securityholders) may
terminate all of the rights and obligations of the Master Servicer under this
Agreement. On or after the receipt by the Master Servicer of such written
notice, and the appointment of and acceptance by a successor Master Servicer,
all authority, power, obligations and responsibilities of the Master Servicer
under this Agreement, whether with respect to the Securities or the Trust or
otherwise, shall pass to, be vested in and become obligations and
responsibilities of the successor Master Servicer; provided, however, that the
successor Master Servicer shall have no liability with respect to any obligation
which was required to be performed by the prior Master Servicer prior to the
date that the successor Master Servicer becomes the Master Servicer or any claim
of a third party based on any alleged action or inaction of the prior Master
Servicer. The successor Master Servicer is authorized and empowered by this
Agreement to execute and deliver, on behalf of the prior 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. The prior Master Servicer agrees to
cooperate with the successor Master Servicer in effecting the termination of the
responsibilities and rights of the prior Master Servicer under this Agreement,
including, without limitation, the transfer to the successor Master Servicer for
administration by it of all cash amounts that shall at the time be held by the
prior Master Servicer for deposit, or have been deposited by the prior Master
Servicer, in the Collection Account or thereafter received with respect to the
Home Loans and the delivery to the successor Master Servicer of all Home Loan
Files in the Master Servicer's possession and a computer tape in readable form
containing the Servicing Record and any other information necessary to enable
the successor Master Servicer to service the Home Loans. If requested by the
Securities Insurer (unless a Securities Insurer Default shall have occurred and
be continuing), the successor Master Servicer shall direct the Obligors to make
all payments under the Home Loans directly to the successor Master Servicer, or
to a lockbox established by the Master Servicer at the direction of the
Securities Insurer (unless a Securities Insurer Default shall have occurred and
be continuing), at the prior Master Servicer's expense. In addition to any other
amounts that are then payable to the terminated Master Servicer under this
Agreement, the terminated Master Servicer shall then be entitled to receive (to
the extent provided by Section 4.09) out of the Collected Amount, reimbursements
for any outstanding Interest Advances made during the period prior to the notice
pursuant to this Section 10.02 which terminates the obligation and rights of the
terminated Master Servicer under this Agreement. The Indenture Trustee and the
successor Master Servicer may set off and deduct any amounts owed by the
terminated Master Servicer from any amounts payable to the terminated Master
Servicer. The terminated Master Servicer shall grant the Indenture Trustee, the
successor Master Servicer and the Securities Insurer reasonable access to the
terminated Master Servicer's premises at the terminated Master Servicer's
expense.
Section 10.03 Appointment of Successor.
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(a) On or after the time the Master Servicer receives a notice of
termination pursuant to Section 10.02 or upon the resignation of the Master
Servicer pursuant to Section 9.04, the Indenture Trustee shall be the successor
in all respects to the Master Servicer in its capacity as master servicer under
this Agreement and the transactions set forth or provided for in this Agreement,
and shall be subject to all the responsibilities, restrictions, duties,
liabilities and termination provisions relating thereto placed on the Master
Servicer by the terms and provisions of this Agreement. The Indenture Trustee
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. If the Indenture Trustee or any other successor
Master Servicer is acting as Master Servicer hereunder, it shall be subject to
termination under Section 10.02 upon the occurrence of an Event of Default
applicable to it as Master Servicer.
(b) Any successor Master Servicer appointed pursuant to the provisions
of this Agreement must be approved by the Securities Insurer (provided no
Securities Insurer Default is then occurring and continuing) and shall execute,
acknowledge and deliver to the Indenture Trustee, the Securities Insurer and its
predecessor Master Servicer an instrument accepting such appointment hereunder,
and thereupon the resignation or removal of the predecessor Master Servicer
shall become effective.
(c) Any successor Master Servicer shall be entitled to such compensation
(whether payable out of the Collected Amount or otherwise) as the Master
Servicer would have been entitled to under the Agreement if the Master Servicer
had not resigned or been terminated hereunder. The Securities Insurer and a
successor Master Servicer may agree on additional compensation to be paid to
such successor Master Servicer in accordance with Section 5.01(c)(viii). In
addition, any successor Master Servicer shall be entitled, to reasonable
transition expenses incurred in acting as successor Master Servicer pursuant to
Section 5.01(c)(viii).
Section 10.04 Notification to Certificateholders.
Upon any termination of the Master Servicer or appointment of a
successor to the Master Servicer, the Indenture Trustee shall give prompt
written notice thereof to Securityholders at their respective addresses
appearing in the Note Register and Certificate Register.
Section 10.05 Waiver of Past Defaults.
The Securities Insurer (or, if a Securities Insurer Default shall have
occurred and be continuing, the Majority Securityholders) may, on behalf of all
Securityholders, waive any default by the Master Servicer in the performance of
its obligations hereunder and its consequences. Upon any such waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
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ARTICLE XI.
TERMINATION
Section 11.01 Termination.
(a) This Agreement shall terminate upon notice to the Indenture Trustee
of either: (a) the later of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.1 of the Indenture or (ii) the disposition of all funds
with respect to the last Home Loan and the remittance of all funds due hereunder
and the payment of all amounts due and payable to the Indenture Trustee, the
Owner Trustee, the Co-Owner Trustee, the Issuer, the Master Servicer, the
Servicer, the Custodian and the Securities Insurer; or (b) the mutual consent of
the Master Servicer, the Depositor, the Seller, the Securities Insurer and all
Securityholders in writing.
(b) Subject to the provisions of the following sentence, Mego or, if
such option is not exercised by Mego, the Master Servicer may, at its option
(with the prior written consent of the Securities Insurer if such purchase would
result in a claim under the Guaranty Policy), upon not less than thirty days'
prior notice given to the Indenture Trustee at any time on or after the
applicable Early Termination Notice Date, purchase on the Termination Date
specified in such notice, all, but not less than all, the Home Loans, all claims
made under the Contract of Insurance with respect to Home Loans that are pending
with FHA ("FHA Pending Claims") and Foreclosed Properties then included in the
Trust, at a purchase price (the "Termination Price"), payable in cash, equal to
the sum of:
(i) the Principal Balance of each Home Loan included in the
Trust as of such Monthly Cut-Off Date;
(ii) all unpaid interest accrued on the Principal Balance of
each such Loan at the related Home Loan Interest Rate to such Monthly
Cut-Off Date;
(iii) the aggregate fair market value of the FHA Pending Claims
for which a claim has been filed with the FHA included in the Trust on
such Monthly CutOff Date, as determined by an Independent appraiser
acceptable to the Indenture Trustee as of a date not more than thirty
days prior to such Monthly Cut-Off Date;
(iv) the aggregate fair market value of each Foreclosed Property
included in the Trust on such Monthly Cut-Off Date, as determined by an
Independent appraiser acceptable to the Trustee as of a date not more
than thirty days prior to such Monthly Cut-Off Date; and
(v) any unreimbursed amounts due to the Securities Insurer under
this Agreement or the Insurance Agreement (including any amounts that
may be paid by the Securities Insurer under the Securities Insurance
Policy in connection with the final distribution on the Notes).
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Any amount received from such sale with respect to FHA Pending Claims shall be
considered FHA Insurance Payment Amounts. The expense of any Independent
appraiser required under this Section 11.01(b) shall be a nonreimbursable
expense of Mego. Mego or the Master Servicer shall effect the purchase referred
to in this Section 11.01(b) by deposit of the Termination Price into the Note
Distribution Account. The Indenture Trustee shall give written notice of the
Early Termination Notice Date to the Securities Insurer promptly upon the
occurrence thereof.
Section 11.02 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Securities shall be sent (i) by the Indenture Trustee to the
Noteholders and the Securities Insurer in accordance with Section 2.6(b) of the
Indenture and (ii) by the Owner Trustee or Co-Owner Trustee to the
Certificateholders and the Securities Insurer in accordance with Section 9.1(d)
of the Trust Agreement.
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ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders.
Except as otherwise specifically provided herein, whenever
Securityholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Seller and the Issuer by written agreement with notice
thereof to the Securityholders, without the consent of any of the
Securityholders, but with the consent of the Securities Insurer, to cure any
error or ambiguity, to correct or supplement any provisions hereof which may be
defective or inconsistent with any other provisions hereof or to add any other
provisions with respect to matters or questions arising under this Agreement;
provided, however, that such action will not adversely affect in any material
respect the interests of the Securityholders. An amendment described above shall
be deemed not to adversely affect in any material respect the interests of the
Securityholders if either (i) an opinion of counsel is obtained to such effect,
or (ii) the party requesting the amendment obtains a letter from each of the
Rating Agencies confirming that the amendment, if made, would not result in the
downgrading or withdrawal of the rating then assigned by the respective Rating
Agency to any Class of Securities then outstanding. Notwithstanding the
preceding, the Securities Insurer shall have the right to reduce the Required
O/C Amount without the requirement of an amendment to this Agreement, provided,
however, no such reduction shall be made if such reduction shall adversely
affect the tax characterization of the Notes as debt under federal and
applicable state tax law.
(b) This Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the Seller and the Issuer by written agreement,
with the prior written consent of the Indenture Trustee, the Majority
Securityholders and the Securities Insurer, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Securityholders;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, collections of payments on Home Loans or
distributions which are required to be made on any Security, without the consent
of the holders of 100% of each Class of Notes or the Certificates affected
thereby and the Securities Insurer, (ii) adversely affect in any material
respect the interests of the holders of any Class of Notes or Certificates or
the Securities Insurer in any manner other than as described in (i), without the
consent of the holders of 100% of such Class of Notes or the Certificates or the
Securities Insurer, respectively, or (iii) reduce the percentage of any Class of
Notes or the Certificates, the holders of which are required to consent
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to any such amendment, without the consent of the holders of 100% of such Class
of Notes or the Certificates and the Securities Insurer.
(c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer
shall be entitled to receive and rely upon an opinion of counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Issuer may, but shall not be obligated to, enter into any such amendment
which affects the Issuer's own rights, duties or immunities under this
Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Master Servicer at the
Securityholders' expense on direction of the Majority Securityholders or the
Securities Insurer, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Securityholders or is necessary for the administration or servicing of
the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by overnight mail, certified mail or registered mail, postage prepaid, to: (i)
in the case of the Depositor, FINANCIAL ASSET SECURITIES CORP., 600 Steamboat
Road, Greenwich, Connecticut 06830 Attention: Peter McMullin, or such other
addresses as may hereafter be furnished to the Securityholders and
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the other parties hereto in writing by the Depositor, (ii) in the case of the
Issuer, Mego Mortgage Home Loan Owner Trust 1997-2, c/o Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Emmett R. Harmon, or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto, (iii) in the case
of the Seller, Servicer and Claims Administrator, MEGO MORTGAGE CORPORATION,
1000 Parkwood Circle, Atlanta, Georgia 30339, Attention: Jeff Moore, President,
or such other address as may hereafter be furnished to the Securityholders and
the other parties hereto, (iv) in the case of the Securities Insurer, 113 King
Street, Armonk, New York 10504, Attention: IPM-SF, (v) in the case of the
Indenture Trustee or Co-Owner Trustee, FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, 180 East Fifth Street, St. Paul, Minnesota 55101, Attention:
Structured Finance: Mego 1997-2, (vi) in the case of the Master Servicer, 11000
Broken Land Parkway, Columbia, Maryland 21044-3562, Attention: Master Servicing
Department, Mego Mortgage Home Loan Owner Trust 1997-2; and (vii) in the case of
the Securityholders, as set forth in the applicable Note Register and
Certificate Register. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Securityholders shall be effective upon mailing or
personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Master Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Master Servicer, the Seller, the Depositor, the Issuer, the Indenture Trustee,
and the Securityholders and their respective successors and permitted assigns.
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Section 12.11 Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Master Servicer or the Issuer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Master Servicer and the Issuer if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Master Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Master Servicer, the Issuer or the Securities Insurer in
reliance thereon, whether or not notation of such action is made upon such
Security.
(d) The Depositor, the Master Servicer or the Issuer may require
additional proof of any matter referred to in this Section 12.12 as it shall
deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Master Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger
or consolidation of either the Master Servicer, any Custodian or the
Issuer;
(iv) notice of final payment on the Notes and the Residual
Certificates;
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(v) notice of any Event of Default;
(vi) copies of the annual independent auditor's report delivered
pursuant to Section 4.05, and copies of any compliance reports delivered
by the Master Servicer hereunder including Section 4.04; and
(vii) copies of any Master Servicer's Certificate pursuant to
Section
6.02(b); and
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004-1064, Attention: Asset-Backed Monitoring Department; or (ii) if to
Moody's, 99 Church Street, Corporate Department - 4th Floor, New York, New York
10007, Attention: Residential Mortgage Monitoring Department.
Section 12.14 Grant of Securityholder Rights to Securities Insurer.
In consideration for the guarantee of the Securities by the Securities
Insurer pursuant to the Guaranty Policy, the Securityholders hereby grant to the
Securities Insurer the right to act as the holder of 100% of the outstanding
Insured Securities for the purpose of exercising the rights of the holders of
the Insured Securities under this Agreement without the consent of any
Securityholders, including the voting rights of such holders, but excluding
those rights requiring the consent of all such holders under Section 12.02(b),
and any rights of such holders to distributions under Section 8.2 of the
Indenture with respect to the Notes. The rights of the Securities Insurer to
direct certain actions and consent to certain actions of the Majority
Securityholders hereunder will terminate at such time as the Class Principal
Balances of all Classes of Notes have been reduced to zero and the Securities
Insurer has been reimbursed for all Insured Payments and any other amounts owed
under the Guaranty Policy and Insurance Agreement and the Securities Insurer has
no further obligation under the Guaranty Policy.
Section 12.15 Third Party Beneficiary.
The parties hereto acknowledge that the Securities Insurer is an express
third party beneficiary hereof entitled to enforce any rights reserved to it
hereunder as if it were actually a party hereto.
Section 12.16 Holders of the Residual Certificates.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Trust Agreement to the holders of the Residual Certificates shall be paid to
such holders pro rata based on their percentage holdings in the Residual
Certificates;
105
<PAGE> 110
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Certificates, such consent or
approval shall be capable of being given by the holder or holders of not less
than 51% of the Percentage Interests of the Residual Certificates in aggregate.
Section 12.17 Inconsistencies Among Transaction Documents.
In the event certain provisions of a Transaction Document conflict with
the provisions of this Sale and Servicing Agreement, the parties hereto agree
that the provisions of this Sale and Servicing Agreement shall be controlling.
106
<PAGE> 111
IN WITNESS WHEREOF, the following have caused their names to be signed
by their respective officers thereunto duly authorized, as of the day and year
first above written, to this SALE AND SERVICING AGREEMENT .
MEGO MORTGAGE HOME
LOAN OWNER TRUST 1997-2,
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee
By:________________________________________________
Name: Emmett R. Harmon
Title: Vice President
FINANCIAL ASSET SECURITIES CORP.,
as Depositor
By:________________________________________________
Name: Peter McMullin
Title: Vice President
MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims Administrator
By:________________________________________________
Name: James L. Belter
Title: Executive Vice President
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION,
as Indenture Trustee, Co-Owner Trustee and Contract
of Insurance Holder
By:________________________________________________
Name: Lynn Steiner
Title: Assistant Vice President
107
<PAGE> 112
NORWEST BANK MINNESOTA, N.A. as Master
Servicer
By:________________________________________________
Name: Michael Mayer
Title: Vice President
108
<PAGE> 113
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Emmett R. Harmon, known to me to be a person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said WILMINGTON TRUST COMPANY, NOT IN ITS INDIVIDUAL
CAPACITY BUT IN ITS CAPACITY AS OWNER TRUSTEE of MEGO MORTGAGE HOME LOAN OWNER
TRUST 1997-2, as Issuer, and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the 22nd
day of May, 1997.
---------------------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Peter McMullin, known to me to be a person and officer whose
name is subscribed to the foregoing instrument and acknowledged to me that the
same was the act of the said FINANCIAL ASSET SECURITIES CORP., as the Depositor,
and that he executed the same as the act of such corporation for the purpose and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FINANCIAL ASSET SECURITIES CORP., this
the 22nd day of May, 1997.
---------------------------------------------------
Notary Public, State of ________
109
<PAGE> 114
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared James L. Belter, known to me to be the person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said MEGO MORTGAGE CORPORATION, as the Seller,
Servicer and Claims Administrator, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF MEGO MORTGAGE CORPORATION, this the 22nd
day of May, 1997.
---------------------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Lynn Steiner, known to me to be the person and officer whose
name is subscribed to the foregoing instrument and acknowledged to me that the
same was the act of the said FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, a
national banking association, as the Indenture Trustee, Co-Owner Trustee and
Contract of Insurance Holder, and that she executed the same as the act of such
entity for the purposes and consideration therein expressed, and in the capacity
therein stated.
GIVEN UNDER MY HAND AND SEAL OF FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, this the 22nd day of May, 1997.
---------------------------------------------------
Notary Public, State of ________
110
<PAGE> 115
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Michael Mayer, known to me to be the person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said NORWEST BANK MINNESOTA, N.A., as the Master
Servicer, and that he executed the same as the act of such corporation for the
purpose and consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF NORWEST BANK MINNESOTA, N.A., this the
22nd day of May, 1997.
---------------------------------------------------
Notary Public, State of ________
111
<PAGE> 1
EXHIBIT 10.124
EXECUTION COPY
================================================================================
TRUST AGREEMENT
among
FINANCIAL ASSET SECURITIES CORP.,
as Depositor,
MEGO MORTGAGE CORPORATION,
as the Company,
WILMINGTON TRUST COMPANY,
as Owner Trustee
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Co-Owner Trustee
Dated as of May 1, 1997
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2 Home Loan
Asset Backed Securities, Series 1997-2
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms.............................................I-1
Section 1.2 Other Definitional Provisions.................................I-4
ARTICLE II
ORGANIZATION
Section 2.1 Name.........................................................II-1
Section 2.2 Office.......................................................II-1
Section 2.3 Purposes and Powers..........................................II-1
Section 2.4 Appointment of Owner Trustee.................................II-2
Section 2.5 Initial Capital Contribution of Owner Trust Estate...........II-2
Section 2.6 Declaration of Trust.........................................II-2
Section 2.7 Title to Trust Property......................................II-2
Section 2.8 Situs of Trust...............................................II-3
Section 2.9 Representations and Warranties of the Depositor and the
Company; Covenant of the Company.............................II-3
Section 2.10 Federal Income Tax Allocations...............................II-5
ARTICLE III
RESIDUAL CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership...........................................III-1
Section 3.2 The Residual Certificates...................................III-1
Section 3.3 Execution, Authentication and Delivery of Residual
Certificates................................................III-1
Section 3.4 Registration of Transfer and Exchange of Residual
Certificates................................................III-1
Section 3.5 Mutilated, Destroyed, Lost or Stolen Residual Certificates..III-2
Section 3.6 Persons Deemed Owners.......................................III-3
Section 3.7 Access to List of Owners' Names and Addresses...............III-3
Section 3.8 Maintenance of Office or Agency.............................III-3
Section 3.9 Appointment of Paying Agent.................................III-3
</TABLE>
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<TABLE>
<S> <C> <C>
Section 3.10 Restrictions on Transfer of Residual Certificates...........III-4
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Owners with Respect to Certain Matters.......IV-1
Section 4.2 Action by Owners with Respect to Certain Matters.............IV-3
Section 4.3 Action by Owners with Respect to Bankruptcy..................IV-3
Section 4.4 Restrictions on Owners' Power................................IV-3
Section 4.5 Majority Control.............................................IV-3
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account................................V-1
Section 5.2 Application Of Trust Funds....................................V-1
Section 5.3 Method of Payment.............................................V-2
Section 5.4 Segregation of Moneys; No Interest............................V-2
Section 5.5 Accounting and Reports to the Residual
Certificateholders, Owners, the Internal Revenue Service and
Others........................................................V-2
Section 5.6 Signature on Returns..........................................V-3
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority............................................VI-1
Section 6.2 General Duties...............................................VI-1
Section 6.3 Action upon Instruction......................................VI-1
Section 6.4 No Duties Except as Specified in this Agreement, the
Transaction Documents or in Instructions.....................VI-2
Section 6.5 No Action Except Under Specified Documents or
Instructions.................................................VI-3
Section 6.6 Restrictions.................................................VI-3
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties.............................VII-1
Section 7.2 Furnishing of Documents.....................................VII-2
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.3 Representations and Warranties..............................VII-2
Section 7.4 Reliance; Advice of Counsel.................................VII-3
Section 7.5 Not Acting in Individual Capacity..........................VII-4
Section 7.6 Owner Trustee Not Liable for Residual Certificates or
Home Loans..................................................VII-4
Section 7.7 Owner Trustee May Own Residual Certificates and Notes.......VII-4
Section 7.8 Licenses....................................................VII-5
Section 7.9 Rights of Co-Owner Trustee..................................VII-5
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses..........................VIII-1
Section 8.2 Indemnification............................................VIII-1
Section 8.3 Payments to the Owner Trustee..............................VIII-1
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement...............................IX-1
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee....................X-1
Section 10.2 Resignation or Removal of Owner Trustee or Co-Owner
Trustee.......................................................X-1
Section 10.3 Successor Owner Trustee or Co-Owner Trustee...................X-2
Section 10.4 Merger or Consolidation of Owner Trustee......................X-3
Section 10.5 Appointment of Co-Owner Trustee or Separate Owner
Trustee.......................................................X-3
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments...................................XI-1
Section 11.2 No Legal Title to Owner Trust Estate in Owners...............XI-2
Section 11.3 Limitations on Rights of Others..............................XI-2
Section 11.4 Notices......................................................XI-2
Section 11.5 Severability.................................................XI-3
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
Section 11.6 Separate Counterparts........................................XI-3
Section 11.7 Successors and Assigns.......................................XI-3
Section 11.8 No Petition..................................................XI-3
Section 11.9 Covenants of Company.........................................XI-3
Section 11.10 No Recourse..................................................XI-3
Section 11.11 Headings.....................................................XI-4
Section 11.12 GOVERNING LAW................................................XI-4
Section 11.13 Third-Party Beneficiary......................................XI-4
Section 11.14 Inconsistencies with Sale and Servicing Agreement............XI-4
</TABLE>
<TABLE>
<S> <C>
EXHIBIT A Form of Residual Certificate
EXHIBIT B Certificate of Trust
</TABLE>
-iv-
<PAGE> 6
TRUST AGREEMENT, dated as of May 1, 1997, among FINANCIAL ASSET
SECURITIES CORP., a Delaware corporation, as Depositor (the "Depositor"), MEGO
MORTGAGE CORPORATION, a Delaware corporation (the "Company"), WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as Owner Trustee (the "Owner Trustee")
and FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as Co-Owner Trustee (the
"Co-Owner Trustee").
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Administration Agreement" shall mean the Administration Agreement,
dated as of May 1, 1997 among the Issuer, the Company, and First Trust of New
York, National Association, as Administrator.
"Administrator" shall mean First Trust of New York, National
Association, or any successor in interest thereto, in its capacity as
Administrator under the Administration Agreement.
"Benefit Plan" shall have the meaning assigned to such term in Section
3.10.
"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.
"Residual Certificate" shall mean any Residual Certificate; a form of
which is attached hereto as Exhibit A.
"Certificate Distribution Account" shall have the meaning assigned to
such term in the Sale and Servicing Agreement.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit C to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned in, and the registrar appointed pursuant to, Section 3.4.
I-1
<PAGE> 7
"Residual Certificateholder" or "Holder" shall mean a Person in whose
name a Residual Certificate is registered.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Co-Owner Trustee" shall mean First Trust of New York, National
Association.
"Company" shall mean Mego Mortgage Corporation, a Delaware corporation.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention:
Corporate Trust Administration; or at such other address in the State of
Delaware as the Owner Trustee may designate by notice to the Owners and the
Company, or the principal corporate trust office of any successor Owner Trustee
(the address (which shall be in the State of Delaware) of which the successor
owner trustee will notify the Owners and the Company).
"ERISA" shall have the meaning assigned thereto in Section 3.10.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"Indenture" shall mean the Indenture, dated as of May 1, 1997, by and
between the Issuer and the Indenture Trustee.
"Indenture Trustee" means First Trust of New York, National Association,
as Indenture Trustee under the Indenture.
"Insurance Agreement" shall mean the Insurance Agreement, dated as of
May 1, 1997, among the Issuer, the Depositor, the Affiliated Holder, Greenwich
Capital Financial Products, Inc., the Company, as Seller, Servicer and Claims
Administrator, the Master Servicer, the Indenture Trustee as Indenture Trustee,
Co-Owner Trustee and Contract of Insurance Holder and the Securities Insurer.
"Issuer" shall mean Mego Mortgage Home Loan Owner Trust 1997-2, the
Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set forth in
Section 3.10.
"Non-U.S. Person" shall mean an individual, corporation, partnership or
other person other than a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision
I-2
<PAGE> 8
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 is able to
exercise primary supervision over the administration of the trust and one or
more United States trustees have authority to control all substantial decisions
of the trust..
"Owner" shall mean each Holder of a Residual Certificate.
"Owner Trust Estate" shall mean the contribution of $1 referred to in
Section 2.5 and the Trust Estate (as defined in the Indenture).
"Owner Trustee" shall mean Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor owner trustee hereunder.
"Paying Agent" shall mean the Co-Owner Trustee or any successor in
interest thereto or any other paying agent or co-paying agent appointed pursuant
to Section 3.9 and authorized by the Issuer to make payments to and
distributions from the Certificate Distribution Account, including payments on
the Residual Certificates on behalf of the Issuer.
"Percentage Interest" shall mean with respect to each Residual
Certificate, the percentage portion of all of the Residual Interest evidenced
thereby as stated on the face of such Residual Certificate.
"Prospective Owner" shall have the meaning set forth in Section 3.10(a).
"Rating Agency Condition" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Rating Agencies shall have notified the
Seller, the Servicer, the Securities Insurer, the Owner Trustee, Co-Owner
Trustee, and the Issuer in writing that such action will not result in a
reduction or withdrawal of the then current rating of the Notes.
"Record Date" shall mean as to each Distribution Date the last Business
Day of the month immediately preceding the month in which such Distribution Date
occurs.
"Residual Interest" shall mean the right to receive distributions of
Distributable Excess Spread, if any, and certain other funds, if any, on each
Distribution Date, pursuant to Sections 5.01(c) and 5.03 of the Sale and
Servicing Agreement.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Trust as Issuer, the Depositor,
the Indenture Trustee as Indenture Trustee, Contract of Insurance Holder and
Co-Owner Trustee, Norwest Bank Minnesota, N.A., as Master Servicer, and the
Company, as Seller, Servicer and Claims Administrator.
I-3
<PAGE> 9
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Securities Insurer" shall mean MBIA Insurance Corporation.
"Securities Insurer Default" shall mean the failure of the Securities
Insurer to make payments under the Guaranty Policy, if such failure has not been
remedied with ten (10) days of notice thereof, or the entry of an order or
decree with respect to the Securities Insurer in any insolvency or bankruptcy
proceedings which remain unstayed or undischarged for 90 days.
"Transaction Documents" shall have the meaning set forth in the Sale and
Servicing Agreement.
"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.
"Underwriter" shall mean Greenwich Capital Markets, Inc.
Section 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Sale and Servicing Agreement
or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this
I-4
<PAGE> 10
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.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
I-5
<PAGE> 11
ARTICLE II
ORGANIZATION
Section 2.1 Name. The Trust created hereby shall be known as "Mego
Mortgage Home Loan Owner Trust 1997-2", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Owners, the
Securities Insurer, and the Company.
Section 2.3 Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Residual Certificates pursuant to this Agreement and to sell such Notes
and such Residual Certificates;
(ii) with the proceeds of the sale of the Notes and the Residual
Certificates, to fund start-up and transactional expenses of the Trust
and to pay the balance to the Depositor and the Company, as their
interests may appear pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the Owners pursuant to the terms of the Sale and Servicing
Agreement any portion of the 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
Transaction Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Transaction Documents, to
engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Owners and the Noteholders;
II-1
<PAGE> 12
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the
Transaction Documents.
Section 2.4 Appointment of Owner Trustee. The Depositor hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
Section 2.5 Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Company
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee.
Section 2.6 Declaration of Trust. The Owner Trustee hereby declares that
it will hold the Owner Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Owners, subject to the
obligations of the Trust under the Transaction 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 and franchise tax purposes, the Trust shall be treated as a partnership,
with the assets of the partnership being the Home Loans and other assets held by
the Trust, the partners of the partnership being the holders of the Residual
Certificates and the Notes being non-recourse debt of the partnership. The
parties agree that, unless otherwise required by appropriate tax authorities,
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 in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
Section 2.7 Title to Trust Property.
(a) Subject to the Indenture, legal title to all the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, the Co-Owner Trustee
and/or a separate trustee, as the case may be.
II-2
<PAGE> 13
(b) The Owners shall not have legal title to any part of the
Owner Trust Estate. No transfer by operation of law or otherwise of any interest
of the Owners shall operate to terminate this Agreement or the trusts hereunder
or entitle any transferee to an accounting or to the transfer to it of any part
of the Owner Trust Estate.
Section 2.8 Situs of Trust. The Trust will be located and administered
in the state of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York, except with respect to the Co-Owner Trustee. The Trust shall not have
any employees; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware or New York, and
payments will be made by the Trust only from Delaware or New York, except with
respect to the Co-Owner Trustee. The only office of the Trust will be at the
Corporate Trust Office in Delaware.
Section 2.9 Representations and Warranties of the Depositor and the
Company; Covenant of the Company.
(a) The Depositor hereby represents and warrants to the Owner
Trustee, the Co-Owner Trustee and the Securities Insurer that:
(i) The Depositor is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware
and has all licenses necessary to carry on its business as now being
conducted. The Depositor has the power and authority to execute and
deliver this Agreement and to perform in accordance herewith; the
execution, delivery and performance of this Agreement (including all
instruments of transfer to be delivered pursuant to this Agreement) by
the Depositor and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary action of
the Depositor; this Agreement evidences the valid, binding and
enforceable obligation of the Depositor; and all requisite action has
been taken by the Depositor to make this Agreement valid, binding and
enforceable upon the Depositor in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium and
other, similar laws relating to or affecting creditors' rights generally
or the application of equitable principles in any proceeding, whether at
law or in equity.;
(ii) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions
of the Articles of Incorporation or Bylaws of the Depositor, (ii) the
breach of any term or provision of, or conflict with or constitute a
default under or result in the acceleration of any obligation under, any
material agreement, indenture or loan or credit agreement or other
material instrument to which the Depositor, or its property is subject,
or (iii) the violation of any law, rule, regulation, order, judgment or
decree to which the Depositor or its respective property is subject;
II-3
<PAGE> 14
(iii) The Depositor is not in default with respect to any order
or decree of any court or any order, regulation or demand of any
federal, state, municipal or other governmental agency, which default
might have consequences that would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or its
properties or might have consequences that would materially and
adversely affect its performance hereunder.
(b) The Company hereby represents and warrants to the Owner
Trustee, the Co-Owner Trustee and the Securities Insurer that:
(i) The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(ii) The Company is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business shall require such
qualifications.
(iii) The Company has the power and authority to execute and
deliver this Agreement and to carry out its terms; and the execution,
delivery and performance of this Agreement has been duly authorized by
the Company by all necessary corporate action.
(iv) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or by-laws of the Company, or any
indenture, agreement or other instrument to which the Company is a party
or by which it is bound; nor result in the creation or imposition of any
lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Transaction Documents); nor violate any law or, to the best of the
Company's knowledge, any order, rule or regulation applicable to the
Company of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties.
(v) There are no proceedings or investigations pending or, to
the Company's best knowledge, threatened, before any court, regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties: (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation
of any of the transactions contemplated by this Agreement or (iii)
seeking any determination or ruling that might materially and
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<PAGE> 15
adversely affect the performance by the Company of its obligations
under, or the validity or enforceability of, this Agreement.
(c) The Company covenants with the Owner Trustee, the Co-Owner
Trustee and the Securities Insurer that during the continuance of this Agreement
it will comply in all respects with the provisions of its Certificate of
Incorporation in effect from time to time.
Section 2.10 Federal Income Tax Allocations. Net income of the Trust for
any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the holders of the Residual Certificates, on a pro rata basis.
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ARTICLE III
RESIDUAL CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Residual Certificates, the Depositor shall be the sole Owner of the Trust.
Section 3.2 The Residual Certificates. The Residual Certificates shall
not be issued with a principal or notional amount. The Residual Certificates
shall be executed on behalf of the Trust by manual or facsimile signature of a
Trust Officer of the Owner Trustee or the Co-Owner Trustee. Residual
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be valid and binding obligations of the Trust,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Residual
Certificates or did not hold such offices at the date of authentication and
delivery of such Residual Certificates.
A transferee of a Residual Certificate shall become an Owner, and shall
be entitled to the rights and subject to the obligations of an Owner hereunder
and under the Sale and Servicing Agreement, upon such transferee's acceptance of
a Residual Certificate duly registered in such transferee's name pursuant to
Section 3.4.
Section 3.3 Execution, Authentication and Delivery of Residual
Certificates. Concurrently with the sale of the Home Loans to the Trust pursuant
to the Sale and Servicing Agreement, the Owner Trustee or the Co-Owner Trustee
shall cause the Residual Certificates representing 100% of the Percentage
Interests of the Residual Interest to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Depositor,
signed by its chairman of the board, its president or any vice president,
without further corporate action by the Depositor, in authorized denominations.
No Residual Certificate shall entitle its holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Residual Certificate a certificate of authentication substantially in the form
set forth in Exhibit A, executed by the Owner Trustee or the Administrator, as
the Owner Trustee's authenticating agent, by manual or facsimile signature; such
authentication shall constitute conclusive evidence that such Residual
Certificate shall have been duly authenticated and delivered hereunder. All
Residual Certificates shall be dated the date of their authentication.
Section 3.4 Registration of Transfer and Exchange of Residual
Certificates. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Residual Certificates and of
transfers and exchanges of Residual Certificates as herein provided. The
Administrator shall be the initial Certificate Registrar.
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Upon surrender for registration of transfer of any Residual Certificate
at the office or agency maintained pursuant to Section 3.8, the Owner Trustee or
Co-Owner Trustee shall execute, authenticate and deliver (or shall cause the
Administrator as its authenticating agent to authenticate and deliver), in the
name of the designated transferee or transferees, one or more new Residual
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Owner Trustee or any authenticating agent. At the
option of an Owner, Residual Certificates may be exchanged for other Residual
Certificates of authorized denominations of a like aggregate amount upon
surrender of the Residual Certificates to be exchanged at the office or agency
maintained pursuant to Section 3.8.
Every Residual Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Owner or his attorney duly authorized in writing. In addition,
each Residual Certificate presented or surrendered for registration of transfer
and exchange must be accompanied by a letter from the Prospective Owner
certifying as to the representations set forth in Sections 3.10(a) and (b). Each
Residual Certificate surrendered for registration of transfer or exchange shall
be canceled and disposed of by the Owner Trustee in accordance with its
customary practice.
No service charge shall be made for any registration of transfer or
exchange of Residual Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Residual Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register transfer
or exchanges of Residual Certificates for a period of 15 days preceding the due
date for any payment with respect to the Residual Certificates.
Section 3.5 Mutilated, Destroyed, Lost or Stolen Residual Certificates.
If (a) any mutilated Residual Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall receive evidence to
its satisfaction of the destruction, loss or theft of any Residual Certificate
and (b) there shall be delivered to the Certificate Registrar and the Owner
Trustee such security or indemnity as may be required by them to save each of
them harmless, then in the absence of notice that such Residual Certificate
shall have been acquired by a bona fide purchaser, the Owner Trustee on behalf
of the Trust shall execute and the Owner Trustee, or the Administrator as the
Owner Trustee's authenticating agent, shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Residual Certificate, a new Residual Certificate of like tenor and denomination.
In connection with the issuance of any new Residual Certificate under this
Section, the Owner Trustee or the Certificate Registrar may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith. Any duplicate Residual Certificate issued
pursuant to this Section shall constitute conclusive
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<PAGE> 18
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Residual Certificate shall be found at any time.
Section 3.6 Persons Deemed Owners. Prior to due presentation of a
Residual Certificate for registration of transfer, the Owner Trustee or the
Certificate Registrar may treat the Person in whose name any Residual
Certificate shall be registered in the Certificate Register as the owner of such
Residual Certificate for the purpose of receiving distributions pursuant to
Section 5.2 and for all other purposes whatsoever, and neither the Owner Trustee
nor the Certificate Registrar shall be bound by any notice to the contrary.
Section 3.7 Access to List of Owners' Names and Addresses. The
Certificate Registrar shall furnish or cause to be furnished to the Master
Servicer, the Servicer, the Depositor, the Securities Insurer and the Indenture
Trustee within 15 days after receipt by the Owner Trustee of a request therefor
from the Master Servicer, the Servicer, the Depositor, the Securities Insurer or
the Indenture Trustee in writing, a list, in such form as the Master Servicer,
the Servicer, the Depositor or the Indenture Trustee may reasonably require, of
the names and addresses of the Owners as of the most recent Record Date. If
three or more Residual Certificateholders or one or more Holders of Residual
Certificates together evidencing not less than a 25% Percentage Interest in the
Residual Certificates apply in writing to the Owner Trustee, and such
application states that the applicants desire to communicate with other Residual
Certificateholders with respect to their rights under this Agreement or under
the Residual 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
Residual Certificateholders. Each Owner, by receiving and holding a Residual
Certificate, shall be deemed to have agreed not to hold any of the Depositor,
the Company, the Certificate Registrar or the Owner Trustee accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
Section 3.8 Maintenance of Office or Agency. The Owner Trustee shall
maintain an office or offices or agency or agencies where Residual Certificates
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Owner Trustee in respect of the Residual Certificates
and the Transaction Documents may be served. The Owner Trustee initially
designates the Administrator's office in St. Paul, Minnesota as its principal
corporate trust office for such purposes. The Owner Trustee shall give prompt
written notice to the Company and to the Residual Certificateholders of any
change in the location of the Certificate Register or any such office or agency.
Section 3.9 Appointment of Paying Agent. The Owner Trustee hereby
appoints the Co-Owner Trustee as Paying Agent under this Agreement. The Paying
Agent shall make distributions to Residual Certificateholders from the
Certificate Distribution Account pursuant to Section 5.2 hereof and Section 5.01
of the Sale and Servicing Agreement and shall report the amounts of such
distributions to the Owner Trustee. The Paying Agent shall have the
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<PAGE> 19
revocable power to withdraw funds from the Certificate Distribution Account for
the purpose of making the distributions referred to above. In the event that the
Co-Owner Trustee shall no longer be the Paying Agent hereunder, the Owner
Trustee shall appoint a successor to act as Paying Agent (which shall be a bank
or trust company) acceptable to the Securities Insurer. The Owner Trustee shall
cause such successor Paying Agent or any additional Paying Agent appointed by
the Owner Trustee to execute and deliver to the Owner Trustee an instrument in
which such successor Paying Agent or additional Paying Agent shall agree with
the Owner Trustee that as Paying Agent, such successor Paying Agent or
additional Paying Agent will hold all sums, if any, held by it for payment to
the Owners in trust for the benefit of the Residual Certificateholders entitled
thereto until such sums shall be paid to such Owners. The Paying Agent shall
return all unclaimed funds to the Owner Trustee, and upon removal of a Paying
Agent, such Paying Agent shall also return all funds in its possession to the
Owner Trustee. The provisions of Sections 7.1, 7.3, 7.4 and 8.1 shall apply to
the Co-Owner Trustee also in its role as Paying Agent, for so long as the
Co-Owner Trustee shall act as Paying Agent and, to the extent applicable, to any
other paying agent appointed hereunder. Any reference in this Agreement to the
Paying Agent shall include any co-paying agent unless the context requires
otherwise. Notwithstanding anything herein to the contrary, the Co-Owner Trustee
and the Paying Agent shall be the same entity as the Indenture Trustee under the
Indenture and the Sale and Servicing Agreement, unless a Securities Insurer
Default has occurred and is continuing. In such event, the Co-Owner Trustee and
the Paying Agent shall resign and the Owner Trustee shall assume the duties and
obligations of the Co-Owner Trustee and the Paying Agent hereunder and under the
Sale and Servicing Agreement; provided, however, that the Indenture Trustee
shall continue to perform its duties as Contract of Insurance Holder under the
Sale and Servicing Agreement. In addition, in such event, the Indenture Trustee
shall agree to continue to make claims under the Guaranty Policy on behalf of
the Owner Trustee for the benefit of the Residual Certificateholders pursuant to
the Sale and Servicing Agreement.
Section 3.10 Restrictions on Transfer of Residual Certificates.
(a) No Residual Certificate may 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 described in Section 4975(e)(1) of the Internal Revenue Code of
1986, as amended, or (iii) any entity, including an insurance company
separate account or general account, whose underlying assets include
plan assets by reason of a plan's investment in the entity (each, a
"Benefit Plan"). By accepting and holding a Residual Certificate, the
Owner thereof shall be deemed to have represented and warranted that it
is not a Benefit Plan.
(b) Each prospective purchaser and any subsequent transferee of
a Residual Certificate (each, a "Prospective Owner"), other than the
Company or a wholly-owned subsidiary of the Company, shall represent and
warrant, in writing, to the Owner Trustee and the Certificate Registrar
and any of their respective successors that:
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(i) Such Person is (A) a "qualified institutional buyer"
as defined in Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), and is aware that the seller of
such Residual Certificate may be relying on the exemption from
the registration requirements of the Securities Act provided by
Rule 144A and is acquiring such Residual Certificate for its own
account or for the account of one or more qualified
institutional buyers for whom it is authorized to act, or (B) a
Person involved in the organization or operation of the Trust or
an affiliate of such Person within the meaning of Rule 3a-7 of
the Investment Company Act of 1940, as amended (including, but
not limited to, the Seller or the Company).
(ii) Such Person understands that such Residual
Certificate has not been and will not be registered under the
Securities Act and may be offered, sold, pledged or otherwise
transferred only to a person whom the seller reasonably believes
is (A) a qualified institutional buyer or (B) a Person involved
in the organization or operation of the Trust or an affiliate of
such Person, in a transaction meeting the requirements of Rule
144A under the Securities Act and in accordance with any
applicable securities laws of any state of the United States.
(iii) Such Person understands that each Residual
Certificate bears a legend to the following effect:
THIS RESIDUAL CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR
SOLD OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO
RULE 144A OR [(II) A PERSON INVOLVED IN THE ORGANIZATION
OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A
PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE INVESTMENT
COMPANY ACT OF 1940], AS AMENDED (INCLUDING, BUT NOT
LIMITED TO, MEGO MORTGAGE CORPORATION) IN A TRANSACTION
THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE
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<PAGE> 21
REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. NO
PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL
CERTIFICATE UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of
Section 3.10(b), as applicable, relating to the ERISA
restrictions with respect to the acceptance or acquisition of
such Residual Certificate.
(c) Each Prospective Owner, other than the Company, shall
either:
(i) represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their
respective successors that the Prospective Owner is not (A) an
"employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or (B) a "plan" within the meaning of Section
4975(e)(1) of the Code (any such plan or employee benefit plan,
a "Plan") or (C) any entity, including an insurance company
separate account or general account, whose underlying assets
include plan assets by reason of a plan's investment in the
entity and is not directly or indirectly purchasing such
Residual Certificate on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan; or
(ii) furnish to the Owner Trustee and the Certificate
Registrar and any of their respective successors an opinion of
counsel acceptable to such persons that (A) the proposed
issuance or transfer of such Residual Certificate to such
Prospective Owner will not cause any assets of the Trust to be
deemed assets of a Plan, or (B) the proposed issuance or
transfer of such Residual Certificate will not cause the Owner
Trustee or the Certificate Registrar or any of their respective
successors to be a fiduciary of a Plan within the meaning of
Section 3(21) of ERISA and will not give rise to a transaction
described in Section 406 of ERISA or Section 4975(c)(1) of the
Code for which a statutory or administrative exemption is
unavailable.
(d) By its acceptance of a Residual Certificate, each Prospective Owner
agrees and acknowledges that no legal or beneficial interest in all or any
portion of the Residual Certificates may be transferred directly or indirectly
to an individual, corporation, partnership or other person unless such
transferee is not a Non-U.S. Person (any such person being referred to herein as
a "Non-permitted Foreign Holder"), and any such purported transfer shall be void
and have no effect.
(e) Neither The Owner Trustee nor the Administrator shall execute, or
countersign and deliver, any Residual Certificate in connection with any
transfer thereof unless the transferor shall have provided to the Owner Trustee
or the Administrator a certificate,
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substantially in the form attached as Exhibit D to this Agreement, signed by the
transferee or a Non-permitted Foreign Holder, which certificate shall contain
the consent of the transferee to any amendments of this Agreement as may be
required to effectuate further the foregoing restrictions on transfer of any
Residual Certificate to Non-permitted Foreign Holders, and an agreement by the
transferee that it will not transfer any Residual Certificate without providing
to Certificate Registrar on behalf of the Owner Trustee a certificate
substantially in the form attached as Exhibit D to this Agreement.
(f) Each Residual Certificate shall bear an additional legend referring
to the foregoing restrictions contained in paragraphs (c) and (d) above.
(g) The Prospective Owner of a Residual Certificate shall obtain an
opinion of counsel to the effect that, as a matter of Federal income tax law,
such Prospective Owner is permitted to accept the transfer of a Residual
Certificate.
(h) No Residual Certificate may not be transferred without an Opinion of
Counsel to the effect that such transfer would not jeopardize the tax treatment
of the Trust, would not subject the Trust to an entity-level tax, and would not
jeopardize the status of the Notes as debt for all purposes.
(i) The Residual Certificates shall not be listed for trading on an
established securities market, nor be readily tradeable on a secondary market,
nor be transferable through the substantial equivalent of a secondary market,
nor shall the Issuer be permitted to have more than 100 partners, for income tax
purposes, all within the meaning of Code Section 7704, and its attendant
regulations, as applicable. If requested, in the discretion of the Owner
Trustee, transfer of a Residual Certificate shall be made only if accompanied by
an opinion of counsel satisfactory to the Owner Trustee or the Co-Owner Trustee,
which opinion of counsel shall not be an expense of the Issuer, the Owner
Trustee, the Servicer or the Seller, to the effect such transfer will not cause
the Issuer to be a publicly traded partnership taxable as a corporation and will
not cause the termination of the Issuer under the federal income tax rules
applicable to partnerships.
