- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: November 25, 1997
(Date of earliest event reported)
MERRILL LYNCH MORTGAGE INVESTORS INC. (as depositor under the Trust Agreement,
dated as of November 1, 1997, and pursuant to which an Indenture was entered
into, providing for, inter alia, the issuance of NovaStar Home-Equity Loan
Asset-Backed Bonds, Series 1997-2)
Merrill Lynch Mortgage Investors, Inc.
--------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 333-24327 13-3416059
- -------- --------- ----------
(State or Other Juris- (Commission (I.R.S. Employer
diction of Incorporation) File Number) Identification No.)
250 Vesey Street World Financial Center,
North Tower-10th Floor,
New York, New York 10281
- ------------------ -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:(212) 449-1000
- --------------------------------------------------------------------------------
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information And Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits:
4.3 Servicing Agreement dated as of November 1, 1997 among NovaStar
Mortgage, Inc., as master servicer,, the NovaStar Home Equity Loan Trust Series
1997-2, as issuer and First Union National Bank, as indenture trustee.
4.4 Amended and Restated Trust Agreement dated as of November 1, 1997
between Merrill Lynch Mortgage Investors Inc., as depositor and Wilmington Trust
Company, as owner trustee.
4.5 Indenture dated as of November 1, 1997 between Home Equity Loan
Trust Series 1997-2, as issuer and First Union National Bank, as indenture
trustee.
10.1 Ownership Transfer Agreement dated as of December 3, 1997 by
Merrill Lynch Mortgage Investors Inc., as transferee and NovaStar Assets Corp.,
as transferor.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERRILL LYNCH MORTGAGE INVESTORS INC.
By: /s/ Peter Cerwin
---------------------------------
Name: Peter Cerwin
Title: Vice President
Dated: December 24, 1997
EXHIBIT 4.3
<PAGE>
================================================================================
NOVASTAR MORTGAGE, INC.,
as Servicer,
FIRST UNION NATIONAL BANK,
as Indenture Trustee,
and
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2,
as Issuer
----------------------
SERVICING AGREEMENT
Dated as of November 1, 1997
----------------------
Fixed and Adjustable-Rate Home Equity Loans
NovaStar Home Equity Loan Asset-Backed Bonds, Series 1997-2
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
Section 1.01. Definitions.................................................-1-
Section 1.02. Other Definitional Provisions...............................-2-
Section 1.03. Interest Calculations.......................................-2-
ARTICLE II
Representations and Warranties
Section 2.01. Representations And Warranties Regarding The Servicer.......-3-
Section 2.02. Existence...................................................-4-
Section 2.03. Enforcement Of Representations And Warranties...............-4-
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. Servicer To Assure Servicing................................-6-
Section 3.02. Subservicing Agreements Between Servicer And
Subservicers..............................................-7-
Section 3.03. Successor Subservicers......................................-8-
Section 3.04. Liability Of The Servicer...................................-8-
Section 3.05. Assumption Or Termination Of Subservicing Agreements
By Indenture Trustee .....................................-9-
Section 3.06. Collection Of Mortgage Loan Payments; Collection
Account......................................-9-
Section 3.07. Withdrawals From The Collection Account.....................-11-
Section 3.08. Collection Of Taxes, Assessments And Similar Items;
Servicing Accounts.......................-13-
Section 3.09. Access To Certain Documentation And Information
Regarding The Mortgage Loans..............................-14-
Section 3.10. Superior Liens..............................................-14-
Section 3.11. Maintenance Of Hazard Insurance And Fidelity
Coverage..................................................-14-
Section 3.12. Due-on-sale Clauses; Assumption Agreements..................-16-
Section 3.13. Realization Upon Defaulted Mortgage Loans...................-17-
Section 3.14. Indenture Trustee To Cooperate; Release Of Mortgage Files...-18-
Section 3.15. Servicing Compensation......................................-20-
Section 3.16. Annual Statements Of Compliance.............................-20-
Section 3.17. Annual Independent Public Accountants' Servicing Report.....-20-
Section 3.18. Optional Purchase Of Defaulted Mortgage Loans...............-21-
Section 3.19. Information Required By The Internal Revenue Service
Generally And Reports Of Foreclosures And
Abandonments Of Mortgaged Property.........................-21-
i
<PAGE>
Page
----
ARTICLE IV
Remittance Reports
Section 4.01. Remittance Reports..........................................-22-
Section 4.02. Advances....................................................-22-
Section 4.03. Compensating Interest Payments..............................-23-
Article V
The Servicer
Section 5.01. Liability Of The Servicer...................................-24-
Section 5.02. Merger Or Consolidation Of, Or Assumption Of The
Obligations Of, The Servicer...............................-24-
Section 5.03. Limitation On Liability Of The Servicer And Others..........-24-
Section 5.04. Servicer Not To Resign......................................-25-
Section 5.05. Delegation Of Duties........................................-25-
Section 5.06. Servicer To Pay Indenture Trustee's And Owner Trustee's
Fees And Expenses; Indemnification.........................-26-
Article VI
Default
Section 6.01. Servicing Default...........................................-28-
Section 6.02. Indenture Trustee To Act; Appointment Of Successor..........-31-
Section 6.03. Notification To Bondholders.................................-32-
Section 6.04. Waiver Of Defaults..........................................-32-
Article VII
Administrative Duties Of The Servicer
Section 7.01. Administrative Duties.......................................-33-
Section 7.02. Records.....................................................-34-
Section 7.03. Additional Information To Be Furnished......................-34-
Article VIII
Miscellaneous Provisions
Section 8.01. Amendment...................................................-35-
ii
<PAGE>
Page
----
Section 8.02. Governing Law...............................................-35-
Section 8.03. Notices.....................................................-35-
Section 8.04................................................-37-
Section 8.05. Third-party Beneficiaries...................................-37-
Section 8.06. Counterparts................................................-37-
Section 8.07. Effect Of Headings And Table Of Contents....................-37-
Section 8.08. Termination.................................................-37-
Section 8.09. No Petition.................................................-37-
Section 8.10. No Recourse.................................................-37-
EXHIBIT A - MORTGAGE LOAN SCHEDULE..........................................A-1
EXHIBIT B - FORM OF REQUEST FOR RELEASE.....................................B-1
EXHIBIT C - FORM OF LIQUIDATION REPORT......................................C-1
iii
<PAGE>
This Servicing Agreement, dated as of November 1, 1997, among
NovaStar Mortgage, Inc., as Servicer (the "Servicer"), First Union National
Bank, as Indenture Trustee, and NovaStar Home Equity Loan Trust Series 1997-2,
as Issuer (the "Issuer").
W I T N E S S E T H T H A T:
----------------------------
WHEREAS, pursuant to the terms of the Home Equity Loan Purchase
Agreement, the Seller will sell (i) the Initial Mortgage Loans to the Transferor
on the Closing Date and (ii) the Subsequent Mortgage Loans to the Issuer on each
Subsequent Transfer Date;
WHEREAS, pursuant to the terms of the Ownership Transfer
Agreement, the Transferor will sell the Initial Mortgage Loans and transfer all
of its rights under the Home Equity Loan Purchase Agreement to the Company on
the Closing Date;
WHEREAS, the Company will sell the Initial Mortgage Loans and
transfer all of its rights under the Ownership Transfer Agreement and the Home
Equity Loan Purchase Agreement to the Issuer on the Closing Date;
WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer
will issue and transfer to or at the direction of the Transferor the
Certificates;
WHEREAS, pursuant to the terms of the Certificates Sale Agreement,
the Transferor will sell the Certificates to NCFC;
WHEREAS, pursuant to the terms of the Indenture, the Issuer will
issue and transfer to or at the direction of the Company, the Bonds; and
WHEREAS, pursuant to the terms of this Servicing Agreement, the
Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Servicing Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Definitions contained in Appendix A to the
Indenture dated as of November 1, 1997 (the "Indenture") between the Issuer and
the Indenture Trustee, which Definitions are incorporated by reference herein.
All other capitalized terms used herein shall have the meanings specified
herein.
<PAGE>
Section 1.02. Other Definitional Provisions. (a) All terms defined in this
Servicing Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing 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
Servicing 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 Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Servicing Agreement shall refer to this Servicing Agreement as
a whole and not to any particular provision of this Servicing Agreement; Section
and Exhibit references contained in this Servicing Agreement are references to
Sections and Exhibits in or to this Servicing Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation".
(d) The definitions contained in this Servicing Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as the feminine and neuter genders of such terms.
(e) 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 interest hereunder
that are made in respect of the Principal Balance of a Mortgage Loan shall be
made in accordance with the terms of the related Mortgage Note and Mortgage. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
up.
-2-
<PAGE>
ARTICLE II
Representations and Warranties
Section 2.01. Representations And Warranties Regarding The Servicer. The
Servicer represents and warrants to the Issuer and for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Loans, the Bond Insurer and the
Bondholders, as of the Closing Date, that:
(i) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Virginia and has the
corporate power to own its assets and to transact the business in which it
is currently engaged. The Servicer is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which
the character of the business transacted by it or properties owned or
leased by it requires such qualification and in which the failure to so
qualify would have a material adverse effect on the business, properties,
assets, or condition (financial or other) of the Servicer or the validity
or enforceability of the Mortgage Loans;
(ii) The Servicer has the corporate power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of this Servicing Agreement. When executed and delivered, this
Servicing Agreement will constitute the legal, valid and bind ing
obligation of the Servicer enforceable in accordance with its terms, except
as enforce ment of such terms may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
by the availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity or
enforceability of this Servicing Agreement, except for such consent,
license, approval or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be;
(iv) The execution and delivery of this Servicing Agreement and
the performance of the transactions contemplated hereby by the Servicer
will not violate any provision of any existing law or regulation or any
order or decree of any court applicable to the Servicer or any provision of
the certificate of incorporation or bylaws of the Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement to
which the Servicer is a party or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Servicer threatened, against the Servicer or any of its
properties or with respect to this Servicing Agreement or the Bonds or the
Certificates which, to the knowledge of the Servicer, has
-3-
<PAGE>
a reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Servicing Agreement.
The foregoing representations and warranties shall survive any termination
of the Servicer hereunder.
Section 2.02. Existence. The Issuer will keep in full effect its existence,
rights and franchises as a business trust under the laws of the State of
Delaware and will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be neces sary to protect
the validity and enforceability of this Servicing Agreement.
Section 2.03. Enforcement Of Representations And Warranties. The Servicer,
on behalf of and subject to the direction of the Indenture Trustee, as pledgee
of the Mortgage Loans, or the Bond Insurer, shall enforce the representations
and warranties and related obligations for breaches thereof of the Seller
pursuant to the Home Equity Loan Purchase Agreement. Upon the discovery by the
Seller, NovaStar Assets, the Servicer, the Indenture Trustee, the Issuer, the
Owner Trustee, the Bond Insurer or the Company of a breach of any of the
representations and warranties made in the Home Equity Loan Purchase Agreement,
in respect of any Mortgage Loan which materially and adversely affects the value
of the related Mortgage Loan or the interests of the Bondholders or the
Certificateholders or the Bond Insurer, the party discovering such breach shall
give prompt written notice to the other parties. The Servicer shall promptly
notify the Seller of such breach and request that, pursuant to the terms of the
Home Equity Loan Purchase Agreement, the Seller either (i) cure such breach in
all material respects or (ii) purchase such Mortgage Loan, in each instance in
accordance with the Home Equity Loan Purchase Agreement; PROVIDED that the
Seller shall, subject to the conditions set forth in the Home Equity Loan
Purchase Agreement, have the option to substitute an Eligible Substitute
Mortgage Loan or Eligible Substitute Mortgage Loans for such Mortgage Loan.
Monthly Payments due with respect to Eligible Substitute Mortgage Loans in the
month of substitution shall not be part of the Trust Estate and will be retained
by the Servicer and remitted by the Servicer to the Seller on the next
succeeding Payment Date. For the month of substitution, distributions to the
Payment Account pursuant to the Servicing Agreement will include the Monthly
Payment due on a Deleted Mortgage Loan for such month and thereafter the Seller
shall be entitled to retain all amounts received in respect of such Deleted
Mortgage Loan. The Servicer shall amend or cause to be amended the Mortgage Loan
Schedule to reflect the removal of such Mortgage Loan and the substitution of
the Eligible Substitute Mortgage Loans and the Servicer shall promptly deliver
the amended Mortgage Loan Schedule to the related Subservicer, if any, the Bond
Insurer, the Owner Trustee and the Indenture Trustee.
In connection with the substitution of one or more Eligible Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will
determine the amount (such amount, a "Substitution Adjustment Amount"), if any,
by which the aggregate principal balance of all such Eligible Substitute
Mortgage Loans as of the date of substitution is less than the aggregate
principal balance of all such Deleted Mortgage Loans (after application of the
principal portion of the Monthly Payments due in the month of substitution that
are to be distributed to the Payment Account in the month of substitution). The
Seller shall pay the Substitution Adjustment Amount
-4-
<PAGE>
to the Servicer and the Servicer shall deposit such Substitution Adjustment
Amount into the Collection Account upon receipt.
It is understood and agreed that the obligation of the Seller to cure such
breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Issuer and the Indenture Trustee, as
pledgee of the Mortgage Loans, against the Seller, except as set forth in
Section 6.1 of the Home Equity Loan Purchase Agreement. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the Issuer
shall assign to the Seller all of its right, title and interest in respect of
the Home Equity Loan Purchase Agreement applicable to such Mortgage Loan. Upon
receipt of the Repurchase Price, or upon completion of such substitution, the
Servicer shall notify the Indenture Trustee and then the Indenture Trustee shall
deliver the Mortgage Files relating to such Mortgage Loan to the Servicer,
together with all relevant endorse ments and assignments prepared by the
Servicer which the Indenture Trustee shall execute.