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Owners with Respect to Certain Matters. With
respect to the following matters, the Owner Trustee shall not take action, and
the Owners shall not direct the Owner Trustee to take any action, unless at
least 30 days before the taking of such action, the Owner Trustee shall have
notified the Owners and the Securities Insurer in writing of the proposed action
and the Owners and/or the Securities Insurer shall not have notified the Owner
Trustee in writing prior to the 30th day after such notice is given that such
Owners and/or the Securities Insurer have withheld consent or the Owners have
provided alternative direction (any direction by the Owners shall require the
prior consent of the Securities Insurer):
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of the Home Loans)
and the compromise of any action, claim or lawsuit brought by or against the
Trust (except with respect to the aforementioned claims or lawsuits for
collection of the Home Loans);
(b) 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);
(c) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any Noteholder or the
Securities Insurer is required;
(d) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any Noteholder or the
Securities Insurer is not required and such amendment materially adversely
affects the interest of the Owners;
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a
successor Certificate Registrar, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its
obligations under the Indenture or this Agreement, as applicable.
(f) the consent to the calling or waiver of any default of any
Transaction Document;
(g) the consent to the assignment by the Indenture Trustee, the
Master Servicer or Servicer of their respective obligations under any
Transaction Document;
(h) except as provided in Article IX hereof, dissolve, terminate
or liquidate the Trust in whole or in part;
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(i) merge or consolidate the Trust with or into any other entity,
or convey or transfer all or substantially all of the Trust's assets to any
other entity;
(j) cause the Trust to incur, assume or guaranty any indebtedness
other than the Notes, as set forth in this Agreement;
(k) do any act that conflicts with any other Transaction
Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth in
this Trust Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness, operating expenses from its own
funds, and the Trust shall not pay the indebtedness, operating expenses and
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Company, the Depositor, and any of their respective
affiliates. This Agreement is and shall be the only agreement among the parties
hereto with respect to the creation, operation and termination of the Trust. For
accounting purposes, the Trust shall be treated as an entity separate and
distinct from any Owner. The pricing and other material terms of all
transactions and agreements to which the Trust is a party shall be intrinsically
fair to all parties thereto.
The Owner Trustee shall not have the power, except upon the direction of
the Majority Securityholders with the consent of the Securities Insurer, and to
the extent otherwise consistent with the Transaction Documents, to (i) remove or
replace the Master Servicer, the Servicer or the Indenture Trustee, (ii)
institute proceedings to have the Trust declared or adjudicated a bankrupt or
insolvent, (iii) consent to the institution of bankruptcy or insolvency
proceedings against the Trust, (iv) file a petition or consent to a petition
seeking reorganization or relief on behalf of the Trust under any applicable
federal or state law relating to bankruptcy, (v) consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or any similar official)
of the Trust or a substantial portion of the property of the Trust, (vi) make
any assignment for the benefit of the Trust's creditors, (vii) cause the Trust
to admit in writing its inability to pay its debts generally as they become
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<PAGE> 25
due, or (viii) take any action, or cause the Trust to take any action, in
furtherance of any of the foregoing (any of the above, a "Bankruptcy Action").
So long as the Indenture and the Insurance Agreement remain in effect and no
Securities Insurer Default exists, no Residual Certificateholder shall have the
power to take, and shall not take, any Bankruptcy Action with respect to the
Trust or direct the Owner Trustee to take any Bankruptcy Action with respect to
the Trust.
Section 4.2 Action by Owners with Respect to Certain Matters. The Owner
Trustee shall not have the power, except upon the direction of the Owners and
the consent of the Securities Insurer, to (a) remove the Administrator pursuant
to the Administration Agreement, (b) appoint a successor Administrator pursuant
to the Administration Agreement, (c) remove the Master Servicer pursuant to the
Sale and Servicing Agreement, (d) remove the Servicer pursuant to the Servicing
Agreement, or (e) sell the Home 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 Owners and only after obtaining the
consent of the Securities Insurer.
Section 4.3 Action by Owners with Respect to Bankruptcy. The Owner
Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the consent and approval of the
Securities Insurer, the unanimous prior approval of all Owners and the
Securities Insurer and the delivery to the Owner Trustee by each such Owner of a
certificate certifying that such Owner reasonably believes that the Trust is
insolvent.
Section 4.4 Restrictions on Owners' Power. The Owners shall not direct
the Owner Trustee to take or refrain from taking any action if such action or
inaction would be contrary to any obligation of the Trust or the Owner Trustee
under this Agreement or any of the Transaction Documents or would be contrary to
Section 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
Section 4.5 Majority Control. Except as expressly provided herein, any
action that may be taken by the Owners under this Agreement may be taken by the
Holders of more than a 50% Percentage Interest in the Residual Certificates.
Except as expressly provided herein, any written notice of the Owners delivered
pursuant to this Agreement shall be effective if signed by Holders of Residual
Certificates evidencing more than a 50% Percentage Interest in the Residual
Certificates at the time of the delivery of such notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account. The Owner Trustee shall
cause the Indenture Trustee, to establish and maintain with First Trust of New
York, National Association for the benefit of the Owner Trustee or Co-Owner
Trustee one or more Eligible Accounts which while the Co-Owner Trustee holds
such Trust Account shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT, FIRST
TRUST OF NEW YORK, NATIONAL ASSOCIATION, AS CO-OWNER TRUSTEE, IN TRUST FOR THE
MEGO MORTGAGE HOME LOAN ASSET BACKED SECURITIES, SERIES 1997-2". Funds shall be
deposited in the Certificate Distribution Account as required by the Sale and
Servicing Agreement.
All of the right, title and interest of the Co-Owner Trustee or Owner
Trustee in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the benefit
of the Owners, the Securities Insurer and such other persons entitled to
distributions therefrom. Except as otherwise expressly provided herein or in the
Sale and Servicing Agreement, the Certificate Distribution Account shall be
under the sole dominion and control of the Owner Trustee or Co-Owner Trustee for
the benefit of the Owners, the Securities Insurer and the Servicer.
In addition to the foregoing, the Certificate Distribution Account is a
Trust Account under the Sale and Servicing Agreement and constitutes part of the
Trust Estate pledged by the Trust to the Indenture Trustee under the Indenture.
The Certificate Distribution Account shall be subject to and established and
maintained in accordance with the applicable provisions of the Sale and
Servicing Agreement and the Indenture, including, without limitation, the
provisions of Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement
regarding distributions from the Certificate Distribution Account.
The Company agrees to direct and shall have the sole authority to direct
the Owner Trustee or Co-Owner Trustee, or their successor in interest, as to the
Permitted Investments in which the funds on deposit in the Trust Accounts (as
such term is defined in the Sale and Servicing Agreement) may be invested.
Section 5.2 Application Of Trust Funds.
(a) On each Distribution Date, the Owner Trustee or Co-Owner
Trustee shall direct the Paying Agent to make the distributions and payments set
forth in Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement from
amounts on deposit in the Note Distribution Account and the Certificate
Distribution Account, respectively.
(b) On or before the third Business Day following each
Distribution Date, the Owner Trustee shall cause the Paying Agent to send to
each Owner the Statement to
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<PAGE> 27
Securityholders prepared pursuant to Section 6.02 of the Sale and Servicing
Agreement with respect to such Distribution Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to an Owner, such tax shall reduce
the amount otherwise distributable to the Owner in accordance with this Section.
The Owner Trustee is hereby authorized and directed to retain from amounts
otherwise distributable to the Owners sufficient funds for the payment of any
tax that is legally owed by the Trust (but such authorization shall not prevent
the Owner Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The amount of any withholding tax imposed with respect to an
Owner shall be treated as cash distributed to such Owner at the time it is
withheld by the Trust and remitted to the appropriate taxing authority. If there
is a possibility that withholding tax is payable with respect to a distribution
(such as a distribution to a non-U.S. Owner), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this paragraph (c). In the
event that an Owner wishes to apply for a refund of any such withholding tax,
the Owner Trustee shall reasonably cooperate with such owner in making such
claim so long as such Owner agrees to reimburse the Owner Trustee for any
out-of-pocket expenses incurred.
Section 5.3 Method of Payment. Distributions required to be made to
Owners on any Distribution Date shall be made to each Owner of record on the
preceding Record Date in the manner set forth in Section 5.03 of the Sale and
Servicing Agreement.
Section 5.4 Segregation of Moneys; No Interest. Subject to Sections 4.1
and 5.2, moneys received by the Owner Trustee hereunder and deposited into the
Certificate Distribution Account will be segregated except to the extent
required otherwise by law or the Sale and Servicing Agreement and shall be
invested in Permitted Investments at the direction of the Company. The Owner
Trustee shall not be liable for payment of any interest in respect of such
moneys.
Section 5.5 Accounting and Reports to the Residual Certificateholders,
Owners, the Internal Revenue Service and Others. The Owner Trustee shall (a)
maintain (or cause to be maintained) the books of the Trust on a calendar year
basis on the accrual method of accounting, and such books shall be maintained
separate from those of any other entity and reflect the separate interest of the
Trust, (b) deliver to each Owner, as may be required by the Code and applicable
Treasury Regulations, such information as may be required to enable each Owner
to prepare its federal and state income tax returns, (c) file such tax return
relating to the Trust (including a partnership information return, IRS Form
1065), and make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a partnership for
Federal income tax purposes, (d) cause such tax returns to be signed in the
manner required by law and (e) collect or cause to be collected any withholding
tax as described in and in accordance with Section 5.2(c) with respect to income
or distributions to Owners. The Owner Trustee shall elect under Section 1278 of
the Code to include in income
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currently any market discount that accrues with respect to the Home Loans. The
Owner Trustee shall not make the election provided under Section 754 of the
Code.
Section 5.6 Signature on Returns.
The Owner Trustee shall sign on behalf of the Trust the tax
returns of the Trust, unless applicable law requires an Owner to sign such
documents, in which case such documents shall be signed by the Company.
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ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the Notes,
the Residual Certificates and the Transaction Documents to which the Trust is to
be a party and each certificate or other document attached as an exhibit to or
contemplated by the Transaction Documents to which the Trust is to be a party
and any amendment or other agreement or instrument described in Article III, in
each case, in such form as the Company shall approve, as evidenced conclusively
by the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver Classes of Notes in the
following aggregate principal amounts: Class A-1 Notes, $15,950,000; Class A-2
Notes, $8,100,000; Class A-3 Notes, $6,750,000; Class A-4 Notes, $13,600,000;
and Class A-5 Notes, $14,394,841. The Administrator on behalf of the Owner
Trustee shall authenticate and deliver the Residual Certificates. 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 Transaction Documents.
Section 6.2 General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Transaction
Documents to which the Trust is a party and to administer the Trust in the
interest of the Owners, subject to the Transaction 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 Transaction Documents to the extent the Administrator or
the Co-Owner Trustee has agreed in the Administration Agreement or this
Agreement, respectively, to perform any act or to discharge any duty of the
Owner Trustee or the Trust hereunder or under any Transaction Document, and the
Owner Trustee shall not be held liable for the default or failure of the
Administrator or the Co-Owner Trustee to carry out its obligations under the
Administration Agreement or this Agreement, respectively; and
(b) to obtain and preserve, the Issuer's qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indenture, the
Notes, the Trust Estate and each other instrument and agreement included in the
Trust Estate.
Section 6.3 Action upon Instruction.
(a) Subject to Article IV and in accordance with the terms of the
Transaction Documents, the Owners may by written instruction direct the Owner
Trustee in the management of the Trust but only to the extent consistent with
the limited purpose of the
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Trust. Such direction may be exercised at any-time by written instruction of the
Owners pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Transaction 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 Transaction Document or is otherwise contrary to
law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Transaction Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Owners and the Securities Insurer requesting instruction from the Owners 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 Owners received,
the Owner Trustee shall not be liable on account of such action to any Person.
If the Owner Trustee shall not have received appropriate instruction within 10
days of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Transaction Documents, as it shall deem
to be in the best interests of the Owners, and shall have no liability to any
Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Transaction 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 Owners
requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, 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 Transaction
Documents, as it shall deem to be in the best interests of the Owners, and shall
have no liability to any Person for such action or inaction.
Section 6.4 No Duties Except as Specified in this Agreement, the
Transaction Documents or in Instructions. The Owner Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to
otherwise take or refrain from taking any action under, or
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in connection with, any document contemplated hereby to which the Owner Trustee
is a party, except as expressly provided by the terms of this Agreement, any
Transaction Document or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Transaction Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Transaction Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Transaction Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
Section 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Owners shall not direct the Owner Trustee to take action that would violate the
provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement and the
Transaction Documents. The Owner Trustee also agrees to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Transaction Documents and this Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Transaction Document
under any circumstances, except (i) for its own willful misconduct or gross
negligence or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.3 expressly made by the Owner Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions of
the Administrator or the Owners;
(c) no provision of this Agreement or any Transaction 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 Transaction 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 Transaction Documents,
including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiency of this Agreement or for the due execution hereof
by the Depositor or the Company or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Transaction Documents, other than
the certificate of authentication on the Residual Certificates, and the Owner
Trustee shall in no event assume or incur any liability, duty, or obligation to
any Noteholder or to any Owner, other than as expressly provided for herein and
in the Transaction Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller, the Company, the Indenture Trustee,
the Master Servicer or the Servicer under any of the Transaction Documents or
otherwise and the Owner Trustee shall
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have no obligation or liability to perform the obligations of the Trust under
this Agreement or the Transaction Documents that are required to be performed by
the Administrator under the Administration Agreement, the Indenture Trustee
under the Indenture, the Master Servicer under the Sale and Servicing Agreement,
or the Servicer under the 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 Transaction Document, at the request, order or
direction of any of the Owners, unless such Owners have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Transaction Document shall not be construed as a duty, and
the Owner Trustee shall not be answerable for other than its gross negligence or
willful misconduct in the performance of any such act provided, that the Owner
Trustee shall be liable for its negligence or willful misconduct in the event
that it assumes the duties and obligations of the Co-Owner Trustee under the
Sale and Servicing Agreement pursuant to Section 10.5 hereof.
Section 7.2 Furnishing of Documents. The Owner Trustee shall furnish (a)
to the Owners 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
Transaction Documents and (b) to Noteholders promptly upon written request
therefor, copies of the Sale and Servicing Agreement, the Administration
Agreement and the Trust Agreement.
Section 7.3 Representations and Warranties.
(a) The Owner Trustee hereby represents and warrants to the
Depositor and the Company, for the benefit of the Owners, that:
(i) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware. It
has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or Delaware law, governmental rule or
regulation governing the banking or trust powers of the
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<PAGE> 34
Owner Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by
which any of its properties may be bound.
(b) The Co-Owner Trustee hereby represents and warrants to the
Depositor and the Company and the Securities Insurer, for the benefit of the
Owners, that:
(i) It is a national banking association duly organized and
validly existing in good standing under the laws of the United States.
It has all requisite corporate power and authority to execute, deliver
and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or Minnesota law, governmental rule or
regulation governing the banking or trust powers of the Co-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 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
Transaction Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them, and
the Owner Trustee shall not be liable for the
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<PAGE> 35
conduct or misconduct of such agents or attorneys if such agents or attorneys
shall have been selected by the Owner Trustee with reasonable care, and (ii) may
consult with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
written opinion or advice of any such counsel, accountants or other such persons
and not contrary to this Agreement or any Transaction Document.
Section 7.5 Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Wilmington Trust
Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Transaction Document
shall look only to the Owner Trust Estate for payment or satisfaction thereof.
Section 7.6 Owner Trustee Not Liable for Residual Certificates or Home
Loans. The recitals contained herein and in the Residual Certificates (other
than the signature and countersignature of the Owner Trustee on the Residual
Certificates) shall be taken as the statements of the Depositor and the Company,
and the Owner Trustee assumes no responsibility for the correctness thereof. The
Owner Trustee makes no representations as to the validity or sufficiency of this
Agreement, of any Transaction Document or of the Residual Certificates (other
than the signature and countersignature of the Owner Trustee on the Residual
Certificates and as specified in Section 7.3) or the Notes, or of any Home Loans
or related documents. The Owner Trustee shall at no time have any responsibility
or liability for or with respect to the legality, validity and enforceability of
any Home Loan, or the perfection and priority of any security interest created
by any Home Loan or the maintenance of any such perfection and priority, or for
or with respect to the sufficiency of the Owner Trust Estate or its ability to
generate the payments to be distributed to Owners under this Agreement or the
Noteholders under the Indenture, including, without limitation: the existence,
condition and ownership of any Property; the existence and enforceability of any
insurance thereon; the existence and contents of any Home Loan on any computer
or other record thereof; the validity of the assignment of any Home Loan to the
Trust or of any intervening assignment; the completeness of any Home Loan; the
performance or enforcement of any Home Loan; the compliance by the Depositor,
the Company, the Master Servicer or the Servicer with any warranty or
representation made under any Transaction Document or in any related document or
the accuracy of any such warranty or representation or any action of the
Administrator, the Indenture Trustee, the Master Servicer or the Servicer or any
subservicer taken in the name of the Owner Trustee.
Section 7.7 Owner Trustee May Own Residual Certificates and Notes. The
Owner Trustee in its individual or any other capacity may become the owner or
pledgee of Residual Certificates or Notes and may deal with the Depositor, the
Company, the Administrator, the Indenture Trustee and the Servicer in banking
transactions with the same rights as it would have if it were not Owner Trustee.
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Section 7.8 Licenses. The Owner Trustee shall cause the Trust to use its
best efforts to obtain and maintain the effectiveness of any licenses required
in connection with this Agreement and the Transaction Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
Section 7.9 Rights of Co-Owner Trustee. The Co-Owner Trustee shall be
entitled to all the rights and benefits conferred upon the Owner Trustee in
Article VII of this Agreement.
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ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Company and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Company
for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
Section 8.2 Indemnification. The Company shall be liable as primary
obligor, and the Servicer as secondary obligor pursuant to the Administration
Agreement, for, and shall indemnify the Owner Trustee, the Co-Owner Trustee and
their successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Transaction Documents, the Owner Trust Estate, the administration of the Owner
Trust Estate or the action or inaction of the Owner Trustee or the Co-Owner
Trustee hereunder, except only that the Company shall not be liable for or
required to indemnify an Indemnified Party from and against Expenses arising or
resulting from any of the matters described in the third sentence of Section 7.1
hereof. The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's or Co-Owner Trustee's choice of
legal counsel shall be subject to the approval of the Company, which approval
shall not be unreasonably withheld.
Section 8.3 Payments to the Owner Trustee. 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.
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust shall
terminate and be of no further force or effect on the earlier of (i) the
satisfaction and discharge of the Indenture pursuant to Section 4.01 of the
Indenture and the termination of the Sale and Servicing Agreement and (ii) the
expiration of 21 years from the death of the last survivor of the descendants of
Joseph P. Kennedy (the late ambassador of the United States to the Court of St.
James's) alive on the date hereof. The bankruptcy, liquidation, dissolution,
death or incapacity of any Owner shall not (x) operate to terminate this
Agreement or the Trust, nor (y) entitle such Owner's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of all or any part of the Trust or Owner Trust
Estate nor (z) otherwise affect the rights, obligations and liabilities of the
parties hereto.
(b) The Residual Certificates shall be subject to an early
redemption or termination at the option of the Company, the Master Servicer or
the Securities Insurer in the manner and subject to the provisions of Section
11.01 of the Sale and Servicing Agreement.
(c) Except as provided in Sections 9.1(a) and (b) above, none of
the Depositor, the Company, the Securities Insurer nor any Owner shall be
entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Residual Certificateholders shall surrender
their Residual Certificates to the Paying Agent for payment of the final
distributions and cancellation, shall be given by the Owner Trustee to the
Certificateholders, the Securities Insurer and the Rating Agencies mailed within
five Business Days of receipt by the Owner Trustee of notice of such termination
pursuant to Section 9.1(a) or (b) above, which notice given by the Owner Trustee
shall state (i) the Distribution Date upon or with respect to which final
payment of the Residual Certificates shall be made upon presentation and
surrender of the Residual Certificates at the office of the Paying Agent therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Distribution Date is not applicable, payments
being made only upon presentation and surrender of the Residual Certificates at
the office of the Paying Agent therein specified. The Owner Trustee shall give
such notice to the Certificate Registrar (if other than the Owner Trustee) and
the Paying Agent at the time such notice is given to Residual
Certificateholders. Upon presentation and surrender of the Residual
Certificates, the Paying Agent shall cause to be distributed to Residual
Certificateholders amounts distributable on such Distribution Date pursuant to
Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement.
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In the event that all of the Residual Certificateholders shall
not surrender their Residual Certificates for cancellation within six months
after the date specified in the above mentioned written notice, the Co-Owner
Trustee shall give a second written notice to the remaining Certificateholders
to surrender their Residual Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Residual Certificates shall not have been surrendered for cancellation,
the Co-Owner Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Residual Certificateholders
concerning surrender of their Residual Certificates, and the cost thereof shall
be paid out of the funds and other assets that shall remain subject to this
Agreement. Any funds remaining in the Trust after exhaustion of such remedies
shall be distributed by the Co-Owner Trustee to the Residual Certificateholders
on a pro rata basis.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
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ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a long-term rating of at least "A-1" by Standard &
Poor's and "Baa3" by Moody's and being acceptable to the Securities Insurer. If
such corporation shall publish reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital 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 or Co-Owner
Trustee. The Owner Trustee or Co-Owner Trustee may at any time resign and be
discharged from the trusts hereby created by giving written notice thereof to
the Administrator, the Indenture Trustee, the Securities Insurer and the
Company. Upon receiving such notice of resignation, the Administrator shall
promptly appoint a successor Owner Trustee or Co-Owner Trustee (acceptable to
the Securities Insurer) by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to the
successor Owner Trustee or Co-Owner Trustee. If no successor Owner Trustee or
Co-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 Co-Owner Trustee or the Securities Insurer may petition any
court of competent jurisdiction for the appointment of a successor Owner Trustee
or Co-Owner Trustee.
If at any time the Owner Trustee or Co-Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail to
resign after written request therefor by the Administrator, or if at any time
the Owner Trustee or Co-Owner Trustee shall be legally unable to act, or shall
be adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or
Co-Owner Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Owner Trustee or Co-Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Securities Insurer, or the Administrator with the consent
of the Securities Insurer, may remove the Owner Trustee or Co-Owner Trustee. If
the Administrator or the Securities Insurer shall remove the Owner Trustee or
Co-Owner Trustee under the authority of the immediately preceding sentence, the
Securities Insurer, or the Administrator with the consent of the Securities
Insurer, shall promptly appoint a successor Owner Trustee or Co-Owner Trustee by
written instrument in duplicate, one copy of which instrument shall be delivered
to the
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outgoing Owner Trustee or Co-Owner Trustee so removed and one copy to the
successor Owner Trustee or Co-Owner Trustee and payment of all fees owed to the
outgoing Owner Trustee or Co-Owner Trustee.
Any resignation or removal of the Owner Trustee or Co-Owner Trustee and
appointment of a successor Owner Trustee or Co-Owner Trustee pursuant to any of
the provisions of this Section shall not become effective until (i) acceptance
of appointment by the successor Owner Trustee or Co-Owner Trustee pursuant to
Section 10.3 written approval by the Securities Insurer and payment of all fees
and expenses owed to the outgoing Owner Trustee or Co-Owner Trustee. The
Administrator shall provide notice of such resignation or removal of the Owner
Trustee or Co-Owner Trustee to each of the Rating Agencies and the Securities
Insurer.
Section 10.3 Successor Owner Trustee or Co-Owner Trustee. Any successor
Owner Trustee or Co-Owner Trustee appointed pursuant to Section 10.2 shall
execute, acknowledge and deliver to the Administrator, the Securities Insurer
and to its predecessor Owner Trustee or Co-Owner Trustee an instrument accepting
such appointment under this Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee or Co-Owner Trustee shall become effective and
such successor Owner Trustee or Co-Owner Trustee (if acceptable to the
Securities Insurer), without any further act, deed or conveyance, shall become
fully vested with all the rights, powers, duties, and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Owner Trustee or Co-Owner Trustee. The predecessor Owner Trustee or Co-Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee or Co-Owner Trustee all documents and statements and monies held
by it under this Agreement; and the Administrator and the predecessor Owner
Trustee or Co-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 or Co-Owner Trustee all such
rights, powers, duties, and obligations.
No successor Owner Trustee or Co-Owner Trustee shall accept appointment
as provided in this Section unless at the time of such acceptance such successor
Owner Trustee or Co-Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee or Co-Owner
Trustee pursuant to this Section, the Administrator shall mail notice of the
successor of such Owner Trustee or Co-Owner Trustee to all Owners, the Indenture
Trustee, the Noteholders, the Securities Insurer and the Rating Agencies. If the
Administrator fails to mail such notice within 10 days after acceptance of
appointment by the successor Owner Trustee or Co-Owner Trustee, the successor
Owner Trustee or Co-Owner Trustee shall cause such notice to be mailed at the
expense of the Administrator.
X-2
<PAGE> 42
Section 10.4 Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee or the Co-Owner Trustee may be merged or converted
or with which either may be consolidated or any corporation resulting from any
merger, conversion or consolidation to which the Owner Trustee or the Co-Owner
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Owner Trustee or the Co-Owner
Trustee, shall be the successor of the Owner Trustee or the Co-Owner Trustee, as
the case may be, 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 or the
Co-Owner Trustee, as the case may be, 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,
and for the purpose of performing certain duties and obligations of the Owner
Trustee with respect to the Trust and the Residual Certificates under the Sale
and Servicing Agreement, the Administrator and the Owner Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Owner Trustee and acceptable to the
Securities Insurer to act as co-owner trustee, jointly with the Owner Trustee,
or separate owner trustee or separate owner trustees, of all or any part of the
Owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the
Administrator, the Securities Insurer and the Owner Trustee may consider
necessary or desirable. If the Administrator shall not have joined in such
appointment within 25 days after the receipt by it of a request so to do, the
Owner Trustee (with the consent of the Securities Insurer) shall have the power
to make such appointment. No Co-Owner Trustee or separate Owner Trustee under
this Section 10.5 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-owner trustee or separate Owner Trustee shall be required pursuant to
Section 10.3.
The Owner Trustee hereby appoints the Indenture Trustee as Co-Owner
Trustee for the purpose of (i) establishing and maintaining the Certificate
Distribution Account and making the distributions therefrom to the Persons
entitled thereto pursuant to Sections 5.01(c) and 5.03 of the Sale and Servicing
Agreement and (ii) holding the Contract of Insurance on behalf of the Trust,
facilitating claims under the Contract of Insurance and for purposes of holding
record ownership of each FHA Loan. The Owner Trustee and the Co-Owner Trustee
each agree that upon the occurrence and continuation of a Securities Insurer
Default, the Co-Owner Trustee shall resign and the Owner Trustee shall assume
the duties and obligations of the Co-Owner Trustee under the Sale and Servicing
Agreement (other than its duties as Contract of Insurance Holder thereunder) and
this Agreement, including without limitation, the obligations of the Co-Owner
Trustee as Paying Agent pursuant to Section 3.9 hereof.
X-3
<PAGE> 43
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate owner trustee or
co-owner trustee jointly (it being understood that such separate owner
trustee or co-owner trustee is not authorized to act separately without
the Owner Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties,
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate owner trustee or co-owner trustee but
solely at the direction of the Owner Trustee; provided that Co-Owner
Trustee, in performing its duties and obligations under the Sale and
Servicing Agreement, may act separately in its capacity as Co-Owner
Trustee without the Owner Trustee joining in such Acts.
(ii) no owner trustee under this Agreement shall be personally
liable by reason of any act or omission of any other owner trustee under
this Agreement; and
(iii) the Administrator and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate owner
trustee or co-owner trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to the separate owner trustees and co-owner trustees,
as if given to each of them. Every instrument appointing any separate owner
trustee or co-owner trustee, other than this Agreement, shall refer to this
Agreement and to the conditions of this Article. Each separate owner trustee and
co-owner trustee, upon its acceptance of appointment, shall be vested with the
estates specified in its instrument of appointment, either jointly with the
Owner Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Owner Trustee. Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.
Any separate owner trustee or co-owner trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate owner
trustee or co-owner trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
X-4
<PAGE> 44
The Co-Owner Trustee, in its capacity as Co-Owner Trustee, shall not
have any rights, duties or obligations except as expressly provided in this
Agreement and the Sale and Servicing Agreement.
X-5
<PAGE> 45
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments. This Agreement may be amended
by the Depositor, the Company and the Owner Trustee, with the prior consent of
the Securities Insurer, and with prior written notice to the Rating Agencies and
the Securities Insurer, but without the consent of any of the Noteholders or the
Owners or the Indenture Trustee, to cure any ambiguity, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the Owners
provided, however, that such action shall not adversely affect in any material
respect the interests of any Noteholder or Owner or the rights of the Securities
Insurer. An amendment described above shall be deemed not to adversely affect in
any material respect the interests of any Noteholder or Owner if (i) an opinion
of counsel is obtained to such effect, and (ii) the party requesting the
amendment satisfies the Rating Agency Condition with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with the prior written consent of the Rating
Agencies and with the prior written consent of the Indenture Trustee, the
Securities Insurer, the Holders (as defined in the Indenture) of Notes
evidencing more than 50% of the Percentage Interests in the Notes, the Holders
of Residual Certificates evidencing more than 50% of the Percentage Interests in
the Residual Certificates, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Noteholders or the Owners;
provided, however, that no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on the Home Loans or distributions that shall be required to be made
for the benefit of the Noteholders or the Residual Certificateholders or the
Securities Insurer (b) reduce the aforesaid percentage of the Outstanding Amount
of the Notes or the Percentage Interests required to consent to any such
amendment, in either case of clause (a) or (b) without the consent of the
holders of all the outstanding Notes and Residual Certificates and the
Securities Insurer, and in the case of clause (b) without the consent of the
holders of all the outstanding Residual 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 Residual Certificateholder, the Indenture Trustee, the
Securities Insurer and each of the Rating Agencies.
It shall not be necessary for the consent of Owners, the Noteholders or
the Indenture Trustee pursuant to this Section to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Owners provided for in this
XI-1
<PAGE> 46
Agreement or in any other Transaction Document) and of evidencing the
authorization of the execution thereof by Residual Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
Section 11.2 No Legal Title to Owner Trust Estate in Owners. The Owners
shall not have legal title to any part of the Owner Trust Estate. The Owners
shall be entitled to receive distributions with respect to their undivided
ownership interest therein only in accordance with Articles V and IX. No
transfer, by operation of law or otherwise, of any right, title, or interest of
the Owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
Section 11.3 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Owner Trustee, the Co-Owner Trustee,
the Depositor, the Company, the Owners, the Administrator, the Securities
Insurer and, to the extent expressly provided herein, 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 by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to the
Owner Trustee shall be deemed given only upon actual receipt by the Owner
Trustee), at the following addresses: (i) if to the Owner Trustee, its Corporate
Trust Office; (ii) if to the Depositor, Financial Asset Securities Corp., 600
Steamboat Road, Greenwich, Connecticut 06830, Attention: Peter McMullin, Vice
President; (iii) if to the Company, Mego Mortgage Corporation, 1000 Parkwood
Circle, Suite 500 Atlanta, Georgia 30339, Attention: Jeff S. Moore, President;
(iv) if to the Securities Insurer, MBIA Insurance Corporation, 113 King Street,
Armonk, New York 10504, Attention: IPM-SF, telephone: 914-765-3810,
confirmation: 914-765-3781; (v) if to the Co-Owner Trustee, First Trust of New
York, National Association, 180 East Fifth Street, St. Paul, Minnesota 55101,
Attention: Structured Finance/Mego Mortgage 1997-2 Corporate Trust Department;
XI-2
<PAGE> 47
or, as to each such party, at such other address as shall be designated by such
party in a written notice to each other party.
(b) Any notice required or permitted to be given to an Owner shall be
given by first-class mail, postage prepaid, at the address of such Owner as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Owner receives such notice.
Section 11.5 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 11.6 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 11.7 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company, the Securities Insurer, the Owner Trustee, the Co-Owner
Trustee and its successors and each owner and its successors and permitted
assigns, all as herein provided. Any request, notice, direction, consent, waiver
or other instrument or action by an Owner shall bind the successors and assigns
of such Owner.
Section 11.8 No Petition. The Owner Trustee, by entering into this
Agreement, each Owner, by accepting a Residual Certificate, and the Indenture
Trustee and each Noteholder by accepting the benefits of this Agreement, hereby
covenant and agree that they will not at any time institute against the Company,
any wholly-owned subsidiary of the Company, the Depositor or the Trust, or join
in any institution against the Company, any wholly-owned subsidiary of the
Company, or the Trust of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States Federal or state bankruptcy or law in connection with any obligations
relating to the Residual Certificates, the Notes, this Agreement or any of the
Transaction Documents.
Section 11.9 Covenants of Company. The Company shall not institute at
any time any Bankruptcy proceeding against the Trust or any wholly-owned
subsidiary of the Company, under any United States Federal or state bankruptcy
or similar law in connection with any obligations relating to the Residual
Certificates, the Notes, the Trust Agreement or any of the Transaction
Documents.
Section 11.10 No Recourse. Each Owner by accepting a Residual
Certificate acknowledges that such Owner's Trust Certificate represents a
beneficial interest in the Trust
XI-3
<PAGE> 48
only and does not represent an interest in or an obligation of the Seller, the
Servicer, the Company, the Depositor, the Administrator, the Owner Trustee, the
Co-Owner Trustee or any Affiliate thereof and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Residual Certificates or the Transaction
Documents.
Section 11.11 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 11.12 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 11.13 Third-Party Beneficiary. The parties hereto acknowledge
that the Securities Insurer is an express third party beneficiary hereof
entitled to enforce any rights reserved to it hereunder as if it were actually a
party hereto.
Section 11.14 Inconsistencies with Sale and Servicing Agreement.
In the event certain provisions of this Agreement conflict with the
provisions of the Sale and Servicing Agreement, the parties hereto agree that
the provisions of the Sale and Servicing Agreement shall be controlling.
XI-4
<PAGE> 49
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.
FINANCIAL ASSET SECURITIES CORP.,
Depositor
By:___________________________________
Name:
Title:
MEGO MORTGAGE CORPORATION
By:___________________________________
Name:
Title:
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:___________________________________
Name:
Title:
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely as Co-Owner
Trustee and Paying Agent
By:___________________________________
Name:
Title:
<PAGE> 50
EXHIBIT A
TO THE TRUST AGREEMENT
(FORM OF RESIDUAL CERTIFICATE]
THE RESIDUAL CERTIFICATE IN THE TRUST REPRESENTED BY THIS RESIDUAL CERTIFICATE
HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL INTEREST MAY BE
DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING
PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON
INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A
PERSON WITHIN THE MEANING OF RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED (INCLUDING, BUT NOT LIMITED TO, MEGO MORTGAGE CORPORATION) IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INTEREST UNDER THE ACT OR
ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS RESIDUAL OR ANY BENEFICIAL INTEREST THEREIN SHALL BE MADE TO
ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE
TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT A PERSON WHICH IS AN
EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR SECTION 4975 OF
THE CODE OR A GOVERNMENTAL PLAN, DEFINED IN SECTION 3(32) OF ERISA SUBJECT TO
ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE
FOREGOING PROVISIONS OF ERISA OR THE CODE (ANY SUCH PERSON BEING A "PLAN") AND
(II) IS NOT AN ENTITY, INCLUDING AN INSURANCE COMPANY SEPARATE ACCOUNT OR
GENERAL ACCOUNT, WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A
PLAN'S INVESTMENT IN THE ENTITY.
[THIS AGREEMENT IS NONTRANSFERABLE. NOTWITHSTANDING ANYTHING HEREIN OR IN THE
TRUST AGREEMENT TO THE CONTRARY, ANY ATTEMPTED TRANSFER OF THIS RESIDUAL
CERTIFICATE SHALL BE NULL AND VOID FOR ALL PURPOSES.]
A-1
<PAGE> 51
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2
RESIDUAL CERTIFICATE
No. _____
THIS CERTIFIES THAT
__________________________________ (the "Owner") is the registered owner of a
_____% residual interest in MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2 (the
"Trust") existing under the laws of the State of Delaware and created pursuant
to the Trust Agreement dated as of May 1, 1997 (the "Trust Agreement") between
FINANCIAL ASSET SECURITIES CORP., as Depositor, MEGO MORTGAGE CORPORATION, as
the Company, WILMINGTON TRUST COMPANY, not in its individual capacity but solely
in its fiduciary capacity as owner trustee under the Trust Agreement (the "Owner
Trustee") and First Trust of New York, National Association, as Co-Owner Trustee
(the "Co-Owner Trustee"). Initially capitalized terms used but not defined
herein have the meanings assigned to them in the Trust Agreement. The Owner
Trustee, on behalf of the Issuer and not in its individual capacity, has
executed this Residual Certificate by one of its duly authorized signatories as
set forth below. This Residual Certificate is one of the Residual Certificates
referred to in the Trust Agreement and is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which the holder of
this Residual Certificate by virtue of the acceptance hereof agrees and by which
the holder hereof is bound. Reference is hereby made to the Trust Agreement and
the Sale and Servicing Agreement for the rights of the holder of this Residual
Certificate, as well as for the terms and conditions of the Trust created by the
Trust Agreement.
The holder, by its acceptance hereof, agrees
not to transfer this Residual Certificate [except in accordance with terms and
provisions of the Agreement].
A-2
<PAGE> 52
THIS RESIDUAL CERTIFICATE SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on
behalf of the Trust and not in its individual capacity, has caused this Residual
Certificate to be duly executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST
1997-2
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the
Trust Agreement
By:______________________________________________
Authorized Signatory
DATED: May __, 1997
CERTIFICATE OF AUTHENTICATION
This is one of the Residual Certificates referred to in the
within-mentioned Agreement.
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, as Authenticating Agent
By:______________________________________________
Authorized Signatory
A-3
<PAGE> 53
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
- -------------------------------------------------------------------- Attorney to
transfer said Instrument on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:___________
*/
-----------------------------------
Signature Guaranteed:
*/
-----------------------------------
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-4
<PAGE> 54
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2
THIS Certificate of Trust of MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-2
(the "Trust"), dated as of May 1, 1997, is being duly executed and filed by
Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, Section 3801
et seq.).
1. Name. The name of the business trust formed hereby is MEGO MORTGAGE
HOME LOAN OWNER TRUST 1997-2.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is Wilmington Trust Company of Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890.
Attention:___________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under a Trust Agreement dated as
of May 1, 1997.
By:_____________________________________
Name:
Title:
B-1
<PAGE> 1
EXHIBIT 10.125
EXECUTION COPY
================================================================================
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser,
and
MEGO MORTGAGE CORPORATION,
as Seller,
HOME LOAN PURCHASE AGREEMENT
================================================================================
Dated as of June 14, 1997
<PAGE> 2
Table of Contents
ARTICLE I.
DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1.1 Definitions................................................................................... 1
ARTICLE II.
SALE OF HOME LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Home Loans............................................................................ 2
Section 2.2 [Reserved].................................................................................... 2
Section 2.3 Obligations of Seller Upon Sale............................................................... 2
Section 2.4 Payment of Purchase Price for the Home Loans.................................................. 4
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties......................................................... 5
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller....................................................................... 7
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification............................................................................... 7
Section 5.2 Limitation on Liability of the Seller......................................................... 7
ARTICLE VI.
TERMINATION
Section 6.1 Termination................................................................................... 10
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment..................................................................................... 10
Section 7.2 Governing Law................................................................................. 10
Section 7.3 Notices....................................................................................... 10
Section 7.4 Severability of Provisions.................................................................... 11
Section 7.5 Counterparts.................................................................................. 11
Section 7.6 Further Agreements............................................................................ 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7.7 Intention of the Parties...................................................................... 11
Section 7.8 Successors and Assigns; Assignment of Purchase Agreement...................................... 12
Section 7.9 Survival...................................................................................... 12
Section 7.10 Third-Party Beneficiaries..................................................................... 12
EXHIBITS AND SCHEDULES
Schedule I Schedule of Home Loans
</TABLE>
ii
<PAGE> 4
HOME LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated as of
June 14, 1997, between Mego Mortgage Corporation ("Mego" or the "Seller") and
FINANCIAL ASSET SECURITIES CORP., ("FASCO" and together with any assignee of
FASCO, the "Purchaser").
W I T N E S S E T H
WHEREAS, the Seller is the owner of a pool of fixed-rate home
improvement and debt consolidation loans and retail installment sale contracts
(the "Home Loans") secured by first and junior mortgages, deeds of trust and
security deeds on certain residential and investment properties (the
"Properties") as listed on Schedule I attached hereto and the Related Documents
thereto (as defined below);
WHEREAS, the parties hereto desire that the Seller sell all its right,
title and interest in and to the Home Loans and the Related Documents to the
Purchaser pursuant to the terms of this Purchase Agreement; and
WHEREAS, pursuant to the terms of a Sale and Servicing Agreement, dated
as of June 14, 1997 (the "Sale and Servicing Agreement"), among Mego Mortgage
Home Loan Owner Trust 1997-3, as issuer (the "Trust"), FASCO, as depositor (the
"Depositor"), Mego, as Seller and servicer (the "Servicer"), Norwest Bank
Minnesota, N.A., as master servicer (the "Master Servicer"), and First Bank
National Association, as indenture trustee (the "Indenture Trustee") and
co-owner trustee (the "Co-Owner Trustee"), the Purchaser will sell, transfer,
assign and otherwise convey to the Trust all its right, title and interest in
and to the Home Loans and this Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used but not defined herein
have the meanings assigned thereto in the Sale and Servicing Agreement.
Registration Statement. The Purchaser's registration statement on Form
S-3 (No. 333-29381), in the form in which it became effective under the
Securities Act of 1933, as amended, on June 20, 1997 including any documents
incorporated by reference therein.
Base Prospectus. The prospectus, dated June 20, 1997 attached to the
Prospectus Supplement relating to the Notes.
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ARTICLE II.
SALE OF HOME LOANS; PAYMENT OF PURCHASE PRICE
Section 2.1 Sale of Home Loans. The Seller, concurrently with the
execution and delivery of this Purchase Agreement, does hereby sell, assign, set
over, and otherwise convey to the Purchaser, without recourse other than as
expressly provided herein and in the Sale and Servicing Agreement, all of its
right, title and interest in, to and under the following, whether now existing
or hereafter acquired and wherever located: (i) as of the Cut-Off Date, the Home
Loans delivered to the Indenture Trustee on the Closing Date, including the
related Principal Balance and all payments of principal in respect of Home Loans
received on or after the Cut-Off Date and payments of interest in respect of
Home Loans due on or after the CutOff Date, (ii) the Home Loan Files, (iii) any
Insurance Policies and related Insurance Proceeds, (iv) the Mortgages and
security interests in Mortgaged Properties which secure the Home Loans, (v) any
and all documents or electronic records relating to the Home Loans, (vi) all
proceeds of any of the foregoing.
Section 2.2 [Reserved].
Section 2.3 Obligations of Seller Upon Sale. In connection with any
transfer pursuant to Section 2.1 hereof, the Seller further agrees, at its own
expense, on or prior to the Closing Date (a) to indicate in its books and
records that the Home Loans have been sold to the Purchaser pursuant to this
Purchase Agreement and (b) to deliver to the Purchaser a computer file
containing a true and complete list of all Home Loans specifying for each Home
Loan, as of the Cut-Off Date, (i) its account number and (ii) its Principal
Balance. Such file, which forms a part of Exhibit A to the Sale and Servicing
Agreement, shall also be marked as Schedule I to this Purchase Agreement and is
hereby incorporated into and made a part of this Purchase Agreement.
The Seller agrees to prepare, execute and file UCC-1 financing
statements with the County Clerk of Cobb (which shall have been filed on or
before the Closing Date with respect to the Home Loans describing the Home Loans
and naming the Seller as debtor and, the Purchaser as secured party (and
indicating that such loans have been assigned to the Trust) all necessary
continuation statements and any amendments to the UCC-1 financing statements
required to reflect a change in the name or corporate structure of the Seller or
the filing of any additional UCC-1 financing statements due to the change in the
principal office of the Seller, as are necessary to perfect the sale of the
Seller's interest in each Home Loan and the proceeds thereof.
In connection with any conveyance by the Seller, the Seller shall on
behalf of the Purchaser deliver to, and deposit with the Indenture Trustee, as
assignee of the Purchaser, on or before the Closing Date the following documents
or instruments with respect to each Home Loan (the "Related Documents");
provided, that the documents or instruments listed in clause (f) below may be
held in the custody of the Seller on behalf of the Indenture Trustee.