-5-
<PAGE>
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. Servicer To Assure Servicing. (a) The Servicer shall
supervise, or take such actions as are necessary to ensure, the servicing and
administration of the Mortgage Loans and any REO Property in accordance with
this Servicing Agreement and its normal servicing practices, which generally
shall conform to the standards of an institution prudently servicing mortgage
loans for its own account and shall have full authority to do anything it
reasonably deems appropriate or desirable in connection with such servicing and
administration. The Servicer may perform its responsibilities relating to
servicing through other agents or independent contractors, but shall not thereby
be released from any of its responsibilities as hereinafter set forth. The
authority of the Servicer, in its capacity as Servicer, and any Subservicer
acting on its behalf, shall include, without limitation, the power to (i)
consult with and advise any Subservicer regarding administration of a related
Mortgage Loan, (ii) approve any recommendation by a Subservicer to foreclose on
a related Mortgage Loan, (iii) supervise the filing and collection of insurance
claims and take or cause to be taken such actions on behalf of the insured
Person thereunder as shall be reasonably necessary to prevent the denial of
coverage thereunder, and (iv) effectuate foreclosure or other conversion of the
ownership of the Mortgaged Property securing a related Mortgage Loan, including
the employment of attorneys, the institution of legal proceedings, the
collection of deficiency judgments, the acceptance of compromise proposals and
any other matter pertaining to a delinquent Mortgage Loan. The authority of the
Servicer shall include, in addition, the power on behalf of the Bondholders, the
Indenture Trustee, the Bond Insurer or any of them to (i) execute and deliver
customary consents or waivers and other instruments and documents, (ii) consent
to transfer of any related Mortgaged Property and assumptions of the related
Mortgage Notes and Security Instruments (in the manner provided in this
Servicing Agreement) and (iii) collect any Insurance Proceeds and Liquidation
Proceeds. Without limiting the generality of the foregoing, the Servicer and any
Subservicer acting on its behalf may, and is hereby authorized, and empowered by
the Indenture Trustee when the Servicer believes it is reasonably necessary in
its best judgment in order to comply with its servicing duties hereunder, to
execute and deliver, on behalf of itself, the Bondholders, the Indenture
Trustee, the Bond Insurer or any of them, any instruments of satisfaction,
cancellation, partial or full release, discharge and all other comparable
instruments, with respect to the related Mortgage Loans, the Insurance Policies
and the accounts related thereto, and the Mortgaged Properties. The Servicer may
exercise this power in its own name or in the name of a Subservicer. The
Servicer will not waive any prepayment penalties without the consent of the Bond
Insurer.
The Servicer, in such capacity, may not consent to the placing of a lien
senior to that of the Mortgage on the related Mortgaged Property other than any
first lien which is prior to the Mortgage Loan on the related Mortgaged Property
as of the Cut-off Date or Subsequent Cut-off Date, as applicable. If the
Mortgage relating to a Mortgage Loan had a lien senior to the Mortgage Loan on
the related Mortgaged Property as of the Cut-off Date, or the Subsequent Cutoff
Date in the case of a Subsequent Mortgage Loan, then the Servicer, in such
capacity, may consent to the refinancing of the prior senior lien; PROVIDED that
(i) the resulting Combined Loan- to-Value Ratio of such Mortgage Loan is no
higher than the Combined Loan-to-Value Ratio prior
-6-
<PAGE>
to such refinancing, (ii) the interest rate for the loan evidencing the
refinanced senior lien is no higher than the interest rate on the loan
evidencing the existing senior lien immediately prior to the date of such
refinancing; PROVIDED HOWEVER if the loan evidencing the existing senior lien
prior to the date of refinancing has an adjustable rate and the loan evidencing
the refinanced senior lien has a fixed rate, then the loan evidencing the
refinanced senior lien may be up to 2.0% higher than the then-current mortgage
rate of the loan evidencing the existing senior lien and (iii) the loan
evidencing the refinanced senior lien is not subject to negative amortization.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Servicing Agreement) to the Issuer and the Indenture Trustee
under this Servicing Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(b) Notwithstanding the provisions of Subsection 3.01(a), the Servicer
shall not take any action inconsistent with the interests of the Indenture
Trustee, the Bond Insurer or the Bondholders or with the rights and interests of
the Indenture Trustee, the Bond Insurer or the Bondholders under this Servicing
Agreement.
(c) The Indenture Trustee shall furnish the Servicer with any powers of
attorney and other documents in form as provided to it necessary or appropriate
to enable the Servicer to service and administer the related Mortgage Loans and
REO Property and the Indenture Trustee shall not be liable for the actions of
the Servicer or any Subservicers under such powers of attorney.
Section 3.02. Subservicing Agreements Between Servicer And Subservicers.
(a) The Servicer may enter into Subservicing Agreements with Subservicers for
the servicing and administration of the Mortgage Loans and for the performance
of any and all other activities of the Servicer hereunder. Each Subservicer
shall be either (i) an institution the accounts of which are insured by the FDIC
or (ii) another entity that engages in the business of originating or servicing
mortgage loans comparable to the Mortgage Loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Subservicer to perform its obligations
hereunder and under the Subservicing Agreement. Any Subservicing Agreement
entered into by the Servicer shall include the provision that such Subservicing
Agreement may be immediately terminated (i) (x) with cause and without any
termination fee by the Servicer hereunder and/or (y) without cause, in which
case the Servicer shall be solely responsible for any termination fee or penalty
resulting therefrom and (ii) at the option of the Bond Insurer upon the
termination or resignation of the Servicer hereunder, in which case the Servicer
shall be solely responsible for any termination fee or penalty resulting
therefrom. In addition, each Subservicing Agreement shall provide for servicing
of the Mortgage Loans consistent with the terms of this Servicing Agreement. The
Servicer and the Subservicers may enter into Subservicing Agreements and make
amendments to the Subservicing Agreements or enter into different forms of
Subservicing Agreements providing for, among other things, the delegation by the
Servicer to a Subservicer of additional duties regarding the administration of
the Mortgage Loans; provided, however, that any such amendments or different
forms shall be consistent with and not violate the
-7-
<PAGE>
provisions of this Servicing Agreement, and that no such amendment or different
form shall be made or entered into which could be reasonably expected to be
materially adverse to the interests of the Bond Insurer or the Bondholders,
without the consent of the Bond Insurer or, if a Bond Insurer Default exists,
the holders of at least 51% of the aggregate Bond Principal Balance of the
Outstanding Bonds.
(b) As part of its servicing activities hereunder, the Servicer, for the
benefit of the Indenture Trustee, the Bond Insurer and the Bondholders, shall
enforce the obligations of each Subservicer under the related Subservicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims, termination of Subservicing Agreements and the pursuit of
other appropriate remedies, shall be in such form and carried out to such an
extent and at such time as the Servicer, in its good faith business judgment,
would require were it the owner of the related Mortgage Loans. The Servicer
shall pay the costs of such enforcement at its own expense, but shall be
reimbursed therefor only (i) from a general recovery resulting from such
enforcement only to the extent, if any, that such recovery exceeds all amounts
due in respect of the related Mortgage Loan or (ii) from a specific recovery of
costs, expenses or attorneys' fees against the party against whom such
enforcement is directed.
Section 3.03. Successor Subservicers. The Servicer shall be entitled to
terminate any Subservicing Agreement that may exist in accordance with the terms
and conditions of such Subservicing Agreement and without any limitation by
virtue of this Servicing Agreement; PROVIDED, HOWEVER, that upon termination,
the Servicer shall either act as servicer of the related Mortgage Loans or enter
into an appropriate contract with a successor Subservicer reasonably acceptable
to the Indenture Trustee and the Bond Insurer pursuant to which such successor
Subservicer will be bound by all relevant terms of the related Subservicing
Agreement pertaining to the servicing of such Mortgage Loan.
Section 3.04. Liability Of The Servicer. (a) Notwithstanding any
Subservicing Agreement, any of the provisions of this Servicing Agreement
relating to agreements or arrangements between the Servicer and a Subservicer or
reference to actions taken through a Subservicer or otherwise, the Servicer
shall under all circumstances remain obligated and primarily liable to the
Indenture Trustee, the Bondholders and the Bond Insurer for the servicing and
administering of the Mortgage Loans and any REO Property in accordance with this
Servicing Agreement. The obligations and liability of the Servicer shall not be
diminished by virtue of Subservicing Agreements or by virtue of indemnification
of the Servicer by any Subservicer, or any other Person. The obligations and
liability of the Servicer shall remain of the same nature and under the same
terms and conditions as if the Servicer alone were servicing and administering
the related Mortgage Loans. The Servicer shall, however, be entitled to enter
into indemnification agreements with any Subservicer or other Person and nothing
in this Servicing Agreement shall be deemed to limit or modify such
indemnification. For the purposes of this Servicing Agreement, the Servicer
shall be deemed to have received any payment on a Mortgage Loan on the date the
Subservicer received such payment; PROVIDED, HOWEVER, that this sentence shall
not apply to the Indenture Trustee acting as the Servicer; PROVIDED, FURTHER,
however, that the foregoing provision shall not affect the obligation of the
Servicer if it is also the Indenture Trustee to advance amounts which are not
Nonrecoverable Advances.
-8-
<PAGE>
(b) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone, and the Indenture Trustee, the Bond
Insurer and the Bondholders shall not be deemed parties thereto and shall have
no claims, rights, obligations, duties or liabilities with respect to the
Subservicer except as set forth in Section 3.05.
Section 3.05. Assumption Or Termination Of Subservicing Agreements By
Indenture Trustee. (a) If the Indenture Trustee or its designee shall assume the
servicing obligations of the Servicer in accordance with Section 6.02 below, the
Indenture Trustee, to the extent necessary to permit the Indenture Trustee to
carry out the provisions of Section 6.02 with respect to the Mortgage Loans,
shall succeed to all of the rights and obligations of the Servicer under each of
the Subservicing Agreements. In such event, the Indenture Trustee or its
designee as the successor Servicer shall be deemed to have assumed all of the
Servicer's rights and obligations therein and to have replaced the Servicer as a
party to such Subservicing Agreements to the same extent as if such Subservicing
Agreements had been assigned to the Indenture Trustee or its designee as a
successor Servicer, except that the Indenture Trustee or its designee as a
successor Servicer shall not be deemed to have assumed any obligations or
liabilities of the Servicer arising prior to such assumption and the Servicer
shall not thereby be relieved of any liability or obligations under such
Subservicing Agreements arising prior to such assumption. Nothing in the
foregoing shall be deemed to entitle the Indenture Trustee or its designee as a
successor Servicer at any time to receive any portion of the servicing
compensation provided under Section 3.15 except for such portion as the Servicer
would be entitled to receive.
(b) In the event that the Indenture Trustee or its designee as successor
Servicer for the Indenture Trustee assumes the servicing obligations of the
Servicer under Section 6.02, upon the request of the Indenture Trustee or such
designee as successor Servicer, the Servicer shall at its own expense deliver to
the Indenture Trustee, or at its written request to such designee, originals or,
if originals are not available, photocopies of all documents, files and records,
electronic or otherwise, relating to the Subservicing Agreements and the related
Mortgage Loans or REO Property then being serviced and an accounting of amounts
collected and held by it, if any, and will otherwise cooperate and use its
reasonable efforts to effect the orderly and efficient transfer of the
Subservicing Agreements, or responsibilities hereunder to the Indenture Trustee,
or at its written request to such designee as successor Servicer.
Section 3.06. Collection Of Mortgage Loan Payments; Collection Account. (a)
The Servicer will coordinate and monitor remittances by Subservicers to it with
respect to the Mortgage Loans in accordance with this Servicing Agreement.
(b) The Servicer shall make its best reasonable efforts to collect or cause
to be collected all payments required under the terms and provisions of the
Mortgage Loans and shall follow, and use its best reasonable efforts to cause
Subservicers to follow, collection procedures comparable to the collection
procedures of prudent mortgage lenders servicing mortgage loans for their own
account to the extent such procedures shall be consistent with this Servicing
Agreement. Consistent with the foregoing, the Servicer or the related
Subservicer may in its discretion (i)
-9-
<PAGE>
waive or permit to be waived any late payment charge, prepayment charge,
assumption fee, or any penalty interest in connection with the prepayment of a
Mortgage Loan and (ii) suspend or reduce or permit to be suspended or reduced
regular monthly payments for a period of up to six months, or arrange or permit
an arrangement with a Mortgagor for a scheduled liquidation of delinquencies;
provided, however, that the Servicer or the related Subservicer may permit the
foregoing only if it believes, in good faith, that recoveries of Monthly
Payments will be maximized; provided further, however, that the Servicer may not
without the prior written consent of the Bond Insurer permit any waiver,
modification or variance which would (a) change the loan rate, (b) forgive any
payment of principal or interest, (c) lessen the lien priority or (d) extend the
final maturity date of a Mortgage Loan past 12 months prior to the final
maturity date on the Bonds. In the event the Servicer or related Subservicer
shall consent to the deferment of the due dates for payments due on a Mortgage
Note, the Servicer shall nonetheless make an Advance or shall cause the related
Subservicer to make an advance to the same extent as if such installment were
due, owing and delinquent and had not been deferred through liquidation of the
Mortgaged Property; PROVIDED, HOWEVER, that the obligation of the Servicer or
the related Subservicer to make an Advance shall apply only to the extent that
the Servicer believes, in good faith, that such advances are not Nonrecoverable
Advances.
(c) Within five Business Days (i) after the Servicer has determined that
all amounts which it expects to recover from or on account of a Mortgage Loan
have been recovered and that no further Liquidation Proceeds will be received in
connection therewith, or (ii) in the case of a Mortgage Loan secured by a second
lien of which any portion of a Scheduled Monthly Payment of principle and
interest is in excess of 180 days past due the Servicer shall provide to (i) the
Indenture Trustee a certificate of a Servicing Officer that such Mortgage Loan
became a Liquidated Mortgage Loan as of the date of such determination and (ii)
the Bond Insurer and the Indenture Trustee a Liquidation Report in the form
attached hereto as Exhibit C.
(d) The Servicer shall establish a segregated account in the name of the
Indenture Trustee (the "COLLECTION ACCOUNT"), which shall be an Eligible
Account, in which the Servicer shall deposit or cause to be deposited any
amounts representing payments on and any collections in respect of the Initial
Mortgage Loans received by it after the Cut-Off Date or, with respect to the
Subsequent Mortgage Loans, the Subsequent Cut-off Date (other than in respect of
the payments referred to in the following paragraph) within two Business Days
following receipt thereof, including the following payments and collections
received or made by it (without duplication):
(i) all payments of principal of or interest on the Mortgage Loans
received by the Servicer after the Cut-off Date or the Subsequent Cut-off
Date directly from Mortgagors or from the respective Subservicer;
(ii) the aggregate Repurchase Price of the Mortgage Loans
purchased by the Servicer pursuant to Section 3.18;
(iii) Net Liquidation Proceeds;
-10-
<PAGE>
(iv) all proceeds of any Mortgage Loans repurchased by the Seller
pursuant to the Home Equity Loan Purchase Agreement, and all Substitution
Adjustment Amounts required to be deposited in connection with the
substitution of an Eligible Substitute Mortgage Loan pursuant to the Home
Equity Loan Purchase Agreement;
(v) Insurance Proceeds, other than Net Liquidation Proceeds,
resulting from any insurance policy maintained on a Mortgaged Property;
(vi) any Advance and any Compensating Interest payments; and
(vii) any other amounts received by the Servicer, including all
Foreclosure Profits, assumption fees, prepayment penalties and any other
fees that are required to be deposited in the Collection Account pursuant
to this Servicing Agreement.