With respect to each Home Loan:
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(a) The original Debt Instrument, showing a complete chain of
endorsements or assignments from the named payee to the Trust and endorsed
as follows: "Pay to the order of First Bank National Association, as
Indenture Trustee and Co-Owner Trustee for Mego Mortgage Home Loan Owner
Trust 1997-3 without recourse";
(b) If such Home Loan is a Mortgage Loan, the original Mortgage
with evidence of recording indicated thereon (except that a true copy
thereof certified by an appropriate public official may be substituted);
provided, however, that if the Mortgage with evidence of recording thereon
cannot be delivered concurrently with the execution and delivery of this
Purchase Agreement solely because of a delay caused by the public recording
office where such Mortgage has been delivered for recordation, there shall
be delivered to the Indenture Trustee a copy of such Mortgage certified as a
true copy in an Officer's Certificate which shall certify that such Mortgage
has been delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the Indenture Trustee
such Mortgage with evidence of recording indicated thereon upon receipt
thereof from the public recording official (or a true copy thereof certified
by an appropriate public official may be delivered to the Indenture
Trustee);
(c) If such Home Loan is a Mortgage Loan, an original Assignment
of the Mortgage, in recordable form. Such assignment may be a blanket
assignment, to the extent that blanket assignments are effective under
applicable law, for Mortgages covering Properties situated in the same
county. If the assignment of Mortgage is in blanket form, an assignment of
Mortgage need not be included in the individual Home Loan File;
(d) If such Home Loan is a Mortgage Loan, all original
intermediate assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Indenture
Trustee, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted); provided,
however, that if the intervening assignments of mortgage with evidence of
recording thereon cannot be delivered concurrently with the execution and
delivery of this Purchase Agreement solely because of a delay caused by the
public recording office where such Assignments of Mortgage have been
delivered for recordation, there shall be delivered to the Indenture Trustee
a copy of each such assignment of Mortgage certified as a true copy in an
Officer's Certificate which shall certify that each such assignment of
Mortgage has been delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the Indenture Trustee
such assignments of Mortgage with evidence of recording indicated thereon
upon its receipt thereof from the public recording official (or true copies
thereof certified by an appropriate public official may be delivered to the
Indenture Trustee);
(e) An original of each assumption or modification agreement, if
any, relating to such Home Loan; and
(f) (i) an original or copy of the truth-in-lending disclosure,
(ii) an original or copy of the credit application, (iii) an original or
copy of the consumer credit report, (iv) an original or copy of verification
of employment and income, or verification of self-
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employment income, (v) an original or copy of the contract of work or
written description with cost estimates, if applicable, (vi) an original or
copy of the report of inspection of improvements to the Property, if
applicable, (vii) to the extent not included in (ii), an original or a copy
of a written verification, or an underwriter's notation of obtaining a
verbal verification that the Obligor at the time of origination was not more
than 30 days delinquent on any senior mortgage or deed of trust on the
Property, (viii) (1) if the original principal balance is between $35,001
and $40,000, (A) evidence that the borrower has a FICO Score of at least
640, a debt to income ratio no greater than 45%, and disposable income of at
least $1,500 per month, or (B) (I) a copy of the HUD-1 Closing Statement
indicating the sale price, or (II) an Uniform Residential Appraisal Report,
or (III) a Drive-By Appraisal documented on either FHLMC Form 704 or FNMA
Form 2055, or (IV) a tax assessment, or (V) a broker's price opinion; (2) if
the original principal balance is between $40,001 and $50,000, (A) a copy of
the HUD-1 Closing Statement indicating the sale price, or (B) an Uniform
Residential Appraisal, or (C) a Drive-By Appraisal documented on either
FHLMC Form 704 or FNMA Form 2055, or (D) a tax assessment, or (E) a broker's
price opinion, or (3) if the original principal balance exceeds $50,000, a
full Uniform Residential Appraisal Report prepared by a national appraisal
firm, and (ix) an original or a copy of a title search as of the time of
origination with respect to the Property.
With respect to any documents referred to clauses (b) and (d) above that
are not delivered to the Indenture Trustee because of a delay caused by the
public recording office, such documents shall be delivered to the Indenture
Trustee in accordance with the terms of such clauses by the Seller if such
documents are received by it or by the Purchaser if such documents are received
by it.
The Seller further hereby confirms to the Purchaser that, as of the
Closing Date it has caused the portions of the Seller's electronic ledger
relating to the Home Loans to be clearly and unambiguously marked to indicate
that the Home Loans have been sold to the Purchaser.
The Purchaser hereby acknowledges its acceptance of all right, title and
interest to the Home Loans and other property, now existing and hereafter
created, conveyed to it pursuant to Section 2.1 hereof.
The parties hereto intend that each of the transactions set forth herein
be a sale by the Seller to the Purchaser of all the Seller's right, title and
interest in and to the Home Loans and other property described above. In the
event the transactions set forth herein are deemed not to be a sale, the Seller
hereby grants to the Purchaser a security interest in all of the Seller's right,
title and interest in, to and under the Home Loans and other property described
above, whether now existing or hereafter created, to secure all of the Seller's
obligations hereunder; and this Purchase Agreement shall constitute a security
agreement under applicable law.
Section 2.4 Payment of Purchase Price for the Home Loans. (a) In
consideration of the sale of the Home Loans from the Seller to the Purchaser on
the Closing Date, the Purchaser agrees to pay to the Seller on the Closing Date
by transfer of immediately
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available funds, an amount equal to $103,620,516.02 (which includes accrued
interest) (before deducting expenses payable by the Seller to the Purchaser)
(the "Purchase Price").
(b) Within 60 days of the Closing Date, the Seller, at its own expense,
shall cause the Indenture Trustee to record each Assignment of Mortgage in favor
of the Indenture Trustee (which may be a blanket assignment if permitted by
applicable law) in the appropriate real property or other records; provided,
however, the Indenture Trustee need not record any assignment which relates to a
Home Loan in any jurisdiction under the laws of which, as evidenced by an
Opinion of Counsel delivered by the Seller (at the Seller's expense) to the
Indenture Trustee, the recordation of such Assignment is not necessary to
protect the Indenture Trustee's and the Securityholders' interest in the related
Home Loan. With respect to any Assignment of Mortgage as to which the related
recording information is unavailable within 60 days following the Closing Date,
such Assignment of Mortgage shall be submitted for recording within 30 days
after receipt of such information but in no event later than one year after the
Closing Date. The Indenture Trustee shall be required to retain a copy of each
Assignment of Mortgage submitted for recording. In the event that any such
Assignment of Mortgage is lost or returned unrecorded because of a defect
therein, the Seller shall promptly prepare a substitute Assignment of Mortgage
or cure such defect, as the case may be, and thereafter the Trustee shall be
required to submit each such Assignment of Mortgage for recording.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH
Section 3.1 Seller Representations and Warranties. (a) The
Seller represents and warrants to the Purchaser as of the Cut-Off Date and
the Closing Date that:
(i) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with
full power and authority to own its properties and conduct its business as
such properties are presently owned and such business is presently
conducted;
(ii) The Seller has full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
required of it by this Purchase Agreement and each other Transaction
Document to which it is a party; has duly authorized the execution, delivery
and performance of this Purchase Agreement and each other Transaction
Document to which it is a party; has duly executed and delivered this
Purchase Agreement and each other Transaction Document to which it is a
party; when duly authorized, executed and delivered by the other parties
hereto, this Purchase Agreement and each other Transaction Document to which
it is a party will constitute a legal, valid and binding obligation of the
Seller enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a proceeding in
equity or at law;
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(iii) Neither the execution and delivery of this Purchase
Agreement or any of the other Transaction Documents to which the Seller is a
party, the consummation of the transactions required of it herein or under
any other Transaction Document, nor the fulfillment of or compliance with
the terms and conditions of this Purchase Agreement or any of the other
Transaction Documents will conflict with or result in a breach of any of the
terms, conditions or provisions of the Seller's charter or by-laws or any
legal restriction or any material agreement or instrument to which the
Seller is now a party or by which it is bound, or which would adversely
affect the creation and administration of the Trust as contemplated hereby,
or constitute a material default or result in an acceleration under any of
the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which the Seller or its property is subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against the Seller or, to its knowledge, threatened,
which, if determined adversely to the Seller, would materially adversely
affect the sale of the Home Loans, the execution, delivery or enforceability
of this Purchase Agreement or any other Transaction Document, or which would
have a material adverse affect on the financial condition of the Seller;
(v) No consent, approval, authorization or order of any
court or governmental agency or body is required for: (a) the execution,
delivery and performance by the Seller of, or compliance by the Seller with,
this Purchase Agreement, (b) the sale of the Home Loans or (c) the
consummation of the transactions required of it by this Purchase Agreement;
(vi) The Seller is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Seller or its properties or might
have consequences that would materially and adversely affect its performance
hereunder;
(vii) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the Home Loans to the
Purchaser; and
(viii) The Seller has transferred the Home Loans without any
intent to hinder, delay or defraud any of its creditors.
(b) The Seller further represents and warrants to the
Purchaser that with respect to the Home Loans as of the Closing Date each of
the representations and warranties contained in Section 3.03(b) of the Sale
and Servicing Agreement are true and correct.
It is understood and agreed that the representations and warranties set
forth in this Section 3.1(b) shall survive delivery of the respective Home Loan
Files to the Indenture Trustee on behalf of the Purchaser. In the event that (a)
any of the representations and warranties of the Seller in Section 3.03(b) of
the Sale and Servicing Agreement are determined
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to be untrue in a manner that materially and adversely affects the interests of
the Securityholders in any Home Loan with respect to which such representation
or warranty is made and (b) the Seller shall fail to cure such breach within the
time period specified in Section 3.05 of the Sale and Servicing Agreement, the
Seller shall be obligated to repurchase or substitute the affected Home Loan(s)
in accordance with the provisions of Section 3.05 of the Sale and Servicing
Agreement.
With respect to representations and warranties made by Mego pursuant to
this Section 3.1(b) that are made to the Seller's best knowledge, if it is
discovered by any of the Depositor, the Seller, the Indenture Trustee or the
Owner Trustee that the substance of such representation and warranty is
inaccurate and such inaccuracy materially and adversely affects the value of the
related Home Loan, notwithstanding the Seller's lack of knowledge, such
inaccuracy shall be deemed a breach of the applicable representation and
warranty.
ARTICLE IV.
SELLER'S COVENANTS
Section 4.1 Covenants of the Seller. The Seller hereby covenants that
except for the transfer hereunder, the Seller will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer to exist
any lien on, any Home Loan, or any interest therein; and the Seller will defend
the right, title and interest of the Trust, as assignee of the Purchaser, in, to
and under the Home Loans, against all claims of third parties claiming through
or under the Seller.
ARTICLE V.
INDEMNIFICATION BY THE SELLER
Section 5.1 Indemnification. The Seller agrees to indemnify and hold
harmless the Purchaser from and against any loss, liability, expense, damage,
claim or injury (other than those resulting solely from defaults on the Home
Loans) arising out of or based on this Agreement including, without limitation,
in connection with the origination or prior servicing of the Home Loans by
reason of any acts, omissions, or alleged acts or omissions arising out of
activities of the Seller, originator or prior servicer, including reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim; provided that
the Seller shall not indemnify the Purchaser if such loss, liability, expense,
damage or injury is due to the Purchaser's willful misfeasance, bad faith or
negligence or by reason of the Purchaser's reckless disregard of its obligations
hereunder. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
Section 5.2 Limitation on Liability of the Seller. None of the directors
or trustees or officers or employees or agents of the Seller shall be under any
liability to the Purchaser, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Purchase Agreement; provided, however,
that this provision shall not protect any such Person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence
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in the performance of duties hereunder. Except as expressly provided herein and
in the Sale and Servicing Agreement, the Seller shall not be under any liability
to the Trust, the Owner Trustee, the Co-Owner Trustee or the Securityholders.
The Seller and any director or officer or employee or agent of the Seller may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
Section 5.3 Indemnification (a) The Seller agrees to indemnify and hold
harmless the Purchaser, the directors of the Purchaser and each person, if any,
who controls the Purchaser within the meaning of Section 15 of the Securities
Act of 1933 (the "Act") or Section 20 of the Securities Exchange Act of 1934
(the "Exchange Act"), from and against any and all losses, claims, damages,
liabilities or judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action, suit
or proceeding or any claim asserted) arising out of (i) any untrue statement or
alleged untrue statement of a material fact contained under any of the captions
"Mego Mortgage Corporation", and "The Pool" in the Prospectus Supplement or
caused by any 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 in which they were made, not misleading or (ii)
any information concerning the Seller, the Home Loans or the Seller's operations
based on any untrue statement or alleged untrue statement of a fact contained in
any information provided by the Seller to the Purchaser, or any material
omission from the information purported to be provided thereby, and disseminated
to any Rating Agency, Deloitte & Touche or prospective investors (directly or
indirectly through available information systems) in connection with the
issuance, marketing or offering of the Notes and Certificates. This indemnity
agreement will be in addition to any liability which the Seller may otherwise
have pursuant to this Purchase Agreement.
(b) The Purchaser agrees to indemnify and hold harmless the Seller and
each person, if any, who controls the Seller within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities caused by (A) any untrue statement or alleged
untrue statement of a material fact contained in (i) the Prospectus Supplement
under the caption "Description of the Securities", "Description of the Transfer
and Servicing Agreements", and "Prepayment and Yield Considerations"; (ii) the
Base Prospectus; or (iii) the Registration Statement (other than the information
with respect to the Seller contained in the Prospectus Supplement) or (B) any
omission or alleged omission to state a material fact, in the case of the
Registration Statement (other than the information with respect to the Seller
contained in the Prospectus Supplement), required to be stated therein or
necessary to make the statements therein not misleading, and in the case of the
section of the Prospectus Supplement specified in clause (A) (i) of this
sentence and the Base Prospectus, necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. This indemnity agreement will be in addition to any liability which
the Purchaser may have pursuant to this Purchase Agreement.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be instituted involving any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (hereinafter called the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(hereinafter called the "indemnifying party") in writing and the
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indemnifying party, upon request of the indemnified party, shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party to represent the indemnified party and any others the
indemnifying party may designate and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such action or proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (1) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (2) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm (in addition to
any local counsel) for any indemnified party and each person, if any, who
controls such indemnified party within the meaning of either Section 15 of the
Act or Section 20 of the Exchange Act, and it is also understood that expenses
shall be reimbursed as they are incurred. In the case of any such separate firm
for any indemnified party and any director, officer and control person of the
indemnified party, such firm shall be designated in writing by such indemnified
party. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 5.3 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnified party on the one hand
and the indemnifying party on the other from the sale of the Home Loans or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnified party on the one hand and the indemnifying party on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. For purposes of the foregoing, the benefit received by
the Seller from the sale of the Home Loans shall be deemed to equal the amount
of the gross proceeds received by the Seller from such sale, and the benefit
received by the Purchaser for such sale shall be deemed to equal the amount
specified in the paragraph below. The relative fault of the Purchaser on the one
hand and the Seller on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Purchaser or by the Seller and the parties' relative intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Seller and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 5.3(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5.3(d), in no event shall the
Purchaser be required to contribute any amount in excess of $961,697.37. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
ARTICLE VI.
TERMINATION
Section 6.1 Termination. The respective obligations and responsibilities
of the Seller and the Purchaser created hereby shall terminate, except for the
Seller's and Purchaser's indemnity obligations as provided herein, upon the
termination of the Trust as provided in Article XI of the Sale and Servicing
Agreement.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.1 Amendment. This Purchase Agreement may be amended from time
to time by the Seller and the Purchaser, by written agreement signed by the
Seller and the Purchaser.
Section 7.2 Governing Law. This Purchase Agreement shall be governed by
and construed in accordance with the laws of the State of New York and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with such laws.
Section 7.3 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by registered mail, postage prepaid, addressed as
follows:
(a) if to the Seller:
Mego Mortgage Corporation
1000 Parkwood Circle, Suite 500
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President
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or, such other address as may hereafter be furnished to the Purchaser in writing
by the Seller.
(b) if to FASCO
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: General Counsel
or such other address as may hereafter be furnished to the Seller in writing by
the Purchaser.
Section 7.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions of terms of this Purchase Agreement shall be
held invalid for any reason whatsoever, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Purchase Agreement and shall in no way
affect the validity of enforceability of the other provisions of this Purchase
Agreement.
Section 7.5 Counterparts. This Purchase Agreement may be executed in one
or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an original
and such counterparts, together, shall constitute one and the same agreement.
Section 7.6 Further Agreements. The Purchaser and the Seller each agree
to execute and deliver to the other such amendments to documents and such
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Purchase Agreement or in
connection with the offering of securities representing interests in the Home
Loans.
Without limiting the generality of the foregoing, as a further
inducement for the Purchaser to purchase the Home Loans from the Seller, the
Seller will cooperate with the Purchaser in connection with the sale of any of
the securities representing interests in the Home Loans. In that connection, the
Seller will provide to the Purchaser any and all information and appropriate
verification of information, whether through letters of its auditors and counsel
or otherwise, as the Purchaser shall reasonably request and will provide to the
Purchaser such additional representations and warranties, covenants, opinions of
counsel, letters from auditors, and certificates of public officials or officers
of the Seller as are reasonably required in connection with such transactions
and the offering of investment grade securities rated by Duff & Phelps Credit
Ratings Co., Fitch Investors Services L.P. and Standard & Poor's Rating
Services.
Section 7.7 Intention of the Parties. It is the intention of the parties
that the Purchaser is purchasing, and the Seller is selling, the Home Loans
rather than pledging the Home Loans to secure a loan by the Purchaser to the
Seller. Accordingly, the parties hereto each intend to treat the transaction for
federal income tax purposes and all other purposes as a sale by the Seller, and
a purchase by the Purchaser, of the Home Loans. The Purchaser will have the
right to review the Home Loans and the related Home Loan Files to determine the
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characteristics of the Home Loans which will affect the federal income tax
consequences of owning the Home Loans and the Seller will cooperate with all
reasonable requests made by the Purchaser in the course of such review.
Section 7.8 Successors and Assigns; Assignment of Purchase Agreement.
The Agreement shall bind and inure to the benefit of and be enforceable by the
Seller, the Purchaser and the Trustee. The obligations of the Seller under this
Purchase Agreement cannot be assigned or delegated to a third party without the
consent of the Purchaser, which consent shall be at the Purchaser's sole
discretion, except that the Purchaser acknowledges and agrees that the Seller
may assign its obligations hereunder to any Person into which the Seller is
merged or any corporation resulting from any merger, conversion or consolidation
to which the Seller is a party or any Person succeeding to the business of the
Seller. The parties hereto acknowledge that FASCO is acquiring the Home Loans
for the purpose of contributing them to the Trust that will issue (i) the
Residual Instruments and the Certificates representing undivided interests in
such Home Loans and (ii) the Notes which will be secured by such Home Loans. As
an inducement to FASCO to purchase the Home Loans, the Seller acknowledges and
consents to the assignment by FASCO to the Trust of all of FASCO's rights
against the Seller pursuant to this Purchase Agreement and to the enforcement or
exercise of any right or remedy against the Seller pursuant to this Purchase
Agreement by the Owner Trustee and Co-Owner Trustee under the Sale and Servicing
Agreement. Such enforcement of a right or remedy by the Owner Trustee and
Co-Owner Trustee shall have the same force and effect as if the right or remedy
had been enforced or exercised by FASCO directly.
Section 7.9 Survival. The representations and warranties set forth in
Article III and the provisions of Article V shall survive the purchase of the
Home Loans hereunder.
Section 7.10 Third-Party Beneficiaries. This Purchase Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as otherwise provided in
this Section 7.10 no other Person shall have the right or obligation hereunder.
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<PAGE> 16
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
this Home Loan Purchase Agreement to be duly executed on their behalf by
their respective officers thereunto duly authorized as of the day and
year first above written.
FINANCIAL ASSET SECURITIES CORP.,
as Purchaser
By:
-------------------------------------
Name: Craig A. Braun
Title: Vice President
MEGO MORTGAGE CORPORATION, as Seller
By:
-------------------------------------
Name: James L. Belter
Title: Executive Vice President
<PAGE> 17
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 27th day of June 1997 before me, a Notary Public in and for said
State, personally appeared Craig A. Braun known to me to be a Vice President of
FINANCIAL ASSET SECURITIES CORP., the corporation that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
Notary Public
-------------------------------------
<PAGE> 18
STATE OF )
) ss.:
COUNTY OF )
On the 27th day of June 1997 before me, a Notary Public in and for said
State, personally appeared James L. Belter, known to me to be the Executive Vice
President of MEGO MORTGAGE CORPORATION, the company that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
Notary Public
-------------------------------------
<PAGE> 19
SCHEDULE I
Loan Schedule
See Exhibit A to Sale and Servicing Agreement
<PAGE> 1
EXHIBIT 10.126
EXECUTION COPY
================================================================================
SALE AND SERVICING AGREEMENT
Dated as of June 14, 1997
among
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3
(Issuer)
FINANCIAL ASSET SECURITIES CORP.
(Depositor)
MEGO MORTGAGE CORPORATION
(Seller and Servicer)
NORWEST BANK MINNESOTA, N.A.
(Master Servicer)
and
FIRST BANK NATIONAL ASSOCIATION
(Indenture Trustee and Co-Owner Trustee)
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3
HOME LOAN ASSET-BACKED NOTES, SERIES 1997-3
HOME LOAN ASSET-BACKED CERTIFICATES, SERIES 1997-3
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I.
DEFINITIONS
<S> <C> <C>
Section 1.01 Definitions................................................... 1
Section 1.02 Other Definitional Provisions................................. 26
Section 1.03 Interest Calculations......................................... 26
ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans.................................. 27
Section 2.02 Reserved...................................................... 27
Section 2.03 Ownership and Possession of Home Loan Files................... 27
Section 2.04 Books and Records............................................. 28
Section 2.05 Delivery of Home Loan Documents............................... 28
Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
Substitutions; Initial Certification.......................... 31
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor................33
Section 3.02 Representations, Warranties and Covenants of the Master
Servicer...................................................... 33
Section 3.03 Representations and Warranties of Mego........................ 36
Section 3.04 [Reserved].................................................... 44
Section 3.05 Purchase and Substitution..................................... 44
ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS
Section 4.01 Servicing Standard............................................ 47
Section 4.02 Servicing Arrangements........................................ 48
Section 4.03 Servicing Record.............................................. 49
Section 4.04 Annual Statement as to Compliance; Notice of Event of Default. 52
Section 4.05 Annual Independent Accountants' Report; Servicer Review
Report........................................................ 52
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans.................................................... 53
Section 4.07 [Reserved].................................................... 54
Section 4.08 Advances...................................................... 54
Section 4.09 Reimbursement of Interest Advances and Foreclosure Advances... 55
Section 4.10 Modifications, Waivers, Amendments and Consents............... 56
Section 4.11 Due-On-Sale; Due-on-Encumbrance............................... 56
Section 4.12 Collection Procedures; Foreclosure Procedures................. 57
Section 4.13 Sale of Foreclosed Properties................................. 58
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.14. Management of Real Estate Owned............................... 59
Section 4.15. Inspections................................................... 60
Section 4.16. Maintenance of Insurance...................................... 60
Section 4.17. Release of Files.............................................. 61
Section 4.18. Filing of Continuation Statements............................. 62
Section 4.19. Fidelity Bond................................................. 63
Section 4.20. Errors and Omissions Insurance................................ 63
ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.............. 64
Section 5.02 [Reserved].................................................... 68
Section 5.03 Certificate Distribution Account.............................. 68
Section 5.04 Trust Accounts; Trust Account Property........................ 69
Section 5.05 Servicer to Pay Owner Trustee Fee............................. 72
ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate.................................. 73
Section 6.02 Statement to Securityholders.................................. 73
ARTICLE VII.
[Reserved]
ARTICLE VIII.
[Reserved]
ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims........................... 76
Section 9.02 Merger or Consolidation of the Master Servicer................ 76
Section 9.03 Limitation on Liability of the Master Servicer and Others..... 77
Section 9.04 Master Servicer Not to Resign; Assignment..................... 77
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee....................................................... 78
Section 9.06 Master Servicer May Own Notes................................. 78
</TABLE>
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<PAGE> 4
<TABLE>
ARTICLE X.
DEFAULT
<S> <C> <C>
Section 10.01 Events of Default............................................. 79
Section 10.02 Consequences of an Event of Default........................... 80
Section 10.03 Appointment of Successor...................................... 81
Section 10.04 Notification to Certificateholders............................ 81
Section 10.05 Waiver of Past Defaults....................................... 82
ARTICLE XI.
TERMINATION
Section 11.01 Termination................................................... 83
Section 11.02 Notice of Termination......................................... 83
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders....................................... 84
Section 12.02 Amendment..................................................... 84
Section 12.03 Recordation of Agreement...................................... 85
Section 12.04 Duration of Agreement......................................... 85
Section 12.05 Governing Law................................................. 85
Section 12.06 Notices....................................................... 85
Section 12.07 Severability of Provisions.....................................86
Section 12.08 No Partnership.................................................86
Section 12.09 Counterparts...................................................86
Section 12.10 Successors and Assigns.........................................86
Section 12.11 Headings.......................................................86
Section 12.12 Actions of Securityholders.....................................87
Section 12.13 Reports to Rating Agencies.....................................87
Section 12.14 Inconsistencies Among Transaction Documents....................88
EXHIBITS
EXHIBIT A Home Loan Schedule
EXHIBIT B Form of Master Servicer Certificate
EXHIBIT C Form of Monthly Statement to Securityholders
EXHIBIT D Underwriting Guidelines
EXHIBIT E Form of Servicing Agreement
</TABLE>
-iii-
<PAGE> 5
This Sale and Servicing Agreement is entered into effective as of June
14, 1997, among MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3, a Delaware business
trust (the "Issuer" or the "Trust"), FINANCIAL ASSET SECURITIES CORP., a
Delaware corporation, as Depositor (the "Depositor"), MEGO MORTGAGE CORPORATION,
a Delaware corporation ("Mego"), as Seller (in such capacity, the "Seller") and
Servicer (in such capacity, the "Servicer"), NORWEST BANK MINNESOTA, N.A., as
Master Servicer (the "Master Servicer"), and FIRST BANK NATIONAL ASSOCIATION, a
national banking association, as Indenture Trustee on behalf of the Noteholders
(in such capacity, the "Indenture Trustee") and as Co-Owner Trustee on behalf of
the Securityholders (in such capacity, the "Co-Owner Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Home Loans which were
originated or purchased by the Seller and sold to the Depositor in the ordinary
course of business of the Seller;
WHEREAS, the Depositor is willing to purchase from the Seller and sell
such Home Loans to the Issuer; and
WHEREAS, the Master Servicer is willing to service such Home Loans in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
Accrual Period: With respect to the first Distribution Date and the
Class A-1 Notes, the period commencing on the Closing Date and ending on the day
immediately preceding such Distribution Date (28 days). With respect to any
subsequent Distribution Date and the Class A-1 Notes, the period commencing on
the immediately preceding Distribution Date and ending on the day immediately
preceding such subsequent Distribution Date. With respect to the first
Distribution Date and the Classes of Securities other than the Class A-1 Notes,
the period commencing on the Cut-Off Date and ending on the last day of the
month of the Cut-Off Date (17 days). With respect to any Classes of Securities
other than the Class A-1 Notes for a given Distribution Date, the calendar month
preceding the month of such Distribution Date based on a 360-day year consisting
of twelve 30-day months.
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<PAGE> 6
Aggregate Note Principal Balance: With respect to any Distribution Date,
the aggregate of the Class Principal Balances of the Notes.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Allocable Loss Amount: With respect to each Distribution Date, the
excess, if any, of (a) the aggregate of the Class Principal Balances of all
Classes of Securities (after giving effect to all distributions on such
Distribution Date) over (b) the Pool Principal Balance as of the end of the
preceding Due Period.
Allocable Loss Amount Priority: With respect to any Distribution Date,
sequentially, to the Certificates, the Class M-2 Notes and the Class M-1 Notes,
in that order, until the respective Class Principal Balances thereof are reduced
to zero.
Assignment of Mortgage: With respect to each Home Loan secured by a
Mortgage, an assignment, notice of transfer or equivalent instrument sufficient
under the laws of the jurisdiction wherein the related Property is located to
reflect of record the sale of the related Home Loan to the Trust as follows:
"First Bank National Association, as Indenture Trustee and Co-Owner Trustee for
the Mego Mortgage Home Loan Owner Trust 1997-3".
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in New York City or in the city in which the
Corporate Trust Office of the Indenture Trustee is located or the city in which
the Master Servicer's or Servicer's servicing operations are located and are
authorized or obligated by law or executive order to be closed.
Certificate Distribution Account: The account established and maintained
pursuant to Section 5.03.
Certificate: Any Certificate issued pursuant to the Trust Agreement.
Certificateholder: A holder of any Certificate.
Certificateholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Certificates, the sum of (i) the excess of (A) the
Certificateholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Certificateholders' Interest Carry-Forward
Amount on such preceding Distribution Date, over (B) the amount of interest that
is actually distributed to the Certificateholders on such preceding Distribution
Date plus (ii) interest on such excess, to the extent permitted by law, at the
applicable Certificate Pass-Through Rate from such proceeding Distribution Date
through the current Distribution Date.
Certificateholders' Interest Distributable Amount: With respect to any
Distribution Date and the Certificates, the sum of the Certificateholders'
Monthly Interest Distributable Amount and the Certificateholders' Interest
Carry-Forward Amount for such Distribution Date; provided
2
<PAGE> 7
however, that on the Distribution Date, if any, on which the Class Principal
Balance of the Certificates is reduced to zero through application of an
Allocable Loss Amount, the Certificateholders' Interest Distributable Amount
shall be reduced by an amount equal to the portion, if any, of the Allocable
Loss Amount that would be allocable to the Classes of Mezzanine Notes without
giving effect to this proviso.
Certificateholders' Monthly Interest Distributable Amount: With respect
to any Distribution Date and the Certificates, interest accrued during the
related Accrual Period at the Certificate Pass-Through Rate on the Class
Principal Balance of the Certificates immediately preceding such Distribution
Date (or, in the case of the first Distribution Date, on the Closing Date).
Certificate Optimal Principal Balance: With respect to any Distribution
Date prior to the Stepdown Date, zero; and with respect to any other
Distribution Date, the Pool Principal Balance as of the preceding Determination
Date minus the sum of (i) the aggregate Class Principal Balance of the Notes
(after taking into account any distributions made on such Distribution Date in
reduction of the Class Principal Balances of the Notes prior to such
determination) and (ii) the Overcollateralization Target Amount for such
Distribution Date; provided however, that the Certificate Optimal Principal
Balance amount shall never be less than zero or greater than the Original Class
Principal Balance of the Certificates.
Certificate Pass-Through Rate: The per annum rate of 8.01%; provided,
however, with respect to any Distribution Date after the first Distribution Date
on which either the Mego or the Master Servicer may exercise its option to
purchase the Home Loans pursuant to Section 11.01(b), the Certificate
Pass-Through Rate shall be 8.51%.
Certificate Register: The register established pursuant to Section 3.4
of the Trust Agreement.
Class: With respect to the Notes, all Notes bearing the same class
designation, and with respect to the Certificates, the Certificates shall be
deemed to be one class.
Class A-1 Note: Any Class A-1 Note in the form attached to the Indenture
as Exhibit A-1.
Class A-2 Note: Any Class A-2 Note in the form attached to the Indenture
as Exhibit A-2.
Class A-3 Note: Any Class A-3 Note in the form attached to the Indenture
as Exhibit A-3.
Class A-4 Note: Any Class A-4 Note in the form attached to the Indenture
as Exhibit A-4.
3
<PAGE> 8
Class M-1 Optimal Principal Balance: With respect to any Distribution
Date prior to the Stepdown Date, zero; and with respect to any other
Distribution Date, the Pool Principal Balance as of the preceding Determination
Date minus the sum of (i) the aggregate Class Principal Balance of the Senior
Notes (after taking into account distributions made on such Distribution Date in
reduction of the Class Principal Balances of the Classes of Senior Notes prior
to such determination) and (ii) the greater of (x) the sum of (1) 25.50% of the
Pool Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (calculated
without giving effect to the proviso in the definition thereof) or (y) 0.50% of
the Original Pool Principal Balance; provided however, that the Class M-1
Optimal Principal Balance shall never be less than zero or greater than the
Original Class Principal Balance of the Class M-1 Notes.
Class M-2 Optimal Principal Balance: With respect to any Distribution
Date prior to the Stepdown Date, zero; with respect to any other Distribution
Date, the Pool Principal Balance as of the preceding Determination Date minus
the sum of (i) the aggregate Class Principal Balance of the Senior Notes (after
taking into account any distributions made on such Distribution Date in
reduction of the Class Principal Balances of the Classes of Senior Notes prior
to such determination) plus the Class Principal Balance of the Class M-1 Notes
(after taking into account any distributions made on such Distribution Date in
reduction of the Class Principal Balance of the Class M-1 Notes prior to such
determination) and (ii) the greater of (x) the sum of (1) 11.00% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (without giving
effect to the proviso in the definition thereof) or (y) 0.50% of the Original
Pool Principal Balance; provided, however, that the Class M-2 Optimal Principal
Balance shall never be less than zero or greater than the Original Class
Principal Balance of the Class M-2 Notes.
Class M-1 Note: Any Class M-1 Note in the form attached to the Indenture
as Exhibit A.
Class M-2 Note: Any Class M-2 Note in the form attached to the Indenture
as Exhibit A.
Class Principal Balance: With respect to each Class and as of any date
of determination, the Original Class Principal Balance of such Class reduced by
the sum of (i) all amounts previously distributed in respect of principal of
such Class on all previous Distribution Dates and (ii) with respect to the Class
M-1, Class M-2 Notes and the Certificates, all Allocable Loss Amounts applied in
reduction of principal of such Class on all previous Distribution Dates.
Closing Date: June 27, 1997.
Code: The Internal Revenue Code of 1986, as amended from time to time,
and Treasury Regulations promulgated thereunder.
4
<PAGE> 9
Collected Amount: With respect to any Determination Date or related
Distribution Date, the sum of the amount on deposit in the Note Distribution
Account on such Determination Date plus the amounts required to be deposited
into the Note Distribution Account pursuant to Section 5.01(b).
Collection Account: The account denominated as a Collection Account and
maintained or caused to be maintained by the Indenture Trustee pursuant to
Section 5.01.
Corporate Trust Office: The office of the Indenture Trustee at which any
particular time its corporate business shall be principally administered,
located on the Closing Date at First Bank National Association, 180 East 5th
Street, St. Paul, Minnesota 55101, Attention: Structured Finance.
Co-Owner Trustee: First Bank National Association, a national banking
association, in its capacity as the Co-Owner Trustee under the Trust Agreement
acting on behalf of the Securityholders, or any successor co-owner trustee under
the Trust Agreement.
Cumulative Net Losses: With respect to any Distribution Date, the
aggregate amount of Net Loan Losses calculated for such Distribution Date and
each prior Distribution Date, reduced by any recoveries in respect of principal
on a Defaulted Home Loan received after the Due Period in which such Home Loan
became a Defaulted Home Loan.
Cut-Off Date: With respect to any Home Loan, the opening of business on
June 14, 1997.
Debt Instrument: The note or other evidence of indebtedness evidencing
the indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: A Home Loan with respect to which: (i) the Property
has been acquired through foreclosure or similar proceedings and sold, (ii) any
portion of a Monthly Payment is more than 180 calendar days past due (without
giving effect to any grace period), or (iii) the Servicer has determined in
accordance with customary servicing practices, that the Home Loan is
uncollectible.
Defective Home Loan: A Home Loan required to be repurchased pursuant to
Section 3.05 hereof.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and
are susceptible of physical delivery, transfer thereof to the Indenture
Trustee or its nominee or custodian by physical delivery to the
Indenture Trustee or its nominee or custodian endorsed to, or registered
in the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank, and, with
5
<PAGE> 10
respect to a certificated security (as defined in Section 8-102 of the
UCC) transfer thereof (i) by delivery of such certificated security
endorsed to, or registered in the name of, the Indenture Trustee or its
nominee or custodian or endorsed in blank to a financial intermediary
(as defined in Section 8-313 of the UCC) and the making by such
financial intermediary of entries on its books and records identifying
such certificated securities as belonging to the Indenture Trustee or
its nominee or custodian and the sending by such financial intermediary
of a confirmation of the purchase of such certificated security by the
Indenture Trustee or its nominee or custodian, or (ii) by delivery
thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate
entries on its books reducing the appropriate securities account of the
transferor and increasing the appropriate securities account of a
financial intermediary by the amount of such certificated security, the
identification by the clearing corporation of the certificated
securities for the sole and exclusive account of the financial
intermediary, the maintenance of such certificated securities by such
clearing corporation or a "custodian bank" (as defined in Section
8-102(4) of the UCC) or the nominee of either subject to the clearing
corporation's exclusive control, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its
nominee or custodian of such securities and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Indenture Trustee or its
nominee or custodian (all of the foregoing, "Physical Property"), and,
in any event, any such Physical Property in registered form shall be in
the name of the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate
to effect the complete transfer of ownership of any such Trust Account
Property (as defined herein) to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or
the interpretation thereof;
(b) with respect to any securities issued by the U.S.
Treasury, FNMA or FHLMC that is a book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations, the
following procedures, all in accordance with applicable law, including
applicable federal regulations and Articles 8 and 9 of the UCC:
book-entry registration of such Trust Account Property to an appropriate
book-entry account maintained with a Federal Reserve Bank by a financial
intermediary that is also a "depository" pursuant to applicable federal
regulations and issuance by such financial intermediary of a deposit
advice or other written confirmation of such book-entry registration to
the Indenture Trustee or its nominee or custodian of the purchase by the
Indenture Trustee or its nominee or custodian of such book-entry
securities; the making by such financial intermediary of entries in its
books and records identifying such book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations as
belonging to the Indenture Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property solely
as agent for the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate
to effect complete transfer of ownership
6
<PAGE> 11
of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof; and
(c) with respect to any item of Trust Account Property that
is an uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of
the issuer thereof in the name of the financial intermediary, the
sending of a confirmation by the financial intermediary of the purchase
by the Indenture Trustee or its nominee or custodian of such
uncertificated security, the making by such financial intermediary of
entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or
custodian.
Depositor: Financial Asset Securities Corp., a Delaware corporation, and
any successor thereto.
Determination Date: With respect to any Distribution Date, the fifth
Business Day preceding such Distribution Date.
Distribution Date: The 25th day of any month or if such 25th day is not
a Business Day, the first Business Day immediately following such day,
commencing in July 1997.
DTC: The Depository Trust Company.
Due Date: With respect to any Monthly Payment, the date on which such
Monthly Payment is required to be paid pursuant to the related Debt Instrument.
Due Period: With respect to any Determination Date or Distribution Date,
the calendar month immediately preceding such Determination Date or Distribution
Date, as the case may be; provided, however, that with respect to the July 1997
Distribution Date, Due Period shall mean the period from June 14, 1997 to June
30, 1997.
DCR: Duff & Phelps Credit Rating Co.
Early Termination Notice Date: Any date on which the Pool Principal
Balance is less than 10% of the Initial Principal Balance.
Eligible Account: At any time, an account which is any of the following:
(i) A segregated trust account that is maintained with the corporate trust
department of a depository institution (A) the long-term debt obligations of
which are at such time rated by each Rating Agency in one of their two highest
long-term rating categories, or (B) short-term debt obligations of which are
then rated by each Rating Agency in their highest short-term rating category or
(C) a segregated trust account department of a federal or state chartered
depository institution or trust company having capital and surplus of not less
than $100,000,000 acting in its fiduciary capacity; (ii) a segregated direct
deposit account maintained with a depository institution or trust company
7
<PAGE> 12
organized under the laws of the United States of America, or any of the States
thereof, or the District of Columbia, having a certificate of deposit, short
term deposit or commercial paper rating of at least A-1+ by Standard & Poor's
and P-1 by Moody's or (iii) an account that will not cause any Rating Agency to
downgrade or withdraw its then current rating(s) assigned to the Notes as
evidenced in writing by such Rating Agency.
Eligible Servicer: Either a Person that (a) (i) is servicing a portfolio
of mortgage loans, (ii) is legally qualified to service, and is capable of
servicing, the Home Loans and has all licenses required to service mortgage
loans, (iii) has demonstrated the ability professionally and competently to
service a portfolio of mortgage loans similar to the Home Loans with reasonable
skill and care, (iv) has a net worth calculated in accordance with generally
accepted accounting principles of at least $500,000 and (v) has been approved in
writing by the Rating Agencies or (b) Mego Mortgage Corporation, Preferred
Equities Corporation or Norwest Bank Minnesota, N.A.
Event of Default: As described in Section 10.01 hereof.
Excess Spread. With respect to any Distribution Date, the positive
excess, if any, of (x) the Collected Amount with respect to such Distribution
Date over (y) the amount distributed pursuant to clauses (i) and (ii) of Section
5.01(c) on such Distribution Date.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
FICO Score: The credit evaluation scoring methodology developed by Fair,
Isaac and Company.
Final Maturity Date: With respect to the following Classes of
Securities:
Class A-1 Notes: August 25, 2023
Class A-2 Notes: August 25, 2023
Class A-3 Notes: August 25, 2023
Class A-4 Notes: August 25, 2023
Class M-1 Notes: August 25, 2023
Class M-2 Notes: August 25, 2023
Certificates: August 25, 2023
Fitch: Fitch Investors Service, L.P.
FNMA: The Federal National Mortgage Association and any successor
thereto.
Foreclosure Advances: As defined in Section 4.08(b).
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<PAGE> 13
Foreclosed Loan. As of any date of determination, any Mortgage Loan that
has been discharged as a result of (i) the completion of foreclosure or
comparable proceedings; (ii) the Owner Trustee's acceptance of the deed or other
evidence of title to the related Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition by the Owner Trustee of title to
the related Property by operation of law.
Foreclosed Property. With respect to any Mortgage Loan, any Property
acquired by the Trust as a result of:
(i) the completion of foreclosure or comparable
proceedings with respect to the related Mortgage Loan;
(ii) the Co-Owner Trustee's acceptance of the deed or
other evidence of title to the related Property in lieu of foreclosure
or other proceeding with respect to the related Loan; or
(iii) the acquisition by the Co-Owner Trustee of title
thereto by operation of law.
Grant: As defined in the Indenture.
HUD: The United States Department of Housing and Urban Development and
any successor thereto.
Home Loan: An individual home loan that is conveyed to the Issuer
pursuant to this Agreement on the Closing Date, together with the rights and
obligations of a holder thereof and payments of principal in respect of such
Home Loan received on or after the Cut-Off Date and payments of interest in
respect of such Home Loan due on or after the Cut-Off Date, the Home Loans
subject to this Agreement being identified on the Home Loan Schedule as amended
from time to time and annexed hereto as Exhibit A.
Home Loan File: The Indenture Trustee's Home Loan File and the
Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a
Debt Instrument, as shown on the related Home Loan Schedule.
Home Loan Pool: The pool of Home Loans.
Home Loan Purchase Agreement: The home loan purchase agreement between
the Seller, as seller, and the Depositor, as purchaser, dated as of June 14,
1997.
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Home Loan Schedule: The schedule of Home Loans specifying with respect
to each Home Loan, the information set forth on Exhibit A attached hereto, as
amended or supplemented from time to time.
Indenture: The Indenture, dated as of June 14, 1997, between the Issuer
and the Indenture Trustee.
Indenture Trustee: First Bank National Association, a national banking
association, as Indenture Trustee under the Indenture and this Agreement acting
on behalf of the Noteholders, or any successor indenture trustee under the
Indenture and this Agreement.
Indenture Trustee Fee: With respect to any Distribution Date, the
greater of (A) one-twelfth of 0.0275% times the Pool Principal Balance of the
Home Loans as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (or, with respect to the
first Distribution Date, the Original Pool Principal Balance); and (B) $666.67.
Indenture Trustee's Home Loan File: As defined in Section 2.05.
Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of Mego, the Master Servicer, the Depositor or any of
their respective affiliates, (ii) does not have any direct financial interest in
or any material indirect financial interest in any of Mego, the Master Servicer,
the Depositor or any of their respective affiliates and (iii) is not connected
with any of Mego, the Master Servicer, the Depositor or any of their respective
affiliates, as an officer, employee, promoter, underwriter, trustee, partner,
director or Person performing similar functions; provided, however, that a
Person shall not fail to be Independent of Mego, the Master Servicer, the
Depositor or any of their respective affiliates merely because such Person is
the beneficial owner of 1% or less of any class of securities issued by Mego,
the Master Servicer, the Depositor or any of their respective affiliates, as the
case may be.
Independent Accountants: A firm of nationally recognized certified
public accountants which is Independent.
Independent Contractor: As defined in Section 4.14(b).
Insurance Policies: With respect to any Property, any related insurance
policy.
Insurance Proceeds: With respect to any Property, all amounts collected
in respect of Insurance Policies and not required to be applied to the
restoration of the related Property or paid to the related Obligor.
Interest Advance: As defined in Section 4.08(a).
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Interest Determination Date: With respect to any Accrual Period, the
second London Business Day preceding the commencement of such Accrual Period.
Issuer: The Trust.
London Business Day: Any day on which banks in the City of London or New
York City are open and conducting transactions in United States dollars.
Loss Reimbursement Entitlement: With respect to any Distribution Date
and the Class M-1 Notes, Class M-2 Notes or the Certificates, the amount of
Allocable Loss Amounts applied to the reduction of the Class Principal Balance
of such Class pursuant to Section 5.02 and not reimbursed pursuant to Section
5.01 or 5.03 hereof as of such Distribution Date, plus (in the case of the Class
M-1 Notes and Class M-2 Notes) interest accrued on the unreimbursed portion
thereof at the applicable Note Interest Rate through the end of the Due Period
immediately preceding such Distribution Date; however, no interest shall accrue
on any amount of any such accrued and unpaid interest.
Majority Securityholders: (i) Until such time as the sum of the
Aggregate Note Principal Balance has been reduced to zero, the holder or holders
of in excess of 50% of the Class Principal Balance of all Classes of Notes (as a
result of which the holders of the Certificates and the Residual Instruments
shall be excluded from any rights or actions of the Majority Securityholders
during such period); (ii) thereafter and until such time as the Class Principal
Balance of the Certificate has been reduced to zero, the holder or holders of in
excess of 50% of the Class Principal Balance of the Certificates (as a result of
which the holders of the Residual Instruments shall be excluded from any rights
or actions of the Majority Securityholders during such period); and (iii)
thereafter, the holder or holders of in excess of 50% of the Percentage Interest
of the Residual Instruments.
Master Servicer: Norwest Bank Minnesota, N.A., a national banking
association, its successors in interest or any successor master servicer
appointed as herein provided.
Master Servicer Certificate: As defined in Section 6.01.
Master Servicer Fee: With respect to any Distribution Date, 1/12 times
0.08% times the Pool Principal Balance as of the opening of business on the
first day of the month preceding the month of such Distribution Date (or, with
respect to the first Distribution Date, the Original Pool Principal Balance).
Master Servicer Termination Event: Any event specified in Section 10.01.
Master Servicing Officer: Any officer of the Master Servicer responsible
for the administration and servicing of the Home Loans whose name and specimen
signature appears on a list of servicing officers furnished to the Indenture
Trustee by the Master Servicer, as such list may from time to time be amended.
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Maturity Date: With respect to any Home Loan and as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Debt Instrument.
Mezzanine Notes: The Class M-1 Notes and the Class M-2 Notes.
Monthly Cut-Off Date: The last day of any calendar month, and with
respect to any Distribution Date or related Determination Date, the last day of
the calendar month immediately preceding such Distribution Date or related
Determination Date.
Monthly Payment: With respect to any Home Loan and any Due Period, the
payment of principal and interest due in such Due Period from the Obligor
pursuant to the related Debt Instrument (as amended or modified, if applicable,
pursuant to Section 4.10). The Monthly Payment related to a Determination Date
or a Distribution Date shall be the Monthly Payment due for the preceding Due
Period.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Mortgage: With respect to any Mortgage Loan, the mortgage, deed of trust
or other instrument creating a mortgage lien (and in a title theory state the
document conveying title to the Property as security for the related Loan) or
other security interest on the related Property.