Provided, however, that with respect to each Due Period, the Servicer shall be
permitted to retain from payments in respect of interest on the Mortgage Loans,
the Servicing Fee for such Due Period. The foregoing requirements respecting
deposits to the Collection Account are exclusive, it being understood that,
without limiting the generality of the foregoing, the Servicer need not deposit
in the Collection Account late payment charges payable by Mortgagors, as further
described in Section 3.15, or amounts received by the Subservicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items. In the event any amount not required to
be deposited in the Collection Account is so deposited, the Servicer may at any
time (prior to being terminated under this Servicing Agreement) withdraw such
amount from the Collection Account, any provision herein to the contrary
notwithstanding. The Servicer shall keep records that accurately reflect the
funds on deposit in the Collection Account that have been identified by it as
being attributable to the Mortgage Loans and shall hold all collections in the
Collection Account for the benefit of the Owner Trustee, the Indenture Trustee,
the Bondholders and the Bond Insurer, as their interests may appear.
Funds in the Collection Account may be invested in Eligible Investments,
but shall not be commingled with the Servicer's own funds or general assets or
with funds respecting payments on mortgage loans or with any other funds not
related to the Bonds. Income earned on such Eligible Investments shall be for
the account of the Servicer.
The Servicer will require each Subservicer to hold all funds constituting
collections on the Mortgage Loans, pending remittance thereof to the Servicer,
in one or more accounts in the name of the Indenture Trustee meeting the
requirements of an Eligible Account, and such funds shall not be invested. The
Subservicer shall segregate and hold all funds collected and received pursuant
to each Mortgage Loan separate and apart from any of its own funds and general
assets and any other funds. Each Subservicer shall make remittances to the
Servicer no later than one Business Day following receipt thereof and the
Servicer shall deposit any such remittances received from any Subservicer within
one Business Day following receipt by the Servicer.
Section 3.07. Withdrawals from the collection account. (a) The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on
-11-
<PAGE>
deposit therein pursuant to Section 3.06 that are attributable to the Mortgage
Loans for the following purposes (without duplication):
(i) to deposit in the Payment Account, by the fourth Business Day
prior to each Payment Date, all collections on the Mortgage Loans required
to be distributed from the Payment Account on a Payment Date;
(ii) to the extent deposited to the Collection Account, to
reimburse itself or the related Subservicer for previously unreimbursed
expenses incurred in maintaining individual insurance policies pursuant to
Section 3.11, or Liquidation Expenses, paid pursuant to Section 3.13, such
withdrawal right being limited to amounts received on particular Mortgage
Loans (other than any Repurchase Price in respect thereof) which represent
late recoveries of the payments for which such advances were made, or from
related Liquidation Proceeds;
(iii) to pay to itself out of each payment received on account of
interest on a Mortgage Loan as contemplated by Section 3.15, an amount
equal to the related Servicing Fee (to the extent not retained pursuant to
Section 3.06);
(iv) to pay to itself or the Seller, with respect to any Mortgage
Loan or property acquired in respect thereof that has been purchased by the
Seller, the Servicer or other entity, all amounts received thereon and not
required to be distributed to Bondholders as of the date on which the
related Repurchase Price is determined;
(v) to reimburse the Servicer or any Subservicer for any
unreimbursed Advance of its own funds or any unreimbursed advance of such
Subservicer's own funds, the right of the Servicer or a Subservicer to
reimbursement pursuant to this subclause (v) being limited to amounts
received on a particular Mortgage Loan (including, for this purpose, the
Repurchase Price therefor, Insurance Proceeds and Liquidation Proceeds)
which represent late payments or recoveries of the principal of or interest
on such Mortgage Loan respecting which such Advance or advance was made;
(vi) to reimburse the Servicer or any Subservicer from Insurance
Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan for
amounts expended by the Servicer or such Subservicer pursuant to Section
3.13 in good faith in connection with the restoration of the related
Mortgage Property which was damaged by the uninsured cause or in connection
with the liquidation of such Mortgage Loan;
(vii) to reimburse the Servicer or any Subservicer for any
unreimbursed Nonrecoverable Advance previously made, and otherwise not
reimbursed pursuant to this Subsection 3.07(a);
(viii) to pay the Owner Trustee, on the Payment Date occurring in
December of each year, the Owner Trustee Fee;
-12-
<PAGE>
(ix) to withdraw any other amount deposited in the Collection
Account that was not required to be deposited therein pursuant to Section
3.06;
(x) to reimburse the Servicer for costs associated with the
environmental report specified in Section 3.13(c);
(xi) to clear and terminate the Collection Account upon a
termination pursuant to Section 7.08; and
(xi) to pay to the Servicer income earned on Eligible Investments
in the Collection Account.
In connection with withdrawals pursuant to clauses (ii), (iii), (iv), (v) and
(vi), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, and the Servicer shall keep and
maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the
purpose of justifying any withdrawal from the Collection Account pursuant to
such clauses.
(b) Notwithstanding the provisions of this Section 3.07, the Servicer may,
but is not required to, allow the Subservicers to deduct from amounts received
by them or from the related account maintained by a Subservicer, prior to
deposit in the Collection Account, any portion to which such Subservicers are
entitled as reimbursement of any reimbursable Advances made by such
Subservicers.
Section 3.08. Collection of taxes, assessments and similar items; servicing
Accounts.
(a) The Servicer shall establish and maintain or cause the related
Subservicer to establish and maintain, one or more Servicing Accounts. The
Servicer or a Subservicer will deposit and retain therein all collections from
the Mortgagors for the payment of taxes, assessments, insurance premiums, or
comparable items as agent of the Mortgagors.
(b) The deposits in the Servicing Accounts shall be held in trust by the
Servicer or a Subservicer (and its successors and assigns) in the name of the
Indenture Trustee. Such Servicing Accounts shall be Eligible Accounts and, if
permitted by applicable law, invested in Eligible Investments held in trust by
the Servicer or a Subservicer as described above and maturing, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn, and in no event later than 45 days after the date of
investment; withdrawals of amounts from the Servicing Accounts may be made only
to effect timely payment of taxes, assessments, insurance premiums, or
comparable items, to reimburse the Servicer or a Subservicer for any advances
made with respect to such items, to refund to any Mortgagors any sums as may be
determined to be overages, to pay interest, if required, to Mortgagors on
balances in the Servicing Accounts or to clear and terminate the Servicing
Accounts at or any time after the termination of this Servicing Agreement.
Amounts received from Mortgagors for deposit into the Servicing Accounts shall
be deposited in the Servicing Accounts by the Servicer within two days of
receipt. The Servicer shall advance from its own funds amounts needed to pay
items payable
-13-
<PAGE>
from the Servicing Accounts if the Servicer reasonably believes that such
amounts are recoverable from the related Mortgagor. The Servicer shall comply
with all laws relating to the Servicing Accounts, including laws relating to
payment of interest on the Servicing Accounts. If interest earned by the
Servicer on the Servicing Accounts is not sufficient to pay required interest on
the Servicing Accounts, the Servicer shall pay the difference from its own
funds. The Servicing Accounts shall not be the property of the Issuer.
Section 3.09. Access To Certain Documentation And Information Regarding The
Mortgage Loans. The Servicer shall provide, and shall cause any Subservicer to
provide, to the Indenture Trustee, the Owner Trustee and the Bond Insurer access
to the documentation regarding the related Mortgage Loans and REO Property and
to the Bondholders, the FDIC, and the supervisory agents and examiners of the
FDIC (to which the Indenture Trustee shall also provide) access to the
documentation regarding the related Mortgage Loans required by applicable
regulations, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Servicer or the
Subservicers that are designated by these entities; PROVIDED, HOWEVER, that,
unless otherwise required by law, the Indenture Trustee, the Servicer or the
Subservicer shall not be required to provide access to such documentation if the
provision thereof would violate the legal right to privacy of any Mortgagor;
provided, further, however, that the Indenture Trustee, the Bond Insurer and the
Owner Trustee shall coordinate their requests for such access so as not to
impose an unreasonable burden on, or cause an unreasonable interruption of, the
business of the Servicer or any Subservicer. The Servicer, the Subservicers and
the Indenture Trustee shall allow representatives of the above entities to
photocopy any of the documentation and shall provide equipment for that purpose
at a charge that covers their own actual out-of-pocket costs.
Section 3.10. Superior Liens. If the Servicer is notified that any
lienholder under a Superior Lien has accelerated or intends to accelerate the
obligations secured by such Superior Lien, or has declared or intends to declare
a default under the related mortgage or the promissory note secured thereby, or
has filed or intends to file an election to have any Mortgaged Property sold or
foreclosed, the Servicer shall take, on behalf of the Issuer, the Bond Insurer
and the Indenture Trustee, reasonable actions to protect the interests of the
Securityholders and the Bond Insurer and/or to preserve the security of the
related Mortgage Loan consistent with the requirements of this Servicing
Agreement, provided that the Servicer shall not be required to make any
Servicing Advances to cure the default or reinstate the Superior Lien. The
Servicer shall promptly notify the Issuer, and the Bond Insurer and the
Indenture Trustee if it takes any such action.
Section 3.11. Maintenance Of Hazard Insurance And Fidelity Coverage. (a)
The Servicer shall maintain and keep, or cause each Subservicer to maintain and
keep, with respect to each Mortgage Loan and each REO Property, in full force
and effect hazard insurance (fire insurance with extended coverage) equal to at
least the lesser of the Principal Balance of the Mortgage Loan (or the combined
Principal Balance owing on such Mortgage Loan and any mortgage loan senior to
such Mortgage Loan) or the current replacement cost of the Mortgaged Property,
and containing a standard mortgagee clause, PROVIDED, HOWEVER, that the amount
of hazard insurance may not be less than the amount necessary to prevent loss
due to the application of any co-insurance provision of the related policy.
Unless applicable state law requires a higher deductible,
-14-
<PAGE>
the deductible on such hazard insurance policy may be no more than $1,500 or 1%
of the applicable amount of coverage, whichever is less. In the case of a
condominium unit or a unit in a planned unit development, the required hazard
insurance shall take the form of a multi-peril policy covering the entire
condominium project or planned unit development, in an amount equal to at least
100% of the insurable value based on replacement cost. If the Servicer shall
obtain and maintain a blanket policy consistent with its general mortgage
servicing activities from an insurer acceptable to the Bond Insurer insuring
against hazard losses on all of the Mortgage Loans, it shall conclusively be
deemed to have satisfied its obligations as set forth in this Section 3.11(a),
it being understood and agreed that such policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with this
Section 3.11(a) and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause without any
right of reimbursement. Any such deposit by the Servicer shall be made on the
last Business Day of the Due Period in the month in which payments under any
such policy would have been deposited in the Collection Account. In connection
with its activities as servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Issuer and the Indenture Trustee, claims under
any such blanket policy.
(b) Any amounts collected by the Servicer or a Subservicer under any such
hazard insurance policy (other than amounts to be applied to the restoration or
repair of the Mortgaged Property or amounts released to the Mortgagor in
accordance with the Servicer's or a Subservicer's normal servicing procedures,
the Mortgage Note, the Security Instrument or applicable law) shall be deposited
in the Collection Account.
(c) Any cost incurred by a Servicer or a Subservicer in maintaining any
such individual hazard insurance policies shall not be added to the amount owing
under the Mortgage Loan for the purpose of calculating monthly distributions to
Bondholders, notwithstanding that the terms of the Mortgage Loan so permit. Such
costs of maintaining individual hazard insurance policies shall be recoverable
by the Servicer or a Subservicer out of related late payments by the Mortgagor
or out of Insurance Proceeds or Liquidation Proceeds or by the Servicer from the
Repurchase Price, to the extent permitted by Section 3.07.
(d) No earthquake or other additional insurance is to be required of any
Mortgagor or maintained on property acquired with respect to a Security
Instrument other than pursuant to such applicable laws and regulations as shall
at any time be in force and shall require such additional insurance. When, at
the time of origination of the Mortgage Loan or at any subsequent time, the
Mortgaged Property is located in a federally designated special flood hazard
area, the Servicer shall use its best reasonable efforts to cause with respect
to the Mortgage Loans and each REO Property flood insurance (to the extent
available and in accordance with mortgage servicing industry practice) to be
maintained. Such flood insurance shall cover the Mortgaged Property, including
all items taken into account in arriving at the Appraised Value on which the
Mortgage Loan was based, and shall be in an amount equal to the lesser of (i)
the Principal Balance of the related Mortgage Loan and (ii) the minimum amount
required under the terms of coverage to compensate for any damage or loss on a
replacement cost basis, but not more than the maximum
-15-
<PAGE>
amount of such insurance available for the related Mortgaged Property under
either the regular or emergency programs of the National Flood Insurance Program
(assuming that the area in which such Mortgaged Property is located is
participating in such program). Unless applicable state law requires a higher
deductible, the deductible on such flood insurance may not exceed $1,500 or 1%
of the applicable amount of coverage, whichever is less.
(e) If insurance has not been maintained complying with Subsections 3.11
(a) and (d) and there shall have been a loss which would have been covered by
such insurance had it been maintained, the Servicer shall pay, or cause the
related Subservicer to pay, for any necessary repairs without any right of
reimbursement.
(f) The Servicer shall present, or cause the related Subservicer to
present, claims under any related hazard insurance or flood insurance policy.
(g) The Servicer shall obtain and maintain at its own expense, and shall
cause each Subservicer to obtain and maintain at its own expense, and for the
duration of this Servicing Agreement, a blanket fidelity bond and an errors and
omissions insurance policy covering the Servicer's and such Subservicer's
officers, employees and other persons acting on its behalf in connection with
its activities under this Servicing Agreement. The amount of coverage shall be
consistent with industry standards but in an amount not less than presently
maintained by the Servicer. The Servicer shall promptly notify the Indenture
Trustee and the Bond Insurer of any material change in the terms of such bond or
policy. The Servicer shall provide annually to the Indenture Trustee and the
Bond Insurer a certificate of insurance that such bond and policy are in effect.
If any such bond or policy ceases to be in effect, the Servicer shall, to the
extent possible, give the Indenture Trustee and the Bond Insurer ten days'
notice prior to any such cessation and shall use its reasonable best efforts to
obtain a comparable replacement bond or policy, as the case may be. Any amounts
relating to the Mortgage Loans collected under such bond or policy shall be
deposited in the Collection Account.
Section 3.12. Due-on-sale Clauses; Assumption Agreements. (a) In any case
in which the Servicer is notified by any Mortgagor or Subservicer that a
Mortgaged Property relating to a Mortgage Loan has been or is about to be
conveyed by the Mortgagor, the Servicer shall enforce, or shall instruct such
Subservicer to enforce, any due-on-sale clause contained in the related Security
Instrument to the extent permitted under the terms of the related Mortgage Note
and by applicable law. The Servicer or the related Subservicer may repurchase a
Mortgage Loan at the Repurchase Price when the Servicer requires acceleration of
the Mortgage Loan, but only if the Servicer is satisfied, as evidenced by an
Officer's Certificate delivered to the Indenture Trustee and the Bond Insurer,
that such Mortgage Loan is in default or default is reasonably foreseeable. If
the Servicer reasonably believes that such due-on-sale clause cannot be enforced
under applicable law or if the Mortgage Loan does not contain a due-on-sale
clause, the Servicer is authorized, and may authorize any Subservicer, to
consent to a conveyance subject to the lien of the Mortgage, and to take or
enter into an assumption agreement from or with the Person to whom such property
has been or is about to be conveyed, pursuant to which such Person becomes
liable under the related Mortgage Note and unless prohibited by applicable state
law, such Mortgagor remains liable thereon, on condition, however, that the
related Mortgage Loan shall continue to
-16-
<PAGE>
be covered by a hazard policy. In connection with any such assumption, no
material term of the related Mortgage Note may be changed. The Servicer shall
notify the Indenture Trustee and the Bond Insurer, whenever possible, before the
completion of such assumption agreement, and shall forward to the Indenture
Trustee the original copy of such assumption agreement, which copy shall be
added by the Indenture Trustee to the related Mortgage File and which shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof.
(b) Notwithstanding the foregoing paragraph or any other provision of this
Servicing Agreement, the Servicer shall not be deemed to be in default, breach
or any other violation of its obligations hereunder by reason of any assumption
of a Mortgage Loan by operation of law or any conveyance by the Mortgagor of the
related Mortgaged Property or assumption of a Mortgage Loan which the Servicer
reasonably believes it may be restricted by law from preventing, for any reason
whatsoever or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy.
Section 3.13. Realization Upon Defaulted Mortgage Loans. (a) The Servicer
shall, or shall direct the related Subservicer to, foreclose upon or otherwise
comparably convert the ownership of properties securing any Mortgage Loans that
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments pursuant to Section 3.06,
except that the Servicer shall not, and shall not direct the related Subservicer
to, foreclose upon or otherwise comparably convert a Mortgaged Property if there
is evidence of toxic waste or other environmental hazards thereon unless the
Servicer follows the procedures in Subsection (c) below. In connection with such
foreclosure or other conversion, the Servicer in conjunction with the related
Subservicer, if any, shall use its best reasonable efforts to preserve REO
Property and to realize upon defaulted Mortgage Loans in such manner as to
maximize the receipt of principal and interest by the Bondholders, taking into
account, among other things, the timing of foreclosure and the considerations
set forth in Subsection 3.13(b). The foregoing is subject to the proviso that
the Servicer shall not be required to expend its own funds in connection with
any foreclosure or towards the restoration of any property unless it determines
in good faith (i) that such restoration or foreclosure will increase the
proceeds of liquidation of the Mortgage Loan to Bondholders after reimbursement
to itself for such expenses and (ii) that such expenses will be recoverable to
it either through Liquidation Proceeds (respecting which it shall have priority
for purposes of reimbursements from the Collection Account pursuant to Section
3.07) or through Insurance Proceeds (respecting which it shall have similar
priority). The Servicer shall be responsible for all costs and expenses
constituting Liquidation Expenses incurred by it in any such proceedings;
PROVIDED, HOWEVER, that it shall be entitled to reimbursement thereof (as well
as its normal servicing compensation) as set forth in Section 3.07. Any income
from or other funds (net of any income taxes) generated by REO Property shall be
deemed for purposes of this Servicing Agreement to be Liquidation Proceeds.
Any subsequent collections with respect to any Liquidated Mortgage Loan
shall be deposited to the Collection Account. For purposes of determining the
amount of any Liquidation Proceeds or Insurance Proceeds, or other unscheduled
collections, the Servicer may take into
-17-
<PAGE>
account any estimated additional Liquidation Expenses expected to be incurred in
connection with the related defaulted Mortgage Loan.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Indenture Trustee, who shall hold the same on behalf of
the Issuer in accordance with the Indenture. Notwithstanding any such
acquisition of title and cancellation of the related Mortgage Loan, such
Mortgaged Property shall (except as otherwise expressly provided herein) be
considered to be an outstanding Mortgage Loan held as an asset of the Issuer
until such time as such property shall be sold.
(b) The Servicer shall not acquire any real property (or any personal
property incident to such real property) on behalf of the Trust Estate except in
connection with a default or reasonably foreseeable default of a Mortgage Loan.
In the event that the Servicer acquires any real property (or personal property
incident to such real property) on behalf of the Trust Estate in connection with
a default or imminent default of a Mortgage Loan, such property shall be
disposed of by the Servicer on behalf of the Trust Estate within two years after
its acquisition on behalf of the Trust Estate.
(c) With respect to any Mortgage Loan as to which the Servicer or a
Subservicer has received notice of, or has actual knowledge of, the presence of
any toxic or hazardous substance on the Mortgaged Property, the Servicer shall
promptly notify the Indenture Trustee, the Owner Trustee and the Bond Insurer
and shall act in accordance with any such directions and instructions provided
by the Bond Insurer, or if a Bond Insurer Default exists, by the Indenture
Trustee, as pledgee of the Issuer. Notwithstanding the preceding sentence of
this Section 3.13(c), with respect to any Mortgage Loan described by such
sentence, the Servicer shall, if requested by the Bond Insurer, obtain and
deliver to the Issuer, the Indenture Trustee and the Bond Insurer an
environmental audit report prepared by a Person who regularly conducts
environmental audits using customary industry standards. The Servicer shall be
entitled to reimbursement for such report pursuant to Section 3.07. If the Bond
Insurer or Indenture Trustee, as applicable, has not provided directions and
instructions to the Servicer in connection with any such Mortgage Loan within 30
days of a request by the Servicer for such directions and instructions, then the
Servicer shall take such action as it deems to be in the best economic interest
of the Trust Estate (other than proceeding against the Mortgaged Property) and
is hereby authorized at such time as it deems appropriate to release such
Mortgaged Property from the lien of the related Mortgage. The parties hereto
acknowledge that the Servicer shall not obtain on behalf of the Issuer a deed as
a result or in lieu of foreclosure, and shall not otherwise acquire possession
of or title to, or commence any proceedings to acquire possession of or title
to, or take any other action with respect to, any Mortgaged Property, if the
Owner Trustee could reasonably be considered to be a responsible party for any
liability arising from the presence of any toxic or hazardous substance on the
Mortgaged Property, unless the Owner Trustee has been indemnified to its
reasonable satisfaction against such liability.
Section 3.14. Indenture Trustee To Cooperate; Release Of Mortgage Files.
(a) Upon payment in full of any Mortgage Loan, the Servicer will immediately
notify the Indenture Trustee by a certification signed by a Servicing Officer
(which certification shall include a statement to
-18-
<PAGE>
the effect that all amounts received in connection with such payment which are
required to be deposited in the Collection Account have been so deposited) and
shall request delivery to the Servicer or Subservicer, as the case may be, of
the Mortgage File. Upon receipt of such certification and request, the Indenture
Trustee shall promptly release the related Mortgage File to the Servicer or
Subservicer and execute and deliver to the Servicer, without recourse, the
request for reconveyance, deed of reconveyance or release or satisfaction of
mortgage or such instrument releasing the lien of the Security Instrument
(furnished by the Servicer), together with the Mortgage Note with written
evidence of cancellation thereon.
(b) From time to time as is appropriate, for the servicing or foreclosure
of any Mortgage Loan or collection under an insurance policy, the Servicer may
deliver to the Indenture Trustee a Request for Release signed by a Servicing
Officer on behalf of the Servicer in substantially the form attached as Exhibit
B hereto. Upon receipt of the Request for Release, the Indenture Trustee shall
deliver the Mortgage File or any document therein to the Servicer or Sub
servicer, as the case may be, as bailee for the Indenture Trustee.
(c) The Servicer shall cause each Mortgage File or any document therein
released pursuant to Subsection 3.14(b) to be returned to the Indenture Trustee
when the need therefor no longer exists, and in any event within 21 days of the
Servicer's receipt thereof, unless the Mortgage Loan has become a Liquidated
Mortgage Loan and the Liquidation Proceeds relating to the Mortgage Loan have
been deposited in the Collection Account or such Mortgage File is being used to
pursue foreclosure or other legal proceedings. Prior to return of a Mortgage
File or any document to the Indenture Trustee, the Servicer, the related insurer
or Subservicer to whom such file or document was delivered shall retain such
file or document in its respective control as bailee for the Indenture Trustee
unless the Mortgage File or such document has been delivered to an attorney, or
to a public trustee or other public official as required by law, to initiate or
pursue legal action or other proceedings for the foreclosure of the Mortgaged
Property either judicially or non-judicially, and the Servicer has delivered to
the Indenture Trustee a certificate of a Servicing Officer certifying as to the
name and address of the Person to which such Mortgage File or such document was
delivered and the purpose or purposes of such delivery. If a Mortgage Loan
becomes a Liquidated Mortgage Loan, the Indenture Trustee shall deliver the
Request for Release with respect thereto to the Servicer upon deposit of the
related Liquidation Proceeds in the Collection Account.
(d) The Indenture Trustee shall execute and deliver to the Servicer any
court pleadings, requests for trustee's sale or other documents necessary to (i)
the foreclosure or trustee's sale with respect to a Mortgaged Property; (ii) any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Security Instrument; (iii) obtain a deficiency judgment against the
Mortgagor; or (iv) enforce any other rights or remedies provided by the Mortgage
Note or Security Instrument or otherwise available at law or equity. Together
with such documents or pleadings the Servicer shall deliver to the Indenture
Trustee a certificate of a Servicing Officer in which it requests the Indenture
Trustee to execute the pleadings or documents. The certificate shall certify and
explain the reasons for which the pleadings or documents are required. It shall
further certify that the Indenture Trustee's execution and delivery of the
pleadings or documents will not invalidate any insurance coverage under the
insurance policies or invalidate or otherwise affect
-19-
<PAGE>
the lien of the Security Instrument, except for the termination of such a lien
upon completion of the foreclosure or trustee's sale.
Section 3.15. Servicing Compensation. (a) As compensation for its
activities hereunder, the Servicer shall be entitled to receive the Servicing
Fee from full payments of accrued interest on each Mortgage Loan. The Servicer
shall be solely responsible for paying any and all fees with respect to a
Subservicer and the Trust Estate shall not bear any fees, expenses or other
costs directly associated with any Subservicer.
(b) The Servicer may retain additional servicing compensation in the form
of late payment charges, to the extent such charges are collected from the
related Mortgagors and investment earnings on the Collection Account. The
Servicer shall be required to pay all expenses it incurs in connection with
servicing activities under this Servicing Agreement and shall not be entitled in
connection with servicing activities under this Servicing Agreement to
reimbursement except as provided in this Servicing Agreement. Expenses to be
paid by the Servicer without reimbursement under this Subsection 3.15(b) shall
include payment of the expenses of the accountants retained pursuant to Section
3.17.
Section 3.16. Annual Statements Of Compliance. Within 120 days after
December 31 of each year, the Servicer at its own expense shall deliver to the
Indenture Trustee, with a copy to the Bond Insurer and the Rating Agencies, an
Officer's Certificate stating, as to the signer thereof, that (i) a review of
the activities of the Servicer during the preceding calendar year and of
performance under this Servicing Agreement has been made under such officer's
supervision, (ii) to the best of such officer's knowledge, based on such review,
the Servicer has fulfilled its obligations under this Servicing Agreement in all
material respects for such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof including the steps being taken by the
Servicer to remedy such default; (iii) a review of the activities of each
Subservicer during the Subservicer's most recently ended calendar year and its
performance under its Subservicing Agreement has been made under such officer's
supervision; and (iv) to the best of the Servicing Officer's knowledge, based on
his review and the certification of an officer of the Subservicer (unless the
Servicing Officer has reason to believe that reliance on such certification is
not justified), either each Subservicer has performed and fulfilled its duties,
responsibilities and obligations under this Servicing Agreement and its
Subservicing Agreement in all material respects throughout the year, or, if
there has been a default in performance or fulfillment of any such duties,
responsibilities or obligations, specifying the nature and status of each such
default known to the Servicing Officer. Copies of such statements shall be
provided by the Servicer to the Bondholders upon request or by the Indenture
Trustee at the expense of the Servicer should the Servicer fail to provide such
copies.
Section 3.17. Annual Independent Public Accountants' Servicing Report. (a)
Within 120 days after December 31 of each year, the Servicer, at its expense,
shall cause a firm of Independent public accountants who are members of the
American Institute of Certified Public Accountants and who are either KPMG Peat
Marwick LLP (or a successor thereof) or are otherwise acceptable to the Bond
Insurer to furnish a statement to the Servicer, which will be
-20-
<PAGE>
provided to the Indenture Trustee, the Bond Insurer and the Rating Agencies, to
the effect that, in connection with the firm's examination of the Servicer's
financial statements as of the end of such calendar year, nothing came to their
attention that indicated that the Servicer was not in compliance with Sections
3.06, 3.07 and 3.08 except for (i) such exceptions as such firm believes to be
immaterial and (ii) such other exceptions as are set forth in such statement.
(b) Within 120 days after December 31 of each year, the Servicer, at its
expense, shall, and shall cause each Subservicer to cause, a nationally
recognized firm of independent certified public accountants to furnish to the
Servicer or such Subservicer, as the case may be, a report stating that (i) it
has obtained a letter of representation regarding certain matters from the
management of the Servicer or such Subservicer, as the case may be, which
includes an assertion that the Servicer or such Subservicer, as the case may be,
has complied with certain minimum mortgage loan servicing standards identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America with respect to the servicing of
first and second lien conventional single family mortgage loans during the most
recently completed calendar year and (ii) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that may be appropriate. Immediately upon receipt of such report, the Servicer
shall or shall cause each Subservicer to furnish a copy of such report to the
Indenture Trustee, the Rating Agencies and the Bond Insurer.
Section 3.18. Optional Purchase Of Defaulted Mortgage Loans. The Servicer
may repurchase any Mortgage Loan delinquent in payment for a period of 90 days
or longer for a price equal to the Repurchase Price. The procedure for such
repurchase shall be the same as for repurchase by the Seller under the Home
Equity Loan Purchase Agreement. Notwithstanding the foregoing, the Indenture
Trustee, whether acting as Indenture Trustee or in the capacity of successor
Servicer, shall have no obligation to repurchase any Mortgage Loan.
Section 3.19. Information Required By The Internal Revenue Service
Generally And Reports Of Foreclosures And Abandonments Of Mortgaged Property.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any mortgaged property for each year beginning in 1997, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) acquires an interest
in any Mortgaged Property through foreclosure or other comparable conversion in
full or partial satisfaction of a Mortgage Loan, or (ii) knows or has reason to
know that any Mortgaged Property has been abandoned. The reports from the
Servicer or Subservicer shall be in form and substance sufficient to meet the
reporting requirements imposed by Section 6050J, Section 6050H (reports relating
to mortgage interest received) and Section 6050P of the Code (reports relating
to cancellation of indebtedness).