Mortgage Loan: As of any date of determination, each of the Home Loans,
secured by an interest in a Property, transferred and assigned to the Indenture
Trustee pursuant to Section 2.01(a).
Mortgagee or Obligee: With respect to any Home Loan as of any date of
determination, the holder of the related Debt Instrument and any related
Mortgage as of such date.
Mortgagor or Obligor: With respect to any Home Loan, the obligor(s) on
the related Debt Instrument.
Net Delinquency Calculation Amount: With respect to any Distribution
Date, beginning with the sixth Distribution Date, the excess, if any, of (x) the
product of (a) the product of 2.5 times the 61+ Delinquency Percentage (Rolling
Six-Month) times (b) the Pool Principal Balance as of the preceding Due Period
over (y) the aggregate of the amounts of Excess Spread for the three preceding
Distribution Dates.
Net Loan Losses: With respect to any Distribution Date and the Home
Loans that become Defaulted Home Loans during the immediately preceding Due
Period, the aggregate Principal Balance of such Defaulted Home Loans as of the
last day of such Due Period, after giving effect to any recoveries attributable
to principal from whatever source received during such Due Period with respect
to such Defaulted Home Loans, including without limitation any Insurance
Proceeds.
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Net Loan Rate: With respect to each Home Loan, the related Home Loan
Interest Rate, less the rate at which the Servicer Fee is calculated.
Nonrecoverable Advances: With respect to any Home Loan, (i) any Interest
Advance previously made and not reimbursed pursuant to Section 5.01(c)(i)(b), or
(ii) an Interest Advance proposed to be made in respect of a Home Loan which, in
either case, in the good faith business judgment of the Master Servicer, as
evidenced by an Officer's Certificate delivered to Mego and the Indenture
Trustee no later than the Business Day following such determination, would not
be recoverable ultimately from the Payments received in subsequent Due Periods
in respect of that Home Loan.
Note(s): One or more of the Senior Notes, the Class M-1 Notes and the
Class M-2 Notes.
Note Distribution Account: The account established and maintained
pursuant to Section 5.01(a)(2).
Noteholder: A holder of a Note.
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and each Class of Notes, the sum of (i) the excess of (A) the
applicable Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Noteholders' Interest Carry-Forward Amount
for such Class on such preceding Distribution Date, over (B) the amount in
respect of interest that is actually paid on such Class of Notes on such
preceding Distribution Date plus (ii) interest on such excess, to the extent
permitted by law, at the applicable Note Interest Rate from such preceding
Distribution Date through the current Distribution Date.
Noteholders' Interest Distributable Amount: With respect to each
Distribution Date and each Class of Notes, the sum of the applicable
Noteholders' Monthly Interest Distributable Amount and the applicable
Noteholders' Interest Carry-Forward Amount for such Class of Notes, if any, for
such Distribution Date.
Noteholders' Monthly Interest Distributable Amount: With respect to each
Distribution Date and Class of Notes, interest accrued during the related
Accrual Period at the respective Note Interest Rate for such Class of Notes on
the Class Principal Balance of such Class immediately preceding such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date).
Note Interest Rate: With respect to each Class of Notes, the per annum
rate of interest payable to the holders of such Class of Notes. The Note
Interest Rate with respect to the Class A-1 Notes is the lesser of (a) the sum
of (i) One-Month LIBOR and (ii) 0.14% or (b) 12.00%; the Note Interest Rate with
respect to the Class A-2 Notes is equal to 6.81% per annum; the Note Interest
Rate with respect to the Class A-3 Notes is equal to 7.05% per annum; the Note
Interest Rate with respect to the Class A-4 Notes is equal to 7.39% per annum;
the Note Interest Rate
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with respect to the Class M-1 Notes is equal to 7.50% per annum; and the Note
Interest Rate with respect to the Class M-2 Notes is equal to 7.67% per annum;
provided, however, with respect to the Class A-4, Class M-1 and Class M-2 Notes
with respect to any Distribution Date after the first Distribution Date on which
either Mego or the Master Servicer may exercise its option to purchase the Home
Loans pursuant to Section 11.01(b), the Note Interest Rate shall be 7.89%, 8.00%
and 8.17% per annum, respectively.
Note Register: The register established pursuant to Section 2.3 of the
Indenture.
Obligee: See Mortgagee.
Obligor: See Mortgagor.
Officer's Certificate: A certificate signed by (i) any Master Servicing
Officer or (ii) the Chairman of the Board, the Vice Chairman of the Board, the
President, a Vice President, an Assistant Vice President, the Treasurer, the
Secretary or one of the Assistant Treasurers or Assistant Secretaries of the
Depositor or Mego, as the case may be, as required by this Agreement.
One-Month LIBOR: With respect to any Accrual Period and the Class A-1
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 United States dollar deposits, as such rates appear on the Telerate
Screen 3750, as of 11:00 a.m. (London time) on such Interest Determination Date.
On each Interest Determination Date, One-Month LIBOR for the related 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,
One-Month LIBOR for the related Accrual Period shall be
the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of
0.0625%.
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Accrual Period shall be
the higher of (i) One-Month LIBOR as determined on the
previous Interest Determination Date and (ii) the
Reserve Interest Rate.
Opinion of Counsel. A written opinion of counsel (who is acceptable to
the Rating Agencies), who may be employed by Mego, the Master Servicer, the
Depositor or any of their respective affiliates.
Original Class Principal Balance: In the case of the Class A-1 Notes,
$33,400,000; in the case of the Class A-2 Notes, $25,700,000; in the case of the
Class A-3 Notes, $6,500,000; in the case of the Class A-4 Notes, $9,451,000; in
the case of the Class M-1 Notes, $16,213,000; in the case of the Class M-2
Notes, $7,584,000 and in the case of the Certificates, $5,753,639.
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Original Pool Principal Balance: $104,601,639.24 which is the Pool
Principal Balance, as of the Cut-Off Date.
Other Fees: With respect to any Distribution Date, (i) amounts in
respect of fees and expenses due to any provider of services to the Trust,
except the Indenture Trustee, the Master Servicer, the Servicer and also except
any Person, the fees of which are required by this Agreement to be paid by the
Master Servicer, the Servicer, or the Indenture Trustee; (ii) any taxes assessed
against the Trust; and (iii) the reasonable transition expenses of a successor
Master Servicer incurred in acting as successor Master Servicer.
Overcollateralization Amount: With respect to any Distribution Date, the
amount equal to the excess of (A) the Pool Principal Balance as of the last day
of the related Due Period over (B) the aggregate of the Class Principal Balances
of the Securities (after giving effect to all distributions on the Classes of
Securities on such Distribution Date).
Overcollateralization Deficiency Amount: With respect to any
Distribution Date, the excess, if any, of the Overcollateralization Target
Amount over the Overcollateralization Amount (such Overcollateralization Amount
to be calculated after giving effect to all prior distributions on the Classes
of Securities on such Distribution Date pursuant to Section 5.01(c)(i) and (ii)
hereof).
Overcollateralization Target Amount: (A) With respect to any
Distribution Date occurring prior to the Stepdown Date, an amount equal to the
greater of (x) 8% of the Original Pool Principal Balance or (y) the Net
Delinquency Calculation Amount; (B) with respect to any other Distribution Date,
an amount equal to the greater of (x) 16% of the Pool Principal Balance as of
the end of the related Due Period or (y) the Net Delinquency Calculation Amount;
provided, however, that the Overcollateralization Target Amount shall in no
event be less than 0.50% of the Original Pool Principal Balance.
Ownership Interest: As to any Security, any ownership or security
interest in such Security, including any interest in such Security as the holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial, as owner or as pledgee.
Owner Trustee: Wilmington Trust Company, as owner trustee under the
Trust Agreement, and any successor owner trustee under the Trust Agreement.
Owner Trustee Fee: $4,000.
Owner Trustee Fee Reserve: With respect to any Distribution Date,
$333.33.
Payment: With respect to any Home Loan or the related Foreclosed
Property and any Distribution Date or related Determination Date, all amounts
received or collected on account of principal and interest by or on behalf of
the Master Servicer during the preceding Due Period (or with respect to the
interest component of any Monthly Payment due during such Due Period,
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received or collected by or on behalf of the Master Servicer during the period
commencing on the first day of the preceding Due Period and ending prior to such
Determination Date) in respect of such Home Loan or Foreclosed Property from
whatever source, including without limitation, amounts received or collected
from, or representing:
(i) the related Obligor;
(ii) the application to amounts due on such Home Loan (or, in
the case of any Foreclosed Property, to amounts previously due on the
related Foreclosed Loan) of any related Insurance Proceeds (to the
extent provided in Section 4.16(b)), any related condemnation awards or
settlements or any payments made by any related guarantor or third-party
credit-support provider;
(iii) the operation or sale of the related Foreclosed
Property;
(iv) the Purchase Price with respect to such Home Loan or
Substitution Adjustment Amounts with respect thereto; or
(v) the Termination Price pursuant to Section 11.01(b);
provided, however, that any amount the Servicer shall be entitled to retain as
additional servicer compensation pursuant to Section 6.05(a) of the Servicing
Agreement shall be excluded from the calculation of Payment.
Percentage Interest: As defined in the Trust Agreement.
Permitted Investments: Each of the following:
(a) Direct obligations of the United States of America
(including obligations issued or held in book-entry form on the books of the
Department of the Treasury, and CATS and TIGRS) or obligations the principal of
and interest on which are unconditionally guaranteed by the United States of
America.
(b) Bonds, debentures, notes or other evidence of
indebtedness issued or guaranteed by any of the following federal agencies and
provided such obligations are backed by the full faith and credit of the United
States of America (stripped securities are only permitted if they have been
stripped by the agency itself):
1. U.S. Export-Import Bank (Eximbank)
A. Direct obligations or fully guaranteed
certificates of beneficial ownership
2. Farmers Home Administration (FmHA)
A. Certificates of beneficial ownership
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3. Federal Financing Bank
4. Federal Housing Administration (FHA)
A. Debentures
5. General Services Administration
A. Participation certificates
6. U.S. Maritime Administration
A. Guaranteed Title XI financing
7. U.S. Department of Housing and Urban Development (HUD)
A. Project Notes
B. Local Authority Bonds
C. New Communities Debentures - U.S. government
guaranteed debentures
D. U.S. Public Housing Notes and Bonds - U.S.
government guaranteed public housing notes and
bonds
(c) Bonds, debentures, notes or other evidence of
indebtedness issued or guaranteed by any of the following non-full faith and
credit U.S. government agencies that are rated by both Rating Agencies in either
the highest long-term rating categories or in one of the top two highest
short-term rating categories (stripped securities are only permitted if they
have been stripped by the agency itself):
1. Federal Home Loan Bank System
A. Senior debt obligations
2. Federal Home Loan Mortgage Corporation (FHLMC)
A. Participation Certificates
B. Senior debt obligations
3. Federal National Mortgage Association (FNMA)
A. Mortgage-backed securities and senior debt
obligations
4. Student Loan Marketing Association
A. Senior debt obligations
5. Resolution Funding Corp. obligations
6. Farm Credit System
A. Consolidated systemwide bonds and notes
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(d) Money market funds registered under the Investment
Company Act of 1940, as amended, whose shares are registered under the
Securities Act, and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm
and a rating by Moody's of Aaa.
(e) Certificates of deposit secured at all times by
collateral described in (a) and/or (b) above. Such certificates must be issued
by commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1 or higher and by Standard & Poor's of
A-1 or higher. The collateral must be held by a third party and the Indenture
Trustee must have a perfected first security interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit
accounts or money market deposits which are fully insured by FDIC, including BIF
and SAIF.
(g) Investment agreements, including guaranteed investment
contracts, acceptable to each Rating Agency.
(h) Commercial paper rated "Prime - 1" by Moody's and "A-1"
or better by Standard & Poor's.
(i) Bonds or notes issued by any state or municipality which
are rated by Moody's and Standard & Poor's in the highest long term rating
categories or one of the two highest short-term rating categories assigned by
such agencies.
(j) Federal funds or bankers acceptances with a maximum term
of one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by
Standard & Poor's.
(k) Repurchase agreements providing for the transfer of
securities from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm will
repay the cash plus a yield to the Trust in exchange for the securities at a
specified date.
Repurchase agreements ("repos") must satisfy the following
criteria.
1. Repos must be between the Trust and a dealer bank or
securities firm which are:
A. Primary dealers on the Federal Reserve reporting
dealer list which are rated A or better by
Standard & Poor's and P-1 by Moody's, or
B. Banks rated "A" or above by Standard & Poor's
and P-1 by Moody's.
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2. The written repo contract trust must include the
following:
A. Securities which are acceptable for transfer
are:
(1) Direct U.S. governments, or
(2) Federal agencies backed by the full
faith and credit of the U.S. government
(or FNMA or FHLMC) other than mortgage
backed securities.
B. The term of the repo may be up to 30 days
C. The collateral must be delivered to the
Indenture Trustee (if the Indenture Trustee is
not supplying the collateral) or third party
acting as agent for the Indenture Trustee (if
the Indenture Trustee is supplying the
collateral) before/simultaneous with payment
(perfection by possession of certificated
securities).
D. Valuation of Collateral
(1) The securities must be valued weekly,
marked-to-market at current market price
plus accrued interest.
(a) The value of collateral must be equal to
104% of the amount of cash transferred
by the Trust to the dealer bank or
security firm under the repo plus
accrued interest. If the value of
securities held as collateral slips
below 104% of the value of the cash
transferred by the Trust, then
additional cash and/or acceptable
securities must be transferred. If,
however, the securities used as
collateral are FNMA or FHLMC, then the
value of collateral must equal 105%.
3. Legal opinion which must be delivered to the Indenture
Trustee:
a. Repo meets guidelines under state law for legal
investment of public funds.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to Standard & Poor's and
Moody's.
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Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
sum of the Principal Balances for all Home Loans as of the end of the preceding
Due Period.
Principal Balance: With respect to any Home Loan, and for any date of
determination, the Principal Balance of such Home Loan as of the Cut-Off Date
minus all principal reductions credited against the Principal Balance of such
Home Loan on or subsequent to the Cut-Off Date for such Home Loan; provided,
that with respect to any Defaulted Home Loan, the Principal Balance shall be
zero as of the end of the Due Period in which such Home Loan becomes a Defaulted
Home Loan.
Property: The property (real, personal or mixed) encumbered by the
Mortgage which secures the Debt Instrument evidencing a secured Home Loan.
Prospectus: The Depositor's final Prospectus, dated June 20, 1997, as
supplemented by the Prospectus Supplement.
Prospectus Supplement: The Prospectus Supplement dated as of June 27,
1997, prepared by the Seller and the Depositor in connection with the issuance
and sale of the Securities.
Purchase Price: With respect to a Home Loan, means the Principal Balance
of such Home Loan as of the date of purchase, plus unpaid accrued interest at
the related Home Loan Interest Rate to the last day of the month in which such
purchase occurs (without regard to any Interest Advance that may have been made
with respect to such Home Loan).
Qualified Substitute Home Loan: A Home Loan: (i) having characteristics
such that the representations and warranties made pursuant to Section 3.03(b)
with respect to the Home Loans are true and correct as of the date of
substitution with respect to such Home Loan; (ii) each Monthly Payment with
respect to such Home Loan shall be greater than or equal to the Monthly Payments
due in the same Due Period on the Home Loan for which such Qualified Substitute
Home Loan is replacing; (iii) the Maturity Date with respect to such Home Loan
shall be no later than the Maturity Date of the Home Loan for which such
Qualified Substitute Home Loan is replacing; (iv) as of the date of
substitution, the Principal Balance of such Home Loan is less than or equal to
(but not more than 1% less than) the Principal Balance of the Home Loan for
which such Qualified Substitute Home Loan is replacing; (v) the Home Loan
Interest Rate with respect to such Home Loan is at least equal to the Home Loan
Interest Rate of the Home Loan for which such Qualified Substitute Home Loan is
replacing and (vi) with respect to which the FICO score is equal to or greater
than the FICO score for such Home Loan for which such Qualified Substitute Home
Loan is replacing; provided however, in the event more than one Qualified
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Substitute Home Loan is replacing one or more Defective Home Loans on any date,
in which case (i) the weighted average Home Loan Interest Rate for such
Qualified Substitute Home Loans must equal or exceed the weighted average Home
Loan Interest Rate of the Defective Home Loans immediately prior to giving
effect to the substitution, in each case weighted on the basis of the
outstanding Principal Balance of such loans as of such day, (ii) the sum of the
Monthly Payments with respect to such Qualified Substitute Home Loans shall be
greater than or equal to the Monthly Payments due in the same Due Period on the
Defective Home Loans being replaced, and (iii) as of the date of substitution,
the aggregate Principal Balances of such Qualified Substitute Home Loans are
less than or equal to (but not more than 1% less than) the aggregate Principal
Balances of the Defective Home Loans being replaced.
Rating Agency or Rating Agencies: Any of (i) Standard & Poor's, (ii)
Fitch, or (iii) DCR or, if no such organization or successor is any longer in
existence, "Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable person designated by the Issuer, notice of
which designation shall have been given to the Indenture Trustee and the Master
Servicer.
Ratings: The ratings initially assigned to the Notes and the
Certificates by the Rating Agencies, as evidenced by letters from the Rating
Agencies.
Record Date: With respect to each Distribution Date, other than the
first Distribution Date, the close of business on the last Business Day of the
month immediately preceding the month in which such Distribution Date occurs
and, with respect to the first Distribution Date, July 3, 1997.
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 Indenture Trustee which are engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, England, (ii) not controlling, under
the control of or under common control with the Depositor or any affiliate
thereof, (iii) whose quotations appear on the Telerate Screen 3750 on the
relevant Interest Determination Date and (iv) which have been designated as such
by the Indenture Trustee.
Regular Distribution Amount: With respect to any Distribution Date, the
lesser of (a) the Collected Amount less the amounts required to be distributed
pursuant to Section 5.01(c)(i) on such Distribution Date or (b) the sum of (i)
the Noteholders' Interest Distributable Amount, (ii) the Certificateholders'
Interest Distributable Amount and (iii) the Regular Principal Distribution
Amount, in each case for such Distribution Date.
Regular Principal Distribution Amount: With respect to each Distribution
Date, an amount equal to the lesser of:
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(A) the aggregate of the Class Principal Balances of the Classes of
Securities immediately prior to such Distribution Date; or
(B) The sum of the following amounts (without duplication) with
respect to the immediately preceding Due Period: that portion of all Payments
received on Home Loans allocable to principal for such Distribution Date,
including all full and partial principal prepayments (including (i) such
payments in respect of such Home Loans that became Defaulted Home Loans on or
prior to the end of the preceding Due Period, (ii) the portion of the Purchase
Price allocable to principal of all Defective Loans or Defaulted Loans and the
portion of the Termination Price, if any, set forth in Section 11.01(b)
allocable to principal with respect to the Home Loans, and (iii) any
Substitution Adjustment Amounts deposited to the Note Distribution Account
pursuant to Section 3.05 on the previous Determination Date).
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
0.0625%) of the one-month United States 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 (ii) in the event that the Indenture Trustee can
determine no such arithmetic mean, the lowest one-month United States dollar
lending rate which New York City banks selected by the Indenture Trustee are
quoting on such Interest Determination Date to leading European banks.
Residual Instruments: The instruments evidencing the right to the amount
remaining, if any, after all prior distributions have been made under this
Agreement, the Indenture and the Trust Agreement on each Distribution Date and
certain other rights to receive amounts hereunder and under the Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer in the
Corporate Trust Administration Department of the Owner Trustee with direct
responsibility for the administration of the Trust Agreement and this Agreement
on behalf of the Issuer. When used with respect to the Depositor, the Seller or
the Master Servicer, the President or any Vice President, Assistant Vice
President, or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
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Securities: The Notes and/or the Certificates, as applicable.
Securities Act: The Securities Act of 1933, as amended.
Securityholder: A holder of a Note or Certificate, as applicable.
Seller: Mego, in its capacity as the seller hereunder.
Senior Notes: The Class A-1, Class A-2, Class A-3 and Class A-4 Notes.
Senior Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; with respect to any other Distribution Date,
an amount equal to the Pool Principal Balance as of the preceding Determination
Date minus the greater of (a) the sum of (1) 56.50% of the Pool Principal
Balance as of the preceding Determination Date and (2) the Overcollateralization
Target Amount for such Distribution Date (without giving effect to the proviso
in the definition thereof) or (b) 0.50% of the Original Pool Principal Balance;
provided however, that the Senior Optimal Principal Balance shall never be less
than zero or greater than the Aggregate Note Principal Balance as of the Closing
Date.
Series or Series 1997-3: Mego Mortgage Home Loan Asset Backed
Securities, Series 1997-3.
Servicer: Mego, in its capacity as the servicer hereunder, or any other
Eligible Servicer with whom the Master Servicer has entered into a Servicing
Agreement pursuant to Section 4.02.
Servicer Fee: With respect to any Distribution Date, 1/12 times 1.00%
times the Pool Principal Balance, as of the opening of business on the first day
of the month preceding the month of such Distribution Date (or, with respect to
the first Distribution Date, the Original Pool Principal Balance).
Servicer Review Report: As defined in Section 4.05(d).
Servicer Termination Event: With respect to the Servicing Agreement, the
events specified in Section 7.02 therein.
Servicer's Home Loan Files: As defined in Section 2.05(b).
Servicing Agreement: The servicing agreement dated as of June 14, 1997
between Mego, as Servicer, the Master Servicer, the Indenture Trustee and the
Trust and any other agreement entered into in accordance with Section 4.02.
Standard & Poor's: Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
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Stepdown Date: The first Distribution Date occurring after June 2000 as
to which all of the following conditions exist:
(1) the Pool Principal Balance has been reduced to an amount less
than or equal to 50% of the Original Pool Principal Balance;
(2) the Net Delinquency Calculation Amount is less than 8% of the
Original Pool Principal Balance; and
(3) the aggregate Class Principal Balance of the Senior Notes (after
giving effect to distributions of principal on such Distribution Date) will be
able to be reduced on such Distribution Date (such determination to be made by
the Indenture Trustee prior to making actual distributions on such Distribution
Date) to an amount equal to or less than the excess of (i) the Pool Principal
Balance as of the preceding Determination Date over (ii) the greater of (1) the
sum of (x) 56.50% of the Pool Principal Balance as of the preceding
Determination Date and (y) the Overcollateralization Target Amount for such
Distribution Date (such Overcollateralization Target Amount calculated without
giving effect to the proviso in the definition thereof and calculated pursuant
only to clause (B) in the definition thereof) or (2) 0.50% of the Original Pool
Principal Balance.
Servicing Record. The records for each Home Loan maintained by the
Master Servicer pursuant to Section 4.03.
Servicing Standard. The standard set forth in Section 4.01(a).
61+ Day Delinquent Loan. With respect to any Determination Date or
related Distribution Date, a Home Loan, other than a Defaulted Home Loan, with
respect to which any portion of a Monthly Payment is, as of the related Monthly
Cut-Off Date, 61 days or more past due (without giving effect to any grace
period and including Home Loans in foreclosure and Foreclosed Property that are
not otherwise Defaulted Home Loans) and unpaid by the Obligor.
61+ Delinquency Percentage (Rolling Six Month). With respect to any
Determination Date or related Distribution Date, the average of the percentage
equivalents of the fractions determined for each of the six immediately
preceding Due Periods the numerator of each of which is equal to the aggregate
Principal Balance of Home Loans that are 61+ Day Delinquent Loans as of the end
of such Due Period and the denominator of which is the Pool Principal Balance as
of the end of such Due Period.
Substitution Adjustment Amount: The meaning assigned to such term in
Section 3.05.
Substitution Date: As defined in Section 3.05.
Termination Date: The earlier of (a) the Distribution Date in August
2023 and (b) the Distribution Date next following the Monthly Cut-Off Date
coinciding with or next following the
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date of the liquidation or disposition of the last asset held by the Trust
pursuant to Sections 4.13 or 11.01.
Termination Price: As defined in Section 11.01(b).
Total Expected Loan Loss Percentage: With respect to any Distribution
Date, the percentage equivalent of the fraction, the numerator of which is equal
to the sum of (a) Cumulative Net Losses for such Distribution Date, (b) 25% of
the aggregate Principal Balance of Home Loans which are between 31 and 60 days
past due (without giving effect to any grace period) as of the last day of the
preceding Due Period, (c) 50% of the aggregate Principal Balance of Home Loans
which are between 61 and 90 days past due (without giving effect to any grace
period) as of the last day of the preceding Due Period, (d) the aggregate
Principal Balance of the Home Loans which are more than 90 days past due
(without giving effect to any grace period) as of the last day of the preceding
Due Period and the denominator of which is the Original Pool Principal Balance.
Transaction Documents. This Agreement, the Home Loan Purchase Agreement,
the Trust Agreement, the Servicing Agreement, the Indenture and the
Administration Agreement.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in any Trust Account and all proceeds of the foregoing.
Trust Accounts: The Note Distribution Account, the Certificate
Distribution Account and the Collection Account.
Trust Agreement: The Trust Agreement dated as of June 14, 1997, among
the Depositor, the Co-Owner Trustee, the Owner Trustee and Mego Mortgage
Corporation.
Trust Estate: The assets subject to this Agreement, the Trust Agreement
and the Indenture and assigned to the Indenture Trustee, which assets consist
of: (i) such Home Loans as from time to time are subject to this Agreement,
including Qualified Substitute Home Loans added to the Trust from time to time,
together with the Servicer's Home Loan Files and the Indenture Trustee's Home
Loan Files relating thereto and all proceeds thereof, (ii) the Mortgages and
security interests in Properties, (iii) all payments of principal in respect of
Home Loans received on or after the Cut-Off Date and payments of interest in
respect of Home Loans due on or after the Cut-Off Date, (iv) such assets as from
time to time are identified as Foreclosed Property, (v) such assets and funds as
are from time to time deposited in the Collection Account, the Note Distribution
Account and the Certificate Distribution Account, including amounts on deposit
in such accounts which are invested in Permitted Investments, (vi) the Issuer's
rights under the Insurance Policies and any Insurance Proceeds, and (vii) all
right, title and interest of the Depositor in and to the obligations of the
Seller under the Home Loan Purchase Agreement in which the Depositor acquired
the Home Loans from the Seller.
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Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture and the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
Section 1.03 Interest Calculations.
Except as otherwise set forth herein, all calculations of accrued
interest on the Home Loans, the Notes (except the Class A-1 Notes), the
Certificates and accrued fees shall be made on the basis of a 360-day year
consisting of twelve 30-day months.
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ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans.
(a) As of the Closing Date, in consideration of the Issuer's
delivery of the Notes, Certificates and Residual Instruments to the Depositor or
its designee, upon the order of the Depositor, the Depositor, as of the Closing
Date and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Trust Estate. The
foregoing sale, transfer, assignment, set over and conveyance does not and is
not intended to result in a creation or an assumption by the Issuer of any
obligation of the Depositor, the Seller or any other person in connection with
the Trust Estate or under any agreement or instrument relating thereto except as
specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance
to it of the Trust Estate, including from the Depositor all right, title and
interest of the Depositor in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer, and the acceptance of which is made in good faith
and without notice or knowledge of any adverse claims or liens. Concurrently
with such delivery and in exchange therefor, the Issuer has pledged to the
Indenture Trustee the Trust Estate, and the Indenture Trustee, pursuant to the
written instructions of the Issuer, has executed and caused to be authenticated
and delivered the Notes to the Depositor or its designee, upon the order of the
Issuer. In addition, concurrently with such delivery and in exchange therefor,
the Owner Trustee, pursuant to the instructions of the Depositor, has executed
(not in its individual capacity, but solely as Owner Trustee on behalf of the
Issuer) and caused to be authenticated and delivered the Certificates and
Residual Instruments to the Depositor or its designee, upon the order of the
Depositor.
Section 2.02 Reserved.
Section 2.03 Ownership and Possession of Home Loan Files.
Upon the issuance of the Securities, with respect to the Home Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of the
related Servicer's Home Loan File and the Indenture Trustee's Home Loan File
shall be vested in the Owner Trustee and the Co-Owner Trustee and pledged to the
Indenture Trustee for the benefit of the Noteholders, although possession of the
Servicer's Home Loan Files (other than items required to be maintained in the
Indenture Trustee's Home Loan Files) on behalf of and for the benefit of the
Securityholders shall remain with Mego, and the Indenture Trustee shall take
possession of the Indenture Trustee's Home Loan Files as contemplated in Section
2.06.
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Section 2.04 Books and Records.
The sale of each Home Loan shall be reflected on the Depositor's or the
Seller's, as the case may be, balance sheets and other financial statements as a
sale of assets by the Depositor or the Seller, as the case may be, under
generally accepted accounting principles ("GAAP"). The Master Servicer shall
maintain, or cause to be maintained pursuant to Section 4.03, a complete set of
books and records for each Home Loan which shall be clearly marked to reflect
the ownership of each Home Loan by the Owner Trustee and the Co-Owner Trustee
and the pledge to the Indenture Trustee for the benefit of the Securityholders.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Home
Loans and the other property specified in Section 2.01(a) from the Depositor to
the Trust and such property shall not be property of the Depositor. If the
assignment and transfer of the Home Loans and the other property specified in
this Section 2.01(a) to the Owner Trustee and Co-Owner Trustee pursuant to this
Agreement or the conveyance of the Home Loans or any of such other property to
the Owner Trustee and Co-Owner Trustee is held or deemed not to be a sale or is
held or deemed to be a pledge of security for a loan, the Depositor intends that
the rights and obligations of the parties shall be established pursuant to the
terms of the Agreement and that, in such event, (i) the Depositor shall be
deemed to have granted and does hereby grant to the Owner Trustee and Co-Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Home Loans and all other property
conveyed to the Owner Trustee and Co-Owner Trustee pursuant to Section 2.01 and
all proceeds thereof, and (ii) this Agreement shall constitute a security
agreement under applicable law. Within five days of the Closing Date, the
Depositor shall cause to be filed UCC-1 financing statements naming the Owner
Trustee and Co-Owner Trustee as "secured parties" and describing the Home Loans
being sold by the Depositor to the Trust with the office of the Secretary of
State of the State in which the Depositor is located.
Section 2.05 Delivery of Home Loan Documents.
(a) With respect to each Home Loan, on the Closing Date the Seller,
at the direction of the Depositor, shall have delivered or caused to be
delivered to the Indenture Trustee each of the following documents
(collectively, the "Indenture Trustee's Home Loan Files"):
(i) The original Debt Instrument, showing a complete chain
of endorsements or assignments from the named payee to the Trust and
endorsed as follows: "Pay to the order of First Bank National
Association, as Indenture Trustee and Co-Owner Trustee for Mego Mortgage
Home Loan Owner Trust 1997-3, without recourse";
(ii) If such Home Loan is a Mortgage Loan, the original
Mortgage with evidence of recording indicated thereon (except that a
true copy thereof certified by an appropriate public official may be
substituted); provided, however, that if the Mortgage with evidence of
recording thereon cannot be delivered concurrently with the execution
and delivery of this Agreement solely because of a delay caused by the
public recording
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office where such Mortgage has been delivered for recordation, there
shall be delivered to the Indenture Trustee a copy of such Mortgage
certified as a true copy in an Officer's Certificate which shall certify
that such Mortgage has been delivered to the appropriate public
recording office for recordation, and there shall be promptly delivered
to the Indenture Trustee such Mortgage with evidence of recording
indicated thereon upon receipt thereof from the public recording
official (or a true copy thereof certified by an appropriate public
official may be delivered to the Indenture Trustee);
(iii) If such Home Loan is a Mortgage Loan, the original
Assignment of Mortgage, in recordable form. Such assignments may be
blanket assignments, to the extent such assignments are effective under
applicable law, for Mortgages covering Mortgaged Properties situated
within the same county. If the Assignment of Mortgage is in blanket form
an assignment of Mortgage need not be included in the individual Home
Loan File;
(iv) If such Home Loan is a Mortgage Loan, all original
intervening assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Indenture
Trustee, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with evidence
of recording thereon cannot be delivered concurrently with the execution
and delivery of this Agreement solely because of a delay caused by the
public recording office where such assignments of Mortgage have been
delivered for recordation, there shall be delivered to the Indenture
Trustee a copy of each such assignment of Mortgage certified as a true
copy in an Officer's Certificate of Mego, which shall certify that each
such assignment of Mortgage has been delivered to the appropriate public
recording office for recordation, and there shall be promptly delivered
to the Indenture Trustee such assignments of Mortgage with evidence of
recording indicated thereon upon its receipt thereof from the public
recording official (or true copies thereof certified by an appropriate
public official may be delivered to the Indenture Trustee);
(v) An original of each assumption or modification
agreement, if any, relating to such Home Loan.
(b) With respect to each Home Loan, on the Closing Date, the Seller,
at the direction of the Depositor, shall have delivered or caused to be
delivered to Mego, as the designated agent of the Indenture Trustee each of the
following documents (collectively, the "Servicer's Home Loan Files"): (A) an
original or copy of truth-in-lending disclosure, (B) an original or copy of the
credit application, (C) an original or copy of the consumer credit report, (D)
an original or copy of verification of employment and income, or verification of
self-employment income, (E) an original or copy of contract of work or written
description with cost estimates, if applicable, (F) an original or copy of
report of inspection of improvements to the Property, if applicable, (G) to the
extent not included in (B), an original or a copy of a written verification, or
an underwriter's notation of obtaining a verbal verification from the holder of
any senior
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mortgage or deed of trust that such Mortgagor at the time of origination was not
more than 30 days delinquent on any senior mortgage or deed of trust on the
Property, (H) (a) if the original principal balance is between $35,001 and
$40,000, (1) evidence that the borrower has a FICO Score of at least 640, a debt
to income ratio no greater than 45%, and disposable income of at least $1,500
per month, or (2) (I) a copy of the HUD-1 Closing Statement indicating the sale
price, or (II) an Uniform Residential Appraisal Report, or (III) a Drive-By
Appraisal documented on either FHLMC Form 704 or FNMA Form 2055, or (IV) a tax
assessment, or (V) a broker's price opinion; (b) if the original principal
balance is between $40,001 and $50,000, (1) a copy of the HUD-1 Closing
Statement indicating the sale price, or (2) an Uniform Residential Appraisal
Report, or (3) a Drive-By Appraisal documented on either FHLMC Form 704 or FNMA
Form 2055, or (4) a tax assessment, or (5) a broker's price opinion; or (c) if
the original principal balance exceeds $50,000, a full Uniform Residential
Appraisal Report prepared by a national appraisal firm, and (I) an original or a
copy of a title search as of the time of origination with respect to the
Property.
(c) [Reserved]
(d) The Indenture Trustee shall take and maintain continuous
physical possession of the Indenture Trustee's Home Loan Files in the State of
Minnesota, and in connection therewith, shall act solely as agent for the
holders of the Securities in accordance with the terms hereof and not as agent
for Mego or any other party.
(e) Within 60 days of the Closing Date, Mego, at its own expense,
shall cause the Indenture Trustee to record each Assignment of Mortgage (which
may be a blanket assignment if permitted by applicable law) in the appropriate
real property or other records; provided, however, the Indenture Trustee need
not cause to be recorded any such Assignment of Mortgage which relates to a
Mortgage Loan in any jurisdiction under the laws of which, as evidenced by an
Opinion of Counsel delivered by Mego (at Mego's expense) to the Indenture
Trustee, and the Rating Agencies, the recordation of such Assignment of Mortgage
is not necessary to protect the Indenture Trustee's interest in the related
Mortgage Loan against the claims of any subsequent transferee or any creditor of
the Depositor or the Seller. With respect to any Assignment of Mortgage as to
which the related recording information is unavailable within 60 days following
the Closing Date, such Assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Indenture Trustee shall be required to retain a
copy of each Assignment of Mortgage submitted for recording. In the event that
any such Assignment of Mortgage is lost or returned unrecorded because of a
defect therein, Mego shall promptly prepare a substitute Assignment of Mortgage
or cure such defect, as the case may be, and thereafter the Indenture Trustee
shall be required to submit each such Assignment of Mortgage Loan for recording.
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Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
Substitutions; Initial Certification.
(a) The Indenture Trustee agrees to execute and deliver on the
Closing Date an acknowledgment of receipt of the Indenture Trustee's Home Loan
File for each Home Loan. The Indenture Trustee declares that it will hold such
documents and any amendments, replacements or supplements thereto, as well as
any other assets included in the Trust Estate, upon and subject to the
conditions set forth herein for the benefit of the Securityholders in good faith
and without notice of any adverse claims or liens. The Indenture Trustee agrees,
for the benefit of the Securityholders to review each Indenture Trustee's Home
Loan File within 45 days after the Closing Date (or, with respect to any
Qualified Substitute Home Loan, within 45 days after the conveyance of the
related Home Loan to the Trust) and to deliver to the Seller, the Depositor, the
Indenture Trustee, the Issuer and the Master Servicer a certification to the
effect that, as to each Home Loan listed in the Home Loan Schedule (other than
any Home Loan paid in full or any Home Loan specifically identified in such
certification as not covered by such certification), (i) all documents required
to be delivered to the Indenture Trustee pursuant to this Agreement are in its
possession (other than as expressly permitted in Section 2.05), (ii) all
documents delivered by the Depositor and the Seller to the Indenture Trustee
pursuant to Section 2.05 have been reviewed by the Indenture Trustee and have
not been mutilated or damaged and appear regular on their face (handwritten
additions, changes or corrections shall not constitute irregularities if
initialed by the Obligor) and relate to such Home Loan, (iii) based on the
examination of the Indenture Trustee, and only as to the foregoing documents,
the information set forth on the Home Loan Schedule accurately reflects the
information set forth in the Indenture Trustee's Home Loan File and (iv) each
Debt Instrument has been endorsed as provided in Section 2.05. Neither the
Issuer nor the Indenture Trustee shall be under any duty or obligation (i) to
inspect, review or examine any such documents, instruments, certificates or
other papers to determine that they are genuine, enforceable, or appropriate for
the represented purpose or that they are other than what they purport to be on
their face or (ii) to determine whether any Indenture Trustee's Home Loan File
should include any of the documents specified in Section 2.05(a)(v).
(b) The Servicer's Home Loan File shall be held in the custody of
Mego for the benefit of, and as agent for, the Securityholders, the Indenture
Trustee and the Issuer, as the owner thereof. It is intended that by Mego's
agreement pursuant to this Section 2.06(b) the Indenture Trustee shall be deemed
to have possession of the Servicer's Home Loan Files for purposes of Section
9-305 of the Uniform Commercial Code of the State in which such documents or
instruments are located. Mego shall promptly report to the Indenture Trustee any
failure by it to hold the Servicer's Home Loan File as herein provided and shall
promptly take appropriate action to remedy any such failure. In acting as
custodian of such documents and instruments, Mego agrees not to assert any legal
or beneficial ownership interest in the Home Loans or such documents or
instruments. Mego agrees to indemnify the Securityholders and the Indenture
Trustee for any and all liabilities, obligations, losses, damages, payments,
costs, or expenses of any kind whatsoever which may be imposed on, incurred by
or asserted against the Securityholders or the Indenture Trustee as the result
of any act or omission by Mego relating
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to the maintenance and custody of such documents or instruments which have been
delivered to Mego; provided, however, that Mego will not be liable for any
portion of any such amount resulting from the negligence or misconduct of any
Securityholder or the Indenture Trustee and provided, further, that Mego will
not be liable for any portion of any such amount resulting from Mego's
compliance with any instructions or directions consistent with this Agreement
issued to Mego by the Indenture Trustee. The Indenture Trustee shall have no
duty to monitor or otherwise oversee Mego's performance as custodian hereunder.
(c) Upon determination by the Master Servicer, the Depositor, Mego
or the Indenture Trustee that any document constituting a part of any Home Loan
File was not delivered to the Indenture Trustee or, with respect to any document
constituting the Servicer's Home Loan File, to Mego, as custodian for the
Indenture Trustee and the Issuer, by the time required hereby (which in the case
of (A) a failure to deliver a recorded mortgage or recorded assignment pursuant
to Section 2.05(a)(ii) or (a)(iv) (only under the circumstances in which a delay
is caused by the public recording office and an Officer's Certificate is
required to be provided thereunder) shall be the 20 month anniversary of the
Closing Date, (B) a failure to deliver an inspection report pursuant to Section
2.05(b)(F) shall be the 12 month anniversary of the Closing Date, (C) a failure
to deliver each other document constituting a part of any Indenture Trustee's
Home Loan File shall be the Closing Date and (D) a failure to deliver each
document (other than those described in clause (B) above) specified in Section
2.05(b) shall be 45 Business Days after the Closing Date) to be so delivered or
was defective in any material respect when delivered to the Indenture Trustee,
the party identifying any of the foregoing shall give prompt written notice to
the other parties. Nothing contained herein shall require the Indenture Trustee
to undertake any independent investigation or to make any review of any Home
Loan File other than as provided for in this Section 2.06. Mego, upon receipt of
such notice, shall comply with the cure, substitution and repurchase provisions
of Section 3.05 hereof.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents, warrants and covenants with and to the
Issuer, and the Indenture Trustee, on behalf of the Securityholders, and the
Master Servicer, as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware and has all
licenses necessary to carry on its business as now being conducted. The
Depositor has the power and authority to execute and deliver this Agreement and
to perform in accordance herewith; the execution, delivery and performance of
this Agreement (including all instruments of transfer to be delivered pursuant
to this Agreement) by the Depositor and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action of the Depositor; this Agreement evidences the valid, binding and
enforceable obligation of the Depositor; and all requisite action has been taken
by the Depositor to make this Agreement valid, binding and enforceable upon the
Depositor in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other, similar laws relating to or
affecting creditors' rights generally or the application of equitable principles
in any proceeding, whether at law or in equity;
(b) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of the
Articles of Incorporation or Bylaws of the Depositor, (ii) the breach of any
term or provision of, or conflict with or constitute a default under or result
in the acceleration of any obligation under, any material agreement, indenture
or loan or credit agreement or other material instrument to which the Depositor,
or its property is subject, or (iii) the violation of any law, rule, regulation,
order, judgment or decree to which the Depositor or its respective property is
subject;
(c) The Depositor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or other governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect its performance
hereunder.
Section 3.02 Representations, Warranties and Covenants of the Master
Servicer.
The Master Servicer hereby represents, warrants and covenants with and
to the Depositor, the Issuer, Mego, the Indenture Trustee and the
Securityholders as of the Closing Date:
(a) The Master Servicer is a national banking association duly
organized and validly existing under the laws of the United States of America,
with full power and authority to own
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its properties and conduct its business as such properties are presently owned
and such business is presently conducted;
(b) The Master Servicer has the full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which it
is a party, has duly authorized the execution, delivery and performance of this
Agreement and each other Transaction Document to which it is a party, has duly
executed and delivered this Agreement and each other Transaction Document to
which it is a party, and this Agreement and each other Transaction Document to
which it is a party, when duly authorized, executed and delivered by the other
parties thereto, will constitute a legal, valid and binding obligation of the
Master Servicer, enforceable against it in accordance with its terms;
(c) Neither the execution and delivery of this Agreement or any
other Transaction Document to which the Master Servicer is a party, the
consummation of the transactions required of the Master Servicer herein or
therein, nor the fulfillment of or compliance with the terms and conditions of
this Agreement or any other Transaction Document to which the Master Servicer is
a party will conflict with or result in a breach of any of the terms, conditions
or provisions of the Master Servicer's charter or bylaws or any legal
restriction or any material agreement or instrument to which the Master Servicer
is now a party or by which it is bound, or which would adversely affect the
administration of the Trust as contemplated hereby, or constitute a material
default or result in an acceleration under any of the foregoing, or result in
the violation of any law, rule, regulation, order, judgment or decree to which
the Master Servicer or its property is subject;
(d) The Master Servicer is not in default, and the execution and
delivery of this Agreement and each other Transaction Document to which it is a
party and its performance of and compliance with the terms hereof and thereof
will not constitute a violation of, any law, any order or decree of any court,
or any order, regulation or demand of any federal, state or local governmental
or regulatory authority;
(e) No action, suit or other proceeding or investigation is pending
or, to the Master Servicer's knowledge, threatened before any court or any
federal, state or local governmental or regulatory authority (A) asserting the
invalidity of this Agreement or any other Transaction Document to which the
Master Servicer is a party, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or any other Transaction
Document to which the Master Servicer is a party, or (C) seeking any
determination or ruling that would materially and adversely affect the ability
of the Master Servicer to perform its obligations under this Agreement or any
other Transaction Document to which the Master Servicer is a party;
(f) No consent, approval, authorization or order of, registration or
filing with or notice to, any court or any federal, state or local government or
regulatory authority is required for the execution, delivery and performance by
the Master Servicer of this Agreement or any other
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Transaction Document to which the Master Servicer is a party (other than those
that have been obtained or will be obtained prior to the Closing Date);
(g) Neither this Agreement nor any other Transaction Document to
which the Master Servicer is a party nor any statement, report or other document
furnished or to be furnished by the Master Servicer pursuant to this Agreement
or any other Transaction Document to which the Master Servicer is a party or in
connection with the transactions contemplated hereby and thereby contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading;
(h) The statements contained in the section of the Prospectus
Supplement entitled "The Master Servicer" which describe the Master Servicer are
true and correct in all material respects, and such section of the Prospectus
Supplement does not contain any untrue statement of a material fact with respect
to the Master Servicer and does not omit to state a material fact necessary to
make the statements contained therein with respect to the Master Servicer not
misleading;
(i) The Master Servicer is solvent, and the Master Servicer will not
be rendered insolvent as a result of the performance of its obligations pursuant
to this Agreement and any other Transaction Document to which the Master
Servicer is a party;
(j) The Servicing Agreement conforms to the requirements for a
Servicing Agreement contained in this Agreement;
(k) The Master Servicer, or an affiliate thereof, the primary
business of which is the servicing of home loans such as the Home Loans, is an
Eligible Servicer, and the Master Servicer or such affiliate possesses all state
and federal licenses necessary for servicing the Home Loans in accordance with
this Agreement;
(l) The Master Servicer has not waived any default, breach,
violation or event of acceleration existing under any Debt Instrument or the
related Mortgage;
(m) The Master Servicer will cause to be performed any and all acts
required to be performed by the Master Servicer or Servicer to preserve the
rights and remedies of the Trust and the Indenture Trustee in any Insurance
Policies applicable to the Home Loans, including, without limitation, 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 Trust and the Indenture Trustee;
(n) The Master Servicer shall comply with, and shall service, or
cause to be serviced, each Home Loan, in accordance with all applicable laws,
all rules and regulations issued thereunder, and all administrative publications
published pursuant thereto; and
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(o) The Master Servicer agrees that, so long as it shall continue to
serve in the capacity contemplated under the terms of this Agreement, it shall
remain in good standing under the laws governing its creation and existence and
qualified under the laws of each state in which it is necessary to perform its
obligations under this Agreement or in which the nature of its business requires
such qualification, it shall maintain or cause an affiliate to maintain all
licenses, permits and other approvals required by any law or regulations, as may
be necessary to perform its obligations under this Agreement and to retain all
rights to service the Loans, and it shall not dissolve or otherwise dispose of
all or substantially all of its assets.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive the issuance and delivery of the
Securities and shall be continuing as long as any Security shall be outstanding
or this Agreement has not been terminated.