-21-
<PAGE>
ARTICLE IV
Remittance Reports
Section 4.01. Remittance Reports. On the second Business Day following each
Determination Date, the Servicer shall deliver to the Indenture Trustee a
report, prepared as of the close of business on the Determination Date (the
"Determination Date Report"), and shall forward to the Indenture Trustee in the
form of computer readable electromagnetic tape or disk of such report. The
Determination Date Report and any written information supplemental thereto shall
include such information with respect to the Mortgage Loans that is reasonably
available to the Servicer and that is required by the Indenture Trustee for
purposes of making the calculations and providing the reports referred to in the
Indenture, as set forth in written specifications or guidelines issued by the
Indenture Trustee from time to time. Such information shall include the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account pursuant to Section 3.07. Such information
shall also include (a) the number of Mortgage Loans that prepaid in the previous
month; (b) the loan balance of each such Mortgage Loan; (c) whether a prepayment
penalty was applied to such Mortgage Loan; and (d) the amount of prepayment
penalty with respect to each such Mortgage Loan. The Servicer agrees to
cooperate with the Indenture Trustee in providing all information as is
reasonably requested by the Indenture Trustee to prepare the reports required
under the Indenture. Upon written request by the Bond Insurer, the Servicer
shall deliver the Determination Date Report to the Bond Insurer.
The determination by the Servicer of such amounts shall, in the absence of
obvious error, be presumptively deemed to be correct for all purposes hereunder
and the Owner Trustee and Indenture Trustee shall be protected in relying upon
the same without any independent check or verification.
Section 4.02. Advances. If any Monthly Payment (together with any advances
from the Subservicers) on a Mortgage Loan that was due on the immediately
preceding Due Date and delinquent on the Determination Date is delinquent other
than as a result of application of the Relief Act, the Servicer will deposit in
the Collection Account not later than the fourth Business Day immediately
preceding the related Payment Date an amount equal to such deficiency net of the
related Servicing Fee for such Mortgage Loan, except to the extent the Servicer
determines any such advance to be nonrecoverable from Liquidation Proceeds,
Insurance Proceeds or future payments on such Mortgage Loan. Subject to the
foregoing and in the absence of such a determination, the Servicer shall
continue to make such advances through the date that the related Mortgaged
Property has, in the judgment of the Servicer, been completely liquidated. If
applicable, on the fourth Business Day preceding each Payment Date, the Servicer
shall present an Officer's Certificate to the Indenture Trustee and the Bond
Insurer (i) stating that the Servicer elects not to make an Advance in a stated
amount and (ii) detailing the reason it deems the advance to be nonrecoverable.
The Indenture Trustee shall forward a copy of such Officer's Certificate to the
Bond Insurer.
-22-
<PAGE>
Section 4.03. Compensating Interest Payments. The Servicer shall deposit in
the Collection Account not later than the fourth Business Day preceding the
Payment Date an amount equal to the Compensating Interest related to the related
Determination Date. The Servicer shall not be entitled to any reimbursement of
any Compensating Interest payment.
-23-
<PAGE>
ARTICLE V
The Servicer
Section 5.01. Liability Of The Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Servicer herein.
Section 5.02. Merger Or Consolidation Of, Or Assumption Of The Obligations
Of, The Servicer. Any corporation into which the Servicer may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Servicer shall be a
party, or any corporation succeeding to the business of the Servicer, shall be,
with the consent of the Bond Insurer, the successor of the Servicer, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
The Servicer may fully assign all of its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED, that the Person accepting
such assignment or delegation shall be a Person which is reasonably satisfactory
to the Indenture Trustee (as pledgee of the Mortgage Loans), the Company and the
Bond Insurer (in its sole discretion), is willing to service the Mortgage Loans
and executes and delivers to the Indenture Trustee and the Issuer an agreement,
in form and substance reasonably satisfactory to the Bond Insurer, the Indenture
Trustee and the Issuer, which contains an assumption by such Person of the due
and punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED,
FURTHER, that each Rating Agency's rating of the Bonds in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) without taking into account the
Bond Insurance Policy.
Section 5.03. Limitation On Liability Of The Servicer And Others. Neither
the Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be under any liability to the Issuer, the Owner Trustee, the
Indenture Trustee, the Bond Insurer or the Bondholders for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or negligence in the
performance of its duties hereunder or by reason of its reckless disregard of
its obligations and duties hereunder. The Servicer and any director or officer
or employee or agent of the Servicer may rely in good faith on any document of
any kind PRIMA FACIE properly executed and submitted by any Person respecting
any matters arising hereunder. The Servicer and any director or officer or
employee or agent of the Servicer shall be indemnified by the Issuer and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Servicing Agreement or the Bonds, including any
amount paid to the Owner Trustee or the Indenture Trustee pursuant to Section
5.06(b), other than any loss, liability or expense related to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Servicing Agreement)
-24-
<PAGE>
and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or negligence in the performance of its duties hereunder
or by reason of its reckless disregard of its obligations and duties hereunder.
The Servicer shall not be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to its duties to service the Mortgage
Loans in accordance with this Servicing Agreement, and which in its opinion may
involve it in any expense or liability; PROVIDED, HOWEVER, that the Servicer may
in its sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Servicing Agreement, and the rights and duties of
the parties hereto and the interests of the Bondholders hereunder. In such
event, the reasonable legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Issuer, and
the Servicer shall be entitled to be reimbursed therefor. The Servicer's right
to indemnity or reimbursement pursuant to this Section 5.03 shall survive any
resignation or termination of the Servicer pursuant to Section 5.04 or 6.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination). Any reimbursements or indemnification to the
Servicer from the Issuer pursuant to this Section 5.03 shall be payable in the
priority set forth in Section 3.05(a)(ix) of the Indenture.
Section 5.04. Servicer Not To Resign. Subject to the provisions of Section
5.02, the Servicer shall not resign from the obligations and duties hereby
imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or (ii) upon satisfaction of the following conditions: (a) the Servicer has
proposed a successor servicer to the Issuer, the Bond Insurer and the Indenture
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Issuer and the Indenture Trustee; (b) each Rating Agency shall have
delivered a letter to the Issuer, the Bond Insurer and the Indenture Trustee
prior to the appointment of the successor servicer stating that the proposed
appointment of such successor servicer as Servicer hereunder will not result in
the reduction or withdrawal of the then current rating of the Bonds or the then
current rating of the Bonds without taking into account the Bond Insurance
Policy; and (c) such proposed successor servicer is acceptable to the Bond
Insurer, as evidenced by a letter to the Issuer, the Servicer and the Indenture
Trustee; PROVIDED, HOWEVER, that no such resignation by the Servicer shall
become effective until such successor servicer or, in the case of (i) above, the
Indenture Trustee, as pledgee of the Mortgage Loans, shall have assumed the
Servicer's responsibilities and obligations hereunder or the Indenture Trustee,
as pledgee of the Mortgage Loans, shall have designated a successor servicer in
accordance with Section 6.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 6.01
and 6.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Bondholder or the Bond Insurer for any amounts paid
by the Servicer pursuant to any provision of this Servicing Agreement. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Indenture Trustee and the
Bond Insurer.
Section 5.05. Delegation Of Duties. In the ordinary course of business, the
Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, who agrees to conduct such duties in accordance
with the same standards with which the Servicer complies pursuant to Section
3.01. Such delegation shall not relieve the Servicer of its liabilities
-25-
<PAGE>
and responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 5.04.
Section 5.06. Servicer To Pay Indenture Trustee's And Owner Trustee's Fees
And Expenses; Indemnification. (a) The Servicer covenants and agrees to pay to
the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation, including all
indemnification payments (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) for all services
rendered by each of them in the execution of the trusts created under the Trust
Agreement and the Indenture and in the exercise and performance of any of the
powers and duties under the Trust Agreement or the Indenture, as the case may
be, of the Owner Trustee, the Indenture Trustee and any co-trustee of the
Indenture Trustee, and the Servicer will pay or reimburse the Indenture Trustee
and any co-trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by the Indenture Trustee or any co-trustee of the
Indenture Trustee in accordance with any of the provisions of this Servicing
Agreement except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the Owner
Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as the
case may be, harmless against, any claim, tax, penalty, loss, liability or
expense of any kind whatsoever, incurred without negligence or willful
misconduct on its part, arising out of, or in connection with, the failure by
the Servicer to perform its duties in compliance with this Servicing Agreement,
including the reasonable costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture Trustee or Owner
Trustee, as the case may be, shall have given the Servicer written notice
thereof promptly after the Indenture Trustee or Owner Trustee, as the case
may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the Indenture
Trustee or Owner Trustee, as the case may be, shall cooperate and consult
fully with the Servicer in preparing such defense; and
(iii) notwithstanding anything in this Servicing Agreement to the
contrary, the Servicer shall not be liable for settlement of any claim by
the Indenture Trustee or the Owner Trustee, as the case may be, entered
into without the prior consent of the Servicer, which consent shall not be
unreasonably withheld.
No termination of this Servicing Agreement shall affect the obligations created
by this Section 5.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the condi tions and to the extent set forth herein. This
section shall survive the termination of this Servicing
-26-
<PAGE>
Agreement. Any amounts to be paid by the Servicer pursuant to this Subsection
may not be paid from the Trust Estate.
Notwithstanding the foregoing, the indemnification provided by the Servicer
in this Section 5.06 shall not pertain to any loss, liability or expense of the
Indenture Trustee or the Owner Trustee, including the costs and expenses of
defending itself against any claim, incurred in connection with any actions
taken by the Indenture Trustee or the Owner Trustee at the direction of the
Securityholders, as the case may be, pursuant to the terms of this Servicing
Agreement.
-27-
<PAGE>
ARTICLE VI
Default
Section 6.01. Servicing Default. If any one of the following events (a
"Servicing Default") shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the Collection
Account or Payment Account any deposit required to be made under the terms
of this Servicing Agreement, including any Advances and Compensating
Interest, which continues un remedied for a period of three Business Days
after the date upon which written notice of such failure shall have been
given to the Servicer by the Issuer or the Indenture Trustee or to the
Servicer, the Issuer and the Indenture Trustee by the Bond Insurer; or
(ii) Failure on the part of the Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Servicer set forth in this Servicing Agreement, which failure, in each
case, materially and adversely affects the interests of Bondholders or the
Bond Insurer, or the breach of any representation or warranty of the
Servicer in this Servicing Agreement or in the Insurance Agreement which
materially and adversely affects the interests of the Bondholders or the
Bond Insurer, and which in either case continues unremedied for a period of
30 days after the date on which written notice of such failure or breach,
requiring the same to be remedied, and stating that such notice is a
"Notice of Default" hereunder, shall have been given to the Servicer by the
Issuer or the Indenture Trustee or to the Servicer, the Issuer and the
Indenture Trustee by the Bond Insurer; or
(iii) The entry against the Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership, readjustment
of debt, marshalling of assets and liabilities or similar proceed ings, or
for the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60
consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation, consent
to the appointment of a conservator, receiver, liquidator or similar person
in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of its property, or a decree or order
of a court, agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceed ings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force undischarged,
unbonded or unstayed for a period of 60 days; or the Servicer shall admit
in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any appli-
-28-
<PAGE>
cable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
or
(v) Any failure by the Servicer to pay when due any amount payable
by it under the terms of the Insurance Agreement which continues unremedied
for a period of three Business Days after the date upon which written
notice of such failure shall have been given to the Servicer, the Issuer
and the Indenture Trustee by the Bond Insurer; or;
(vi) Failure on the part of the Seller or the Servicer to duly
perform in any material respect any covenant or agreement set forth in the
Insurance Agreement, which failure continues 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 the Indenture Trustee, the
Issuer, the Seller or the Servicer, as the case may be, by the Bond
Insurer; or
(vii) So long as the Seller is an affiliate, the parent of or
under the common control with the Servicer, any failure of the Seller to
repurchase any Mortgage Loan required to be repurchased, or pay any amount
due, pursuant to the Home Equity Loan Purchase Agreement which continues
unremedied for a period of 30 days after the date upon which written notice
of such failure shall have been given to the Seller, the Servicer, the
Issuer and the Indenture Trustee.
(viii) (A) the Cumulative Loss Percentage for any period set forth
below exceeds the percentage set forth below.
PERIOD CUMULATIVE LOSS PERCENTAGE
------ --------------------------
Dec. 2, 1997 - Dec. 1, 1998 1%
Dec. 2, 1998 - Dec. 1, 1999 2%
Dec. 2, 1999 - Dec. 1, 2000 3%
Dec. 2, 2000 - Dec. 1, 2001 4%
Dec. 2, 2001 - Dec. 1, 2002 5%
For any period thereafter 6%
(B) Realized Losses on the Mortgage Loans over any one
twelve- month period exceed 1.25% of the aggregate Principal Balances of the
Mortgage Loans as of the Cut-Off Date, and
(C) the Rolling Delinquency Percentage exceeds 15%;
then, (a) and in every such case, other than that set forth in (v) or (vi)
hereof, so long as a Servicing Default shall not have been remedied by the
Servicer, either the Issuer, subject to the direction of the Indenture Trustee
as pledgee of the Mortgage Loans, with the consent of the Bond
-29-
<PAGE>
Insurer, or the Bond Insurer, or if a Bond Insurer Default exists, the holders
of at least 51% of the aggregate Bond Principal Balance of the Bonds, by notice
then given in writing to the Servicer (and to the Indenture Trustee and the
Issuer if given by the Bond Insurer) or (b) in the case of the events set forth
in (v) or (vi) hereof, the Bond Insurer or, if a Bond Insurer Default exists,
the holders of at least 51% of the aggregate Bond Principal Balance of the
Bonds, may, by notice to the Servicer, terminate all of the rights and
obligations of the Servicer as servicer under this Servicing Agreement other
than its right to receive servicing compensation and expenses for servicing the
Mortgage Loans hereunder during any period prior to the date of such termination
and the Issuer, subject to the direction of the Indenture Trustee as pledgee of
the Mortgage Loans, with the consent of the Bond Insurer, or the Bond Insurer
may exercise any and all other remedies available at law or equity. Any such
notice to the Servicer shall also be given to each Rating Agency, the Bond
Insurer and the Issuer. On or after the receipt by the Servicer of such written
notice, all authority and power of the Servicer under this Servicing Agreement,
whether with respect to the Bonds or the Mortgage Loans or otherwise, shall pass
to and be vested in the Indenture Trustee, pursuant to and under this Section
6.01; and, without limitation, the Indenture Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or accom
plish all other acts or things necessary or appropriate to effect the purposes
of such notice of termination, whether to complete the transfer and endorsement
of each Mortgage Loan and related documents, or otherwise. The Servicer agrees
to cooperate with the Indenture Trustee in effecting the termination of the
responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer within one Business Day to the Indenture Trustee for
the administration by it of all cash amounts relating to the Mortgage Loans that
shall at the time be held by the Servicer and to be deposited by it in the
Collection Account, or that have been deposited by the Servicer in the
Collection Account or thereafter received by the Servicer with respect to the
Mortgage Loans. In addition, the Servicer agrees promptly (and in any event no
later than five Business Days subsequent to such notice) to provide the
Indenture Trustee with all documents and records requested by it to enable it to
assume the Servicer's functions under this Agreement. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 6.01 shall be paid by the predecessor Servicer (or if
the predecessor Servicer is the Indenture Trustee, the Servicer succeeded by the
Indenture Trustee) upon presentation of reason able documentation of such costs
and expenses. For purposes of this Section 6.01, the Indenture Trustee shall not
be deemed to have knowledge of a Servicer Default unless a Responsible Officer
of the Indenture Trustee assigned to and working in the Indenture Trustee's
Corporate Trust Office has actual knowledge thereof or unless written notice of
any event which is in fact such a Servicer Default is received by the Indenture
Trustee and such notice references the Bonds or this Servicing Agreement.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.07 and 3.15 as well as its Servicing Fee in respect thereof, and any other
amounts payable to
-30-
<PAGE>
the Servicer hereunder the entitlement to which arose prior to the termination
of its activities hereunder.