Section 3.03 Representations and Warranties of Mego.
(a) The Seller hereby represents and warrants to the Depositor, the
Issuer, the Indenture Trustee, the Master Servicer and the Securityholders, that
as of the Closing Date:
(i) Mego is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Mego is
duly qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and the performance of its obligations under the
Transaction Documents, in each jurisdiction in which the failure to be
so qualified or to obtain such approvals would render any Transaction
Document unenforceable in any respect or would have a material adverse
effect upon the Transaction;
(ii) Mego has full power and authority to execute, deliver
and perform, and to enter into and consummate all transactions required
of it by this Agreement and each other Transaction Document to which it
is a party; has duly authorized the execution, delivery and performance
of this Agreement and each other Transaction Document to which it is a
party; has duly executed and delivered this Agreement and each other
Transaction Document to which it is a party; when duly authorized,
executed and delivered by the other parties hereto, this Agreement and
each other Transaction Document to which it is a party will constitute a
legal, valid and binding obligation of Mego enforceable against it in
accordance with its terms, except as such enforceability may be limited
by general principles of equity (whether considered in a proceeding at
law or in equity);
(iii) Neither the execution and delivery of this Agreement or
any of the other Transaction Documents to which Mego is a party, the
consummation of the transactions required of it herein or under any
other Transaction Document, nor the fulfillment of or compliance with
the terms and conditions of this Agreement or any of the other
Transaction Documents will conflict with or result in a breach of any of
the
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terms, conditions or provisions of Mego's charter or by-laws or any
legal restriction or any material agreement or instrument to which Mego
is now a party or by which it is bound, or which would adversely affect
the creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any of
the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Mego or its respective property is
subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against Mego or, to its knowledge, threatened, which,
if determined adversely to Mego, would materially adversely affect the
sale of the Loans, the issuance of the Securities and Residual
Instruments, the execution, delivery or enforceability of this Agreement
or any other Transaction Document, or which would have a material
adverse affect on the financial condition of Mego;
(v) No consent, approval, authorization or order of any
court or governmental agency or body is required for: (a) the execution,
delivery and performance by Mego of, or compliance by Mego with, this
Agreement, (b) the issuance of the Securities and Residual Instruments,
(c) the sale of the Home Loans under the Home Loan Purchase Agreement or
(d) the consummation of the transactions required of it by this
Agreement, except: (A) such as shall have been obtained before the
Closing Date, and (B) such as may be required under state securities or
"Blue Sky" laws in connection with the sale of the Securities by the
Underwriter;
(vi) Mego is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of Mego or its properties or might
have consequences that would materially and adversely affect its
performance hereunder;
(vii) Mego received fair consideration and reasonably
equivalent value in exchange for the sale of the Home Loans to the
Depositor;
(viii) Mego has transferred the Home Loans without any intent
to hinder, delay or defraud any of its creditors;
(b) Mego hereby agrees for the benefit of the Depositor, the Issuer,
the Indenture Trustee and the Securityholders that the failure of any of the
following representations and warranties to be true and correct as to any Home
Loan as of the Cut-Off Date for such Home Loan, or such later date if so
specified in such representation and warranty, gives rise to the remedy
specified in Section 3.05;
(i) The information pertaining to each Home Loan set forth
in the Home Loan Schedule was true and correct in all material respects
as of the applicable Cut-Off Date;
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(ii) As of the Cut-off Date, Home Loans representing 99.4% of
the Original Pool Principal Balance are between 0 and 29 days past due
and nineteen of the Home Loans representing 0.60% of the Original Pool
Principal Balance are at least 30 days but no more than 59 days past due
(without giving effect to any grace period); Mego has not advanced
funds, induced, solicited or knowingly received any advance of funds
from a party other than the Obligor, directly or indirectly, for the
payment of any amount required by the Home Loan;
(iii) The terms of the Debt Instrument and the related
Mortgage contain the entire agreement of the parties and have not been
impaired, waived, altered or modified in any respect, except by written
instruments reflected in the related File and recorded, if necessary, to
maintain the lien priority of the related Mortgage; and no other
instrument of waiver, alteration, expansion or modification has been
executed, and no Obligor has been released, in whole or in part, except
in connection with an assumption agreement which assumption agreement is
part of the related Home Loan File and the payment terms of which are
reflected in the related Home Loan Schedule;
(iv) The Debt Instrument and the related Mortgage are not
subject to any set-off, claims, counterclaim or defense and will not
have such in the future with respect to the goods and services provided
under the Debt Instrument, including the defense of usury or of fraud in
the inducement, nor will the operation of any of the terms of the Debt
Instrument and the related Mortgage, or the exercise of any right
thereunder, render such Debt Instrument or 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;
(v) Any and all requirements of any federal, state or local
law applicable to the Home Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto)
have been complied with;
(vi) No Debt Instrument or Mortgage has been satisfied,
cancelled, rescinded or subordinated, in whole or part; and Mego has not
waived the performance by the Obligor of any action, if the Obligor's
failure to perform such action would cause the Debt Instrument or
Mortgage Loan to be in default, except as otherwise permitted by clause
(iii); and the related Property has not been released from the lien of
the Mortgage, in whole or in part, nor has any instrument been executed
that would effect any such satisfaction, subordination, release,
cancellation or rescission;
(vii) Each Mortgage is a valid, subsisting and enforceable
lien on the related Property, including the land and all buildings on
the Property;
(viii) The Debt Instrument and the related Mortgage are genuine
and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance
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with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors'
rights in general and by general principles of equity;
(ix) To Mego's best knowledge, all parties to the Debt
Instrument and the related Mortgage had legal capacity at the time to
enter into the Home Loan and to execute and deliver the Debt Instrument
and the related Mortgage, and the Debt Instrument and the related
Mortgage have been duly and properly executed by such parties;
(x) As of the applicable Cut-Off Date, the proceeds of the
Home Loan have been fully disbursed and there is no requirement for
future advances thereunder, and any and all applicable requirements set
forth in the Home Loan documents have been complied with; the Obligor is
not entitled to any refund of any amounts paid or due under the Debt
Instrument or the related Mortgage;
(xi) Immediately prior to the sale, transfer and assignment
to the Depositor, Mego will have good and indefeasible legal title to
the Home Loan, the related Debt Instrument and the related Mortgage and
the full right to transfer such Home Loan, the related Debt Instrument
and the related Mortgage, and Mego will have been the sole owner
thereof, subject to no liens, pledges, charges, mortgages, encumbrances
or rights of others, except for such liens as will be released
simultaneously with the transfer and assignment of the Home Loans to the
Depositor (and the Home Loan File will contain no evidence inconsistent
with the foregoing); and immediately upon the sale, transfer and
assignment contemplated by the Home Loan Purchase Agreement, the
Depositor will hold good title to, and be the sole owner of each Home
Loan, the related Debt Instrument and the related Mortgage, free of all
liens, pledges, charges, mortgages, encumbrances or rights of others;
(xii) Except for those Home Loans referred to in Section
3.03(b)(ii) above that are delinquent as of the Closing Date, there is
no default, breach, violation or event of acceleration existing under
the Home Loan, the related Debt Instrument and the related Mortgage and
there is no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration and neither Mego nor its
predecessors have waived any default, breach, violation or event of
acceleration;
(xiii) The Debt Instrument and the related Mortgage contain
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
Property of the benefits of the security provided thereby, including,
(A) in the case of any Mortgage designated as a deed of trust, by
trustee's sale, and (B) otherwise by judicial foreclosure;
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(xiv) Each Home Loan is a fixed rate loan; the Debt Instrument
shall mature within not more than 25 years, from the date of origination
of the Home Loan; the Debt Instrument is payable in substantially equal
Monthly Payments, with interest payable in arrears, and requires a
Monthly Payment which is sufficient to fully amortize the original
principal balance over the original term and to pay interest at the
related Home Loan Interest Rate; interest on each Home Loan is
calculated on the basis of a 360 day year consisting of twelve 30-day
months, and the Debt Instrument does not provide for any extension of
the original term;
(xv) The related Debt Instrument is not and has not been
secured by any collateral except the lien of the corresponding Mortgage;
(xvi) With respect to any Mortgage Loan, if the related
Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees or
expenses are or will become payable to the trustee under the deed of
trust, except in connection with default proceedings and a trustee's
sale after default by the Obligor;
(xvii) Mego has no knowledge of any circumstances or conditions
not reflected in the representations set forth herein, or in the Home
Loan Schedule, or in the related Home Loan File with respect to the
related Mortgage, the related Property or the Obligor which could
reasonably be expected to materially and adversely affect the value of
the related Property, or the marketability of the Mortgage Loan or to
cause the Mortgage Loan to become delinquent or otherwise in default;
(xviii) Assuming no material change to the applicable law or
regulations in effect as of the Closing Date, after the consummation of
the transactions contemplated by this Agreement, the Master Servicer on
behalf of the Trust and the Indenture Trustee will have the ability to
foreclose or otherwise realize upon a Property, if the Home Loan is a
Mortgage Loan, or to enforce the provisions of the related Home Loan
against the Obligor thereunder, if the foreclosure upon any such
Property or enforcement of the provisions of the related Home Loan
against the Obligor are undertaken as set forth in Section 4.12;
(xix) There exists a Home Loan File relating to each Home Loan
and such Home Loan File contains all of the original or certified
documentation listed in Section 2.05 for such Home Loan, subject to
applicable grace periods set forth in Section 2.06(c). Each Indenture
Trustee's Home Loan File has been delivered to the Indenture Trustee and
each Servicer's Home Loan File is being held in trust by Mego for the
benefit of, and as agent for, the Indenture Trustee, the Securityholders
and the Owner Trustee as the owner thereof. Each document included in
the Home Loan File which is required to be executed by the Obligor has
been executed by the Obligor in the appropriate places. With respect to
each Mortgage Loan, the related Assignment of Mortgage to the Indenture
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Trustee is in recordable form and is acceptable for recording under the
laws of the jurisdiction in which the Property is located. All blanks on
any form required to be completed have been so completed;
(xx) Each Property is improved by a residential dwelling and
is not a Home Loan in respect of a manufactured home or mobile home or
the land on which a manufactured home or mobile home has been placed;
(xxi) Each Mortgage Loan was originated by Mego in accordance
with Mego's "Express 35/Swift 60 Loan Program", "Debt Consolidation 125
Loan Program", "Renovator 125 Loan Program" and "Zero Equity Loan
Program" underwriting guidelines, as applicable, attached hereto as
Exhibit D;
(xxii) If the Property securing any Mortgage Loan is in an area
identified by the Federal Emergency Management Agency ("FEMA") as having
special flood hazards, unless the community in which the area is
situated is participating in the National Flood Insurance Program and
the regulations thereunder or less than a year has passed since FEMA
notification regarding such hazards, a flood insurance policy is in
effect with respect to such Property with a generally acceptable carrier
which complies with Section 102(a) of the Flood Disaster Protection Act
of 1973; all improvements upon each Property are insured by a generally
acceptable insurer against loss by fire hazards of extended coverage and
such other hazards as are customary in the area where the Property is
located pursuant to insurance policies conforming to the requirements of
the Agreement; all such policies contain a standard mortgage clause
naming Mego, its successors and assigns, as loss payee;
(xxiii) All costs, fees and expenses incurred in originating and
closing the Home Loan and in recording the related Mortgage were paid
and the Obligor is not entitled to any refund of any amounts, paid or
due to the Obligee pursuant to the Debt Instrument or any related
Mortgage;
(xxiv) There is no obligation on the part of Mego or any other
party other than the Obligor to make payments with respect to the Home
Loan;
(xxv) At the time of origination of the Home Loan, each
related prior lien, if any, was not 30 or more days delinquent;
(xxvi) With respect to each Mortgage Loan, the related Mortgage
contains an enforceable provision requiring the consent of the Mortgagee
to assumption of the related Mortgage Loan upon sale of the Property;
(xxvii) With respect to any Mortgage Loan, there is no homestead
or other exemption available to the Mortgagor which would materially
interfere with the right to
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sell the related Property at a trustee's sale or the right to foreclose
the Mortgage; no relief has been requested or allowed to the Mortgagor
under the Civil Relief Act;
(xxviii) The related Home Loan File for each Home Loan contains
a title document with respect to such Home Loan reflecting that title to
the related Property is vested at least 50% in the Obligor under such
Home Loan;
(xxix) Each Property (including each residential dwelling
improvement thereon) is free of damage which materially and adversely
affects the value thereof;
(xxx) Each Home Loan was originated in compliance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(xxxi) Each Home Loan has been serviced in accordance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(xxxii) The transfer, assignment and conveyance of the Debt
Instruments and the Mortgages by Mego to the Depositor were not subject
to the bulk transfer laws or any similar statutory provisions in effect
in any applicable jurisdiction;
(xxxiii) Any Home Loan originated in the State of Texas, was
originated pursuant to either Chapter 3 or Chapter 6 of the Texas
Consumer Credit Code;
(xxxiv) As of the applicable Cut-Off Date, no Obligor is a
debtor under proceedings under the Bankruptcy Code, and no such Obligor
has defaulted in payments on a Home Loan after the filing of such
bankruptcy case, whether under a plan or reorganization or otherwise;
(xxxv) Mego has not advanced funds, or induced, solicited or
knowingly received any advance of loan payments from a party other than,
with respect to a Mortgage Loan, the owner of the Property subject to
the Mortgage;
(xxxvi) Mego originated the Home Loans through its network of
dealers and correspondents;
(xxxvii) Each Home Loan conforms, and all such Home Loans in the
aggregate conform, to the description thereof set forth in the
Prospectus Supplement;
(xxxviii) Each Home Loan either complies with the Home Ownership
and Equity Protection Act of 1994 or is not subject to such act;
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(xxxix) Mego has caused to be performed or shall cause to be
performed within 15 Business Days of the Closing Date any and all acts
required to preserve the rights and remedies of the Trust and the
Indenture Trustee in any insurance policies applicable to each Home
Loan, including, without limitation, any necessary notifications of
insurers, assignments of policies or interests therein, and
establishment of coinsured, joint loss payee and mortgagee rights in
favor of the Indenture Trustee;
(xl) To Mego's best knowledge, there exists no violation of
any environmental law (either local, state or federal), rule or
regulation in respect of the Property which violation has or could have
a material adverse effect on the market value of such Property. Mego has
no knowledge of any pending action or proceeding directly involving the
related Property in which compliance with any environmental law, rule or
regulation is in issue; and, to Mego's best knowledge, nothing further
remains to be done to satisfy in full all requirements of each such law,
rule or regulation constituting a prerequisite to the use and enjoyment
of such Property;
(xli) None of the Mortgage Loans is secured by Mortgages on
non-owner occupied Mortgaged Properties;
(xlii) On the Closing Date, 55% or more (by aggregate Principal
Balance) of the Home Loans do not constitute "real estate mortgages" for
the purpose of Treasury Regulation Section301.7701 under the Code. For
this purpose a Home Loan does not constitute a "real estate mortgage"
if:
(i) The Home Loan is not secured by an interest in real
property, or
(ii) The Home Loan is not an "obligation principally secured
by an interest in real property." For this purpose an "obligation is
principally secured by an interest in real property" if it satisfies
either test set out in paragraph (1) or paragraph (2) below.
(1) The 80-percent test. An obligation is principally
secured by an interest in real property if the fair
market value of the interest in real property securing
the obligation
(A) was at least equal to 80 percent of the adjusted
issue price of the obligation at the time the
obligation was originated (or, if later, the
time the obligation was significantly modified);
or
(B) is at least equal to 80 percent of the adjusted
issue price of the obligation on the Closing
Date.
For purposes of this paragraph (1), the fair market
value of the real property interest must be first
reduced by the amount of any lien on the real property
interest that is senior to the obligation being tested,
and must
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be further reduced by a proportionate amount of any lien
that is in parity with the obligation being tested, in
each case before the percentages set forth in (1)(A) and
(1)(B) are determined. The adjusted issue price of an
obligation is its issue price plus the amount of accrued
original issue discount, if any, as of the date of
determination.
(2) Alternative test. An obligation is principally secured
by an interest in real property if substantially all of
the proceeds of the obligation were used to acquire or
to improve or protect an interest in real property that,
at the origination date, is the only security for the
obligation. For purposes of this test, loan guarantees
made by the United States or any state (or any political
subdivision, agency, or instrumentality of the United
States or of any state), or other third party credit
enhancement are not viewed as additional security for a
loan. An obligation is not considered to be secured by
property other than real property solely because the
obligor is personally liable on the obligation. For this
purpose only, substantially all of the proceeds of the
obligations means 662/3% or more of the gross proceeds.
(xliii) With respect to each Home Loan that is not a first
mortgage loan, either (i) no consent for the Home Loan is required by
the holder of the related prior lien or (ii) such consent has been
obtained and has been delivered to the Indenture Trustee;
(xliv) No Home Loan was selected from Mego's assets in a manner
which would cause it to be adversely selected as to credit risk from the
pool of home loans owned by Mego.
Section 3.04 [Reserved].
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and
warranties set forth in Sections 3.03 shall survive the conveyance of the Home
Loans to the Issuer, the Grant of the Home Loans to the Indenture Trustee and
the delivery of the Securities to the Securityholders and shall be continuing as
long as any Security is outstanding. Upon discovery by the Depositor, the Master
Servicer, the Seller, the Owner Trustee, the Indenture Trustee or any
Securityholder of a breach of any of such representations and warranties made
pursuant to Section 3.03(b), the party discovering such breach shall give prompt
written notice to the others. In the event of a determination in Section 2.06(c)
or a breach of a representation and warranty made pursuant to Section 3.03(b)
that materially and adversely affects the value of the Home Loans or the
interest of the Securityholders, or which materially and adversely affects the
interests of the Securityholders in the related Home Loan in the case of a
representation and warranty relating to a particular Home Loan (notwithstanding
that such representation and warranty was made to
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the Seller's best knowledge), and a failure within sixty Business Days of
discovery or receipt of notice of such failure to effect a cure of the
circumstances giving rise to such defect, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding the expiration of such sixty-day period, to
repurchase (or substitute for, to the extent permitted by subsection (b) below)
the affected Home Loan. It is understood and agreed that the obligation of Mego
to repurchase or substitute any such Home Loan pursuant to this Section shall
constitute the sole remedy against it with respect to such breach of the
foregoing representations or warranties or the existence of the foregoing
conditions. With respect to representations and warranties made by Mego pursuant
to Section 3.03(b) that are made to Mego's best knowledge, if it is discovered
by any of the Depositor, the Master Servicer, the Seller, Mego, the Indenture
Trustee, the Owner Trustee, or any Securityholder that the substance of such
representation and warranty is inaccurate and such inaccuracy materially and
adversely affects the value of the related Home Loan, notwithstanding Mego's
lack of knowledge, such inaccuracy shall be deemed a breach of the applicable
representation and warranty.
If Mego is required to repurchase any Home Loan on a Monthly Cut-Off
Date that is not a Business Day, such repurchase shall be made on the last
Business Day preceding such Monthly Cut-Off Date. Any Home Loan required to be
purchased or repurchased pursuant to this Section 3.05(a) is referred to as a
"Defective Home Loan".
(b) Mego shall be obligated to repurchase a Defective Home Loan for
the Purchase Price, payable to the Indenture Trustee in cash on the Monthly
Cut-Off Date specified in Section 3.05(a) above, for deposit in the Note
Distribution Account. Notwithstanding the foregoing, Mego may elect in lieu of
the repurchase of a Defective Home Loan as provided in this Section 3.05, to
substitute, as of the Monthly Cut-off Date specified in Section 3.05(a), a
Qualified Substitute Home Loan for the Defective Home Loan in accordance with
the provisions of this Section 3.05.
(c) Mego shall notify the Master Servicer, and the Indenture Trustee
in writing not less than five Business Days before the related Determination
Date which is on or before the date on which Mego would otherwise be required to
repurchase such Home Loan pursuant to Section 3.05(a) of its intention to effect
a substitution under this Section. On such Determination Date (the "Substitution
Date"), Mego shall deliver to the Indenture Trustee a list of the Home Loans to
be substituted for by such Qualified Substitute Home Loans, and attaching as an
exhibit a supplemental Home Loan Schedule (the "Supplemental Loan Schedule")
setting forth the same type of information appearing on the Home Loan Schedule
and representing as to the accuracy thereof. In connection with any substitution
pursuant to this Section 3.05, to the extent that the aggregate Principal
Balance of any Qualified Substitute Home Loan or Home Loans is less than the
aggregate Principal Balance of the corresponding Home Loan or Home Loans as of
the end of the Due Period prior to the Determination Date on which the
substitution is being made, Mego shall deposit such difference (a "Substitution
Adjustment Amount") to the Note Distribution Account on such date.
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(d) Concurrently with the satisfaction of the conditions set forth
in this Section 3.05 and the Grant of such Qualified Substitute Home Loans to
the Indenture Trustee pursuant to the Indenture, Exhibit A to this Agreement
shall be deemed to be amended to exclude all Home Loans being replaced by such
Qualified Substitute Home Loans and to include the information set forth on the
Supplemental Loan Schedule with respect to such Qualified Substitute Home Loans,
and all references in this Agreement to Home Loans shall include such Qualified
Substitute Home Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Qualified Substitute Home
Loans.
(e) With respect to all Defective Home Loans or other Home Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the Purchase
Price therefor to the Note Distribution Account, the Indenture Trustee shall
assign to Mego, without recourse, representation or warranty, all the Indenture
Trustee's right, title and interest in and to such Defective Home Loans or Home
Loans, which right, title and interest were conveyed to the Indenture Trustee
pursuant to Section 2.01. The Indenture Trustee shall take any actions as shall
be reasonably requested by Mego to effect the repurchase of any such Home Loans.
(f) The Servicer may, at its option, purchase from the Trust any
Defaulted Home Loan or substitute a Qualified Substitute Home Loan for any
Defaulted Home Loan, provided, however, that the aggregate of Principal Balances
of Defaulted Home Loans purchased or replaced pursuant to this Section 3.05(f)
shall not exceed 10% of the Original Pool Principal Balance. If the Servicer
elects to purchase a Defaulted Home Loan, the Servicer shall deposit the
Purchase Price in the Note Distribution Account on the Monthly Cut-Off Date
following the date on which such election is made. Any substitution of a
Defaulted Home Loan for a Qualified Substitute Home Loan by the Servicer shall
be performed in accordance with the substitution provisions set forth in Section
3.05(c) and Section 3.05(d).
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ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS
Section 4.01 Servicing Standard.
(a) The Master Servicer is hereby authorized to act as agent for the
Trust and in such capacity shall manage, service, administer and make
collections on the Home Loans, and perform the other actions required by the
Master Servicer under this Agreement. In performing its obligations hereunder
the Master Servicer shall at all times act in good faith in a commercially
reasonable manner and in accordance with applicable law and the Debt Instruments
and Mortgages. The Master Servicer shall have full power and authority, acting
alone and/or through the Servicer as provided in Section 4.02, subject only to
this Agreement and the respective Home Loans, to do any and all things in
connection with such servicing and administration which are consistent with the
ordinary practices of prudent mortgage lending institutions, but without regard
to:
(i) any relationship that the Master Servicer, the Servicer
or any affiliate of the Master Servicer or any Servicer may have with
the related Obligor:
(ii) Mego's obligations to repurchase or substitute for a
Defective Home Loan pursuant to Section 3.05;
(iii) the ownership of any Securities by the Master Servicer
or any affiliate of the Master Servicer;
(iv) the Master Servicer's obligation to make Interest
Advances pursuant to Section 4.08(a) or to make Foreclosure Advances
pursuant to Section 4.08(b); or
(v) the Master Servicer's right to receive compensation for
its services as provided in Section 5.01(c)(i)(a).
The Master Servicer may take any action hereunder, including exercising
any remedy under any Home Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of any Obligor, without the consent or approval of the
Indenture Trustee, unless any such consent or approval is expressly required
hereunder or under applicable law.
(b) The Indenture Trustee shall execute and return to the Master
Servicer or the Servicer designated in a written instruction from the Master
Servicer to the Indenture Trustee, within 5 days of the Indenture Trustee's
receipt any and all documents or instruments necessary to maintain the lien
created by any Mortgage on the related Property or any portion thereof, and,
within 5 days of request by the Master Servicer or the Servicer therefor a power
of attorney in
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favor of the Master Servicer or Servicer with respect to any modification,
waiver, or amendment to any document contained in any Home Loan File and any and
all instruments of satisfaction or cancellation, or of partial or full release
or discharge, and all other comparable instruments, with respect to the Home
Loans and with respect to the related Mortgaged Properties prepared and
delivered to the Indenture Trustee by the Master Servicer or any Servicer, all
in accordance with the terms of this Agreement.
(c) The Indenture Trustee shall furnish the Master Servicer or
Servicer within 5 days of request of a Master Servicing Officer therefor any
powers of attorney and other documents necessary and appropriate to carry out
its servicing and administrative duties hereunder, including any documents or
powers of attorney necessary to foreclose any Home Loan. The forms of any such
powers or documents shall be appended to such requests.
Section 4.02 Servicing Arrangements.
(a) On or prior to the date hereof, the Master Servicer has entered
into a Servicing Agreement with respect to all of the Home Loans, in
substantially the form of the Form of the Servicing Agreement attached hereto as
Exhibit E with Mego, as Servicer. Upon the termination of the Servicing
Agreement, the Master Servicer may only appoint or consent to the appointment or
succession of a successor Servicer under the Servicing Agreement and may only
enter into a substitute servicing agreement which is in form and substance as
the Servicing Agreement attached hereto as Exhibit E and with a Person
acceptable to the Indenture Trustee. The Master Servicer shall not consent to
any material amendment, modification or waiver of the provisions of a Servicing
Agreement without the consent of the Indenture Trustee.
(b) No provision of this Agreement or the Servicing Agreement shall
be deemed to relieve the Master Servicer of any of its duties and obligations to
the Indenture Trustee on behalf of Securityholders with respect to the servicing
and administration of the Home Loans as provided hereunder; it being understood
that the Master Servicer shall be obligated with respect thereto to the same
extent and under the same terms and conditions as if it alone were performing
all duties and obligations set forth in this Agreement in connection with the
collection, servicing and administration of such Home Loans.
(c) Without limitation of the provisions of Section 4.02(b), the
Master Servicer shall (i) review the servicing reports prepared by the Servicer
in order to ensure the accuracy thereof, (ii) otherwise monitor the performance
by the Servicer under the Servicing Agreement and notify the Indenture Trustee
of any Servicer Termination Event, and (iii) be obligated to ensure that the
Servicer deposits Payments into the Collection Account. In the event the
Servicer fails to make such deposit, the Master Servicer will deposit such
amounts as set forth in Section 5.01(a)(1).
(d) The Master Servicer agrees that it shall at all times be
prepared to perform the obligations of the Servicer if the Servicer fails to
perform its duties and obligations under the Servicing Agreement.
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(e) The Servicing Agreement may provide that the Servicer may
retain, as additional compensation, prepayment penalties, assumption and
processing fees paid by any Obligor and all similar fees customarily associated
with the servicing of the Home Loans, including, but not limited to late
charges, paid by any Obligor.
(f) Mego, as Servicer, shall provide information to the Master
Servicer monthly in a mutually agreeable format in order to enable the Master
Servicer to independently reconfirm the loan-by-loan reconciliation of the
outstanding Principal Balance of each Home Loan included in such information.
The Master Servicer shall prepare exception reports, if necessary, showing all
Principal Balance differences between the information provided by the Servicer
and the confirmations prepared by the Master Servicer and shall furnish such
reports to the Indenture Trustee.
Section 4.03 Servicing Record.
(a) The Master Servicer shall establish and maintain books and
records for the Home Loans (the "Servicing Record"), in which the Master
Servicer shall record: (i) all Payments received or collected by or on behalf of
the Master Servicer (through the Servicer or otherwise) or received by the
Indenture Trustee in respect of each Home Loan and each Foreclosed Property and
(ii) all amounts owing to the Master Servicer in compensation for services
rendered by the Master Servicer hereunder or in reimbursement of costs and
expenses incurred by the Master Servicer hereunder.
(b) Except as otherwise provided herein, amounts received or
collected by or on behalf of the Master Servicer or the Indenture Trustee from
or on behalf of any Obligor or in respect of any Foreclosed Property shall be
credited to the Servicing Record:
(i) promptly following direct receipt or direct collection
by the Master Servicer;
(ii) in the case of a Home Loan directly serviced by a
Servicer, promptly following deposit of the receipt or collection in the
related Collection Account; or
(iii) in the case of any amount received directly by the
Indenture Trustee, promptly following the Master Servicer's actual
knowledge of receipt by the Indenture Trustee;
but in any event not later than the Determination Date next following the date
of receipt or collection by or on behalf of the Master Servicer (through the
Servicer or otherwise) or receipt by the Indenture Trustee. Amounts received or
collected by the Master Servicer in connection with the purchase or repurchase
of any Home Loan or any Foreclosed Property shall be so recorded on and as of
the date of receipt. The Servicing Record shall separately reflect amounts so
received or collected by the Master Servicer in each Due Period.
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(c) The Master Servicer shall credit to the Servicing Record
relating to each Determination Date, on a Home Loan-by-Home Loan basis, each of
the following Payments collected or received by or on behalf of the Master
Servicer (through the Servicer or otherwise) or received by the Indenture
Trustee in respect of each Home Loan and each Foreclosed Property:
(i) all payments on account of principal;
(ii) all payments on account of interest;
(iii) all proceeds of the purchase or repurchase of any Home
Loan pursuant to Section 3.05 and all Substitution Adjustment Amounts;
(iv) all amounts paid by or on behalf of the related Obligor
in respect of Foreclosure Advances previously advanced by the Master
Servicer or the Servicer;
(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 4.13;
(vi) all proceeds of the sale of the Home Loans and any
Foreclosed Properties pursuant to Section 11.01; and
(vii) all Insurance Proceeds, any condemnation awards or
settlements or any payments made by any related guarantor or third-party
credit-support provider and any and all other amounts received in
respect of Home Loans and not specified above.
(d) Notwithstanding anything to the contrary herein, the Master
Servicer shall not be required to credit to the Servicing Record, and neither
the Master Servicer nor any Securityholder shall have any right or interest in
any amount due or received with respect to any Home Loan or any related
Foreclosed Property subsequent to the date of purchase of such Home Loan or
Foreclosed Property from the Trust.
(e) The Master Servicer shall separately record in the Servicing
Record the items required to be included in the Master Servicer Certificate and
additionally the following items to the extent not included therein:
(i) on or before each Determination Date, the related unpaid
Master Servicer Fee due the Master Servicer on the next Distribution
Date;
(ii) on or before each Determination Date, all amounts
retained by the Servicer in respect of the preceding Due Period in
respect of amounts due Independent Contractors hired by the Master
Servicer to operate and manage a Foreclosed Property pursuant to Section
4.14(b);
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(iii) on or before each Determination Date, the amount of
unreimbursed Interest Advances in respect of prior Distribution Dates
and the amount which the Master Servicer or the Servicer is entitled to
be reimbursed therefor in accordance with Section 4.08;
(iv) on or before each Determination Date, all amounts due as
of the preceding Monthly Cut-Off Date in reimbursement of Foreclosure
Advances previously advanced by the Master Servicer or the Servicer
(separately identifying the type and amount of each then due);
(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Indenture Trustee,
all Other Fees distributable pursuant to Section 5.01(c)(iii)(d) on the
next succeeding Distribution Date;
(vi) promptly following each Distribution Date, the aggregate
amount of the Master Servicer Fee, Servicer Fee and the Indenture
Trustee Fee paid to the Master Servicer, Servicer and Indenture Trustee
respectively, on such Distribution Date pursuant to Section
5.01(c)(i)(a) and the aggregate amount of the Owner Trustee Fee Reserve
paid to the Servicer, on such Distribution Date pursuant to Section
5.01(c)(i)(c);
(vii) promptly following each Distribution Date, the aggregate
amount of Interest Advances and Foreclosure Advances reimbursed to the
Master Servicer or the Servicer on such Distribution Date;
(viii) on or before each Determination Date, the Principal
Balance of Home Loans that became Defaulted Home Loans during the prior
Due Period;
(ix) on or before each Determination Date, identification by
loan number, Obligor name, address of Property and Principal Balance of
such Home Loan with respect to which the Master Servicer has requested
that the Indenture Trustee obtain the environmental report required by
Section 4.12 in connection with deciding pursuant to Section 4.12 to
foreclose on or otherwise acquire title to the related Property;
(x) on or before each Determination Date, the Principal
Balance of each such Home Loan with respect to which the Master Servicer
has determined under the circumstances described in Section 4.12(a) in
good faith in accordance with customary mortgage loan servicing
practices that all amounts which it expects to receive with respect to
such Home Loan have been received; and
(xi) on or before each Determination Date, any other
information with respect to the Home Loans reasonably required by the
Indenture Trustee to determine the amount required to be distributed
pursuant to Section 5.01(c) and determinable by the Master Servicer
without undue burden from the Servicer or the items otherwise required
to be maintained in each Servicing Record.
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Section 4.04 Annual Statement as to Compliance; Notice of Event of
Default.
(a) The Master Servicer will deliver to the Indenture Trustee and
the Depositor on or before May 31 of each year, beginning in 1998 an Officer's
Certificate signed by two Responsible Officers of the Master Servicer stating
with respect to the Trust, that:
(i) a review of the activities of the Master Servicer during
the preceding calendar year (or in connection with the first such
Officer's Certificate the period from the Closing Date through the end
of 1997) and of the Master Servicer's performance under this Agreement
with respect to such Trust has been made under the supervision of the
signer of such Officer's Certificate; and
(ii) to the best of such signer's knowledge, based on such
review, the Master Servicer has fulfilled all its obligations under this
Agreement throughout such year (or such portion of such year), or there
has been a default in the fulfillment of any such obligation, in which
case such Officer's Certificate shall specify each such default known to
such signer and the nature and status thereof and what action the Master
Servicer proposes to take with respect thereto.
(b) The Master Servicer shall deliver to the Indenture Trustee and
the Depositor, promptly after having obtained knowledge thereof, but in no event
later than 2 Business Days thereafter, written notice in an Officer's
Certificate of any event which with the giving of notice or lapse of time, or
both, would become an Event of Default under Section 10.01. Each of Mego, the
Depositor, the Indenture Trustee, the Owner Trustee and the Master Servicer
shall deliver to the other of such Persons promptly after having obtained
knowledge thereof, but in no event later than 2 Business Days thereafter,
written notice in an Officer's Certificate of any event which with the giving of
notice or lapse of time, or both, would become an Event of Default under Section
10.01.
Section 4.05 Annual Independent Accountants' Report; Servicer Review
Report.
(a) The Master Servicer shall cause a firm of Independent
Accountants, who may also render other services to the Master Servicer, to
deliver to the Indenture Trustee, Owner Trustee and the Depositor on or before
May 31 (or 150 days after the end of the Master Servicer's fiscal year) of each
year, beginning on the first May 31 (or other applicable date) after the date
that is six months after the Closing Date, with respect to the twelve months
ended the immediately preceding December 31 (or other applicable date) (or such
other period as shall have elapsed from the Closing Date to the date of such
certificate) a report, conducted in accordance with generally accepted
accounting principles (the "Accountant's Report") including: (i) an opinion on
the financial position of the Master Servicer at the end of its most recent
fiscal year, and the results of operations and changes in financial position of
the Master Servicer for such year then ended on the basis of an examination
conducted in accordance with generally accepted auditing standards, and (ii) a
statement to the effect that, based on an examination of certain specified
documents and records relating to the servicing of the Master Servicer's
mortgage loan portfolio
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or the affiliate of the Master Servicer principally engaged in the servicing of
mortgage loans conducted in compliance with the audit program for mortgages
serviced for FNMA, the United States Department of Housing and Urban Development
Mortgagee Audit Standards or the Uniform Single Attestation Program for Mortgage
Bankers (the "Applicable Accounting Standards") such firm is of the opinion that
such servicing has been conducted in compliance with the Applicable Accounting
Standards except for such exceptions as such firm shall believe to be immaterial
and such other exceptions as shall be set forth in such statement.
(b) In addition, the Master Servicer will provide a report of a firm of
Independent Accountants which shall state that (1) a review in accordance with
agreed upon procedures was made of such number of Master Servicer Certificates
which the Independent Accountants deem necessary to carry out their review of
Master Servicer performance, but in no case less than two and (2) except as
disclosed in the Accountant's Report, no exceptions or errors in the Master
Servicer Certificates so examined were found. The Accountant's Report shall also
indicate that the firm is independent of the Master Servicer within the meaning
of the Code of Professional Ethics of the American Institute of Certified Public
Accountants.
(c) The Master Servicer shall mail a copy of the Servicer Review
Report and any report or statement of the Servicer prepared pursuant to Section
6.04 of the Servicing Agreement to the Indenture Trustee.
(d) (1) The Master Servicer shall cause a firm of Independent
Accountants to review, annually within 90 days after each anniversary of the
Closing Date, in accordance with agreed upon procedures the performance of the
Servicer under the Servicing Agreement in order to confirm that the records of
the Servicer accurately reflect collections, delinquencies and other relevant
data with respect to the Home Loans reported to the Master Servicer for the
purpose of preparation of the Servicing Record, and that such data is accurately
reported to the Master Servicer for reflection in the Servicing Record. Any
exceptions or errors disclosed by such procedures shall be included in a report
delivered to the Master Servicer, the Indenture Trustee, Owner Trustee and the
Depositor (the "Servicer Review Report").
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans.
The Master Servicer shall provide to representatives of the Indenture
Trustee reasonable access to (a) the documentation regarding the Home Loans and
to those employees of the Master Servicer who are responsible for the
performance of the Master Servicer's duties hereunder and (b) the books of
account, records, reports and other papers of the Master Servicer and to discuss
its affairs, finances and accounts with its employees and Independent
accountants for the purpose of reviewing or evaluating the financial condition
of the Master Servicer. The Master Servicer shall provide such access to any
Securityholder only in such cases where the Master Servicer is required by
applicable statutes or regulations (whether applicable to the Master Servicer or
to such Securityholder) to permit such Securityholder to review such
documentation. In each case, such access shall be afforded without charge but
only upon reasonable request and during normal business hours. Nothing in this
Section shall derogate from the obligation of the Master Servicer
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to observe any applicable law prohibiting disclosure of information regarding
the Obligors, and the failure of the Master Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section. Any Securityholder, by its acceptance of a Security (or
by acquisition of its beneficial interest therein), shall be deemed to have
agreed to keep confidential and not to use for its own benefit any information
obtained by it pursuant to this Section, except as may be required by applicable
law or by any applicable regulatory authority.
Section 4.07 [Reserved]
Section 4.08 Advances.
(a) With respect to the Home Loans (other than Defaulted Home Loans)
and each Distribution Date, the Master Servicer shall advance from its own funds
and deposit into the Note Distribution Account or from funds on deposit in the
related Collection Account in respect of amounts available for distribution on
future Distribution Dates, no later than the related Determination Date, the
excess, if any, of (i) the aggregate of the portions of the Monthly Payments due
with respect to all Home Loans in the related Due Period allocable to interest
(calculated at a rate equal to the Net Loan Rate) over (ii) the aggregate amount
to be deposited into the Note Distribution Account with respect to all Home
Loans and such Distribution Date and allocated in accordance with Section
4.03(c) to interest (such amounts, "Interest Advances"). Any funds so applied
from funds on deposit in the Collection Account in respect of amounts available
for distribution on future Distribution Dates shall be reimbursed by the Master
Servicer on or before any future Distribution Date to the extent that funds on
deposit in the Note Distribution Account applied in the order of priority set
forth in such Section 5.01(c) would be less than the amount required to be
distributed pursuant to Section 5.01(c) on such dates as a result of such
Interest Advances.
Notwithstanding anything herein to the contrary, no Interest Advance
shall be required to be made hereunder (i) if the Master Servicer determines
that such Interest Advance would, if made, constitute a Nonrecoverable Advance
or (ii) with respect to shortfalls in interest resulting from application of the
Soldiers' and Sailors' Relief Act or from full or partial prepayments of any
Loan.
(b) The Master Servicer shall advance from its own funds the
following amounts in respect of any Mortgage Loan or Foreclosed Property, as
applicable (collectively, "Foreclosure Advances"):
(i) all third party costs and expenses (including legal fees
and costs and expenses relating to bankruptcy or insolvency proceedings
in respect of any Obligor) associated with the institution of
foreclosure or other similar proceedings in respect of any Home Loan
pursuant to Section 4.12;
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(ii) all insurance premiums due and payable in respect of
each Foreclosed Property, prior to the date on which the related
Insurance Policy would otherwise be terminated;
(iii) all real estate taxes and assessments in respect of each
Foreclosed Property that have resulted in the imposition of a lien
thereon, other than amounts that are due but not yet delinquent;
(iv) all costs and expenses necessary to maintain each
Foreclosed Property;
(v) all fees and expenses payable to any Independent
Contractor hired to operate and manage a Foreclosed Property pursuant to
Section 4.14(b); and
(vi) all fees and expenses of any Independent appraiser or
other real estate expert retained by the Indenture Trustee pursuant to
Section 4.13(a).
The Master Servicer shall advance the Foreclosure Advances described in clauses
(i) through (v) above if, but only if, it has approved the foreclosure or other
similar proceeding in writing and the Master Servicer would make such an advance
if it or an affiliate held the affected Mortgage Loan or Foreclosed Property for
its own account and, in the Master Servicer's good faith judgment, such advance
would not constitute a nonrecoverable advance. In making such assessment with
respect to the institution of such proceedings, the Master Servicer shall not
advance funds with respect to a Mortgage Loan unless the appraised value of the
related Property exceeds the sum of (i) the amounts necessary to satisfy any
liens prior to the liens on Mortgages securing such Mortgage Loan and (ii) the
reasonably anticipated costs of foreclosure or similar proceedings.
Section 4.09 Reimbursement of Interest Advances and Foreclosure
Advances.
(a) The Master Servicer shall be entitled to be reimbursed pursuant
to Section 5.01(c) for previously unreimbursed Interest Advances made from its
own funds or any such previously unreimbursed Interest Advance by the Servicer
with respect to a Home Loan on Distribution Dates subsequent to the Distribution
Date in respect of which such Interest Advance was made from Payments with
respect to such Home Loan. If an Interest Advance shall become a Nonrecoverable
Advance or if a Home Loan shall become a Defaulted Home Loan and the Master
Servicer or Servicer shall not have been fully reimbursed for any such Interest
Advances with respect to such Home Loan, the Master Servicer or Servicer, as
applicable, shall be entitled to be reimbursed for the outstanding amount of
such Interest Advances from unrelated Home Loans pursuant to Section
5.01(c)(i)(b). No interest shall be due to the Master Servicer in respect of any
Interest Advance for any period prior to the reimbursement thereof.
(b) The Master Servicer shall be entitled to be reimbursed pursuant
to Section 5.01(c)(i)(b) from related Payments for Foreclosure Advances advanced
on or prior to the related
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Monthly Cut-Off Date but only to the extent the Master Servicer has satisfied
the requirements of Section 4.08. No interest shall be due to the Master
Servicer in respect of any Foreclosure Advance for any period prior to the
reimbursement thereof.
(c) The Indenture Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 5.01(c), amounts, if
any, which were required to be deposited in any Collection Account pursuant to
Section 5.01(c) with respect to the related Due Period but which were not so
deposited.
Section 4.10. Modifications, Waivers, Amendments and Consents.
(a) The Master Servicer shall not agree to any modification, waiver
or amendment of any provision of any Home Loan unless, in the Master Servicer's
good faith judgment, (i) such modification, waiver or amendment would minimize
the loss that might otherwise be experienced with respect to such Home Loan, and
(ii) such Home Loan has experienced a payment default or a payment default is
reasonably foreseeable by the Master Servicer. The Master Servicer may agree to
subordinate the position of the security interest in the Property which secures
any Mortgage Loan, provided such subordination (i) would permit the Obligor to
refinance a senior lien to take advantage of a lower interest rate or (ii) would
permit the Obligor to extend the term of the senior lien. Notwithstanding the
foregoing, no modification, waiver or amendment of a Home Loan shall involve the
execution by the Obligor of a new Debt Instrument or a new Mortgage.
(b) The Master Servicer shall notify the Indenture Trustee of any
modification, waiver or amendment of any provision of any Home Loan and the date
thereof, and shall deliver to the Indenture Trustee for deposit in the related
Home Loan File, an original counterpart of the agreement relating to such
modification, waiver or amendment, promptly following the execution thereof.
Such notice shall state that the conditions contained in this Section 4.10 have
been satisfied.
Section 4.11. Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the
Obligee's option) become due and payable upon the sale or other transfer
of an interest in the related Property; or
(ii) provides that such Home Loan may not be assumed without
the consent of the related Obligee in connection with any such sale or
other transfer,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Indenture Trustee, shall exercise any right the Trust
or the Indenture Trustee may have as the
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Obligee of record with respect to such Home Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to any such sale or other transfer, in a
manner consistent with the servicing standard set forth in Section 4.01.
(b) If any Home Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the
Obligee's option) become due and payable upon the creation of any lien
or other encumbrance on the related Property; or
(ii) requires the consent of the related Obligee to the
creation of any such lien or other encumbrance on the related Property,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Trust or the Indenture Trustee, shall exercise any
right the Indenture Trustee may have as the Obligee of record with respect to
such Home Loan (x) to accelerate the payments thereon, or (y) to withhold its
consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in Section 4.01.