The Servicer shall immediately notify the Indenture Trustee, the Bond
Insurer and the Owner Trustee in writing of any Servicing Default.
Section 6.02. Indenture Trustee To Act; Appointment Of Successor. (a) On
and after the time the Servicer receives a notice of termination pursuant to
Section 6.01 or sends a notice pursuant to Section 5.04, the Indenture Trustee
on behalf of the Bondholders and the Bond Insurer shall be the successor in all
respects to the Servicer in its capacity as servicer under this Servicing
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, including but not
limited to the provisions of Article VIII. Nothing in this Servicing Agreement
shall be construed to permit or require the Indenture Trustee to (i) be
responsible or accountable for any act or omission of the Servicer prior to the
issuance of a notice of termination hereunder, (ii) require or obligate the
Indenture Trustee, in its capacity as successor Servicer, to purchase,
repurchase or substitute any Mortgage Loan, (iii) fund any losses on any
Eligible Investment directed by any other Servicer, or (iv) be responsible for
the representations and warranties of the Servicer; PROVIDED, HOWEVER, that the
Indenture Trustee, as successor Servicer, shall be required to make any required
Advances to the extent that the Servicer failed to make such Advances. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee may (in the
situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint or petition a court of competent jurisdiction to appoint
any established hous ing and home finance institution, bank or other mortgage
loan servicer having a net worth of not less than $10,000,000 as the successor
to the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder; PROVIDED,
that any such successor Servicer shall be acceptable to the Bond Insurer, as
evidenced by the Bond Insurer's prior written consent and provided further that
the appointment of any such successor Servicer will not result in the
qualification, reduction or withdrawal of the ratings assigned to the Bonds by
the Rating Agencies or the ratings assigned to the Bonds without taking into
account the Bond Insurance Policy. Pending appointment of a successor to the
Servicer hereunder, unless the Indenture Trustee is prohibited by law from so
acting, the Indenture Trustee shall act in such capa city as hereinabove
provided. In connection with such appointment and assumption, the successor
shall be entitled to receive compensation out of payments on Mortgage Loans in
an amount equal to the compensation which the Servicer would otherwise have
received pursuant to Section 3.15 (or such lesser compensation as the Indenture
Trustee and such successor shall agree). The appointment of a successor Servicer
shall not affect any liability of the predecessor Servicer which may have arisen
under this Servicing Agreement prior to its termination as Servicer (including,
without limitation, the obligation to purchase Mortgage Loans pursuant to
Section 3.01, to pay any deductible under an insurance policy pursuant to
Section 3.11 or to indemnify the Indenture Trustee pursuant to Section 5.06),
nor shall any successor Servicer be liable for any acts or omissions of the
predecessor Servicer or for any breach by such Servicer of any of its
-31-
<PAGE>
representations or warranties contained herein or in any related document or
agreement. The Indenture Trustee and such successor shall take such action,
consistent with this Servicing Agreement, as shall be necessary to effectuate
any such succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Bondholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Bondholders and the Bond Insurer, (ii) maintain in force a policy
or policies of insurance covering errors and omissions in the perfor mance of
its obligations as Servicer hereunder and a fidelity bond in respect of its
officers, employees and agents to the same extent as the Servicer is so required
pursuant to Section 3.11.
(c) Any successor Servicer, including the Indenture Trustee on behalf of
the Bondholders and the Bond Insurer, shall not be deemed to be in default or to
have breached its duties hereunder if the predecessor Servicer shall fail to
deliver any required deposit to the Collection Account or otherwise cooperate
with any required servicing transfer or succession here under.
Section 6.03. Notification To Bondholders. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VI or
Section 5.04, the Indenture Trustee shall give prompt written notice thereof to
the Bondholders, the Bond Insurer, the Owner Trustee, the Company, the Issuer
and each Rating Agency.
Section 6.04. Waiver Of Defaults. The Indenture Trustee shall transmit by
mail to all Bondholders and the Bond Insurer, within 5 days after the occurrence
of any Servicing Default known to the Indenture Trustee, unless such Servicing
Default shall have been cured, notice of each such Servicing Default hereunder
known to the Indenture Trustee. The Bond Insurer or, if a Bond Insurer Default
exists, the holders of at least 51% of the aggregate Bond Principal Balance of
the Bonds may waive any default by the Servicer in the performance of its
obligations hereunder and the consequences thereof, except a default in the
making of or the causing to be made any required distribution on the Bonds. No
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon except to the extent expressly so waived. The Servicer shall
give notice of any such waiver to the Rating Agencies.
-32-
<PAGE>
ARTICLE VII
Administrative Duties Of The Servicer
Section 7.01. Administrative Duties.
(a) Duties With Respect To The Indenture. The Servicer shall perform all
its duties and, as agent for the Issuer, the duties of the Issuer under the
Indenture. In addition, the Servicer shall consult with the Owner Trustee as the
Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Servicer shall monitor the performance of the Issuer and shall
advise the Owner Trustee when action is necessary to comply with the Issuer's
duties under the Indenture. The Servicer shall prepare or shall cause the
preparation by other appropriate Persons for execution by the Issuer of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to the Indenture.
In furtherance of the foregoing, the Servicer, as agent for the Issuer, shall
take all necessary action that is the duty of the Issuer to take pursuant to the
Indenture.
(b) Duties With Respect To The Issuer.
(i) In addition to the duties of the Servicer set forth in this
Servicing Agreement or any of the Basic Documents, the Servicer, as agent for
the Issuser, shall perform such calculations and shall prepare or shall cause
the preparation by other appropriate Persons for execution by the Issuer or the
Owner Trustee of all such documents, reports, filings, instruments, certificates
and opinions as it shall be the duty of the Issuer or the Owner Trustee to
prepare, file or deliver pursuant to this Servicing Agreement or any of the
Basic Documents or under state and federal tax and securities laws, and at the
request of the Owner Trustee or the Bond Insurer, shall take, as agent for the
Issuer, all appropriate action that it is the duty of the Issuer to take
pursuant to this Servicing Agreement or any of the Basic Documents. In
accordance with the directions of the Issuer, the Bond Insurer or the Owner
Trustee, the Servicer shall administer, perform or supervise the performance of
such other activities in connection with the Bonds (including the Basic
Documents) as are not covered by any of the foregoing provisions and as are
expressly requested by the Issuer, the Bond Insurer or the Owner Trustee and are
reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Servicing Agreement or any of the
Basic Documents to the contrary, the Servicer shall promptly notify the Owner
Trustee, the Certificate Paying Agent and the Bond Insurer in the event that the
Servicer obtains knowledge that any withholding tax is imposed on the Issuer's
payments (or allocations of income) to a Certificateholder (as defined in the
Trust Agreement) as contemplated in Section 5.03 of the Trust Agreement. Any
such notice shall be in writing and specify the amount of any withholding tax
required to be withheld by the Owner Trustee pursuant to such provision.
(iii) In carrying out the foregoing duties or any of its other
obligations under this Servicing Agreement, the Servicer may enter into
transactions with or otherwise deal with any of its Affiliates; PROVIDED,
HOWEVER, that the terms of any such transactions or dealings shall be in
-33-
<PAGE>
accordance with any directions received from the Issuer and shall be, in the
Servicer's opinion, no less favorable to the Issuer in any material respect than
with terms made available to unrelated third-parties.
(c) Tax Matters. The Servicer shall provide such services as are reasonably
necessary to assist the Issuer, the Indenture Trustee or the Owner Trustee, as
applicable, in the preparation of tax returns and information reports as
provided in Section 5.03 of the Trust Agreement.
(d) Non-ministerial Matters. With respect to matters that in the reasonable
judgment of the Servicer are non-ministerial, the Servicer shall not take any
action pursuant to this Article VII unless within a reasonable time before the
taking of such action, the Servicer shall have notified the Owner Trustee, the
Bond Insurer and the Indenture Trustee of the proposed action and the Owner
Trustee, the Bond Insurer and, with respect to items (A), (B), (C) and (D)
below, the Indenture Trustee shall not have withheld consent or provided an
alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Mortgage Loans);
(C) the amendment, change or modification of this Agreement or any of
the Basic Documents;
(D) the appointment of successor Certificate Paying Agents and
successor Indenture Trustees pursuant to the Indenture and the Trust
Agreement or the appointment of successor Servicers or the consent to the
assignment by the Certificate Registrar, Paying Agent or Indenture Trustee
of its obligations under the Indenture and the Trust Agreement; and
(E) the removal of the Indenture Trustee.
Section 7.02. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Servicing
Agreement, which books of account and records shall be accessible for inspection
by the Issuer, the Indenture Trustee and the Bond Insurer upon reasonable
request and at any time during normal business hours.
Section 7.03. Additional Information To Be Furnished. The Servicer shall
furnish to the Issuer, the Indenture Trustee and the Bond Insurer from time to
time such additional information regarding the Bonds as the Issuer, the
Indenture Trustee or the Bond Insurer shall reasonably request.
-34-
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. Amendment. This Servicing Agreement may be amended from time
to time by the parties hereto with the prior written consent of the Bond
Insurer, provided that any amendment be accompanied by a letter from the Rating
Agencies to the effect that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to the Bonds or the rating then assigned
to the Bonds without taking into account the Bond Insurance Policy.
Section 8.02. GOVERNING LAW. THIS SERVICING 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.
Section 8.03. 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 certified mail, return receipt requested, to:
(a) in the case of the Servicer: NovaStar Mortgage, Inc.
1900 W. 47th Place
Suite 107
Westwood, Kansas 66205
Attention: Chris Miller,
Senior Vice President
(b) in the case of the Bond Insurer: MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio
Management-
Structured Finance
(NovaStar Home Equity Loan
Asset-Backed Bonds, Series 1997-2)
(c) in the case of Rating Agencies: Moody's Investors Service, Inc.
4th Floor
99 Church Street
New York, NY 10007
Attention: Residential Mortgage
Monitoring Department
-35-
<PAGE>
Standard & Poor's Rating Services
26 Broadway
15th Floor
New York, NY 10004
Attention: Asset Backed
Surveillance Group
(d) in the case of the Owner Trustee,
the Corporate Trust Office: Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
(e) in the case of the Issuer,
to NovaStar Home Equity
Loan Trust Series 1997-2: c/o NovaStar Financial, Inc.
1900 W. 47th Place
Suite 205
Westwood, Kansas 66502
Attention: David J. Lee, Vice
President
(f) in the case of the Indenture
Trustee: First Union National Bank
230 South Tryon Street, 9th Floor
Charlotte, NC 28288-1179
Fax No.: (704) 383-7316
Attention: Corporate Trust
Department
NovaStar Home Equity Loan Trust
Series 1997-2
(g) in the case of the Seller: NovaStar Financial, Inc.
1900 West 47th Place
Suite 205
Westwood, KS 66502
Attention: David J. Lee,
Vice President
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. Any notice required or permitted to be
mailed to a Bondholder shall be given by first class mail, postage prepaid, at
the address of such Bondholder as shown in the Certificate Register. Any notice
so mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Bondholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee
-36-
<PAGE>
to any Rating Agency shall be given on a reasonable efforts basis and only as a
matter of courtesy and accommodation and the Indenture Trustee shall have no
liability for failure to deliver such
notice or document to any Rating Agency.
Section 8.04. Severability Of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Servicing 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 Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Bonds or the rights of the Bondholders thereof.
Section 8.05. Third-party Beneficiaries. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the Bondholders,
the Bond Insurer, the Owner Trustee, the Seller, and their respective successors
and permitted assigns. Except as otherwise provided in this Servicing Agreement,
no other Person will have any right or obligation hereunder. The Indenture
Trustee shall have the right to exercise all rights of the Issuer under this
Agreement.
Section 8.06. Counterparts. This instrument may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
Section 8.07. Effect Of Headings And Table Of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.08. Termination. Except with respect to obligations of the
Servicer relating to any representations and warranties or indemnities made by
it in this Servicing Agreement, the respective obligations and responsibilities
of the Servicer and the Issuer created hereby shall terminate upon the
satisfaction and discharge of the Indenture pursuant to Section 4.10 thereof.
Section 8.09. No Petition. The Servicer, by entering into this Servicing
Agreement, hereby covenants and agrees that it will not at any time institute
against NovaStar Assets or the Issuer, or join in any institution against
NovaStar Assets or the Issuer, any bankruptcy proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations of NovaStar Assets or the Issuer. This section shall survive the
termination of this Servicing Agreement by one year.
Section 8.10. No Recourse. The Servicer acknowledges that no recourse may
be had against the Issuer, except as may be expressly set forth in this
Servicing Agreement.
-37-
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Indenture Trustee and the Issuer have
caused this Servicing Agreement to be duly executed by their respective officers
or representatives all as of the day and year first above written.