(c) Nothing in this Section 4.11 shall constitute a waiver of the
Indenture Trustee's right to receive notice of any assumption of a Home Loan,
any sale or other transfer of the related Property or the creation of any lien
or other encumbrance with respect to such Property.
(d) Except as otherwise permitted by Section 4.10, the Master
Servicer shall not agree to modify, waive or amend any term of any Home Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 4.11.
Section 4.12. Collection Procedures; Foreclosure Procedures.
(a) If any Monthly Payment due under any Home Loan is not paid when
the same is due and payable, or if the Obligor fails to perform any other
covenant or obligation under such Home Loan and such failure continues beyond
any applicable grace period, the Master Servicer shall take such action as it
shall deem to be in the best interest of the Trust; including but not limited to
proceeding against the Property securing such Home Loan. In the event that the
Master Servicer determines not to proceed against the Property, on or before the
Determination Date following such determination the Master Servicer shall
determine in good faith in accordance with customary servicing practices that
all amounts which it expects to receive with respect to such Home Loan have been
received. If the Master Servicer makes such a determination, it shall be
reflected in the Servicing Record pursuant to Section 4.03(e)(xi).
(b) In accordance with the criteria for proceeding against the
Property set forth in Section 4.12(a), unless otherwise prohibited by applicable
law or court or administrative order, the Master Servicer, on behalf of the
Trust and the Indenture Trustee, may, at any time, institute
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foreclosure proceedings, exercise any power of sale to the extent permitted by
law, obtain a deed in lieu of foreclosure, or otherwise acquire possession of or
title to the related Property, by operation of law or otherwise. The Master
Servicer shall be permitted to institute foreclosure proceedings, repossess,
exercise any power of sale to the extent permitted by law, obtain a deed in lieu
of foreclosure, or otherwise acquire possession of or title to any Property, by
operation of law or otherwise only in the event that in the Master Servicer's
reasonable judgement such action is likely to result in a positive economic
benefit to the Trust by creating net liquidation proceeds (after reimbursement
of all amounts owed with respect to such Home Loan to the Master Servicer or the
Servicer) and provided that, with respect to any Property, prior to taking title
thereto, the Master Servicer has requested that the Indenture Trustee obtain,
and the Indenture Trustee shall have obtained, an environmental review to be
performed on such Property by a company with recognized expertise, the scope of
which is limited to the review of public records and documents for information
regarding whether such Property has on it, under it or is near, hazardous or
toxic material or waste. If such review reveals that such Property has on it,
under it or is near hazardous or toxic material or waste or reveals any other
environmental problem, the Indenture Trustee shall provide a copy of the related
report to the Master Servicer and title shall be taken to such Property only
after obtaining the written consent of the Indenture Trustee.
In connection with any foreclosure proceeding on a Mortgage Loan, the
Master Servicer shall follow such practices and procedures in a manner which is
consistent with the Master Servicer's procedure for foreclosure with respect to
similar loans held in the Master Servicer's portfolio for its own account or, if
there are no such loans, such loans serviced by the Master Servicer for others,
giving due consideration to accepted servicing practices of prudent lending
institutions. To the extent required by Section 4.08, the Master Servicer shall
advance all necessary and proper Foreclosure Advances until final disposition of
the Foreclosed Property and shall manage such Foreclosed Property pursuant to
Section 4.14. If, in following such foreclosure procedures, title to the
Foreclosed Property is acquired, the deed or certificate of sale shall be issued
to the Co-Owner Trustee and the Indenture Trustee.
Section 4.13. Sale of Foreclosed Properties.
(a) The Master Servicer may offer to sell to any Person any
Foreclosed Property, if and when the Master Servicer determines consistent with
the Servicing Standard and that such a sale would be in the best interests of
the Trust. The Master Servicer shall give the Indenture Trustee not less than
five days' prior notice of its intention to sell any Foreclosed Property, and
shall accept the highest bid received from any Person for any Foreclosed
Property in an amount at least equal to the sum of:
(i) the Principal Balance of the related foreclosed Home
Loan, unreimbursed Foreclosure Advances plus the outstanding amount of
any liens superior in priority, if any, to the lien of the foreclosed
Home Loan; and
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(ii) all unpaid interest accrued thereon at the related Home
Loan Interest Rate through the date of sale.
In the absence of any such bid, the Master Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
that is Independent, or by an Independent appraiser retained by the Master
Servicer, if the highest bidder is a Person that is not Independent. In the
absence of any bid determined to be fair as aforesaid, the Master Servicer shall
offer the affected Foreclosed Property for sale to any Person, other than an
Interested Person, in a commercially reasonable manner for a period of not less
than 10 or more than 30 days, and shall accept the highest cash bid received
therefor in excess of the highest bid previously submitted. If no such bid is
received, any Interested Person may resubmit its original bid, and the Master
Servicer shall accept the highest outstanding cash bid, regardless of from whom
received. No Interested Person shall be obligated to submit a bid to purchase
any Foreclosed Property, and notwithstanding anything to the contrary herein,
neither the Indenture Trustee, in its individual capacity, nor any of its
affiliates may bid for or purchase any Foreclosed Property pursuant hereto.
(b) In determining whether any bid constitutes a fair price for any
Foreclosed Property the Master Servicer shall take into account, and any
appraiser or other expert in real estate matters shall be instructed to take
into account, as applicable, among other factors, the financial standing of any
tenant of the Foreclosed Property, the physical condition of the Foreclosed
Property, and the state of the local and national economies.
(c) The Master Servicer shall act on behalf of the Indenture Trustee
in negotiating and taking any other action necessary or appropriate in
connection with the sale of any Foreclosed Property, including the collection of
all amounts payable in connection therewith. Any sale of a Foreclosed Property
shall be without recourse to the Indenture Trustee, the Master Servicer or the
Trust, and if consummated in accordance with the terms of this Agreement,
neither the Master Servicer nor the Indenture Trustee shall have any liability
to any Securityholder with respect to the purchase price therefor accepted by
the Master Servicer or the Indenture Trustee.
Section 4.14. Management of Real Estate Owned.
(a) If the Trust acquires any Foreclosed Property pursuant to
Section 4.12, the Master Servicer shall have full power and authority, subject
only to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection therewith as are consistent with the manner in
which the Master Servicer manages and operates similar property owned by the
Master Servicer or any of its affiliates, all on such terms and for such period
as the Master Servicer deems to be in the best interests of Securityholders.
(b) The Master Servicer may contract with any Person that is
Independent (an "Independent Contractor") for the operation and management of
any Foreclosed Property, provided that:
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(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor remit all
related Payments to the Master Servicer as soon as practicable, but in
no event later than two Business Days following the receipt thereof by
such Independent Contractor;
(iii) none of the provisions of this Section 4.14(b) relating
to any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Master Servicer of any of its
duties and obligations to the Indenture Trustee for the benefit of
Securityholders with respect to the operation and management of any such
Foreclosed Property; and
(iv) the Master Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such
Foreclosed Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, but shall be entitled to
be reimbursed for all such fees advanced by it pursuant to Section 4.08(b)(v) in
the manner provided in Section 4.09(b).
Section 4.15. Inspections.
The Master Servicer shall inspect or cause to be inspected each Property
that secures any Home Loan at such times and in such manner as are consistent
with the servicing standard set forth in Section 4.01.
Section 4.16. Maintenance of Insurance.
(a) The Master Servicer shall cause to be maintained for each
Foreclosed Property acquired by the Trust such types and amounts of insurance
coverage as the Master Servicer shall deem reasonable. The Master Servicer shall
cause to be maintained for each Home Loan, fire and hazard insurance naming Mego
as loss payee thereunder providing extended coverage in an amount which is at
least equal to the least of (i) the maximum insurable value of the improvements
securing such Home Loan from time to time, (ii) the combined principal balance
owing on such Home Loan and any mortgage loan senior to such Home Loan and (iii)
the minimum amount required to compensate for damage or loss on a replacement
cost basis. In cases in which any Property securing a Home Loan is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Home Loan shall include flood insurance
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to the extent such flood insurance is available and the Master Servicer has
determined such insurance to be necessary in accordance with accepted mortgage
loan servicing standards for mortgage loans similar to the Mortgage Loans. All
such flood insurance shall be in amounts equal to the least of (A) the maximum
insurable value of the improvement securing such Home Loan, (B) the combined
principal balance owing on such Home Loan and any mortgage loan senior to such
Home Loan and (c) the maximum amount of insurance available to the lender under
the National Flood Insurance Act of 1968, as amended.
(b) Any amounts collected by the Master Servicer under any Insurance
Policies, shall be paid over or applied by the Master Servicer as follows:
(i) In the case of amounts received in respect of any Home
Loan:
(A) for the restoration or repair of the affected Property,
in which event such amounts shall be released to the Obligor in
accordance with the terms of the related Debt Instrument or to
the extent not so used,
(B) in reduction of the Principal Balance of the related
Home Loan, in which event such amounts shall be credited to the
Servicing Record,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
(ii) Subject to Section 4.14, in the case of amounts received
in respect of any Foreclosed Property, for the restoration or repair of
such Foreclosed Property, unless the Master Servicer determines,
consistent with the servicing standard set forth in Section 4.01, that
such restoration or repair is not in the best economic interest of the
Trust, in which event such amounts shall be credited, as of the date of
receipt, to the applicable Servicing Record, as a Payment received from
the operation of such Foreclosed Property.
Section 4.17. Release of Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus
all interest accrued thereon shall have been paid;
(ii) the Master Servicer, or the Servicer shall have
received, in escrow, payment in full of such Home Loan in a manner
customary for such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Trust pursuant to Section 3.05;
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(iv) such Home Loan or the related Foreclosed Property has
been sold in connection with the termination of the Trust pursuant to
Section 11.01; or
(v) the related Foreclosed Property has been sold pursuant
to Section 4.13.
In each such case, the Servicer shall deliver a certificate to the effect that
the Servicer has complied with all of its obligations under the Servicing
Agreement with respect to such Home Loan and requesting that the Indenture
Trustee release to the Servicer the related Home Loan File, then the Indenture
Trustee shall, within three Business Days or such shorter period as may be
required by applicable law, release (unless such Home Loan File has previously
been released), the related Home Loan File to the Servicer and execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest ownership of such Home Loan in the
Servicer or such other Person as may be specified in such certificate, the forms
of any such instrument to be appended to such certificate.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Home Loan, the Indenture Trustee shall, upon request of the
Servicer, release the related Home Loan File (or any requested portion thereof)
to the Servicer. Such receipt shall obligate the Servicer, to return the Home
Loan File (or such portion thereof) to the Indenture Trustee when the need
therefor by the Servicer, no longer exists unless any of the conditions
specified in subsection (a) above, is satisfied prior thereto. The Indenture
Trustee shall release such receipt to the Servicer (i) upon the Servicer's
return of such Home Loan File (or such portion thereof) to the Indenture Trustee
or (ii) if any of the conditions specified in subsection (a) has been satisfied,
and the Servicer has not yet returned such Home Loan File (or such portion
thereof) to the Indenture Trustee, upon receipt of a certificate certifying that
any of such condition has been satisfied.
Section 4.18. Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by Mego and the Depositor, respectively, with respect to the assets
conveyed to the Trust, Mego and the Depositor shall prepare, have executed by
the necessary parties and file in the proper jurisdictions all financing and
continuation statements necessary to maintain the liens, security interests, and
priorities of such liens and security interests that have been granted by Mego
and the Depositor, respectively, and Mego and the Depositor shall continue to
file on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Trust has terminated pursuant to Section 9.1 of the Trust Agreement.
The Indenture Trustee agrees to cooperate with Mego and the Depositor in
preparing, executing and filing such statements. The Indenture Trustee agrees to
notify Mego and the Depositor on the third Distribution Date prior to each such
fifth anniversary of the requirement to file such financing and continuation
statements. The filing of any such statement with respect to Mego and the
Depositor shall not be construed as any indication of an intent of any party
contrary to the expressed intent set forth in Section 2.04 hereof. If Mego or
the Depositor has ceased to do business whenever any such financing and
continuation statements must be filed or
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Mego or the Depositor fails to file any such financing statements or
continuation statements at least one month prior to the expiration thereof, the
Indenture Trustee shall perform the services required under this Section 4.18.
Section 4.19. Fidelity Bond.
The Master Servicer shall maintain a fidelity bond in such form and
amount as is customary for entities acting as custodian of funds and documents
in respect of loans on behalf of institutional investors and shall cause each
Servicer to maintain such fidelity bond in an amount that conforms to FNMA
levels.
Section 4.20. Errors and Omissions Insurance.
The Master Servicer shall obtain and maintain at all times during the
term of this Agreement errors and omissions insurance coverage covering the
Master Servicer and its employees issued by a responsible insurance company and
in an amount that conforms to FNMA levels. The issuer, policy terms and forms
and amounts of coverage, including applicable deductibles shall be in such form
and amount as is customary for entities acting as master servicers. The Master
Servicer agrees to notify the Indenture Trustee in writing within five (5) days
of the Master Servicer's receipt of notice of the cancellation or termination of
any such errors and omissions insurance coverage. The Master Servicer shall
cause the Servicer to maintain such errors and omissions insurance coverage as
provided herein and in an amount that conforms to FNMA Levels.
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ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account.
(a) (1) Establishment of Collection Account. The Indenture Trustee has
heretofore established or caused to be established and shall hereafter maintain
or cause to be maintained a separate account denominated a Collection Account,
which in each case is and shall continue to be an Eligible Account in the name
of the Indenture Trustee and shall be designated "First Bank National
Association, as Indenture Trustee in trust for Mego Mortgage Home Loan Asset
Backed Securities, Series 1997-3, Collection Account." The Master Servicer shall
cause all Payments received by the Servicer to be deposited to the Collection
Account no later than the second Business Day following the date of receipt
thereof by the Servicer. The Indenture Trustee shall provide to the Master
Servicer and the Servicer a monthly statement of all activity in the Collection
Account. Funds in the Collection Account shall be invested in accordance with
Section 5.04.
(2) Establishment of Note Distribution Account. The Indenture
Trustee has heretofore established with itself in its trust capacity at its
corporate trust department for the benefit of Securityholders an account
referred to herein as a Note Distribution Account. The Indenture Trustee shall
at all times maintain the Note Distribution Account as an Eligible Account and
shall cause such account to be designated "First Bank National Association, as
Indenture Trustee in trust for Mego Mortgage Home Loan Asset Backed Securities,
Series 1997-3 Note Distribution Account."
(b) Withdrawals from Collection Account. No later than the second
Business Day preceding each Distribution Date, the Indenture Trustee shall
withdraw amounts from the Collection Account representing the Payments with
respect to the related Determination Date on deposit therein and deposit such
amounts into the Note Distribution Account and liquidate the Permitted
Investments in which such amounts are invested and distribute all net investment
earnings to the Servicer.
(c) Withdrawals from Note Distribution Account. On each Distribution
Date, the Indenture Trustee shall liquidate the Permitted Investments in which
amounts on deposit in the Note Distribution Account are invested and distribute
all net investment earnings to the Servicer and, to the extent funds are
available in the Note Distribution Account, the Indenture Trustee (based on the
information contained in the Master Servicer Certificate for such Distribution
Date) shall make the following withdrawals from the Note Distribution Account by
10:00 a.m. (New York City time) on such Distribution Date, in the following
order of priority:
(i) to distribute on such Distribution Date the following
amounts pursuant to the Indenture, from the Collected Amount, in the
following order:
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(a) concurrently, to (x) the Master Servicer, the
Master Servicer Fee, (y) the Servicer, the Servicer Fee, and (z)
to the Indenture Trustee, the Indenture Trustee Fee, in each
case for such Distribution Date;
(b) to the Master Servicer or Servicer, any amount
in respect of reimbursement of Interest Advances or Foreclosure
Advances, to which the Master Servicer or any Servicer is
entitled pursuant to Section 4.09 with respect to such
Distribution Date;
(c) to the Servicer, the Owner Trustee Fee Reserve,
for such Distribution Date;
(ii) to distribute on such Distribution Date the Regular
Distribution Amount pursuant to the Indenture, from the Collected Amount
remaining after the application of clause (i), in the following order:
(a) to the holders of each Class of Senior Notes, an
amount equal to the applicable Noteholders' Interest
Distributable Amount for such Distribution Date (any shortfall
to be allocated, pro rata, based on the amount each such Class
would be entitled to receive in the absence of any such
shortfall);
(b) first, to the holders of Class M-1 Notes and
then to the holders of the Class M-2 Notes, in that order, an
amount equal to the applicable Noteholders' Interest
Distributable Amount for such Distribution Date;
(c) to the Certificate Distribution Account for
distribution pursuant to Section 5.03(b) to holders of the
Certificates, an amount equal to the Certificateholders'
Interest Distributable Amount for such Distribution Date;
(d) sequentially, to the holders of the Class A-1,
Class A-2, Class A-3 and Class A-4 Notes, in that order, until
the respective Class Principal Balances thereof are reduced to
zero, the amount necessary to reduce the aggregate Class
Principal Balance of the Senior Notes to the Senior Optimal
Principal Balance for such Distribution Date;
(e) first, to the holders of the Class M-1 Notes and
then to the holders of the Class M-2 Notes, the amount necessary
to reduce the Class Principal Balances thereof to the Class M-1
Optimal Principal Balance and the Class M-2 Optimal Principal
Balance, respectively, for such Distribution Date;
(f) to the Certificate Distribution Account for
distribution pursuant to Section 5.03(b) to holders of the
Certificates, the amount necessary to
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reduce the Class Principal Balance thereof to the Certificate
Optimal Principal Balance for such Distribution Date; and
(g) sequentially, to the Class M-1 Notes, Class M-2
Notes and the Certificates, in that order, until their
respective Loss Reimbursement Entitlements have been paid in
full (in the case of the Class M-1 and Class M-2 Notes, first to
the reimbursement of Allocable Loss Amounts, until completely
reimbursed, and then to any accrued interest thereon) (such
amounts to be distributed to the holders of the Certificates
pursuant to this clause (g) shall be deposited in the
Certificate Distribution Account).
(iii) On each Distribution Date, the Indenture Trustee shall
distribute the Excess Spread, if any, in the following order of
priority:
(a) in an amount equal to the Overcollateralization
Deficiency Amount, if any, as follows:
(i) sequentially, to the holders of the
Class A-1, Class A-2, Class A-3 and Class A-4 Notes, in
that order, until the respective Class Principal
Balances thereof are reduced to zero, the amount
necessary to reduce the aggregate of their Class
Principal Balances to the Senior Optimal Principal
Balance for such Distribution Date;
(ii) first, to the holders of the Class M-1
Notes and then to the holders of the Class M-2 Notes, as
principal, until the respective Class Principal Balances
thereof have been reduced to the Class M-1 Optimal
Principal Balance and Class M-2 Optimal Principal
Balance, respectively, for such Distribution Date; and
(iii) to the Certificate Distribution Account
for distribution pursuant to Section 5.03(b) to the
holders of the Certificates, until the Class Principal
Balance thereof has been reduced to the Certificate
Optimal Principal Balance for such Distribution Date;
and
(b) sequentially, to the Class M-1 Notes, the Class
M-2 Notes and the Certificates, in that order, until their
respective Loss Reimbursement Entitlements, if any, have been
paid in full (in the case of the Class M-1 and Class M-2 Notes,
first to the reimbursement of Allocable Loss Amounts, until
completely reimbursed, and then to any accrued interest thereon)
(such amounts to be distributed to the holders of the
Certificates pursuant to this clause (g) shall be deposited in
the Certificate Distribution Account); and
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(c) to any successor Master Servicer, if any, for
such Distribution Date, amounts payable in accordance with
Section 10.03(c) in addition to the Master Servicer Fee;
(d) to the Person entitled thereof, payments in
respect of Other Fees; and
(e) for deposit into the Certificate Distribution
Account, for distribution pursuant to Section 5.03(b) on such
Distribution Date, to the holders of the Residual Instruments,
any remaining amount.
(d) Additional Withdrawals from Collection Account. On the third
Business Day prior to each Distribution Date, the Indenture Trustee, at the
direction of the Master Servicer shall also make the following withdrawals from
the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in
the Collection Account or deposited therein in error; and
(ii) to clear and terminate the Collection Account in
connection with the termination of this Agreement.
(e) All distributions made on each Class of Notes on each
Distribution Date will be made on a pro rata basis among the Noteholders of such
Class of record on the preceding Record Date based on the Percentage Interest
represented by their respective Notes, and except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall own
of record Notes representing at least a $1,000,000 Denomination and shall have
so notified the Indenture Trustee, and otherwise by check mailed, via first
class mail, postage prepaid, to the address of such Noteholder appearing in the
Note Register. The final distribution on each Note will be made in like manner,
but only upon presentment and surrender of such Note at the location specified
in the notice to Noteholders of such final distribution. Notwithstanding the
reduction of the Class Principal Balance of a Class to zero, the final
distribution with respect to each Class shall be made upon the earlier of (a)
the reduction of any Loss Reimbursement Entitlement with respect thereto to
zero, or (b) the Final Maturity Date for such Class.
Whenever the Indenture Trustee, based on a Master Servicer Certificate,
expects that the final distribution with respect to a Class of Securities will
be made on the next Distribution Date, the Indenture Trustee shall, as soon as
practicable, mail to each Holder of such Class of Securities as of the
applicable Record Date a notice to the effect that:
(i) the Indenture Trustee expects that the final
distribution with respect to such Class of Securities will be made on
such Distribution Date, and
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(ii) no interest shall accrue on such Class of Securities
after such Distribution Date provided that the final distribution occurs
on such Distribution Date.
Section 5.02 Allocation of Losses.
(a) In the event that the Payments received or collected in respect
of a Home Loan are less than the related Principal Balance plus accrued interest
thereon, or any Obligor makes a partial payment of any Monthly Payment due on a
Home Loan, such Payments or partial payment shall be applied to payment of the
related Debt Instrument, first to interest accrued at the Home Loan Interest
Rate and then to principal.
(b) On any Distribution Date, any Allocable Loss Amounts shall be
applied to the reduction of the Class Principal Balances of the Certificates,
the Class M-2 and Class M-1 Notes in accordance with the Allocable Loss Amount
Priority.
Section 5.03 Certificate Distribution Account.
(a) Establishment. No later than the Closing Date, the Indenture
Trustee, will establish and maintain with the Indenture Trustee for the benefit
of the Owner Trustee on behalf of the Certificateholders and holders of Residual
Instruments one or more separate Eligible Accounts, which while the Indenture
Trustee holds such Trust Account shall be entitled "Certificate Distribution
Account, First Bank National Association, as Co-Owner Trustee, in trust for the
Mego Mortgage Home Loan Asset Backed Securities, Series 1997-3". Funds in the
Certificate Distribution Account shall be invested in accordance with Section
5.04.
(b) Distributions. On each Distribution Date, the Indenture Trustee
shall withdraw from the Note Distribution Account all amounts required to be
deposited in the Certificate Distribution Account with respect to the preceding
Due Period pursuant to Section 5.01(c)(ii)(c), (f) and (g) and
5.01(c)(iii)(a)(iii), (b) and (e) and will remit such amount to the Owner
Trustee or the Co-Owner Trustee for deposit into the Certificate Distribution
Account. On each Distribution Date, the Owner Trustee or the Co-Owner Trustee
shall distribute all amounts on deposit in the Certificate Distribution Account
to the Certificateholders and the holders of the Residual Instruments, as
specified and in accordance with the amounts calculated pursuant to the
foregoing sections of Section 5.01.
(c) All distributions made on the Certificates on each Distribution
Date will be made on a pro rata basis among the Certificateholders of record on
the immediately preceding Record Date based on the Percentage Interest
represented by their respective Certificates, and except as otherwise provided
in the next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Certificateholder, if such
Certificateholder shall own of record Certificates representing at least a 30%
Percentage Interest and shall have so notified the Owner Trustee or Co-Owner
Trustee, and otherwise by check mailed, via first class mail, postage prepaid,
to the address of such Certificateholder appearing in the Certificate Register.
The final distribution on each Certificate will be made in like manner, but only
upon
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presentment and surrender of such Certificate at the location specified in the
notice to holders of the Certificates of such final distribution.
Notwithstanding the reduction of the Class Principal Balance of a Class to zero,
the final distribution with respect to each Class shall be made upon the earlier
of (a) the reduction of any Loss Reimbursement Entitlement with respect thereto
to zero, and (b) the Final Maturity Date for such Class.
(d) All distributions made on the Residual Instruments on each
Distribution Date will be made on a pro rata basis among the holders of Residual
Instruments of record on the immediately preceding Record Date based on the
Percentage Interest represented by such Residual Instruments, and except as
otherwise provided in the next succeeding sentence, shall be made by wire
transfer of immediately available funds to the account of such holders of
Residual Instruments, if such holders of Residual Instruments shall own of
record Residual Instruments representing at least a 30% Percentage Interest and
shall have so notified the Owner Trustee or Co-Owner Trustee, and otherwise by
check mailed, via first class mail, postage prepaid, to the address of such
holder of Residual Instruments appearing in the Certificate Register. The final
distribution on each Residual Instrument will be made in like manner, but only
upon presentment and surrender of such Residual Instrument at the location
specified in the notice to holders of the Residual Instruments of such final
distribution.
Section 5.04 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts
established hereunder has been pledged by the Issuer to the Indenture Trustee
under the Indenture and shall be subject to the lien of the Indenture. In
addition to the provisions hereunder, each of the Trust Accounts shall also be
established and maintained pursuant to the Indenture. Amounts distributed from
each Trust Account in accordance with the Indenture and this Agreement shall be
released from the lien of the Indenture upon such distribution thereunder or
hereunder. The Indenture Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Trust Accounts (other than the
Certificate Distribution Account) and in all proceeds thereof and all such
funds, investments, proceeds shall be part of the Trust Account Property and the
Trust Estate. If, at any time, any Trust Account ceases to be an Eligible
Account, the Indenture Trustee (or the Master Servicer on its behalf) shall
within 10 Business Days (or such longer period, not to exceed 30 calendar days,
as to which each Rating Agency may consent) (i) establish a new Trust Account as
an Eligible Account, (ii) terminate the ineligible Trust Account, and (iii)
transfer any cash and investments from such ineligible Trust Account to such new
Trust Account.
With respect to the Trust Accounts (other than the Certificate
Distribution Account), the Indenture Trustee agrees, by its acceptance hereof,
that each such Trust Account shall be subject to the sole and exclusive custody
and control of the Indenture Trustee for the benefit of the Securityholders and
the Issuer, as the case may be, and the Indenture Trustee shall have sole
signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder also shall be subject to and
established and maintained in accordance with
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the Trust Agreement. Subject to rights of the Indenture Trustee hereunder and
under the Indenture, the Owner Trustee and the Co-Owner Trustee shall possess
all right, title and interest for the benefit of the Securityholders in all
funds on deposit from time to time in the Certificate Distribution Account and
in all proceeds thereof (including all income thereon) and all such funds,
investments, proceeds and income shall be part of the Trust Account Property and
the Trust Estate. Subject to the rights of the Indenture Trustee, the Owner
Trustee and Co-Owner Trustee agree, by its acceptance hereof, that such
Certificate Distribution Account shall be subject to the sole and exclusive
custody and control of the Owner Trustee or Co-Owner Trustee for the benefit of
the Issuer and the parties entitled to distributions therefrom, including
without limitation, the Certificateholders, the holders of Residual Instruments
and the Owner Trustee and the Co-Owner Trustee shall have sole signature and
withdrawal authority with respect to the Certificate Distribution Account.
Notwithstanding the preceding, the distribution of amounts from the Certificate
Distribution Account in accordance with Section 5.03(b) also shall be made for
the benefit of the Indenture Trustee (with respect to its duties under the
Indenture and this Agreement relating to the Trust Estate), and the Indenture
Trustee (in its capacity as Indenture Trustee) shall have the right, but not the
obligation to take custody and control of the Certificate Distribution Account
and to cause the distribution of amounts therefrom in the event that the Owner
Trustee or Co-Owner Trustee fails to distribute such amounts in accordance with
Section 5.03(b).
The Master Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee or Co-Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee, Co-Owner Trustee or Owner
Trustee to make withdrawals and payments from the Trust Accounts for the purpose
of permitting the Master Servicer to carry out its respective duties hereunder
or permitting the Indenture Trustee or Owner Trustee to carry out its duties
herein or under the Indenture or the Trust Agreement, as applicable.
(b) (1) Investment of Funds. The funds held in any Trust Account may
only be invested (to the extent practicable and consistent with any requirements
of the Code) in Permitted Investments, as directed by a Responsible Officer of
Mego in writing. In any case, funds in any Trust Account must be available for
withdrawal without penalty, and any Permitted Investments and the funds held in
any Trust Account, other than the Note Distribution Account, must mature or
otherwise be available for withdrawal, not later than three (3) Business Days
immediately preceding the Distribution Date next following the date of such
investment and shall not be sold or disposed of prior to its maturity subject to
Section 5.04(b)(2) below. Amounts deposited to the Note Distribution Account
pursuant to Section 5.01(b) prior to each Distribution Date shall be invested in
Permitted Investments which are overnight investments from the date of deposit
to the Business Day preceding each Distribution Date. All interest and any other
investment earnings on amounts or investments held in any Trust Account shall be
deposited into such Trust Account immediately upon receipt by the Indenture
Trustee, or in the case of the Certificate Distribution Account, the Owner
Trustee or Co-Owner Trustee, as applicable. All Permitted Investments in which
funds in any Trust Account (other than the Certificate Distribution Account) are
invested must be held by or registered in the name of "First Bank National
Association, as Indenture Trustee, in trust for the Mego Mortgage Home Loan
Asset Backed Securities, Series
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1997-3". While the Co-Owner Trustee holds the Certificate Distribution Account,
all Permitted Investments in which funds in the Certificate Distribution Account
are invested shall be held by or registered in the name of "First Bank National
Association, as Co-Owner Trustee, in trust for the Mego Mortgage Home Loan Asset
Backed Securities, Series 1997-3".
(2) Insufficiency and Losses in Trust Accounts. If any amounts are
needed for disbursement from any Trust Account and sufficient uninvested funds
are not available to make such disbursement, the Indenture Trustee, or Owner
Trustee or Co-Owner Trustee in the case of the Certificate Distribution Account,
shall cause to be sold or otherwise converted to cash a sufficient amount of the
investments in such Trust Account. The Indenture Trustee, or Owner Trustee or
Co-Owner Trustee in the case of the Certificate Distribution Account, shall not
be liable for any investment loss or other charge resulting therefrom, unless
such loss or charge is caused by the failure of the Indenture Trustee or Owner
Trustee or Co-Owner Trustee, respectively, to perform in accordance with this
Section 5.04.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then Mego shall
deposit the amount of such losses (to the extent not offset by income from other
investments in such Trust Account) in such Trust Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in any Trust Account shall be taxed to the holders of the Residual
Instruments.
(c) Subject to Section 6.1 of the Indenture, the Indenture Trustee
shall not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Indenture
Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture
Trustee acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts; and each such
Eligible Account shall be subject to the exclusive custody and control
of the Indenture Trustee, and the Indenture Trustee shall have sole
signature authority with respect thereto;
(2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraph (a) of the definition of "Delivery" and shall be held, pending
maturity or disposition, solely by the Indenture Trustee or a financial
intermediary (as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by
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the Indenture Trustee, pending maturity or disposition, through
continued book-entry registration of such Trust Account Property as
described in such paragraph; and
(4) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (3) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" and shall
be maintained by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
Section 5.05 Servicer to Pay Owner Trustee Fee. On the Distribution Date
occurring in July each year during the term of this Agreement, commencing in
July 1998, the Servicer shall pay to the Owner Trustee, the Owner Trustee Fee.
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ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate. On each Determination Date,
the Master Servicer shall deliver to the Indenture Trustee, the Owner Trustee
and Co-Owner Trustee, a certificate containing the items described in Exhibit B
hereto (each, a "Master Servicer Certificate"), prepared as of the related
Determination Date and executed by a Master Servicing Officer. No later than the
Business Day following each Determination Date, the Master Servicer shall
deliver to the Indenture Trustee, in a format consistent with other electronic
loan level reporting supplied by the Master Servicer in connection with similar
transactions, "loan level" information with respect to the Home Loans as of the
related Determination Date, to the extent that such information has been
provided to the Master Servicer by the Servicer. The Indenture Trustee may rely
on the Master Servicer Certificate with respect to the matters set forth
therein.
Section 6.02 Statement to Securityholders. On or before the third
Business Day following each Distribution Date, the Indenture Trustee shall mail:
to each Holder of a Security (with a copy to the Depositor and the Rating
Agency) at its address shown on the Certificate Register or Note Register, as
applicable, a statement, based on information set forth in the Master Servicer
Certificate for such Distribution Date, substantially in the form of Statement
to Securityholders attached hereto as Exhibit C, respectively, together with a
copy of such related Master Servicer Certificate.
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ARTICLE VII.
[Reserved]
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ARTICLE VIII.
[Reserved]
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ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Master Servicer shall be liable in accordance herewith only
to the extent of the obligations specifically imposed upon and undertaken by the
Master Servicer herein and the representations made by the Master Servicer.
(b) The Master Servicer shall indemnify, defend and hold harmless
the Trust, the Indenture Trustee, Owner Trustee, the Co-Owner Trustee, Mego and
the Depositor, their respective officers, directors, agents and employees and
the Securityholders from and against any and all costs, expenses, losses,
claims, damages, and liabilities to the extent that such cost, expense, loss,
claim, damage or liability arose out of, or was imposed upon the Trust,
Indenture Trustee, the Owner Trustee, the Co-Owner Trustee, Mego, the Depositor,
or the Securityholders through the breach of this Agreement by the Master
Servicer, the negligence, willful misfeasance, or bad faith of the Master
Servicer in the performance of its duties under this Agreement or by reason of
reckless disregard of its obligations and duties under this Agreement. Such
indemnification shall include, without limitation, reasonable fees and expenses
of counsel and expenses of litigation.
Section 9.02 Merger or Consolidation of the Master Servicer.
The Master Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the Master
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity (i) shall be an
Eligible Servicer, (ii) shall be capable of fulfilling the duties of the Master
Servicer contained in this Agreement and (iii) shall have a long-term debt
rating which is BBB and Baa2 by Standard & Poor's and Moody's respectively. Any
corporation (i) into which the Master Servicer may be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Master Servicer
shall be a party, (iii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Master Servicer, or (iv) succeeding to
the business of the Master Servicer, in any of the foregoing cases shall execute
an agreement of assumption to perform every obligation of the Master Servicer
under this Agreement and, whether or not such assumption agreement is executed,
shall be the successor to the Master Servicer under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties to this Agreement, anything in this Agreement to the contrary
notwithstanding; provided, however, that nothing contained herein shall be
deemed to release the Master Servicer from any obligation. The Master Servicer
shall provide notice of any merger, consolidation or succession pursuant to this
Section 9.02 to the Owner Trustee, the Indenture Trustee and each Rating Agency.
Notwithstanding the foregoing, as a condition to the consummation of the
transactions referred
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to in clauses (i) through (iv) above, (x) immediately after giving effect to
such transaction, no representation or warranty made pursuant to Section 3.02
shall have been breached (for purposes hereof, such representations and
warranties shall speak as of the date of the consummation of such transaction),
and (y) the Master Servicer shall have delivered to the Owner Trustee and the
Indenture Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section 9.02 and that all conditions precedent, if
any, provided for in this Agreement relating to such transaction have been
complied with.
Section 9.03 Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties, representations or covenants
made herein or any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in performing or failing to perform
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. The Master Servicer and any of its directors, officers, employees or
agents may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Section 9.04 Master Servicer Not to Resign; Assignment.
(a) The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) with the consent of the Rating Agencies
or (ii) upon determination that by reason of a change in legal requirements the
performance of its duties under this Agreement would cause it to be in violation
of such legal requirements in a manner which would result in a material adverse
effect on the Master Servicer. Any such determination permitting the resignation
of the Master Servicer by reason of a change in such legal requirements shall be
evidenced by an Opinion of Counsel to such effect delivered and acceptable to
the Indenture Trustee. No resignation of the Master Servicer shall become
effective until the Indenture Trustee or a successor master servicer shall have
assumed the Master Servicer's servicing responsibilities and obligations in
accordance with Section 10.02.
(b) Notwithstanding anything to the contrary herein, the Master
Servicer shall remain liable for all liabilities and obligations incurred by it
as Master Servicer hereunder prior to the time that any resignation or
assignment referred to in subsection (a) above or termination under Section
10.01 becomes effective, including the obligation to indemnify the Indenture
Trustee pursuant to Section 9.01(b) hereof.
(c) The Master Servicer agrees to cooperate with any successor
Master Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all
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relevant records and documents (including any Home Loan Files in the possession
of the Master Servicer and the Servicing Record) and all amounts credited to the
Servicing Record or thereafter received with respect to the Home Loans and not
otherwise permitted to be retained by the Master Servicer pursuant to this
Agreement. In addition, the Master Servicer, at its sole cost and expense, shall
prepare, execute and deliver any and all documents and instruments to the
successor Master Servicer including all Home Loan Files in its possession and do
or accomplish all other acts necessary or appropriate to effect such termination
and transfer of servicing responsibilities.
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee.
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Agreement) to the Issuer and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the Issuer or the Indenture Trustee.
Section 9.06 Master Servicer May Own Notes.
Each of the Master Servicer and any affiliate of the Master Servicer may
in its individual or any other capacity become the owner or pledgee of Notes
with the same rights as it would have if it were not the Master Servicer or an
affiliate thereof except as otherwise specifically provided herein. Notes so
owned by or pledged to the Master Servicer or such affiliate shall have an equal
and proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Notes, provided that
any Notes owned by the Master Servicer or any affiliate thereof, during the time
such Notes are owned by them, shall be without voting rights for any purpose set
forth in this Agreement. The Master Servicer shall notify the Indenture Trustee
promptly after it or any of its affiliates becomes the owner or pledgee of a
Note.
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ARTICLE X.
DEFAULT
Section 10.01 Events of Default.
For purposes of this Agreement, each of the following shall constitute
an "Event of Default."
(a) failure by the Master Servicer to deposit or cause the Servicer
to deposit all Payments in the Collection Account no later than the second
Business Day following receipt thereof by the Master Servicer or Servicer, which
failure continues unremedied for two Business Days; or
(b) failure on the part of the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice of
such failure to the Indenture Trustee pursuant to Section 4.04(b) and (y) the
date on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Indenture Trustee, or to the
Master Servicer and the Indenture Trustee pursuant to the direction of the
Majority Securityholders; or
(c) failure by the Master Servicer to deliver to the Indenture
Trustee the Master Servicer Certificate by the fourth Business Day prior to each
Distribution Date; or
(d) the entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Master Servicer in 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, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Master Servicer or of
any substantial part of its properties or ordering the winding up or liquidation
of the affairs of the Master Servicer and the continuance of any such decree or
order unstayed and in effect for a period of 60 consecutive days or the
commencement of an involuntary case under the federal bankruptcy laws, as now or
hereinafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law and such case is not dismissed within 60 days; or
(e) the commencement by the Master Servicer of a voluntary case
under the federal bankruptcy laws, as now or hereinafter in effect, or any other
present or future, federal or state bankruptcy, insolvency or similar law, or
the consent by the Master Servicer to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Master Servicer or of any substantial part of its
property or the making by the Master Servicer of an assignment for the benefit
of creditors or the failure by the Master Servicer generally to pay its debts as
such debts become due or the taking of corporate
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action by the Master Servicer in furtherance of any of the foregoing or the
admission in writing by the Master Servicer of an inability to pay its debts as
they become due; or
(f) any representation, warranty or statement of the Master Servicer
made in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Indenture Trustee pursuant to Section
4.04(b) and (y) the date on which written notice thereof shall have been given
to the Master Servicer by the Indenture Trustee or the Majority Securityholders,
the circumstances or condition in respect of which such representation, warranty
or statement was incorrect shall not have been eliminated or otherwise cured; or
(g) failure on the part of the Master Servicer to deposit into the
Note Distribution Account within 3 Business Days following the related
Determination Date any Interest Advance pursuant to Section 4.08; or
(h) the Total Expected Loan Loss Percentage exceeds 21% prior to the
fifth anniversary of the Cut-Off Date or 31.50% thereafter.
Section 10.02 Consequences of an Event of Default.
If an Event of Default shall occur and be continuing, the Indenture
Trustee at the direction of the Majority Securityholders, by notice given in
writing to the Master Servicer may terminate all of the rights and obligations
of the Master Servicer under this Agreement. On or after the receipt by the
Master Servicer of such written notice, and the appointment of and acceptance by
a successor Master Servicer, all authority, power, obligations and
responsibilities of the Master Servicer under this Agreement, whether with
respect to the Securities or the Trust or otherwise, shall pass to, be vested in
and become obligations and responsibilities of the successor Master Servicer;
provided, however, that the successor Master Servicer shall have no liability
with respect to any obligation which was required to be performed by the prior
Master Servicer prior to the date that the successor Master Servicer becomes the
Master Servicer or any claim of a third party based on any alleged action or
inaction of the prior Master Servicer. The successor Master Servicer is
authorized and empowered by this Agreement to execute and deliver, on behalf of
the prior 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.
The prior Master Servicer agrees to cooperate with the successor Master Servicer
in effecting the termination of the responsibilities and rights of the prior
Master Servicer under this Agreement, including, without limitation, the
transfer to the successor Master Servicer for administration by it of all cash
amounts that shall at the time be held by the prior Master Servicer for deposit,
or have been deposited by the prior Master Servicer, in the Collection Account
or thereafter received with respect to the Home Loans and the delivery to the
successor Master Servicer of all Home Loan Files in the Master Servicer's
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possession and a computer tape in readable form containing the Servicing Record
and any other information necessary to enable the successor Master Servicer to
service the Home Loans. In addition to any other amounts that are then payable
to the terminated Master Servicer under this Agreement, the terminated Master
Servicer shall then be entitled to receive (to the extent provided by Section
4.09) out of the Collected Amount, reimbursements for any outstanding Interest
Advances made during the period prior to the notice pursuant to this Section
10.02 which terminates the obligation and rights of the terminated Master
Servicer under this Agreement. The Indenture Trustee and the successor Master
Servicer may set off and deduct any amounts owed by the terminated Master
Servicer from any amounts payable to the terminated Master Servicer. The
terminated Master Servicer shall grant the Indenture Trustee, and the successor
Master Servicer reasonable access to the terminated Master Servicer's premises
at the terminated Master Servicer's expense.
Section 10.03 Appointment of Successor.
(a) On or after the time the Master Servicer receives a notice of
termination pursuant to Section 10.02 or upon the resignation of the Master
Servicer pursuant to Section 9.04, the Indenture Trustee shall be the successor
in all respects to the Master Servicer in its capacity as master servicer under
this Agreement and the transactions set forth or provided for in this Agreement,
and shall be subject to all the responsibilities, restrictions, duties,
liabilities and termination provisions relating thereto placed on the Master
Servicer by the terms and provisions of this Agreement. The Indenture Trustee
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession. If the Indenture Trustee or any other successor
Master Servicer is acting as Master Servicer hereunder, it shall be subject to
termination under Section 10.02 upon the occurrence of an Event of Default
applicable to it as Master Servicer.
(b) Any successor Master Servicer appointed pursuant to the
provisions of this Agreement shall execute, acknowledge and deliver to the
Indenture Trustee and its predecessor Master Servicer an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor Master Servicer shall become effective.
(c) Any successor Master Servicer shall be entitled to such
compensation (whether payable out of the Collected Amount or otherwise) as the
Master Servicer would have been entitled to under the Agreement if the Master
Servicer had not resigned or been terminated hereunder. In addition, any
successor Master Servicer shall be entitled, to reasonable transition expenses
incurred in acting as successor Master Servicer pursuant to Section
5.01(c)(iii)(c).
Section 10.04 Notification to Certificateholders.
Upon any termination of the Master Servicer or appointment of a
successor to the Master Servicer, the Indenture Trustee shall give prompt
written notice thereof to Securityholders at their respective addresses
appearing in the Note Register and Certificate Register.
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Section 10.05 Waiver of Past Defaults.
The Majority Securityholders may, on behalf of all Securityholders,
waive any default by the Master Servicer in the performance of its obligations
hereunder and its consequences. Upon any such waiver of a past default, such
default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
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ARTICLE XI.
TERMINATION
Section 11.01 Termination.
(a) This Agreement shall terminate upon notice to the Indenture
Trustee of either: (a) the later of (i) the satisfaction and discharge of the
Indenture pursuant to Section 4.1 of the Indenture or (ii) the disposition of
all funds with respect to the last Home Loan and the remittance of all funds due
hereunder and the payment of all amounts due and payable to the Indenture
Trustee, the Owner Trustee, the Co-Owner Trustee, the Issuer, the Master
Servicer and the Servicer; or (b) the mutual consent of the Master Servicer, the
Depositor, the Seller and all Securityholders in writing.
(b) Subject to the provisions of the following sentence, Mego or, if
such option is not exercised by Mego, the Master Servicer may, at its option
upon not less than thirty days' prior notice given to the Indenture Trustee at
any time on or after the applicable Early Termination Notice Date, purchase on
the Termination Date specified in such notice, all, but not less than all, the
Home Loans and Foreclosed Properties then included in the Trust, at a purchase
price (the "Termination Price"), payable in cash, equal to the sum of:
(i) the Principal Balance of each Home Loan included in the
Trust as of such Monthly Cut-Off Date;
(ii) all unpaid interest accrued on the Principal Balance of
each such Loan at the related Home Loan Interest Rate to such Monthly
Cut-Off Date; and
(iii) the aggregate fair market value of each Foreclosed
Property included in the Trust on such Monthly Cut-Off Date, as
determined by an Independent appraiser acceptable to the Trustee as of a
date not more than thirty days prior to such Monthly Cut-Off Date.
The expense of any Independent appraiser required under this Section 11.01(b)
shall be a nonreimbursable expense of the party exercising the purchase option
pursuant to this Section 11.01(b). Mego or the Master Servicer shall effect the
purchase referred to in this Section 11.01(b) by deposit of the Termination
Price into the Note Distribution Account.
Section 11.02 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Securities shall be sent (i) by the Indenture Trustee to the
Noteholders in accordance with Section 2.6(b) of the Indenture and (ii) by the
Owner Trustee or Co-Owner Trustee to the Certificateholders and holders of
Residual Instruments in accordance with Section 9.1(d) of the Trust Agreement.
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ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders.
Except as otherwise specifically provided herein, whenever
Securityholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the
Depositor, the Master Servicer, the Seller and the Issuer by written agreement
with notice thereof to the Securityholders, without the consent of any of the
Securityholders, to cure any error or ambiguity, to correct or supplement any
provisions hereof which may be defective or inconsistent with any other
provisions hereof or to add any other provisions with respect to matters or
questions arising under this Agreement; provided, however, that such action will
not adversely affect in any material respect the interests of the
Securityholders. An amendment described above shall be deemed not to adversely
affect in any material respect the interests of the Securityholders if either
(i) an opinion of counsel is obtained to such effect, or (ii) the party
requesting the amendment obtains a letter from each of the Rating Agencies
confirming that the amendment, if made, would not result in the downgrading or
withdrawal of the rating then assigned by the respective Rating Agency to any
Class of Securities then outstanding.
(b) This Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the Seller and the Issuer by written agreement,
with the prior written consent of the Indenture Trustee and the Majority
Securityholders, 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 Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Home Loans or distributions which are required to be
made on any Security, without the consent of the holders of 100% of each Class
of Notes, Certificates or Residual Instruments affected thereby, (ii) adversely
affect in any material respect the interests of the holders of any Class of
Notes, Certificates or Residual Instruments in any manner other than as
described in (i), without the consent of the holders of 100% of such Class of
Notes, the Certificates or Residual Instruments, respectively, or (iii) reduce
the percentage of any Class of Notes, Certificates or Residual Instruments, the
holders of which are required to consent to any such amendment, without the
consent of the holders of 100% of such Class of Notes or the Certificates or
Residual Instruments.
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(c) It shall not be necessary for the consent of Securityholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer
shall be entitled to receive and rely upon an opinion of counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Issuer may, but shall not be obligated to, enter into any such amendment
which affects the Issuer's own rights, duties or immunities under this
Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Master Servicer at the
Securityholders' expense on direction of the Indenture Trustee or the Majority
Securityholders, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Securityholders or is necessary for the administration or servicing of
the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by overnight mail, certified mail or registered mail, postage prepaid, to: (i)
in the case of the Depositor, FINANCIAL ASSET SECURITIES CORP., 600 Steamboat
Road, Greenwich, Connecticut 06830, Attention: Peter McMullin, or such other
addresses as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by the Depositor, (ii) in the case of the Issuer, Mego
Mortgage Home Loan Owner Trust 1997-3, c/o Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Emmett R. Harmon, or such other
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<PAGE> 90
address as may hereafter be furnished to the Securityholders and the other
parties hereto, (iii) in the case of the Seller and Servicer, MEGO MORTGAGE
CORPORATION, 1000 Parkwood Circle, Atlanta, Georgia 30339, Attention: Jeff
Moore, President, or such other address as may hereafter be furnished to the
Securityholders and the other parties hereto, (iv) in the case of the Indenture
Trustee or Co-Owner Trustee, FIRST BANK NATIONAL ASSOCIATION, 180 East Fifth
Street, St. Paul, Minnesota 55101, Attention: Structured Finance: Mego 1997-3,
(v) in the case of the Master Servicer, 11000 Broken Land Parkway, Columbia,
Maryland 21044-3562, Attention: Master Servicing Department, Mego Mortgage Home
Loan Owner Trust 1997-3; and (vi) in the case of the Securityholders, as set
forth in the applicable Note Register and Certificate Register. Any such notices
shall be deemed to be effective with respect to any party hereto upon the
receipt of such notice by such party, except that notices to the Securityholders
shall be effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Master Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Master Servicer, the Seller, the Servicer, the Depositor, the Issuer, the
Indenture Trustee and the Securityholders and their respective successors and
permitted assigns.
Section 12.11 Headings.
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
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Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Master Servicer or the Issuer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Master Servicer and the Issuer if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Depositor, the Master Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Master Servicer or the Issuer in reliance thereon, whether
or not notation of such action is made upon such Security.
(d) The Depositor, the Master Servicer or the Issuer may require
additional proof of any matter referred to in this Section 12.12 as it shall
deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Master Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home
Loans;
(iii) notice of any termination, replacement, succession,
merger or consolidation of either the Master Servicer or the Issuer;
(iv) notice of final payment on the Notes, the Certificates
and the Residual Instruments;
(v) notice of any Event of Default;
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(vi) copies of the annual independent auditor's report
delivered pursuant to Section 4.05, and copies of any compliance reports
delivered by the Master Servicer hereunder including Section 4.04; and
(vii) copies of any Master Servicer's Certificate pursuant to
Section 6.02(b); and
(b) With respect to the requirement of the Indenture Trustee to
provide statements, reports and notices to the Rating Agencies such statements,
reports and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004-1064, Attention: Asset-Backed Monitoring Department; (ii) if to DCR,
55 East Monroe Street, 35th Floor, Chicago, Illinois 60603, Attention: MBS
Monitoring; or (iii) if to Fitch, One State Street Plaza, New York, New York
10004, Attention: [Glenn Costello].
Section 12.14 Inconsistencies Among Transaction Documents.
In the event certain provisions of a Transaction Document conflict with
the provisions of this Sale and Servicing Agreement, the parties hereto agree
that the provisions of this Sale and Servicing Agreement shall be controlling.
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IN WITNESS WHEREOF, the following have caused their names to be signed
by their respective officers thereunto duly authorized, as of the day and year
first above written, to this SALE AND SERVICING AGREEMENT.
MEGO MORTGAGE HOME
LOAN OWNER TRUST 1997-3,
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee
By:
--------------------------------------------
Title: Vice President
FINANCIAL ASSET SECURITIES CORP.,
as Depositor
By:
--------------------------------------------
Name: Peter McMullin
Title: Vice President
MEGO MORTGAGE CORPORATION,
as Seller and Servicer
By:
--------------------------------------------
Name: James L. Belter
Title: Executive Vice President
FIRST BANK NATIONAL ASSOCIATION,
as Indenture Trustee and Co-Owner Trustee
By:
--------------------------------------------
Name: Lynn Steiner
Title: Assistant Vice President
89
<PAGE> 94
NORWEST BANK MINNESOTA, N.A. as Master
Servicer
By:
--------------------------------------------
Name: Michael Mayer
Title: Vice President
90
<PAGE> 95
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Emmett R. Harmon, known to me to be a person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said WILMINGTON TRUST COMPANY, NOT IN ITS INDIVIDUAL
CAPACITY BUT IN ITS CAPACITY AS OWNER TRUSTEE of MEGO MORTGAGE HOME LOAN OWNER
TRUST 1997-3, as Issuer, and that he executed the same as the act of such
corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the 27th
day of June, 1997.
------------------------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Peter McMullin, known to me to be a person and officer whose
name is subscribed to the foregoing instrument and acknowledged to me that the
same was the act of the said FINANCIAL ASSET SECURITIES CORP., as the Depositor,
and that he executed the same as the act of such corporation for the purpose and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FINANCIAL ASSET SECURITIES CORP., this
the 27th day of June, 1997.
--------------------------------------------------------
Notary Public, State of ________
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<PAGE> 96
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared James L. Belter, known to me to be the person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said MEGO MORTGAGE CORPORATION, as the Seller and
Servicer, and that he executed the same as the act of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF MEGO MORTGAGE CORPORATION, this the 27th
day of June, 1997.
-----------------------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Lynn Steiner, known to me to be the person and officer whose
name is subscribed to the foregoing instrument and acknowledged to me that the
same was the act of the said FIRST BANK NATIONAL ASSOCIATION, a national banking
association, as the Indenture Trustee, and Co-Owner Trustee, and that she
executed the same as the act of such entity for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, this the 27th day of June, 1997.
-----------------------------------------------------
Notary Public, State of ________
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<PAGE> 97
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared Michael Mayer, known to me to be the person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me that
the same was the act of the said NORWEST BANK MINNESOTA, N.A., as the Master
Servicer, and that he executed the same as the act of such corporation for the
purpose and consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF NORWEST BANK MINNESOTA, N.A., this the
27th day of June, 1997.
-----------------------------------------------------
Notary Public, State of ________
93
<PAGE> 1
EXHIBIT 10.127
EXECUTION COPY
================================================================================
TRUST AGREEMENT
among
FINANCIAL ASSET SECURITIES CORP.,
as Depositor,
MEGO MORTGAGE CORPORATION,
as the Company,
WILMINGTON TRUST COMPANY,
as Owner Trustee
and
FIRST BANK NATIONAL ASSOCIATION,
as Co-Owner Trustee
Dated as of June 14, 1997
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3
Home Loan Asset Backed Notes and Certificates, Series 1997-3
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms.............................................I-1
Section 1.2 Other Definitional Provisions.................................I-5
ARTICLE II
ORGANIZATION
Section 2.1 Name.........................................................II-1
Section 2.2 Office.......................................................II-1
Section 2.3 Purposes and Powers..........................................II-1
Section 2.4 Appointment of Owner Trustee.................................II-2
Section 2.5 Initial Capital Contribution of Owner Trust Estate...........II-2
Section 2.6 Declaration of Trust.........................................II-2
Section 2.7 Title to Trust Property......................................II-2
Section 2.8 Situs of Trust...............................................II-3
Section 2.9 Representations and Warranties of the Depositor and
the Company; Covenant of the Company.........................II-3
Section 2.10 Federal Income Tax Allocations...............................II-5
ARTICLE III
TRUST SECURITIES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership...........................................III-1
Section 3.2 The Trust Securities........................................III-1
Section 3.3 Execution, Authentication and Delivery of
Trust Securities............................................III-1
Section 3.4 Registration of Transfer and Exchange of
Trust Securities............................................III-1
Section 3.5 Mutilated, Destroyed, Lost or Stolen Trust
Securities..................................................III-2
Section 3.6 Persons Deemed Owners.......................................III-3
Section 3.7 Access to List of Owners' Names and Addresses...............III-3
Section 3.8 Maintenance of Office or Agency.............................III-3
</TABLE>
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<TABLE>
<S> <C>
Section 3.9 Appointment of Paying Agent.................................III-3
Section 3.10 Book-Entry Certificates.....................................III-4
Section 3.11 Notices to Clearing Agency .................................III-5
Section 3.12 Definitive Certificates ....................................III-5
Section 3.13 Restrictions on Transfer of Certificates....................III-6
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Owners with Respect to Certain Matters.......IV-1
Section 4.2 Action by Owners with Respect to Certain Matters.............IV-3
Section 4.3 Action by Owners with Respect to Bankruptcy..................IV-3
Section 4.4 Restrictions on Owners' Power................................IV-3
Section 4.5 Majority Control.............................................IV-3
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account................................V-1
Section 5.2 Application Of Trust Funds....................................V-1
Section 5.3 Method of Payment.............................................V-2
Section 5.4 Segregation of Moneys; No Interest............................V-2
Section 5.5 Accounting and Reports to the Certificateholders,
Owners, the Internal Revenue Service and Others...............V-2
Section 5.6 Signature on Returns..........................................V-3
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority............................................VI-1
Section 6.2 General Duties...............................................VI-1
Section 6.3 Action upon Instruction......................................VI-1
Section 6.4 No Duties Except as Specified in this Agreement, the
Transaction Documents or in Instructions.....................VI-2
Section 6.5 No Action Except Under Specified Documents or
Instructions.................................................VI-3
Section 6.6 Restrictions.................................................VI-3
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties.............................VII-1
Section 7.2 Furnishing of Documents.....................................VII-2
Section 7.3 Representations and Warranties..............................VII-2
Section 7.4 Reliance; Advice of Counsel.................................VII-3
Section 7.5 Not Acting in Individual Capacity..........................VII-4
Section 7.6 Owner Trustee Not Liable for Trust Securities
or Home Loans...............................................VII-4
Section 7.7 Owner Trustee May Own Residual Instruments and
Notes.......................................................VII-4
Section 7.8 Licenses....................................................VII-5
Section 7.9 Rights of Co-Owner Trustee..................................VII-5
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses..........................VIII-1
Section 8.2 Indemnification............................................VIII-1
Section 8.3 Payments to the Owner Trustee..............................VIII-1
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement...............................IX-1
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee....................X-1
Section 10.2 Resignation or Removal of Owner Trustee or Co-Owner
Trustee.......................................................X-1
Section 10.3 Successor Owner Trustee or Co-Owner Trustee...................X-2
Section 10.4 Merger or Consolidation of Owner Trustee......................X-2
Section 10.5 Appointment of Co-Owner Trustee or Separate Owner
Trustee.......................................................X-3
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments..................................XI-1
Section 11.2 No Legal Title to Owner Trust Estate in Owners..............XI-2
Section 11.3 Limitations on Rights of Others.............................XI-2
Section 11.4 Notices.....................................................XI-2
Section 11.5 Severability................................................XI-3
Section 11.6 Separate Counterparts.......................................XI-3
Section 11.7 Successors and Assigns......................................XI-3
Section 11.8 No Petition.................................................XI-3
Section 11.9 Covenants of Company........................................XI-3
Section 11.10 No Recourse.................................................XI-3
Section 11.11 Headings....................................................XI-4
Section 11.12 GOVERNING LAW...............................................XI-4
Section 11.13 Inconsistencies with Sale and Servicing Agreement...........XI-4
</TABLE>
<TABLE>
<S> <C>
EXHIBIT A Form of Certificate
EXHIBIT B Form of Residual Instrument
EXHIBIT C Certificate of Trust
EXHIBIT D Form of Certificate Depository Agreement
EXHIBIT E Form of Transfer Certificate
</TABLE>
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<PAGE> 6
TRUST AGREEMENT, dated as of June 14, 1997, among FINANCIAL ASSET
SECURITIES CORP., a Delaware corporation, as Depositor (the "Depositor"), MEGO
MORTGAGE CORPORATION, a Delaware corporation (the "Company"), WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as Owner Trustee (the "Owner Trustee")
and FIRST BANK NATIONAL ASSOCIATION, as Co-Owner Trustee (the "Co-Owner
Trustee").
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Administration Agreement" shall mean the Administration Agreement,
dated as of June 14, 1997 among the Issuer, the Company, and First Bank National
Association, as Administrator.
"Administrator" shall mean First Bank National Association, or any
successor in interest thereto, in its capacity as Administrator under the
Administration Agreement.
"Benefit Plan" shall have the meaning assigned to such term in Section
3.10.
"Book-Entry Certificate" shall mean a beneficial interest in the
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.10.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be amended
from time to time.
"Certificate" shall mean any Trust Security issued hereby substantially
in the form of Exhibit A hereto attached.
"Certificate Depository Agreement" shall mean the agreement among the
Trust and DTC, dated as of the Closing Date, substantially in the form attached
hereto as Exhibit D, relating to the Certificates, as the same may be amended
and supplemented from time to time.
"Certificate Distribution Account" shall have the meaning assigned to
such term in the Sale and Servicing Agreement.
I-1
<PAGE> 7
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit C to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned in, and the registrar appointed pursuant to, Section 3.4.
"Certificateholder" shall mean a Person in whose name a Certificate is
registered.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean 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.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Co-Owner Trustee" shall mean First Bank National Association.
"Company" shall mean Mego Mortgage Corporation, a Delaware corporation.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890-0001, Attention:
Corporate Trust Administration; or at such other address in the State of
Delaware as the Owner Trustee may designate by notice to the Owners and the
Company, or the principal corporate trust office of any successor Owner Trustee
(the address (which shall be in the State of Delaware) of which the successor
owner trustee will notify the Owners and the Company).
"Definitive Certificates" shall mean a certificated form of security
that represents a Trust Security pursuant to Section 3.12.
"DTC" shall mean the Depository Trust Company, as the initial Clearing
Agency.
"ERISA" shall have the meaning assigned thereto in Section 3.10.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"Indenture" shall mean the Indenture, dated as of June 14, 1997, by and
between the Issuer and the Indenture Trustee.
I-2
<PAGE> 8
"Indenture Trustee" means First Bank National Association, as Indenture
Trustee under the Indenture.
"Initial Certificate Principal Balance" shall mean $5,753,639.
"Issuer" shall mean Mego Mortgage Home Loan Owner Trust 1997-3, the
Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set forth in
Exhibit E hereto.
"Non-U.S. Person" shall mean an individual, corporation, partnership or
other person other than a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, 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 is able to exercise primary
supervision over the administration of the trust and one or more United States
trustees have authority to control all substantial decisions of the trust.
"Owner" shall mean each beneficial owner of a Trust Security.
"Owner Trust Estate" shall mean the contribution of $1 referred to in
Section 2.5 and the Trust Estate (as defined in the Indenture).
"Owner Trustee" shall mean Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as owner trustee under
this Agreement, and any successor owner trustee hereunder.
"Paying Agent" shall mean the Co-Owner Trustee or any successor in
interest thereto or any other paying agent or co-paying agent appointed pursuant
to Section 3.9 and authorized by the Issuer to make payments to and
distributions from the Certificate Distribution Account, including payment of
principal of or interest on the Certificates on behalf of the Issuer.
"Percentage Interest" shall mean with respect to any Certificate, the
portion of the Certificates as a whole evidenced by such single Certificate,
expressed as a percentage rounded to five decimal places, equivalent to a
fraction, the numerator of which is the denomination represented by such single
Certificate and the denominator of which is the Original Class Principal Balance
of the Certificates. With respect to any Residual Instrument, the percentage
portion of all of the Residual Interest evidenced thereby as stated on the face
of such Residual Instrument.
"Prospective Owner" shall have the meaning set forth in Section 3.10(a).
"Rating Agency Condition" shall mean, with respect to any action to
which a Rating Agency Condition applies, that each Rating Agency shall have been
given 10 days (or such
I-3
<PAGE> 9
shorter period as is acceptable to each Rating Agency) prior notice thereof and
that each of the Rating Agencies shall have notified the Depositor, the Company,
the Owner Trustee, and the Co-Owner Trustee in writing that such action will not
result in a reduction or withdrawal of the then current rating of the Notes and
Certificates.
"Record Date" shall mean as to each Distribution Date (other than the
initial Distribution Date) the last Business Day of the month immediately
preceding the month in which such Distribution Date occurs; and with respect to
the initial Distribution Date shall mean July 3, 1997.
"Residual Instrument" shall have the meaning assigned to such term in
the Sale and Servicing Agreement; a form of Residual Instrument is attached
hereto as Exhibit B.
"Residual Interest" shall mean the right to receive distributions of and
with respect to the initial Distribution Date shall mean July 3, 1997. Excess
Spread, if any, and certain other funds, if any, on each Distribution Date,
pursuant to Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement.
"Residual Instrument Holder" shall mean a Person in whose name a
Residual Instrument is registered.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Trust as Issuer, the Depositor,
the Indenture Trustee as Indenture Trustee, and Co-Owner Trustee, as Master
Servicer, and the Company, as Seller and Servicer.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Securityholder" shall mean a holder of any Trust Security.
"Transaction Documents" shall have the meaning set forth in the Sale and
Servicing Agreement.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Security" shall mean any Certificate or Residual Instrument
issued pursuant to the Trust Agreement.
"Underwriter" shall mean Greenwich Capital Markets, Inc.
I-4
<PAGE> 10
Section 1.2 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
herein have the meanings assigned to them in the Sale and Servicing Agreement
or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
I-5
<PAGE> 11
ARTICLE II
ORGANIZATION
Section 2.1 Name. The Trust created hereby shall be known as "Mego
Mortgage Home Loan Owner Trust 1997-3", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.2 Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Owners and the
Company.
Section 2.3 Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Trust Securities pursuant to this Agreement and to sell such Notes and
Trust Securities;
(ii) with the proceeds of the sale of the Notes and the
Trust Securities, to fund start-up and transactional expenses of the
Trust and to pay the balance to the Depositor and the Company, as their
interests may appear pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and to hold, manage
and distribute to the Owners pursuant to the terms of the Sale and
Servicing Agreement any portion of the 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
Transaction Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Transaction Documents,
to engage in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Owners and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the
Transaction Documents.
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Section 2.4 Appointment of Owner Trustee. The Depositor hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
Section 2.5 Initial Capital Contribution of Owner Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Depositor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Certificate Distribution Account. The Company
shall pay organizational expenses of the Trust as they may arise or shall, upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee.
Section 2.6 Declaration of Trust. The Owner Trustee hereby declares that
it will hold the Owner Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Owners, subject to the
obligations of the Trust under the Transaction 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 and franchise tax purposes, the Trust shall be treated as a partnership,
with the assets of the partnership being the Home Loans and other assets held by
the Trust, the partners of the partnership being the holders of the Trust
Securities and the Notes being non-recourse debt of the partnership. The parties
agree that, unless otherwise required by appropriate tax authorities, 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 in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.7 Title to Trust Property.
(a) Subject to the Indenture, legal title to all the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
title shall be deemed to be vested in the Owner Trustee, the Co-Owner Trustee
and/or a separate trustee, as the case may be.
(b) The Owners shall not have legal title to any part of the
Owner Trust Estate. No transfer by operation of law or otherwise of any interest
of the Owners shall operate to terminate this Agreement or the trusts hereunder
or entitle any transferee to an accounting or to the transfer to it of any part
of the Owner Trust Estate.
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Section 2.8 Situs of Trust. The Trust will be located and administered
in the state of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
New York, except with respect to the Co-Owner Trustee. The Trust shall not have
any employees; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware.
Payments will be received by the Trust only in Delaware or New York, and
payments will be made by the Trust only from Delaware or New York, except with
respect to the Co-Owner Trustee. The only office of the Trust will be at the
Corporate Trust Office in Delaware.
Section 2.9 Representations and Warranties of the Depositor and the
Company; Covenant of the Company.
(a) The Depositor hereby represents and warrants to the Owner
Trustee and the Co-Owner Trustee that:
(i) The Depositor is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware
and has all licenses necessary to carry on its business as now being
conducted. The Depositor has the power and authority to execute and
deliver this Agreement and to perform in accordance herewith; the
execution, delivery and performance of this Agreement (including all
instruments of transfer to be delivered pursuant to this Agreement) by
the Depositor and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary action of
the Depositor; this Agreement evidences the valid, binding and
enforceable obligation of the Depositor; and all requisite action has
been taken by the Depositor to make this Agreement valid, binding and
enforceable upon the Depositor in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium and
other, similar laws relating to or affecting creditors' rights generally
or the application of equitable principles in any proceeding, whether at
law or in equity.
(ii) The consummation of the transactions contemplated by
this Agreement will not result in (i) the breach of any terms or
provisions of the Articles of Incorporation or Bylaws of the Depositor,
(ii) the breach of any term or provision of, or conflict with or
constitute a default under or result in the acceleration of any
obligation under, any material agreement, indenture or loan or credit
agreement or other material instrument to which the Depositor, or its
property is subject, or (iii) the violation of any law, rule,
regulation, order, judgment or decree to which the Depositor or its
respective property is subject.
(iii) The Depositor is not in default with respect to any
order or decree of any court or any order, regulation or demand of any
federal, state, municipal or other governmental agency, which default
might have consequences that would materially and adversely affect the
condition (financial or otherwise) or operations of
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the Depositor or its properties or might have consequences that would
materially and adversely affect its performance hereunder.
(b) The Company hereby represents and warrants to the Owner
Trustee and the Co-Owner Trustee that:
(i) The Company is duly organized and validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority to own its properties and to conduct its
business as such properties are currently owned and such business is
presently conducted.
(ii) The Company is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(iii) The Company has the power and authority to execute
and deliver this Agreement and to carry out its terms; and the
execution, delivery and performance of this Agreement has been duly
authorized by the Company by all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or by-laws of the Company, or any
indenture, agreement or other instrument to which the Company is a party
or by which it is bound; nor result in the creation or imposition of any
lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to the
Transaction Documents); nor violate any law or, to the best of the
Company's knowledge, any order, rule or regulation applicable to the
Company of any court or of any Federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties.
(v) There are no proceedings or investigations pending or,
to the Company's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its properties:
(i) asserting the invalidity of this Agreement, (ii) seeking to prevent
the consummation of any of the transactions contemplated by this
Agreement or (iii) seeking any determination or ruling that might
materially and adversely affect the performance by the Company of its
obligations under, or the validity or enforceability of, this Agreement.
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(c) The Company covenants with the Owner Trustee and the
Co-Owner Trustee that during the continuance of this Agreement it will comply in
all respects with the provisions of its Certificate of Incorporation in effect
from time to time.
Section 2.10 Federal Income Tax Allocations. Net income of the Trust for
any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the holders of the Residual Instruments, on a pro rata basis.
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ARTICLE III
TRUST SECURITIES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Trust Securities, the Depositor shall be the sole Owner of the Trust.
Section 3.2 The Trust Securities. The Certificates shall be issued in
minimum denominations of $100,000 and in integral multiples of $1,000 in excess
thereof. The Residual Instruments shall not be issued with a principal or
notional amount. The Trust Securities shall be executed on behalf of the Trust
by manual or facsimile signature of a Trust Officer of the Owner Trustee or the
Co-Owner Trustee. Trust Securities bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Trust Securities or did not hold such offices at the date of
authentication and delivery of such Trust Securities.
A transferee of a Trust Security shall become an Owner, and shall be
entitled to the rights and subject to the obligations of an Owner hereunder and
under the Sale and Servicing Agreement, upon such transferee's acceptance of a
Trust Security duly registered in such transferee's name pursuant to Section
3.4.
Section 3.3 Execution, Authentication and Delivery of Trust Securities.
Concurrently with the sale of the Home Loans to the Trust pursuant to the Sale
and Servicing Agreement, the Owner Trustee or the Co-Owner Trustee shall cause
the Certificates, in an aggregate principal amount equal to the initial Class
Principal Balance of the Certificates, and the Residual Instruments representing
100% of the Percentage Interests of the Residual Interest to be executed on
behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, without further corporate action by the Depositor, in authorized
denominations. No Trust Security shall entitle its holder to any benefit under
this Agreement, or shall be valid for any purpose, unless there shall appear on
such Trust Security a certificate of authentication substantially in the form
set forth in Exhibit A and B, executed by the Owner Trustee or the
Administrator, as the Owner Trustee's authenticating agent, by manual or
facsimile signature; such authentication shall constitute conclusive evidence
that such Trust Security shall have been duly authenticated and delivered
hereunder. All Trust Securities shall be dated the date of their authentication.
Section 3.4 Registration of Transfer and Exchange of Trust Securities.
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 Trust Securities
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and of transfers and exchanges of Trust Securities as herein provided. The
Administrator shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Security at the
office or agency maintained pursuant to Section 3.8, the Owner Trustee or
Co-Owner Trustee shall execute, authenticate and deliver (or shall cause the
Administrator as its authenticating agent to authenticate and deliver), in the
name of the designated transferee or transferees, one or more new Trust
Securities in authorized denominations of a like aggregate amount dated the date
of authentication by the Owner Trustee or any authenticating agent. At the
option of an Owner, Trust Securities may be exchanged for other Trust Securities
of authorized denominations of a like aggregate amount upon surrender of the
Trust Securities to be exchanged at the office or agency maintained pursuant to
Section 3.8.
Every Trust Security presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Owner or his attorney duly authorized in writing. In addition,
each Trust Security presented or surrendered for registration of transfer and
exchange must be accompanied by a letter from the Prospective Owner certifying
as to the representations set forth in Sections 3.13(a) and (b), as applicable.
Each Trust Security surrendered for registration of transfer or exchange shall
be canceled and disposed of by the Owner Trustee in accordance with its
customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Securities, but the Owner Trustee or the Certificate Registrar
may require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or exchange of Trust
Securities.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register transfer
or exchanges of Trust Securities for a period of 15 days preceding the due date
for any payment with respect to any of the Trust Securities.
Section 3.5 Mutilated, Destroyed, Lost or Stolen Trust Securities. If
(a) any mutilated Trust Security 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 Trust Security and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Security shall have been acquired
by a bona fide purchaser, the Owner Trustee on behalf of the Trust shall execute
and the Owner Trustee, or the Administrator as the Owner Trustee's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Security, a new Trust
Security of like tenor and denomination. In connection with the issuance of any
new Trust Security 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
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may be imposed in connection therewith. Any duplicate Trust Security issued
pursuant to this Section shall constitute conclusive evidence of ownership or
the related Percentage Interest in the Nos. and Interest, as if originally
issued, whether or not the lost, stolen or destroyed Trust Security shall be
found at any time.
Section 3.6 Persons Deemed Owners. Prior to due presentation of a Trust
Security for registration of transfer, the Owner Trustee or the Certificate
Registrar may treat the Person in whose name any Trust Security shall be
registered in the Certificate Register as the owner of such Trust Security for
the purpose of receiving distributions pursuant to Section 5.2 and for all other
purposes whatsoever, and neither the Owner Trustee nor the Certificate Registrar
shall be bound by any notice to the contrary.
Section 3.7 Access to List of Owners' Names and Addresses. The
Certificate Registrar shall furnish or cause to be furnished to the Master
Servicer, the Servicer, the Depositor and the Indenture Trustee within 15 days
after receipt by the Owner Trustee of a request therefor from the Master
Servicer, the Servicer, the Depositor, or the Indenture Trustee in writing, a
list, in such form as the Master Servicer, the Servicer, the Depositor or the
Indenture Trustee may reasonably require, of the names and addresses of the
Owners as of the most recent Record Date. If three or more Certificateholders
together evidencing not less than a 25% Percentage Interest in the Certificates
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 Owner, by
receiving and holding a Certificate, shall be deemed to have agreed not to hold
any of the Depositor, the Company, the Certificate Registrar or the Owner
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
Section 3.8 Maintenance of Office or Agency. The Owner Trustee shall
maintain an office or offices or agency or agencies where Trust Securities may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Trust Securities and the
Transaction Documents may be served. The Owner Trustee initially designates the
Administrator's office in St. Paul, Minnesota as its principal corporate trust
office for such purposes. The Owner Trustee shall give prompt written notice to
the Company and to the Securityholders of any change in the location of the
Certificate Register or any such office or agency.
Section 3.9 Appointment of Paying Agent. The Owner Trustee hereby
appoints the Co-Owner Trustee as Paying Agent under this Agreement. The Paying
Agent shall make distributions to Securityholders from the Certificate
Distribution Account pursuant to Section 5.2 hereof and Section 5.01 of the Sale
and Servicing Agreement and shall report the amounts of such distributions to
the Owner Trustee. The Paying Agent shall have the revocable power
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to withdraw funds from the Certificate Distribution Account for the purpose of
making the distributions referred to above. In the event that the Co-Owner
Trustee shall no longer be the Paying Agent hereunder, the Owner Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company). The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver to
the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that as Paying Agent,
such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Owners in trust for the benefit of the
Securityholders entitled thereto until such sums shall be paid to such Owners.
The Paying Agent shall return all unclaimed funds to the Owner Trustee, and upon
removal of a Paying Agent, such Paying Agent shall also return all funds in its
possession to the Owner Trustee. The provisions of Sections 7.1, 7.3, 7.4 and
8.1 shall apply to the Co-Owner Trustee also in its role as Paying Agent, for so
long as the Co-Owner Trustee shall act as Paying Agent and, to the extent
applicable, to any other paying agent appointed hereunder. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise. Notwithstanding anything herein to the contrary, the
Co-Owner Trustee and the Paying Agent shall be the same entity as the Indenture
Trustee under the Indenture and the Sale and Servicing Agreement. In such event,
the Co-Owner Trustee and the Paying Agent shall resign and the Owner Trustee
shall assume the duties and obligations of the Co-Owner Trustee and the Paying
Agent hereunder and under the Sale and Servicing Agreement.
Section 3.10 Book-Entry Certificates. The Trust Certificates, upon
original issuance, will be issued in the form of a typewritten Trust Certificate
or Certificates representing Book-Entry Certificates, to be delivered to The
Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the
Trust; provided, however, that one Definitive Trust Certificate (the Residual
Instrument) may be issued to the Company. Such Book-Entry Certificate or
Certificates shall initially be registered on the Certificate Register in the
name of Cede & Co., the nominee of the initial Clearing Agency, and no Owner of
a Book-Entry Certificate will receive a definitive Certificate representing such
Owner's interest in such Certificate, except as provided in this Section 3.10
and in Section 3.12. Unless and until Definitive Certificates, fully registered,
have been issued to Certificate Owners pursuant to Section 3.12:
(i) the provisions of this Section shall be in full force
and effect;
(ii) the Certificate Registrar and the Owner Trustee shall
be entitled to deal with the Clearing Agency for all purposes of this
Agreement (including the payment of principal of and interest on the
Certificates and the giving of instructions or directions hereunder) as
the sole Holder of such Certificates and shall have no obligation to the
related Certificate Owners;
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(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Agreement, the provisions of
this Section shall control;
(iv) the rights of Certificate Owners shall be exercised
only through the Clearing Agency and shall be limited to those
established by law and agreements between such Certificate Owners and
the Clearing Agency and/or the Clearing Agency Participants. Pursuant to
the Certificate Depository Agreement, unless and until Definitive
Certificates are issued pursuant to Section 3.12, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and
interest on the Certificates to such Clearing Agency Participants; and
(v) whenever this Agreement requires or permits actions to
be taken based upon instructions or directions of Holders of
Certificates evidencing a specified percentage of the Class Principal
Balance of the Certificates, the Clearing Agency shall be deemed to
represent such percentage only to the extent that it has received
instructions to such effect from Certificate Owners and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in the Certificates and has
delivered such instructions to the Owner Trustee.
Section 3.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Certificates shall have been issued to Certificate Owners
pursuant to Section 3.12, the Owner Trustee shall give all such notices and
communications specified herein to be given to Certificateholders to the
Clearing Agency, and shall have no obligations to the Certificate Owners.
Section 3.12 Definitive Certificates. If (i) the Administrator advises
the Owner Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the
Certificates, and the Administrator is unable to locate a qualified successor,
(ii) the Administrator at its option advises the Owner Trustee in writing that
it elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default, Certificate Owners
representing beneficial interests aggregating at least 50% of the Class
Principal Balance of the Certificates advise the Clearing Agency in writing that
the continuation of a book-entry system through the Clearing Agency is no longer
in the best interest of the Certificate Owners, then the Clearing Agency shall
notify all Certificate Owners and the Owner Trustee of the occurrence of any
such event and of the availability of the Definitive Certificates to Certificate
Owners requesting the same. Upon surrender to the Owner Trustee of the
typewritten Certificate or Certificates representing the Book-Entry Certificates
by the Clearing Agency, accompanied by registration instructions, the Owner
Trustee shall execute and authenticate the Definitive Certificates in accordance
with the instructions of the Clearing Agency. Neither the Certificate Registrar
nor the Owner Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive
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Certificates, the Owner Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders. The Definitive Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Owner Trustee, as evidenced by its execution
thereof.
Section 3.13 Restrictions on Transfer of Trust Securities.
(a) No Trust Security may 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 described in
Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended, or
(iii) any entity, including an insurance company separate account or
general account, whose underlying assets include plan assets by reason
of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding a Trust Security, the Owner thereof shall be
deemed to have represented and warranted that it is not a Benefit Plan.
(b) Each prospective purchaser and any subsequent transferee of a
Residual Instrument (each, a "Prospective Owner"), other than the
Company or a wholly-owned subsidiary of the Company, shall represent and
warrant, in writing, to the Owner Trustee and the Certificate Registrar
and any of their respective successors that:
(i) Such Person is (A) a "qualified institutional buyer"
as defined in Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"), and is aware that the seller of
such Residual Instrument may be relying on the exemption from
the registration requirements of the Securities Act provided by
Rule 144A and is acquiring such Residual Instrument for its own
account or for the account of one or more qualified
institutional buyers for whom it is authorized to act, or (B) a
Person involved in the organization or operation of the Trust or
an affiliate of such Person within the meaning of Rule 3a-7 of
the Investment Company Act of 1940, as amended (including, but
not limited to, the Seller or the Company).
(ii) Such Person understands that such Residual Instrument
has not been and will not be registered under the Securities Act
and may be offered, sold, pledged or otherwise transferred only
to a person whom the seller reasonably believes is (A) a
qualified institutional buyer or (B) a Person involved in the
organization or operation of the Trust or an affiliate of such
Person, in a transaction meeting the requirements of Rule 144A
under the Securities Act and in accordance with any applicable
securities laws of any state of the United States.
(iii) Such Person understands that each Residual
Instrument bears a legend to the following effect:
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THIS RESIDUAL INSTRUMENT HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INSTRUMENT MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD
OR OTHERWISE DISPOSED OF (INCLUDING PLEDGED) BY THE
HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO
RULE 144A OR [(II) A PERSON INVOLVED IN THE ORGANIZATION
OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A
PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE INVESTMENT
COMPANY ACT OF 1940], AS AMENDED (INCLUDING, BUT NOT
LIMITED TO, MEGO MORTGAGE CORPORATION) IN A TRANSACTION
THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS
OBLIGATED TO REGISTER THIS RESIDUAL INSTRUMENT UNDER THE
ACT OR ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of
Section 3.13(b), as applicable, relating to the ERISA
restrictions with respect to the acceptance or acquisition of
such Residual Instrument.
(c) Each Prospective Owner, other than the Company, shall
either:
(i) represent and warrant, in writing, to the Owner
Trustee and the Certificate Registrar and any of their
respective successors that the Prospective Owner is not (A) an
"employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or (B) a "plan" within the meaning of Section
4975(e)(1) of the Code (any such plan or employee benefit plan,
a "Plan") or (C) any entity, including an insurance company
separate account or general account, whose underlying assets
include plan assets by reason of a plan's investment in the
entity and is not directly or indirectly purchasing such Trust
Security on behalf of, as investment manager of, as named
fiduciary of, as trustee of, or with assets of a Plan; or
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(ii) furnish to the Owner Trustee and the Certificate
Registrar and any of their respective successors an opinion of
counsel acceptable to such persons that (A) the proposed
issuance or transfer of such Trust Security to such Prospective
Owner will not cause any assets of the Trust to be deemed assets
of a Plan, or (B) the proposed issuance or transfer of such
Trust Security will not cause the Owner Trustee or the
Certificate Registrar or any of their respective successors to
be a fiduciary of a Plan within the meaning of Section 3(21) of
ERISA and will not give rise to a transaction described in
Section 406 of ERISA or Section 4975(c)(1) of the Code for which
a statutory or administrative exemption is unavailable.
(d) By its acceptance of a Residual Instrument, each Prospective
Owner agrees and acknowledges that no legal or beneficial
interest in all or any portion of the Residual Instruments may
be transferred directly or indirectly to an individual,
corporation, partnership or other person unless such transferee
is not a Non-U.S. Person (any such person being referred to
herein as a "Non-permitted Foreign Holder"), and any such
purported transfer shall be void and have no effect.
(e) Neither The Owner Trustee nor the Administrator shall
execute, or countersign and deliver, any Residual Instrument in
connection with any transfer thereof unless the transferor shall
have provided to the Owner Trustee or the Administrator a
certificate, substantially in the form attached as Exhibit E to
this Agreement, signed by the transferee or a Non-permitted
Foreign Holder, which certificate shall contain the consent of
the transferee to any amendments of this Agreement as may be
required to effectuate further the foregoing restrictions on
transfer of any Residual Instrument to Non-permitted Foreign
Holders, and an agreement by the transferee that it will not
transfer any Residual Instrument without providing to the
Certificate Registrar on behalf of the Owner Trustee a
certificate substantially in the form attached as Exhibit E to
this Agreement.
(f) Each Residual Instrument shall bear an additional legend
referring to the foregoing restrictions contained in paragraphs
(c) and (d) above.
(g) The Prospective Owner of a Residual Instrument shall obtain
an opinion of counsel to the effect that, as a matter of Federal
income tax law, such Prospective Owner is permitted to accept
the transfer of a Residual Instrument.
(h) No Residual Instrument may be transferred without an Opinion
of Counsel to the effect that such transfer would not jeopardize
the tax treatment of the Trust, would not subject the Trust to
an entity-level tax, and would not jeopardize the status of the
Notes as debt for all purposes.
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(i) The Residual Instruments shall not be listed for trading on
an established securities market, nor be readily tradeable on a
secondary market, nor be transferable through the substantial
equivalent of a secondary market, nor shall the Issuer be
permitted to have more than one hundred 100 partners, for income
tax purposes, all within the meaning of Code Section 7704, and
its attendant regulations, as applicable. If requested, in the
discretion of the Owner Trustee, transfer of a Residual
Instrument shall be made only if accompanied by an opinion of
counsel satisfactory to the Owner Trustee or the Co-Owner
Trustee, which opinion of counsel shall not be an expense of the
Issuer, the Owner Trustee, the Servicer or the Seller, to the
effect such transfer will not cause the Issuer to be a publicly
traded partnership taxable as a corporation and will not cause
the termination of the Issuer under the federal income tax rules
applicable to partnerships.
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ARTICLE IV
ACTIONS BY OWNER TRUSTEE
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, and the Certificateholders shall not direct the Owner Trustee to take
any action, unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the 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 the Certificateholders have provided
alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection of the Home Loans)
and the compromise of any action, claim or lawsuit brought by or against the
Trust (except with respect to the aforementioned claims or lawsuits for
collection of the Home Loans);
(b) 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);
(c) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any Noteholder is
required;
(d) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any Noteholder is not
required and such amendment materially adversely affects the interest of the
Certificateholders;
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement of a
successor Certificate Registrar, or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee or Certificate Registrar of its
obligations under the Indenture or this Agreement, as applicable;
(f) the consent to the calling or waiver of any default of any
Transaction Document;
(g) the consent to the assignment by the Indenture Trustee, the
Master Servicer or Servicer of their respective obligations under any
Transaction Document;
(h) except as provided in Article IX hereof, dissolve, terminate
or liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any other entity,
or convey or transfer all or substantially all of the Trust's assets to any
other entity;
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(j) cause the Trust to incur, assume or guaranty any indebtedness
other than the Notes, as set forth in this Agreement;
(k) do any act that conflicts with any other Transaction
Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to
property, for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth in
this Trust Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books and
records separate from those of any other entity. Except as expressly set forth
herein, the Trust shall pay its indebtedness, operating expenses from its own
funds, and the Trust shall not pay the indebtedness, operating expenses and
liabilities of any other entity. The Trust shall maintain appropriate minutes or
other records of all appropriate actions and shall maintain its office separate
from the offices of the Company, the Depositor, and any of their respective
affiliates. This Agreement is and shall be the only agreement among the parties
hereto with respect to the creation, operation and termination of the Trust. For
accounting purposes, the Trust shall be treated as an entity separate and
distinct from any Certificateholder. The pricing and other material terms of all
transactions and agreements to which the Trust is a party shall be intrinsically
fair to all parties thereto.
The Owner Trustee shall not have the power, except upon the direction of
the Certificateholders, and to the extent otherwise consistent with the
Transaction Documents, to (i) remove or replace the Master Servicer, the
Servicer or the Indenture Trustee, (ii) institute proceedings to have the Trust
declared or adjudicated a bankrupt or insolvent, (iii) consent to the
institution of bankruptcy or insolvency proceedings against the Trust, (iv) file
a petition or consent to a petition seeking reorganization or relief on behalf
of the Trust under any applicable federal or state law relating to bankruptcy,
(v) consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or any similar official) of the Trust or a substantial portion of
the property of the Trust, (vi) make any assignment for the benefit of the
Trust's creditors, (vii) cause the Trust to admit in writing its inability to
pay its debts generally as they become due, or (viii) take any action, or cause
the Trust to take any action, in furtherance of any of the foregoing (any of the
above, a "Bankruptcy Action"). So long as the Indenture remains in effect, no
Certificateholder shall have the power to take, and shall
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not take, any Bankruptcy Action with respect to the Trust or the Company or
direct the Owner Trustee to take any Bankruptcy Action with respect to the Trust
or the Company.
Section 4.2 Action by Certificateholders with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, to (a) remove the Administrator pursuant to the
Administration Agreement, (b) appoint a successor Administrator pursuant to the
Administration Agreement, (c) remove the Master Servicer pursuant to the Sale
and Servicing Agreement, (d) remove the Servicer pursuant to the Servicing
Agreement, or (e) sell the Home 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 Certificateholders.
Section 4.3 Action by Certificateholders with Respect to Bankruptcy. The
Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
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 Owners' Power. The Owners shall not direct
the Owner Trustee to take or refrain from taking any action if such action or
inaction would be contrary to any obligation of the Trust or the Owner Trustee
under this Agreement or any of the Transaction Documents or would be contrary to
Section 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
Section 4.5 Majority Control. Except as expressly provided herein, any
action that may be taken by the Certificateholders under this Agreement may be
taken by the Holders of Certificates evidencing more than a 50% of the Class
Principal Balance of the Certificates. Except as expressly provided herein, any
written notice of the Owners delivered pursuant to this Agreement shall be
effective if signed by Holders of Certificates evidencing more than 50% of the
Class Principal Balance of the Certificates at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account. The Owner Trustee shall
cause the Indenture Trustee, to establish and maintain with First Bank National
Association for the benefit of the Owner Trustee or Co-Owner Trustee one or more
Eligible Accounts which while the Co-Owner Trustee holds such Trust Account
shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT, FIRST BANK NATIONAL
ASSOCIATION, AS INDENTURE TRUSTEE AND CO-OWNER TRUSTEE, IN TRUST FOR THE MEGO
MORTGAGE HOME LOAN ASSET BACKED CERTIFICATES, SERIES 1997-3". Funds shall be
deposited in the Certificate Distribution Account as required by the Sale and
Servicing Agreement.
All of the right, title and interest of the Co-Owner Trustee or Owner
Trustee in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the benefit
of the Owners and such other persons entitled to distributions therefrom. Except
as otherwise expressly provided herein or in the Sale and Servicing Agreement,
the Certificate Distribution Account shall be under the sole dominion and
control of the Owner Trustee or Co-Owner Trustee for the benefit of the Owners
and the Servicer.
In addition to the foregoing, the Certificate Distribution Account is a
Trust Account under the Sale and Servicing Agreement and constitutes part of the
Trust Estate pledged by the Trust to the Indenture Trustee under the Indenture.
The Certificate Distribution Account shall be subject to and established and
maintained in accordance with the applicable provisions of the Sale and
Servicing Agreement and the Indenture, including, without limitation, the
provisions of Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement
regarding distributions from the Certificate Distribution Account.
The Company agrees to direct and shall have the sole authority to direct
the Owner Trustee or Co-Owner Trustee, or their successor in interest, as to the
Permitted Investments in which the funds on deposit in the Trust Accounts (as
such term is defined in the Sale and Servicing Agreement) may be invested.