NOVASTAR MORTGAGE, INC.,
as Servicer
By
--------------------------------------
Name:
Title:
NOVASTAR HOME EQUITY LOAN TRUST
SERIES 1997-2, as Issuer
By Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By
-------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK,
not in its individual capacity but
solely as Indenture Trustee
By
---------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
INITIAL MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT B
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Loans, we request the
release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/Indenture Trustee: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or
Deed of Trust
[ ] Title Insurance Policy
[ ] Other: _________________________
- ------------------------
Name
- ------------------------
Title
- ------------------------
Date
B-1
<PAGE>
EXHIBIT C
FORM OF LIQUIDATION REPORT
Customer Name:
Account Number:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short pay-off)
Date last paid
Date of foreclosure
Date of REO
Date of REO Disposition
Property Sale Price/Estimated Market Value at disposition
2. Liquidation Proceeds
Principal Prepayment $____________
Property Sale Proceeds ____________
Insurance Proceeds ____________
Other (itemize) ____________
Total Proceeds $____________
3. Liquidation Expenses
Servicing Advances ____________
Delinquency Advances ____________
Monthly Advances ____________
Servicing Fees ____________
Other Servicing Compensation ____________
Total Advances $____________
4. Net Liquidation Proceeds $____________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $____________
6. Loss, if any (Item 5 minus Item 4) $____________
C-1
<PAGE>
EXHIBIT 4.4
<PAGE>
EXECUTED COPY
================================================================================
MERRILL LYNCH MORTGAGE INVESTORS, INC.,
as Company
and
WILMINGTON TRUST COMPANY,
as Owner Trustee
-----------------------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
Dated as of November 1, 1997
------------------------------------------
NOVASTAR HOME EQUITY LOAN ASSET-BACKED BONDS
SERIES 1997-2
================================================================================
<PAGE>
Table of Contents
Section Page
ARTICLE I
Definitions............................................................1
1.01. Definitions....................................................1
1.02. Other Definitional Provisions..................................1
ARTICLE II
Organization...........................................................2
2.01. Name...........................................................2
2.02. Office.........................................................2
2.03. Purposes and Powers............................................2
2.04. Appointment of Owner Trustee...................................3
2.05. Initial Capital Contribution of Owner Trust Estate.............3
2.06. Declaration of Trust...........................................3
2.07. Liability of the Holders of the Certificates...................4
2.08. Title to Trust Property........................................4
2.09. Situs of Trust.................................................4
2.10. Representations and Warranties of the Company..................4
2.11. Payment of Trust Fees..........................................5
2.12. Investment Company.............................................5
ARTICLE III
Conveyance Of The Initial Mortgage Loans; Certificates.................5
3.01. Conveyance of the Mortgage Loans...............................5
3.02. Initial Ownership..............................................6
3.03. The Certificates...............................................6
3.04. Authentication of Certificates.................................6
3.05. Registration of and Limitations on Transfer and Exchange
of Certificates...................7
3.06. Mutilated, Destroyed, Lost or Stolen Certificates.............10
3.07. Persons Deemed Certificateholders.............................10
3.08. Access to List of Certificateholders' Names and Addresses.....10
3.09. Maintenance of Office or Agency...............................10
3.10. Certificate Paying Agent......................................11
3.11. Pre-Funding Amount and Interest Coverage Amount...............12
3.12. Purchase of Subsequent Mortgage Loans.........................12
<PAGE>
Section Page
- ------- ----
ARTICLE IV
Authority And Duties Of Owner Trustee.................................13
4.01. General Authority.............................................13
4.02. General Duties................................................13
4.03. Action upon Instruction.......................................13
4.04. No Duties Except as Specified under Specified Documents
or in Instructions........................................14
4.05. Restrictions..................................................14
4.06. Prior Notice to Certificateholders with Respect to
Certain Matters...........................................15
4.07. Action by Certificateholders with Respect to Certain
Matters...................................................16
4.08. Action by Certificateholders with Respect to
Bankruptcy................................................16
4.09. Restrictions on Certificateholders' Power.....................17
4.10. Majority Control..............................................17
4.11. Optional Redemption...........................................17
ARTICLE V
Application Of Trust Funds............................................17
5.01. Distributions.................................................17
5.02. Method of Payment.............................................18
5.03. Tax Returns...................................................18
5.04. Statements to Certificateholders..............................18
ARTICLE VI
Concerning The Owner Trustee..........................................19
6.01. Acceptance of Trusts and Duties...............................19
6.02. Furnishing of Documents.......................................20
6.03. Representations and Warranties................................20
6.04. Reliance; Advice of Counsel...................................21
6.05. Not Acting in Individual Capacity.............................21
6.06. Owner Trustee Not Liable for Certificates or Related
Documents.................................................22
6.07. Owner Trustee May Own Certificates and Bonds..................22
6.08. Payments from Owner Trust Estate..............................22
6.09. Doing Business in Other Jurisdictions.........................22
6.10. Liability of Certificate Registrar and Certificate
Paying Agent..............................................23
ARTICLE VII
Compensation Of Owner Trustee.........................................23
7.01. Owner Trustee's Fees and Expenses.............................23
7.02. Indemnification...............................................23
<PAGE>
Section Page
- ------- ----
ARTICLE VIII
Termination Of Trust Agreement........................................24
8.01. Termination of Trust Agreement................................24
ARTICLE IX
Successor Owner Trustees And Additional Owner Trustees................25
9.01. Eligibility Requirements for Owner Trustee....................25
9.02. Replacement of Owner Trustee..................................26
9.03. Successor Owner Trustee.......................................26
9.04. Merger or Consolidation of Owner Trustee......................27
9.05. Appointment of Co-Trustee or Separate Trustee.................27
ARTICLE X
Miscellaneous.........................................................28
10.01. Amendments....................................................28
10.02. No Legal Title to Owner Trust Estate..........................30
10.03. Limitations on Rights of Others...............................30
10.04. Notices.......................................................30
10.05. Severability..................................................31
10.06. Separate Counterparts.........................................31
10.07. Successors and Assigns........................................31
10.08. No Petition...................................................31
10.09. No Recourse...................................................31
10.10. Headings......................................................32
10.11. GOVERNING LAW.................................................32
10.12. Integration...................................................32
10.13. Third Party Beneficiary.......................................32
<PAGE>
Section Page
- ------- ----
EXHIBIT
Exhibit A - Form of Certificate............................................A-1
Exhibit B - Certificate of Trust of NovaStar Home Equity Loan Trust .......B-1
Exhibit C - Form of Rule 144A Investment Representation....................C-1
Exhibit D - Form of Investor Representation Letter.........................D-1
Exhibit E - Form of Transferor Representation Letter.......................E-1
Exhibit F - Form of Certificate of Non-Foreign Status......................F-1
Exhibit G - Form of ERISA Representation Letter............................G-1
Exhibit H - Form of Representation Letter..................................H-1
Exhibit I - Initial Trust Agreement........................................I-1
<PAGE>
This Amended and Restated Trust Agreement (which amends and restates the
Trust Agreement, dated November 19, 1997, between Merrill Lynch Mortgage
Investors, Inc., as company (the "Company"), and Wilmington Trust Company, a
Delaware banking corporation, as owner trustee (the "Owner Trustee"), which is
attached hereto as Exhibit I), dated as of November 1, 1997 (as amended from
time to time, this "Trust Agreement"), between the Company and the Owner
Trustee,
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the Company and
the Owner Trustee agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. For all purposes of this Trust Agreement, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in Appendix A to the Indenture, dated November 1, 1997, between
NovaStar Home Equity Loan Trust Series 1997-2, as Issuer, and First Union
National Bank, as Indenture Trustee, which is incorporated by referenced herein.
All other capitalized terms used herein shall have the meanings specified
herein.
Section 1.02. Other Definitional Provisions.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust 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 Trust
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 Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Trust Agreement shall refer to this Trust Agreement as a whole
and not to any particular provision of this Trust Agreement; Article, Section
and Exhibit references contained in this Trust Agreement are references to
Articles, Sections and Exhibits in or to this Trust Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation".
<PAGE>
-2-
(d) The definitions contained in this Trust 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.
(e) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
Organization
Section 2.01. Name. The trust created hereby (the "Trust") shall be known
as "NovaStar Home Equity Loan Trust Series 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 2.02. Office. The office of the Trust shall be in care of the Owner
Trustee at the Corporate Trust Office or at such other address in Delaware as
the Owner Trustee may designate by written notice to the Certificateholders and
the Company.
Section 2.03. Purposes And Powers. The purpose of the Trust is to engage in
the following activities:
(i) to issue the Bonds pursuant to the Indenture and the Certificates
pursuant to this Trust Agreement and to sell the Bonds and the
Certificates;
(ii) to pay the organizational, start-up and transactional expenses of
the Trust;
(iii) to hold, assign, grant, transfer, pledge and convey the Mortgage
Loans pursuant to the Indenture and to hold, manage and distribute to the
Certificateholders pur suant to Section 5.01 any portion of the Mortgage
Loans released from the Lien of, and remitted to the Trust pursuant to the
Indenture;
(iv) to purchase and hold the Initial Mortgage Loans pursuant to this
Trust Agreement and to purchase and hold the Subsequent Mortgage Loans
pursuant to the Home Equity Loan Purchase Agreement;
(v) to enter into and perform its obligations under the Basic Documents
to which it is to be a party;
<PAGE>
-3-
(vi) if directed by holders of Certificates representing more than 50%
of the beneficial interests in the Trust, sell the Trust Estate subsequent
to the discharge of the Indenture, all for the benefit of the holders of
the Certificates;
(vii) 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
(viii) subject to compliance with the Basic Documents, to engage in
such other activities as may be required in connection with conservation of
the Owner Trust Estate and the making of distributions to the
Certificateholder and the Bondholders.
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 Trust Agreement or the
Basic Documents.
Section 2.04. Appointment Of Owner Trustee. The Company 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 2.05. Initial Capital Contribution Of Owner Trust Estate. The
Company hereby sells, assigns, transfers, conveys and sets over to the Trust, as
of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges receipt
in trust from the Company, as of the date hereof, of the foregoing contribution,
which shall constitute the initial corpus of the Trust and shall be deposited in
the Certificate Distribution Account. The Owner Trustee also acknowledges on
behalf of the Trust the receipt in trust of the Mortgage Loans and the rights
with respect to the representations and warranties made by the Seller under the
Home Equity Loan Purchase Agreement and all other amounts constituting part of
the Trust Estate (such items plus all other amounts or items included in the
Trust Estate from time to time, the "Owner Trust Estate").
Section 2.06. Declaration Of Trust. The Owner Trustee hereby declares that
it shall hold the Owner Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Certificateholders, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a "business trust" under the
Business Trust Statute and that this Trust Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that, for federal and state income and state and local franchise tax purposes,
the Trust shall not be treated as (i) an association subject separately to
taxation as a corporation, (ii) a "publicly traded partnership" as defined in
Treasury Regulation Section 1.7704-1 or (iii) a "taxable mortgage pool" as
defined in Section 7701(i) of the Code, and that the Bonds shall be debt, and
the provisions of this Trust Agreement shall be interpreted to further this
intention. Except as otherwise provided in this Trust Agreement, the rights of
the Certificateholders will be those of equity owners of the Trust. Effective as
of the date hereof, the Owner Trustee shall have all rights, powers and duties
set forth herein and in the Business Trust Statute with respect to accomplishing
the purposes of the Trust.
<PAGE>
-4-
Section 2.07. Liability Of The Holders Of The Certificates. The Holders
of the Certificates shall be jointly and severally liable directly to and shall
indemnify the Trust and the Owner Trustee for all losses, claims, damages,
liabilities and expenses of the Trust and the Owner Trustee (including Expenses,
to the extent not paid by the Servicer pursuant to Section 2.11 or out of the
Owner Trust Estate); provided, however, that the Holders of the Certificates
shall not be liable for payments required to be made on the Bonds or the
Certificates, or for any losses incurred by a Certificateholder in the capacity
of an investor in the Certificates or a Bondholder in the capacity of an
investor in the Bonds. The Holders of the Certificates shall be liable for and
shall promptly pay any entity level taxes imposed on the Trust. In addition, any
third party creditors of the Trust, including the Bond Insurer (other than in
connection with the obligations described in the second preceding sentence for
which the Holders of the Certificates shall not be liable) shall be deemed third
party beneficiaries of this paragraph. The obligations of the Holders of the
Certificates under this paragraph shall be evidenced by the Certificates.
Section 2.08. Title To Trust Property. Except with respect to the Mortgage
Loans, which will be assigned of record to the Indenture Trustee pursuant to the
Indenture, legal title to the Owner Trust Estate shall be vested at all times in
the Trust as a separate legal entity except where applicable law in any
jurisdiction requires title to any part of the Owner Trust Estate to be vested
in a trustee or trustees, in which case title shall be deemed to be vested in
the Owner Trustee, a co-trustee and/or a separate trustee, as the case may be.
Section 2.09. 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. The Trust shall
not have any employees in any state other than Delaware; provided, however, that
nothing herein shall restrict or prohibit the Owner Trustee from having
employees within or without the State of Delaware or taking actions outside the
State of Delaware in order to comply with Section 2.03. Payments will be
received by the Trust only in Delaware or New York, and payments will be made by
the Trust only from Delaware or New York. The only office of the Trust will be
at the Corporate Trust Office in Delaware.
Section 2.10. Representations And Warranties Of The Company. The Company
hereby represents and warrants to the Owner Trustee and the Bond 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 its
property or the conduct of its business shall require such qualifications
and in which the failure to so qualify would have a material adverse effect
on the business, properties, assets or condition (financial or other) of
the Company.
<PAGE>
-5-
(iii) The Company has the power and authority to execute and deliver
this Trust Agreement and to carry out its terms; the Company has full power
and authority to convey and assign the property to be conveyed and assigned
to and deposited with the Trust as part of the Owner Trust Estate and the
Company has duly authorized such conveyance and assignment and deposit to
the Trust by all necessary corporate action; and the execution, delivery
and performance of this Trust Agreement have been duly authorized by the
Company by all necessary corporate action.
(iv) The consummation of the transactions contemplated by this Trust
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 bylaws of the Company, or any indenture, agreement or
other instrument to which the Company is a party or by which it is bound;
nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate any
law or, to the best of the Company's knowledge, any order, rule or
regulation applicable to the Company of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its properties.
(v) The Trust is not required to register as an investment company
under the Investment Company Act and is not under the control of a Person
required to so register.
Section 2.11. Payment Of Trust Fees. The Servicer shall pay the Owner
Trustee Fee pursuant to Section 3.07 of the Servicing Agreement and shall pay
the Trust's expenses (including expenses of the Owner Trustee and the Indenture
Trustee) incurred with respect to the performance of the Trust's duties under
the Indenture pursuant to Section 5.06 of the Servicing Agreement, or, if such
amounts are insufficient, the Owner Trustee shall be paid pursuant to Section
5.01 hereof.
Section 2.12. Investment Company. Neither the Company nor any holder of a
Certificate shall take any action which would cause the Trust to become an
"investment company" which would be required to register under the Investment
Company Act.
ARTICLE III
Conveyance Of The Initial Mortgage Loans;
Certificates
Section 3.01. Conveyance Of The Mortgage Loans. The Company, concurrently
with the execution and delivery hereof, does hereby Grant to the Trust, without
recourse, all its right, title and interest in and to the Initial Mortgage
Loans, including all interest and principal received on or with respect to the
Initial Mortgage Loans after the Cut-off Date (other than payments of
<PAGE>
-6-
principal and interest due on the Mortgage Loans on or before the Cut-off Date)
the proceeds thereof and all rights under the Related Documents (including the
related Mortgage Files). In addition, the Company hereby Grants to the Trust all
of its right, title, and interest in, to, and under the Home Equity Loan
Purchase Agreement and the Home Equity Loan Sale Agreement.