Section 5.2 Application Of Trust Funds.
(a) On each Distribution Date, the Owner Trustee or Co-Owner
Trustee shall direct the Paying Agent to make the distributions and payments set
forth in Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement from
amounts on deposit in the Note Distribution Account and the Certificate
Distribution Account, respectively.
(b) On or before the third Business Day following each
Distribution Date, the Owner Trustee shall cause the Paying Agent to send to DTC
and each Residual Instrument
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<PAGE> 29
Holder the statement provided to the Owner Trustee by the Servicer pursuant to
Section 6.02 of the Sale and Servicing Agreement with respect to such
Distribution Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to an Owner, such tax shall reduce
the amount otherwise distributable to the Owner in accordance with this Section.
The Owner Trustee is hereby authorized and directed to retain from amounts
otherwise distributable to the Owners sufficient funds for the payment of any
tax that is legally owed by the Trust (but such authorization shall not prevent
the Owner Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The amount of any withholding tax imposed with respect to an
Owner shall be treated as cash distributed to such Owner at the time it is
withheld by the Trust and remitted to the appropriate taxing authority. If there
is a possibility that withholding tax is payable with respect to a distribution
(such as a distribution to a non-U.S. Owner), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this paragraph (c). In the
event that an Owner wishes to apply for a refund of any such withholding tax,
the Owner Trustee shall reasonably cooperate with such owner in making such
claim so long as such Owner agrees to reimburse the Owner Trustee for any
out-of-pocket expenses incurred.
Section 5.3 Method of Payment. Distributions required to be made to
Owners on any Distribution Date shall be made to each Owner of record on the
preceding Record Date in the manner set forth in Section 5.03 of the Sale and
Servicing Agreement.
Section 5.4 Segregation of Moneys; No Interest. Subject to Sections 4.1
and 5.2, moneys received by the Owner Trustee hereunder and deposited into the
Certificate Distribution Account will be segregated except to the extent
required otherwise by law or the Sale and Servicing Agreement and shall be
invested in Permitted Investments at the direction of the Company. The Owner
Trustee shall not be liable for payment of any interest in respect of such
moneys.
Section 5.5 Accounting and Reports to the Residual Instrument Holders,
Certificateholders, Owners, the Internal Revenue Service and Others. The Owner
Trustee shall (a) maintain (or cause to be maintained) the books of the Trust on
a calendar year basis on the accrual method of accounting, and such books shall
be maintained separate from those of any other entity and reflect the separate
interest of the Trust, (b) deliver to each Owner, as may be required by the Code
and applicable Treasury Regulations, such information as may be required to
enable each Owner to prepare its federal and state income tax returns, (c) file
such tax return relating to the Trust (including a partnership information
return, IRS Form 1065), and make such elections as may from time to time be
required or appropriate under any applicable state or Federal statute or rule or
regulation thereunder so as to maintain the Trust's characterization as a
partnership for Federal income tax purposes, (d) cause such tax returns to be
signed in the manner required by law and (e) collect or cause to be collected
any withholding tax as described in and in accordance with Section 5.2(c) with
respect to income or distributions to Owners. The Owner Trustee shall elect
under Section 1278 of the Code to
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include in income currently any market discount that accrues with respect to the
Home Loans. The Owner Trustee shall not make the election provided under Section
754 of the Code.
Section 5.6 Signature on Returns.
The Owner Trustee shall sign on behalf of the Trust the tax
returns of the Trust, unless applicable law requires an Owner to sign such
documents, in which case such documents shall be signed by the Company.
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ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the Notes,
the Trust Securities and the Transaction Documents to which the Trust is to be a
party and each certificate or other document attached as an exhibit to or
contemplated by the Transaction Documents to which the Trust is to be a party
and any amendment or other agreement or instrument described in Article III, in
each case, in such form as the Company shall approve, as evidenced conclusively
by the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver Classes of Notes in the
following aggregate principal amounts: Class A-1 Notes, $33,400,000; Class A-2
Notes, $25,700,000; Class A-3 Notes, $6,500,000; Class A-4 Notes, $9,451,000;
Class M-1 Notes $16,213,000; and Class M- 2 Notes, $7,584,000; The Administrator
on behalf of the Owner Trustee shall authenticate and deliver the Certificates.
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
Transaction Documents.
Section 6.2 General Duties. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and the Transaction
Documents to which the Trust is a party and to administer the Trust in the
interest of the Owners, subject to the Transaction 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 Transaction Documents to the extent the Administrator or
the Co-Owner Trustee has agreed in the Administration Agreement or this
Agreement, respectively, to perform any act or to discharge any duty of the
Owner Trustee or the Trust hereunder or under any Transaction Document, and the
Owner Trustee shall not be held liable for the default or failure of the
Administrator or the Co-Owner Trustee to carry out its obligations under the
Administration Agreement or this Agreement, respectively; and
(b) to obtain and preserve, the Issuer's qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of the Indenture, the
Notes, the Trust Estate and each other instrument and agreement included in the
Trust Estate.
Section 6.3 Action upon Instruction.
(a) Subject to Article IV and in accordance with the terms of the
Transaction Documents, the Owners may by written instruction direct the Owner
Trustee in the management of the Trust but only to the extent consistent with
the limited purpose of the
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Trust. Such direction may be exercised at any-time by written instruction of the
Owners pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Transaction 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 Transaction Document or is otherwise contrary to
law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Transaction Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Owners requesting instruction from the Owners 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 Owners received, the Owner Trustee shall not
be liable on account of such action to any Person. If the Owner Trustee shall
not have received appropriate instruction within 10 days of such notice (or
within such shorter period of time as reasonably may be specified in such notice
or may be necessary under the circumstances) it may, but shall be under no duty
to, take or refrain from taking such action, not inconsistent with this
Agreement or the Transaction Documents, as it shall deem to be in the best
interests of the Owners, and shall have no liability to any Person for such
action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Transaction 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 Owners
requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, 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 Transaction
Documents, as it shall deem to be in the best interests of the Owners, and shall
have no liability to any Person for such action or inaction.
Section 6.4 No Duties Except as Specified in this Agreement, the
Transaction Documents or in Instructions. The Owner Trustee shall not have any
duty or obligation to manage, make any payment with respect to, register,
record, sell, dispose of, or otherwise deal with the Owner Trust Estate, or to
otherwise take or refrain from taking any action under, or
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in connection with, any document contemplated hereby to which the Owner Trustee
is a party, except as expressly provided by the terms of this Agreement, any
Transaction Document or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Transaction Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Agreement or any Transaction Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 6.5 No Action Except Under Specified Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Transaction Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
Section 6.6 Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Owners shall not direct the Owner Trustee to take action that would violate the
provisions of this Section.
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ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement and the
Transaction Documents. The Owner Trustee also agrees to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Transaction Documents and this Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Transaction Document
under any circumstances, except (i) for its own willful misconduct or gross
negligence or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.3 expressly made by the Owner Trustee. In
particular, but not by way of limitation (and subject to the exceptions set
forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions of
the Administrator or the Owners;
(c) no provision of this Agreement or any Transaction 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 Transaction 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 Transaction Documents,
including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiency of this Agreement or for the due execution hereof
by the Depositor or the Company or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Transaction Documents, other than
the certificate of authentication on the Trust Securities, and the Owner Trustee
shall in no event assume or incur any liability, duty, or obligation to any
Noteholder or to any Owner, other than as expressly provided for herein and in
the Transaction Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller, the Company, the Indenture Trustee,
the Master Servicer or the Servicer under any of the Transaction Documents or
otherwise and the Owner Trustee shall
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have no obligation or liability to perform the obligations of the Trust under
this Agreement or the Transaction Documents that are required to be performed by
the Administrator under the Administration Agreement, the Indenture Trustee
under the Indenture, the Master Servicer under the Sale and Servicing Agreement,
or the Servicer under the 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 Transaction Document, at the request, order or
direction of any of the Owners, unless such Owners have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Transaction Document shall not be construed as a duty, and
the Owner Trustee shall not be answerable for other than its gross negligence or
willful misconduct in the performance of any such act provided, that the Owner
Trustee shall be liable for its negligence or willful misconduct in the event
that it assumes the duties and obligations of the Co-Owner Trustee under the
Sale and Servicing Agreement pursuant to Section 10.5 hereof.
Section 7.2 Furnishing of Documents. The Owner Trustee shall furnish (a)
to the Owners 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
Transaction Documents and (b) to Noteholders promptly upon written request
therefor, copies of the Sale and Servicing Agreement, the Administration
Agreement and the Trust Agreement.
Section 7.3 Representations and Warranties.
(a) The Owner Trustee hereby represents and warrants to the
Depositor and the Company, for the benefit of the Owners, that:
(i) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware. It
has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to
authorize the execution and delivery by it of this Agreement, and this
Agreement will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or Delaware law, governmental rule or
regulation governing the banking or trust powers of the
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Owner Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by
which any of its properties may be bound.
(b) The Co-Owner Trustee hereby represents and warrants to the
Depositor and the Company that:
(i) It is a national banking association duly organized
and validly existing in good standing under the laws of the United
States. It has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement.
(ii) It has taken all corporate action necessary to
authorize the execution and delivery by it of this Agreement, and this
Agreement will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene any Federal or Minnesota law, governmental rule or
regulation governing the banking or trust powers of the Co-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 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
Transaction Documents, the Owner Trustee (i) may act directly or through its
agents or attorneys pursuant to agreements entered into with any of them, and
the Owner Trustee shall not be liable for the
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conduct or misconduct of such agents or attorneys if such agents or attorneys
shall have been selected by the Owner Trustee with reasonable care, and (ii) may
consult with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with the
written opinion or advice of any such counsel, accountants or other such persons
and not contrary to this Agreement or any Transaction Document.
Section 7.5 Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Wilmington Trust
Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Transaction Document
shall look only to the Owner Trust Estate for payment or satisfaction thereof.
Section 7.6 Owner Trustee Not Liable for Trust Securities or Home Loans.
The recitals contained herein and in the Trust Securities (other than the
signature and countersignature of the Owner Trustee on the Trust Securities)
shall be taken as the statements of the Depositor and the Company, and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Transaction Document or of the Trust Securities (other than the signature
and countersignature of the Owner Trustee on the Trust Securities and as
specified in Section 7.3) or the Notes, or of any Home Loans or related
documents. The Owner Trustee shall at no time have any responsibility or
liability for or with respect to the legality, validity and enforceability of
any Home Loan, or the perfection and priority of any security interest created
by any Home Loan or the maintenance of any such perfection and priority, or for
or with respect to the sufficiency of the Owner Trust Estate or its ability to
generate the payments to be distributed to Owners under this Agreement or the
Noteholders under the Indenture, including, without limitation: the existence,
condition and ownership of any Property; the existence and enforceability of any
insurance thereon; the existence and contents of any Home Loan on any computer
or other record thereof; the validity of the assignment of any Home Loan to the
Trust or of any intervening assignment; the completeness of any Home Loan; the
performance or enforcement of any Home Loan; the compliance by the Depositor,
the Company, the Master Servicer or the Servicer with any warranty or
representation made under any Transaction Document or in any related document or
the accuracy of any such warranty or representation or any action of the
Administrator, the Indenture Trustee, the Master Servicer or the Servicer or any
subservicer taken in the name of the Owner Trustee.
Section 7.7 Owner Trustee May Own Trust Securities and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Trust Securities or Notes and may deal with the Depositor, the Company, the
Administrator, the Indenture Trustee and the Servicer in banking transactions
with the same rights as it would have if it were not Owner Trustee.
VII-4
<PAGE> 38
Section 7.8 Licenses. The Owner Trustee shall cause the Trust to use its
best efforts to obtain and maintain the effectiveness of any licenses required
in connection with this Agreement and the Transaction Documents and the
transactions contemplated hereby and thereby until such time as the Trust shall
terminate in accordance with the terms hereof.
Section 7.9 Rights of Co-Owner Trustee. The Co-Owner Trustee shall be
entitled to all the rights and benefits conferred upon the Owner Trustee in
Article VII of this Agreement.
VII-5
<PAGE> 39
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Company and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the Company
for its other reasonable expenses hereunder, including the reasonable
compensation, expenses and disbursements of such agents, representatives,
experts and counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
Section 8.2 Indemnification. The Company shall be liable as primary
obligor, and the Servicer as secondary obligor pursuant to the Administration
Agreement, for, and shall indemnify the Owner Trustee, the Co-Owner Trustee and
their successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Transaction Documents, the Owner Trust Estate, the administration of the Owner
Trust Estate or the action or inaction of the Owner Trustee or the Co-Owner
Trustee hereunder, except only that the Company shall not be liable for or
required to indemnify an Indemnified Party from and against Expenses arising or
resulting from any of the matters described in the third sentence of Section 7.1
hereof. The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's or Co-Owner Trustee's choice of
legal counsel shall be subject to the approval of the Company, which approval
shall not be unreasonably withheld.
Section 8.3 Payments to the Owner Trustee. 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.
VIII-1
<PAGE> 40
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement.
(a) This Agreement (other than Article VIII) and the Trust shall
terminate and be of no further force or effect on the earlier of (i) the
satisfaction and discharge of the Indenture pursuant to Section 4.01 of the
Indenture and the termination of the Sale and Servicing Agreement and (ii) the
expiration of 21 years from the death of the last survivor of the descendants of
Joseph P. Kennedy (the late ambassador of the United States to the Court of St.
James's) alive on the date hereof. The bankruptcy, liquidation, dissolution,
death or incapacity of any Owner shall not (x) operate to terminate this
Agreement or the Trust, nor (y) entitle such Owner's legal representatives or
heirs to claim an accounting or to take any action or proceeding in any court
for a partition or winding up of all or any part of the Trust or Owner Trust
Estate nor (z) otherwise affect the rights, obligations and liabilities of the
parties hereto.
(b) The Trust Securities shall be subject to an early redemption
or termination at the option of the Company or the Master Servicer in the manner
and subject to the provisions of Section 11.02 of the Sale and Servicing
Agreement.
(c) Except as provided in Sections 9.1(a) and (b) above, none of
the Depositor, the Company nor any Owner shall be entitled to revoke or
terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Securityholders shall surrender their Trust
Securities to the Paying Agent for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Securityholders and the
Rating Agencies mailed within five Business Days of receipt by the Owner Trustee
of notice of such termination pursuant to Section 9.1(a) or (b) above, which
notice given by the Owner Trustee shall state (i) the Distribution Date upon or
with respect to which final payment of the Trust Securities shall be made upon
presentation and surrender of the Trust Securities at the office of the Paying
Agent therein designated, (ii) the amount of any such final payment and (iii)
that the Record Date otherwise applicable to such Distribution Date is not
applicable, payments being made only upon presentation and surrender of the
Trust Securities at the office of the Paying Agent therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Paying Agent at the time such notice is given to the
Securityholders. Upon presentation and surrender of the Trust Securities, the
Paying Agent shall cause to be distributed to the Securityholders amounts
distributable on such Distribution Date pursuant to Sections 5.01(c) and 5.03 of
the Sale and Servicing Agreement.
In the event that all of the Securityholders shall not surrender
their Trust Securities for cancellation within six months after the date
specified in the above mentioned
IX-1
<PAGE> 41
written notice, the Co-Owner Trustee shall give a second written notice to the
remaining Securityholders to surrender their Trust Securities for cancellation
and receive the final distribution with respect thereto. If within one year
after the second notice all the Trust Securities shall not have been surrendered
for cancellation, the Co-Owner Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Securityholders concerning surrender of their Trust Securities, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Co-Owner Trustee to the Residual
Instrument Holders on a pro rata basis.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3820 of the Business Trust Statute.
IX-2
<PAGE> 42
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise corporate powers;
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a long-term rating of at least "A" by Standard &
Poor's and "A2" by Moody's, "A" by DCR and "A" by Fitch. 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 or Co-Owner
Trustee. The Owner Trustee or Co-Owner Trustee may at any time resign and be
discharged from the trusts hereby created by giving written notice thereof to
the Administrator, the Indenture Trustee and the Company. Upon receiving such
notice of resignation, the Administrator shall promptly appoint a successor
Owner Trustee or Co-Owner Trustee by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Owner Trustee or
Co-Owner Trustee and one copy to the successor Owner Trustee or Co-Owner
Trustee. If no successor Owner Trustee or Co-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 Co-Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee or Co-Owner Trustee.
If at any time the Owner Trustee or Co-Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall fail to
resign after written request therefor by the Administrator, or if at any time
the Owner Trustee or Co-Owner Trustee shall be legally unable to act, or shall
be adjudged bankrupt or insolvent, or a receiver of the Owner Trustee or
Co-Owner Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Owner Trustee or Co-Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Administrator may remove the Owner Trustee or Co-Owner
Trustee. If the Administrator shall remove the Owner Trustee or Co-Owner Trustee
under the authority of the immediately preceding sentence, the Administrator
shall promptly appoint a successor Owner Trustee or Co-Owner Trustee by written
instrument in duplicate, one copy of which instrument shall be delivered to the
outgoing Owner Trustee or Co-Owner Trustee so removed and one copy to the
successor Owner Trustee or Co-Owner Trustee and payment of all fees owed to the
outgoing Owner Trustee or Co-Owner Trustee.
X-1
<PAGE> 43
Any resignation or removal of the Owner Trustee or Co-Owner Trustee and
appointment of a successor Owner Trustee or Co-Owner Trustee pursuant to any of
the provisions of this Section shall not become effective until acceptance of
appointment by the successor Owner Trustee or Co-Owner Trustee pursuant to
Section 10.3 and payment of all fees and expenses owed to the outgoing Owner
Trustee or Co-Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee or Co-Owner Trustee to each of the
Rating Agencies.
Section 10.3 Successor Owner Trustee or Co-Owner Trustee. Any successor
Owner Trustee or Co-Owner Trustee appointed pursuant to Section 10.2 shall
execute, acknowledge and deliver to the Administrator and to its predecessor
Owner Trustee or Co-Owner Trustee an instrument accepting such appointment under
this Agreement, and thereupon the resignation or removal of the predecessor
Owner Trustee or Co-Owner Trustee shall become effective and such successor
Owner Trustee or Co-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 or Co-Owner Trustee. The predecessor Owner Trustee or Co-Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee or Co-Owner Trustee all documents and statements and monies held
by it under this Agreement; and the Administrator and the predecessor Owner
Trustee or Co-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 or Co-Owner Trustee all such
rights, powers, duties, and obligations.
No successor Owner Trustee or Co-Owner Trustee shall accept appointment
as provided in this Section unless at the time of such acceptance such successor
Owner Trustee or Co-Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee or Co-Owner
Trustee pursuant to this Section, the Administrator shall mail notice of the
successor of such Owner Trustee or Co-Owner Trustee to all Owners, the Indenture
Trustee, the Noteholders and the Rating Agencies. If the Administrator fails to
mail such notice within 10 days after acceptance of appointment by the successor
Owner Trustee or Co-Owner Trustee, the successor Owner Trustee or Co-Owner
Trustee shall cause such notice to be mailed at the expense of the
Administrator.
Section 10.4 Merger or Consolidation of Owner Trustee or Co-Owner
Trustee. Any corporation into which the Owner Trustee or the Co-Owner Trustee
may be merged or converted or with which either may be consolidated or any
corporation resulting from any merger, conversion or consolidation to which the
Owner Trustee or the Co-Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee or the Co-Owner Trustee, shall be the successor of the Owner
Trustee or the Co-Owner Trustee, as the case may be, hereunder, provided such
corporation shall be eligible pursuant to Section 10.1, without the execution or
filing of any instrument or
X-2
<PAGE> 44
any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding; provided further that the Owner Trustee or the
Co-Owner Trustee, as the case may be, 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,
and for the purpose of performing certain duties and obligations of the Owner
Trustee with respect to the Trust and the Trust Securities under the Sale and
Servicing Agreement, the Administrator and the Owner Trustee acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Owner Trustee and to act as co-owner
trustee, jointly with the Owner Trustee, or separate owner trustee or separate
owner trustees, of all or any part of the Owner Trust Estate, and to vest in
such Person, in such capacity, such title to the Trust, or any part thereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Administrator and the Owner Trustee may
consider necessary or desirable. If the Administrator shall not have joined in
such appointment within 25 days after the receipt by it of a request so to do,
the Owner Trustee shall have the power to make such appointment. No Co-Owner
Trustee or separate Owner Trustee under this Section 10.5 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-owner trustee or separate Owner
Trustee shall be required pursuant to Section 10.3.
The Owner Trustee hereby appoints the Indenture Trustee as Co-Owner
Trustee for the purpose of (i) establishing and maintaining the Certificate
Distribution Account and making the distributions therefrom to the Persons
entitled thereto pursuant to Sections 5.01(c) and 5.03 of the Sale and Servicing
Agreement.
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Owner Trustee shall be conferred upon and exercised
or performed by the Owner Trustee and such separate owner trustee or
co-owner trustee jointly (it being understood that such separate owner
trustee or co-owner trustee is not authorized to act separately without
the Owner Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties,
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate owner trustee or co-owner trustee but
solely at the direction of the Owner Trustee; provided that Co-Owner
Trustee, in performing its duties and obligations under the Sale and
Servicing Agreement, may act
X-3
<PAGE> 45
separately in its capacity as Co-Owner Trustee without the Owner Trustee
joining in such Acts.
(ii) no owner trustee under this Agreement shall be
personally liable by reason of any act or omission of any other owner
trustee under this Agreement; and
(iii) the Administrator and the Owner Trustee acting
jointly may at any time accept the resignation of or remove any separate
owner trustee or co-owner trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to the separate owner trustees and co-owner trustees,
as if given to each of them. Every instrument appointing any separate owner
trustee or co-owner trustee, other than this Agreement, shall refer to this
Agreement and to the conditions of this Article. Each separate owner trustee and
co-owner trustee, upon its acceptance of appointment, shall be vested with the
estates specified in its instrument of appointment, either jointly with the
Owner Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Owner Trustee. Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.
Any separate owner trustee or co-owner trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate owner
trustee or co-owner trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
The Co-Owner Trustee, in its capacity as Co-Owner Trustee, shall not
have any rights, duties or obligations except as expressly provided in this
Agreement and the Sale and Servicing Agreement.
X-4
<PAGE> 46
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments. This Agreement may be amended
by the Depositor, the Company and the Owner Trustee with prior written notice to
the Rating Agencies, but without the consent of any of the Noteholders or the
Owners or the Indenture Trustee, to cure any ambiguity, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the Owners
provided, however, that such action shall not adversely affect in any material
respect the interests of any Noteholder or Owner. An amendment described above
shall be deemed not to adversely affect in any material respect the interests of
any Noteholder or Owner if (i) an opinion of counsel is obtained to such effect,
and (ii) the party requesting the amendment satisfies the Rating Agency
Condition with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with the prior written consent of the Rating
Agencies and with the prior written consent of the Indenture Trustee, the
Holders (as defined in the Indenture) of Notes evidencing more than 50% of the
Percentage Interests in the Notes and the Holders of Certificates evidencing
more than 50% of the Percentage Interests in the Certificates, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Owners; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the Home Loans or distributions that shall
be required to be made for the benefit of the Noteholders or the Securityholders
or (b) reduce the aforesaid Percentage Interests required to consent to any such
amendment, in either case of clause (a) or (b) without the consent of the
holders of all the outstanding Notes or Trust Securities, as applicable.
Promptly after the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment or
consent to each Certificateholder, the Indenture Trustee and each of the Rating
Agencies.
It shall not be necessary for the consent of Owners, the Noteholders or
the Indenture Trustee pursuant to this Section to approve the particular form of
any proposed amendment or consent, but it shall be sufficient if such consent
shall approve the substance thereof. The manner of obtaining such consents (and
any other consents of Owners provided for in this Agreement or in any other
Transaction Document) and of evidencing the authorization of the execution
thereof by Securityholders shall be subject to such reasonable requirements as
the Owner Trustee may prescribe.
XI-1
<PAGE> 47
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
Notwithstanding the above, no supplement or amendment to this Agreement
shall be made without the consent of any Residual Instrument Holder, if such
amendment and/or supplement would modify in any manner the receipt of
distributions with respect to such Residual Instrument.
Section 11.2 No Legal Title to Owner Trust Estate in Owners. The Owners
shall not have legal title to any part of the Owner Trust Estate. The Owners
shall be entitled to receive distributions with respect to their undivided
ownership interest therein only in accordance with Articles V and IX. No
transfer, by operation of law or otherwise, of any right, title, or interest of
the Owners to and in their ownership interest in the Owner Trust Estate shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
Section 11.3 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Owner Trustee, the Co-Owner Trustee,
the Depositor, the Company, the Owners, the Administrator and, to the extent
expressly provided herein, 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 by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to the
Owner Trustee shall be deemed given only upon actual receipt by the Owner
Trustee), at the following addresses: (i) if to the Owner Trustee, its Corporate
Trust Office; (ii) if to the Depositor, Financial Asset Securities Corp., 600
Steamboat Road, Greenwich, Connecticut 06830, Attention: Peter McMullin, Vice
President; (iii) if to the Company, Mego Mortgage Corporation, 1000 Parkwood
Circle, Suite 500 Atlanta, Georgia 30339, Attention: Jeff S. Moore, President;
(iv) if to the Co-Owner Trustee, First Bank National Association, 180 East Fifth
Street, St. Paul, Minnesota 55101, Attention:
Structured Finance/Mego Mortgage 1997-3 Corporate Trust Department; or, as to
each such party, at such other address as shall be designated by such party in a
written notice to each other party.
XI-2
<PAGE> 48
(b) Any notice required or permitted to be given to an Owner shall be
given by first-class mail, postage prepaid, at the address of such Owner as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Owner receives such notice.
Section 11.5 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 11.6 Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 11.7 Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company, the Owner Trustee, the Co-Owner Trustee and its
successors and each owner and its successors and permitted assigns, all as
herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by an Owner shall bind the successors and assigns of such
Owner.
Section 11.8 No Petition. The Owner Trustee, by entering into this
Agreement, each Owner, by accepting a Trust Security, and the Indenture Trustee
and each Noteholder by accepting the benefits of this Agreement, hereby covenant
and agree that they will not at any time institute against the Company, any
wholly-owned subsidiary of the Company, the Depositor or the Trust, or join in
any institution against the Company, any wholly-owned subsidiary of the Company,
or the Trust of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or law in connection with any obligations relating to the Trust
Securities, the Notes, this Agreement or any of the Transaction Documents.
Section 11.9 Covenants of Company. The Company shall not institute at
any time any Bankruptcy proceeding against the Trust or any wholly-owned
subsidiary of the Company, under any United States Federal or state bankruptcy
or similar law in connection with any obligations relating to the Trust
Securities, the Notes, the Trust Agreement or any of the Transaction Documents.
Section 11.10 No Recourse. Each Owner by accepting a Trust Security
acknowledges that such Owner's Trust Security represents a beneficial interest
in the Trust only and does not represent an interest in or an obligation of the
Seller, the Servicer, the Company, the Depositor, the Administrator, the Owner
Trustee, the Co-Owner Trustee or any Affiliate thereof and no recourse may be
had against such parties or their assets, except as may be
XI-3
<PAGE> 49
expressly set forth or contemplated in this Agreement, the Trust Securities or
the Transaction Documents.
Section 11.11 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 11.12 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 11.13 Inconsistencies with Sale and Servicing Agreement.
In the event certain provisions of this Agreement conflict with the
provisions of the Sale and Servicing Agreement, the parties hereto agree that
the provisions of the Sale and Servicing Agreement shall be controlling.
XI-4
<PAGE> 50
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.
FINANCIAL ASSET SECURITIES CORP.,
Depositor
By:____________________________________
Name:
Title:
MEGO MORTGAGE CORPORATION
By:____________________________________
Name:
Title:
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By:____________________________________
Name:
Title:
FIRST BANK NATIONAL ASSOCIATION, not in
its individual capacity but solely as
Co-Owner Trustee and Paying Agent
By:____________________________________
Name:
Title:
<PAGE> 51
EXHIBIT A
[FORM OF CERTIFICATE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
FINANCIAL ASSET SECURITIES CORP., MEGO MORTGAGE CORPORATION OR ANY OF THEIR
RESPECTIVE AFFILIATES.
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3
____% HOME LOAN ASSET BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which includes a pool of Home Loans sold to the Trust by Financial
Asset Securities Corp..
Initial Certificate Principal Original Certificate
Balance of this Certificate: Principal Balance:
$_____________ $_____________
NUMBER:_______ CUSIP NO. _________
(See Reverse Pages for certain definitions)
THIS CERTIFIES THAT___________ is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the initial
Certificate Principal Balance of this Certificate by the Original Certificate
Principal Balance of the Class of Certificates, both as specified above), in
certain distributions with respect to MEGO MORTGAGE Home Loan Owner Trust 1997-3
(the "Trust") formed by Financial Asset Securities Corp., a Delaware corporation
(the "Seller").
The Trust was created pursuant to a Trust Agreement dated as of June 14,
1997 (as amended and supplemented from time to time, the "Trust Agreement"),
among the Seller, Financial Asset Securities Corp., a Delaware corporation (the
"Company"), Wilmington Trust
A-1
<PAGE> 52
Company, as owner trustee (the "Owner Trustee") and First Bank National
Association, as Co-Owner Trustee (the "Co-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 or the Sale and Servicing Agreement
dated as of June 14, 1997 (as amended and supplemented from time to time, the
"Sale and Servicing Agreement"), among the Trust, the Seller, Mego Mortgage
Corporation, as servicer (the "Servicer") and the Co-Owner Trustee, as
applicable.
This Certificate is one of the duly authorized Certificates designated
as "Mego Mortgage Home Loan Asset Backed Certificates, Series 1997-3", (herein
called the "Certificates") issued under the Trust Agreement. Also issued under
an Indenture dated as of June 14, 1997, between the Trust and First Bank
National Association, as Indenture Trustee, are the six classes of Notes
designated as "Mego Mortgage Home Loan Asset Backed Notes, Series 1997-3, Class
A-1, Class A-2, Class A-3, Class A-4, Class M-1 and Class M-2 (collectively, the
"Notes"). This Certificate is issued under and is 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. Payments of principal and interest on this
Certificate shall be made by First Bank National Association, in its capacity as
Co-Owner Trustee under the Sale and Servicing Agreement. The property of the
Trust includes a pool of Home Loans (the "Home Loans"), all monies due
thereunder on or after the Cut-Off Date, certain accounts and the proceeds
thereof, and certain other rights under the Trust Agreement and the Sale and
Servicing Agreement and all proceeds of the foregoing. The rights of the holders
of the Certificates are subordinated to the rights of the holders of the Notes,
as set forth in the Sale and Servicing Agreement and the Indenture.
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,
(each, a "Distribution Date"), commencing in July, 1997, to the person in whose
name this Certificate is registered at the close of business on the last
Business Day of the month immediately preceding the month in which each
Distribution Date occurs (the "Record Date") such Securityholders's fractional
undivided interest in the amounts distributable to Securityholders on such
Distribution Date pursuant to Section 5.01 of the Sale and Servicing Agreement.
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 and
the Indenture.
It is the intent of the Seller, the Company, the Servicer and the
Securityholders that, for purposes of federal, state and local income and single
business tax and any other income taxes, the Trust will be treated as a
partnership and the Securityholders (including the Company) will be treated as
partners in that partnership. The Company and the other Securityholders 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.
A-2
<PAGE> 53
Each Securityholder or Certificate Owner, by its acceptance of a
Certificate or, in the case of a Certificate Owner, a beneficial interest in a
Certificate, covenants and agrees that such Securityholder or Certificate Owner,
as the case may be, will not at any time institute against the Company, or join
in any institution against the Company 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 Transaction Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement and the Sale and Servicing Agreement by the Indenture Trustee by wire
transfer or check mailed to the Securityholder of record in the Certificate
Register without the presentation or surrender of this Certificate or the making
of any notation hereon, except that with respect to Certificates 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. 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
Co-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 Co-Owner Trustee in the Borough of Manhattan, The City of New
York.
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.
[Remainder of page intentionally left blank]
A-3
<PAGE> 54
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.
THIS TRUST SECURITY SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Certificate to be duly executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST
1997-3
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust
Agreement
By:_________________________________________________
Authorized Signatory
DATED: June 27, 1997
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Trust Agreement.
First Bank National Association, as
Administrator and Authenticating Agent
By:_________________________________________________
Authorized Signatory
A-4
<PAGE> 55
(REVERSE OF TRUST SECURITY)
The Certificates do not represent an obligation of, or an interest in,
the Seller, the Master Servicer, the Servicer, the Company, the Depositor, the
Owner Trustee, the Co-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 or the
Transaction Documents. In addition, this Certificate is not guaranteed by any
governmental agency or instrumentality and is limited in right of payment to
certain collections and recoveries respecting the Home Loans, all 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, the Indenture and
the Trust Agreement may be examined during normal business hours at the
principal office of the Co-Owner Trustee, and at such other places, if any,
designated by the Co-Owner Trustee, by any Securityholder 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
Seller and the Company and the rights of the Securityholders under the Trust
Agreement at any time by the Seller, the Company and the Owner Trustee with the
consent of the holders of the Notes and the Certificates each voting as a class
evidencing not less than a majority of the outstanding Notes and the Class
Principal Balance of 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 herefor 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.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable 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 Co-Owner Trustee in St. Paul, Minnesota, accompanied by a written instrument
of transfer in form satisfactory to the Co-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 of 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 the Co-Owner Trustee.
The Certificates are issuable only as registered Certificates without
coupons in denominations of $100,000 and in 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 of 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
Co-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 Co-Owner Trustee, the Certificate Registrar and
any agent of the Owner Trustee, the Co-Owner Trustee or the Certificate
Registrar 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 Co-Owner
Trustee, the Certificate Registrar or any such agent shall be affected by any
notice to the contrary.
A-5
<PAGE> 56
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby and the Sale and Servicing Agreement shall terminate
eighteen months after the payment to Securityholders of all amounts required to
be paid to them pursuant to the Trust Agreement and the Sale and Servicing
Agreement and the disposition of all property held as part of the Trust. The
Seller or the Master Servicer may at their option purchase the corpus of the
Trust at a price specified in the Sale and Servicing Agreement, and such
purchase of the Home Loans and other property of the Trust will effect early
retirement of the Certificates; however, such right of purchase is exercisable
only on a Distribution Date on which the Pool Principal Balance is less than or
equal to 10% of the Original Pool Principal Balance.
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity, including an insurance company separate account or general account,
whose underlying assets include plan assets by reason of a plan's investment in
the entity (each, a "Benefit Plan"). By accepting and holding this Certificate,
the Holder hereof shall be deemed to have represented and warranted that it is
not a Benefit Plan.
A-6
<PAGE> 57
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
- -------------------------------------------------------------------- Attorney to
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:_____________
*/
---------------------------------------------
Signature Guaranteed:
*/
---------------------------------------------
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-7
<PAGE> 58
EXHIBIT B
TO THE TRUST AGREEMENT
[FORM OF RESIDUAL INSTRUMENT]
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INSTRUMENT HAS
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL INSTRUMENT MAY BE
DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF (INCLUDING
PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) A PERSON
INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF SUCH A
PERSON WITHIN THE MEANING OF RULE 3A-7 OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED (INCLUDING, BUT NOT LIMITED TO, MEGO MORTGAGE CORPORATION) IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH
LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL INSTRUMENT UNDER THE ACT
OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS RESIDUAL INSTRUMENT OR ANY BENEFICIAL INTEREST THEREIN SHALL
BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM
THE TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT A PERSON WHICH IS
AN EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR SECTION 4975 OF
THE CODE OR A GOVERNMENTAL PLAN, DEFINED IN SECTION 3(32) OF ERISA SUBJECT TO
ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE
FOREGOING PROVISIONS OF ERISA OR THE CODE (ANY SUCH PERSON BEING A "PLAN") AND
(II) IS NOT AN ENTITY, INCLUDING AN INSURANCE COMPANY SEPARATE ACCOUNT OR
GENERAL ACCOUNT, WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A
PLAN'S INVESTMENT IN THE ENTITY.
[THIS AGREEMENT IS NONTRANSFERABLE. NOTWITHSTANDING ANYTHING HEREIN OR IN THE
TRUST AGREEMENT TO THE CONTRARY, ANY ATTEMPTED TRANSFER OF THIS RESIDUAL
INSTRUMENT SHALL BE NULL AND VOID FOR ALL PURPOSES.]
B-1
<PAGE> 59
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3
RESIDUAL INSTRUMENT
No. _____
THIS CERTIFIES THAT __________________________________ (the "Owner") is
the registered owner of a _____% residual interest in MEGO MORTGAGE HOME LOAN
OWNER TRUST 1997-3 (the "Trust") existing under the laws of the State of
Delaware and created pursuant to the Trust Agreement dated as of June 14, 1997
(the "Trust Agreement") between FINANCIAL ASSET SECURITIES CORP., as Depositor,
MEGO MORTGAGE CORPORATION, as the Company, WILMINGTON TRUST COMPANY, not in its
individual capacity but solely in its fiduciary capacity as owner trustee under
the Trust Agreement (the "Owner Trustee") and First Bank National Association,
as Co-Owner Trustee (the "Co-Owner Trustee"). Initially capitalized terms used
but not defined herein have the meanings assigned to them in the Trust
Agreement. The Owner Trustee, on behalf of the Issuer and not in its individual
capacity, has executed this Residual Instrument by one of its duly authorized
signatories as set forth below. This Residual Instrument is one of the Residual
Instruments referred to in the Trust Agreement and is issued under and is
subject to the terms, provisions and conditions of the Trust Agreement to which
the holder of this Residual Instrument by virtue of the acceptance hereof agrees
and by which the holder hereof is bound. Reference is hereby made to the Trust
Agreement and the Sale and Servicing Agreement for the rights of the holder of
this Residual Instrument, as well as for the terms and conditions of the Trust
created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Residual Instrument [except in accordance with terms and provisions of the
Agreement].
B-2
<PAGE> 60
THIS RESIDUAL INSTRUMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Residual Instrument to be duly
executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST
1997-3
By: Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee under the Trust
Agreement
By:_________________________________________________
Authorized Signatory
DATED: June 27, 1997
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Trust Agreement.
First Bank National Association, as
Administrator and Authenticating Agent
By:_________________________________________________
Authorized Signatory
B-3
<PAGE> 61
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
- -------------------------------------------------------------------- Attorney to
transfer said Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:_____________
*/
---------------------------------------------
Signature Guaranteed:
*/
---------------------------------------------
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
B-4
<PAGE> 62
EXHIBIT C
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-3
THIS Certificate of Trust of MEGO MORTGAGE HOME LOAN OWNER TRUST 1997- 3
(the "Trust"), dated as of June 14, 1997, is being duly executed and filed by
Wilmington Trust Company, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, Section 3801
et seq.).
1. Name. The name of the business trust formed hereby is MEGO MORTGAGE
HOME LOAN OWNER TRUST 1997-3.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is Wilmington Trust Company of Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890.
Attention:___________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under a Trust Agreement dated as
of June 14, 1997.
By______________________________________
Name:
Title:
B-1
<PAGE> 63
EXHIBIT D
TO THE TRUST AGREEMENT
(Form of Certificate Depository Agreement)
B-2
<PAGE> 64
EXHIBIT E
TRANSFER CERTIFICATE
First Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance/Mego Mortgage Home Loan Owner Trust 1997-3
Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Re: Trust Agreement, dated as of June 14, 1997, among Mego Mortgage
Corporation, Financial Asset Securities Corp., First Bank National
Association and Wilmington Trust Company, as Owner Trustee; Mego
Mortgage Home Loan Owner Trust 1997-3 Home Loan Asset-Backed
Notes and Certificates, Series 1997-3
Ladies and Gentlemen:
The undersigned (the "Transferee") has agreed to purchase from__________
___________ (the "Transferor") the following:
[Insert Residual Instrument(s) to be transferred]
A. Rule 144A "Qualified Institutional Buyers" should complete this
section
I. The Transferee is (check one):
____ (i) An insurance company, as defined in Section 2(13) of the
Securities Act of 1933, as amended (the "Securities Act"), (ii)
an investment company registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), (iii) a
business development company as defined in Section 2(a)(48) of
the Securities Act, (iv) a Small Business Investment Company
licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958, (v)
a plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, (vi)
an employee benefit plan within the
E-1
<PAGE> 65
meaning of Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), (vii) a business development
company as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940, (viii) an organization described in
Section 501(c)(3) of the Internal Revenue Code, corporation
(other than a bank as defined in Section 3(a)(2) of the
Securities Act or a savings and loan association or other
institution referenced in Section 3(a)(2) of the Securities Act
or a foreign bank or savings and loan association or equivalent
institution), partnership, or Massachusetts or similar business
trust; or (ix) an investment advisor registered under the
Investment Advisors Act of 1940, which, for each of (i) through
(ix), owns and invests on a discretionary basis at least $100
million in securities other than securities of issuers
affiliated with the Transferee, securities issued or guaranteed
by the United States or a person controlled or supervised by and
acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the
United States, bank deposit notes and certificates of deposit,
loan participations, repurchase agreements, securities owned but
subject to a repurchase agreement, and currency, interest rate
and commodity swaps (collectively, "Excluded Securities");
____ a dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that in
the aggregate owns and invests on a discretionary basis at least
$10 million of securities other than Excluded Securities and
securities constituting the whole or part of an unsold allotment
to, or subscription by, Transferee as a participant in a public
offering;
____ an investment company registered under the Investment Company
Act that is part of a family of investment companies (as defined
in Rule 144A of the Securities and Exchange Commission) which
own in the aggregate at least $100 million in securities other
than Excluded Securities and securities of issuers that are part
of such family of investment companies;
____ an entity, all of the equity owners of which are entities
described in this Paragraph A(I);
____ a bank as defined in Section 3(a)(2) of the Securities Act, any
savings and loan association or other institution as referenced
in Section 3(a)(5)(A) of the Securities Act, or any foreign bank
or savings and loan association or equivalent institution that
in the aggregate owns and invests on a discretionary basis at
least $100 million in securities other than Excluded Securities
and has an audited net worth of at least $25 million as
demonstrated in its latest annual financial statements, as of a
date not more than 16 months preceding the date of transfer of
the Residual Instruments
E-2
<PAGE> 66
to the Transferee in the case of a U.S. Bank or savings and loan
association, and not more than 18 months preceding such date in
the case of a foreign bank or savings association or equivalent
institution.
II. The Transferee is acquiring such Residual Instruments solely for its
own account, for the account of one or more others, all of which are "Qualified
Institutional Buyers" within the meaning of Rule 144A, or in its capacity as a
dealer registered pursuant to Section 15 of the Exchange Act acting in a
riskless principal transaction on behalf of a "Qualified Institutional Buyer".
The Transferee is not acquiring such Residual Instruments with a view to or for
the resale, distribution, subdivision or fractionalization thereof which would
require registration of the Residual Instruments under the Securities Act.
B. "Accredited Investors" should complete this Section
I. The Transferee is (check one):
____ a bank within the meaning of Section 3(a)(2) of the Securities
Act;
____ a savings and loan association or other institution defined in
Section 3(a)(5) of the Securities Act;
____ a broker or dealer registered pursuant to the Exchange Act;
____ an insurance company within the meaning of Section 2(13) of the
Securities Act;
____ an investment company registered under the Investment Company
Act;
____ an employee benefit plan within the meaning of Title I of ERISA,
which has total assets in excess of $5,000,000;
____ another entity which is an "accredited investor" within the
meaning of paragraph (fill in) of subsection (a) of Rule 501 of
the Securities and Exchange Commission.
II. The Transferee is acquiring such Residual Instruments solely for its
own account, for investment, and not with a view to or for the resale,
distribution, subdivision or fractionalization thereof which would require
registration of the Residual Instruments under the Securities Act.
C. If the Transferee is unable to complete one of paragraph A(I) or
paragraph B(I) above, the Transferee must furnish an opinion in form and
substance satisfactory to the Trustee of counsel satisfactory to the Trustee to
the effect that such purchase will not violate any applicable federal or state
securities laws.
E-3
<PAGE> 67
[To be completed by any Transferee acquiring an interest in
Residual Instruments or the Certificates]
D. The Transferee represents that it is not (A) an "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 19974, as amended ("ERISA"), or (B) a "plan" within the meaning
of Section 4975(e)(1) of the Code (any such plan or employee benefit plan, a
"Plan") or (C) any entity, including an insurance company separate account or
general account, whose underlying assets include plan assets by reason of a
plan's investment in the entity and is not directly or indirectly purchasing
such Trust Security on behalf of, as investment manager of, as named fiduciary
of, as trustee of, or with assets of a Plan.
[By its acceptance of a Residual Instrument, each Prospective Owner
thereof agrees and acknowledges that no legal or beneficial interest in all or
any portion of the Residual Instruments may be transferred directly or
indirectly to an individual, corporation, partnership or other person unless
such transferee is not a Non-U.S. Person (any such person being referred to
herein as a "Non-permitted Foreign Holder"), and any such purported transfer
shall be void and have no effect.]
(iii) the Transferee is an "accredited investor" as defined in
Rule 501(a) of Regulation D pursuant to the 1933 Act.
Very truly yours,
[NAME OF PURCHASER]
By:________________________
Title:_____________________
Dated:
THE FOREGOING IS ACKNOWLEDGED THIS ____ DAY OF __________, 199_.
[NAME OF SELLER]
By:________________________
Title:_____________________
E-4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 16,220
<SECURITIES> 0
<RECEIVABLES> 74,695
<ALLOWANCES> 10,288
<INVENTORY> 36,822
<CURRENT-ASSETS> 0
<PP&E> 40,548
<DEPRECIATION> 15,253
<TOTAL-ASSETS> 265,054
<CURRENT-LIABILITIES> 0
<BONDS> 99,027
0
0
<COMMON> 187
<OTHER-SE> 47,211
<TOTAL-LIABILITY-AND-EQUITY> 265,054
<SALES> 36,105
<TOTAL-REVENUES> 97,943
<CGS> 4,992
<TOTAL-COSTS> 32,071
<OTHER-EXPENSES> 53,084
<LOSS-PROVISION> 12,601
<INTEREST-EXPENSE> 10,493
<INCOME-PRETAX> 12,788
<INCOME-TAX> 1,221
<INCOME-CONTINUING> 11,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,074<F1>
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
<FN>
<F1>Excludes 1,493 of income associated with minority interest
</FN>
</TABLE>