The conveyance of the Initial Mortgage Loans by the Company to the Trust
hereunder is intended to facilitate the simultaneous issuance of the Bonds under
the Indenture and issuance of the Certificates hereunder. The parties hereto
intend that the conveyance of the Initial Mortgage Loans by the Company to the
Trust hereunder constitute a sale by the Company to the Trust of all of the
Company's right, title and interest in and to the Initial Mortgage Loans.
However, if the transactions contemplated by this Trust Agreement are determined
to constitute a financing, the Company hereby Grants to the Trust a security
interest in the Owner Trust Estate and all distributions thereon and proceeds
thereof, and this Trust Agreement shall constitute a security agreement under
applicable law, and in such event, the parties hereto acknowledge that the
Indenture Trustee, in addition to holding the Initial Mortgage Loans for the
benefit of the Bondholders and the Bond Insurer, holds the Mortgage Loans as
designee of the Trust.
Section 3.02. Initial Ownership. Upon the formation of the Trust by the
contribution by the Company pursuant to Section 2.05 and until the conveyance of
the Initial Mortgage Loans pursuant to Section 3.01 and the issuance of the
Certificates, and thereafter except as otherwise permitted hereunder, the
Company shall be the sole Certificateholder.
Section 3.03. The Certificates. The Certificates shall be issued in the
form of one or more Certificates each representing not less than a 10%
Certificate Percentage Interest. The Certificates shall initially be registered
in the name of NovaStar Certificates Financing Corporation. ("NCFC"). The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and shall be
entitled to the rights and subject to the obligations of a Certificateholder
hereunder upon such transferee's acceptance of a Certificate duly registered in
such transferee's name pursuant to and upon satisfaction of the conditions set
forth in Section 3.05.
Section 3.04. Authentication Of Certificates. The Owner Trustee shall cause
all Certificates issued hereunder to be executed and authenticated on behalf of
the Trust, authenticated and delivered to or upon the written order of the
Company, signed by its chairman of the board,
<PAGE>
-7-
its president or any vice president, without further corporate action by the
Company, in authorized denominations. No Certificate shall entitle its holder to
any benefit under this Trust Agreement or be valid for any purpose unless there
shall appear on such Certificate a certificate of authen tication substantially
in the form set forth in Exhibit A, executed by the Owner Trustee or the
Certificate Registrar by manual signature; such authentication shall constitute
conclusive evidence that such Certificate shall have been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.
Section 3.05. Registration Of And Limitations On Transfer And Exchange Of
Certificates. The Certificate Registrar shall keep or cause to be kept, a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Certificate Registrar shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
First Union National Bank shall be the initial Certificate Registrar. If the
Certificate Registrar resigns or is removed, the Owner Trustee shall appoint a
successor Certificate Registrar.
Subject to satisfaction of the conditions set forth below with respect to
the Certificate, upon surrender for registration of transfer of any Certificate
at the office or agency maintained pursuant to Section 3.09, the Owner Trustee
or the Certificate Registrar shall execute, authenticate and deliver in the name
of the designated transferee or transferees, one or more new Certificates in
authorized denominations of a like aggregate amount dated the date of
authentication by the Owner Trustee or the Certificate Registrar. At the option
of a Holder, Certificates may be exchanged for other Certificates of authorized
denominations of a like aggregate amount upon surrender of the Certificates to
be exchanged at the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently disposed
of by the Certificate Registrar in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of Non-Foreign Status set forth in Exhibit F hereto.
No transfer, sale, pledge or other disposition of a Certificate shall be
made unless such transfer, sale, pledge or other disposition is exempt from the
registration requirements of the Securities Act and any applicable state
securities laws or is made in accordance with said Act and laws. In the event of
any such transfer, the Certificate Registrar or the Company shall prior to such
transfer require the transferee to execute (a) either (i) an investment letter
in substantially
<PAGE>
-8-
the form attached hereto as Exhibit C (or in such form and substance reasonably
satisfactory to the Certificate Registrar and the Company) which investment
letter shall not be an expense of the Trust, the Owner Trustee, the Certificate
Registrar, the Servicer, the Bond Insurer or the Company and which investment
letter states that, among other things, such transferee (A) is a "qualified
institutional buyer" as defined under Rule 144A, acting for its own account or
the accounts of other "qualified institutional buyers" as defined under Rule
144A and (B) is aware that the proposed transferor intends to rely on the
exemption from registration requirements under the Securities Act of 1933, as
amended, provided by Rule 144A or (ii) (A) a written Opinion of Counsel
acceptable to and in form and substance satisfactory to the Certificate
Registrar, the Company and the Bond Insurer 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 Trust, the Owner
Trustee, the Certificate Registrar, the Servicer, the Bond Insurer or the
Company and (B) the transferee executes a representation letter, substantially
in the form of Exhibit D hereto, and the transferor executes a representation
letter, substantially in the form of Exhibit E hereto, each acceptable to and in
form and substance satisfactory to the Certificate Registrar and the Company
certifying the facts surrounding such transfer, which representation letters
shall not be an expense of the Trust, the Owner Trustee, the Certificate
Registrar, the Servicer, the Bond Insurer or the Company and (b) the Certificate
of Non-Foreign Status (in substantially the form attached hereto as Exhibit F)
acceptable to and in form and substance reasonably satisfactory to the
Certificate Registrar and the Company, which certificate shall not be an expense
of the Trust, the Owner Trustee, the Certificate Registrar, the Servicer, the
Bond Insurer or the Company. If the Certificateholder is unable to provide a
Certificate of Non-Foreign Status, the Certificateholder must provide an Opinion
of Counsel as described above in this paragraph. The Certificateholder desiring
to effect such transfer shall, and does hereby agree to, indemnify the Trust,
the Owner Trustee, the Certificate Registrar, the Servicer, the Bond Insurer and
the Company 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. Neither an
Opinion of Counsel nor a certification set forth in clause (a) of this paragraph
will be required in connection with the initial transfer of any such Certificate
by the Company to the Purchaser pursuant to the Ownership Transfer Agreement and
by the Purchaser to NCFC pursuant to the Certificates Sale Agreement or by the
pledge of any such Certificate by NCFC. to Merrill Lynch Mortgage Capital, Inc.
("MLMCI") and the certification set forth in clause (b) of this paragraph will
not be required in connection with the pledge of any such Certificate by NCFC to
MLMCI.
No transfer of a Certificate or any interest therein shall be made to any
employee benefit plan or certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general or separate accounts
in which such plans, accounts or arrangements are invested, that are subject to
ERISA, or Section 4975 of the Code (collectively, "Plan"), any Person acting,
directly or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with "plan assets" of a Plan within the meaning of the Department
of Labor regulation promulgated at 29 C.F.R. ss.2510.3-101 ("Plan Assets")
unless the Company, the Owner Trustee, the Certificate Registrar and the
Servicer are provided with an Opinion of Counsel which establishes to the
satisfaction of
<PAGE>
-9-
the Company, the Owner Trustee, the Certificate Registrar and the Servicer that
the purchase of Certificates is permissible under applicable law, will not
constitute or result in any prohibited transaction under ERISA or Section 4975
of the Code and will not subject the Company, the Owner Trustee, the Certificate
Registrar or the Servicer to any obligation or liability (including obligations
or liabilities under ERISA or Section 4975 of the Code) in addition to those
undertaken in this Trust Agreement, which Opinion of Counsel shall not be an
expense of the Company, the Owner Trustee, the Certificate Registrar, the Bond
Insurer or the Servicer. In lieu of such Opinion of Counsel, a Plan, any Person
acting, directly or indirectly, on behalf of any such Plan or any Person
acquiring such Certificates with Plan Assets of a Plan may provide a
certification in the form of Exhibit G to this Trust Agreement, which the
Company, the Owner Trustee, the Certificate Registrar and the Servicer may rely
upon without further inquiry or investigation. Neither an Opinion of Counsel nor
a certification will be required in connection with the initial transfer or
pledge of any such Certificate by the Company to an affiliate of the Company (in
which case, the Company or any affiliate thereof shall have deemed to have
represented that such affiliate is not a Plan or a Person investing Plan Assets
of any Plan) and the Owner Trustee shall be entitled to conclusively rely upon a
representation (which, upon the request of the Owner Trustee, shall be a written
representation) from the Company of the status of such transferee as an
affiliate of the Company.
In addition, no transfer, sale, assignment, pledge or other disposition of
a Certificate shall be made unless the proposed transferee executes a
representation letter substantially in the form of Exhibit D, or substantially
in the form of Exhibit H hereto, that (1) the transferee is acquiring the
Certificate for its own behalf and is not acting as agent or custodian for any
other person or entity in connection with such acquisition and (2) if the
transferee is a partnership, grantor trust or S corporation for federal income
tax purposes, the Certificates are not more than 50% of the assets of the
partnership, grantor trust or S corporation.
No offer, sale, transfer, pledge, hypothecation or other disposition
(including any pledge, sale or transfer under a repurchase transaction or
securities loan) of any Certificate shall be made to any transferee unless,
prior to such disposition, the proposed transferor delivers to the Owner Trustee
an Opinion of Counsel, rendered by a law firm generally recognized to be
qualified to opine concerning the tax aspects of asset securitization, to the
effect that such transfer (including any disposition permitted following any
default under any pledge or repurchase transaction) will not cause the Trust to
be (i) treated as an association taxable as a corporation for federal income tax
purposes, (ii) taxable as a taxable mortgage pool as defined in Section 7701(i)
of the Code or (iii) taxable as a "publicly traded partnership" as defined in
Treasury Regulation section 1.7704-1. Notwithstanding the foregoing, the
provisions of this paragraph shall not apply to the initial transfers of the
Certificates by the Company to the Purchaser pursuant to the Ownership Transfer
Agreement and by the Purchaser to NCFC pursuant to the Certificates Sale
Agreement.
Notwithstanding any other provisions of this Section 3.05 to the contrary,
(i) on the Closing Date, the Company may transfer the Certificates to the
Purchaser pursuant to the Ownership Transfer Agreement and the Purchaser may
transfer the Certificates to NCFC pursuant to the Certificates Sale Agreement
and (ii) on or after the Closing Date, NCFC may pledge the
<PAGE>
-10-
Certificates to secure its obligations to MLMCI; provided, however, that MLMCI
may not become the registered owner of any of the Certificates without complying
with the foregoing provisions of this Section 3.05, as applicable.
Section 3.06. Mutilated, Destroyed, Lost Or Stolen Certificates. If (a) any
mutilated Certificate shall be surrendered to the Certificate Registrar, or if
the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar 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 to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or the Certificate Registrar, shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
denomination. In connection with the issuance of any new Certificate under this
Section 3.06, the Owner Trustee or the Certificate Registrar may require the
payment of a sum sufficient to cover any expenses of the Owner Trustee or the
Certificate Registrar (including fees and expenses of counsel) and any tax or
other governmental charge that may be imposed in connection therewith. Any
duplicate Certificate issued pursuant to this Section 3.06 shall constitute
conclusive evidence of ownership in the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Certificate shall be found at any time.
Section 3.07. Persons Deemed Certificateholders. Prior to due presentation
of a Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar or any Certificate Paying Agent may treat the Person in
whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. Access To List Of Certificateholders' Names And Addresses.
The Certificate Registrar shall furnish or cause to be furnished to the Company
or the Owner Trustee, within 15 days after receipt by the Certificate Registrar
of a written request therefor from the Company or the Owner Trustee, a list, in
such form as the Company or the Owner Trustee, as the case may be, may
reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. Each Holder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Trust, 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 3.09. Maintenance Of Office Or Agency. The Owner Trustee on behalf
of the Trust, shall maintain in Wilmington, Delaware, an office or offices or
agency or agencies where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Owner Trustee
in respect of the Certificates and the Basic Documents may be served. The Owner
Trustee initially designates the Corporate Trust Office as its office for such
<PAGE>
-11-
purposes. The Owner Trustee shall give prompt written notice to the Company and
the Certif icateholders of any change in the location of the Certificate
Register or any such office or agency.
Section 3.10. Certificate Paying Agent. (a) The Certificate Paying Agent
shall make distributions to Certificateholders from the Certificate Distribution
Account on behalf of the Trust in accordance with the provisions of the
Certificates and Section 5.01 hereof from payments remitted to the Certificate
Paying Agent by the Indenture Trustee pursuant to Section 3.05 of the Indenture.
The Trust hereby appoints First Union National Bank as Certificate Paying Agent
and First Union National Bank hereby accepts such appointment and further agrees
that it will be bound by the provisions of this Trust Agreement relating to the
Certificate Paying Agent and shall:
(i) hold all sums held by it for the payment of amounts due with
respect to the Certificates in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the Trust of which
it has actual knowledge in the making of any payment required to be made
with respect to the Certificates;
(iii) at any time during the continuance of any such default, upon the
written request of the Owner Trustee forthwith pay to the Owner Trustee on
behalf of the Trust all sums so held in Trust by such Certificate Paying
Agent;
(iv) immediately resign as Certificate Paying Agent and forthwith pay
to the Owner Trustee on behalf of the Trust all sums held by it in trust
for the payment of Certificates if at any time it ceases to meet the
standards under this Section 3.10 required to be met by the Certificate
Paying Agent at the time of its appointment;
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Certificates of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith;
(vi) deliver to the Owner Trustee a copy of the report to
Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement; and
(vii) not institute bankruptcy proceedings against the Issuer in
connection with this Trust Agreement.
(b) The Trust may revoke such power and remove the Certificate Paying Agent
if it determines in its sole discretion that the Certificate Paying Agent shall
have failed to perform its obligations under this Trust Agreement in any
material respect. First Union National Bank shall be permitted to resign as
Certificate Paying Agent upon 30 days written notice to the Owner
<PAGE>
-12-
Trustee and the Bond Insurer; provided First Union National Bank is also
resigning as Paying Agent under the Indenture at such time. In the event that
First Union National Bank shall no longer be the Certificate Paying Agent under
this Trust Agreement and Paying Agent under the Indenture, the Owner Trustee
shall appoint a successor to act as Certificate Paying Agent (which shall be a
bank or trust company) and which shall also be the successor Paying Agent under
the Indenture. The Owner Trustee shall cause such successor Certificate Paying
Agent or any additional Certificate Paying Agent appointed by the Owner Trustee
to execute and deliver to the Owner Trustee an instrument accepting the terms of
this Section 3.10 as it relates to the Certificate Paying Agent. The Certificate
Paying Agent shall return all unclaimed funds to the Trust and upon removal of a
Certificate Paying Agent such Certificate Paying Agent shall also return all
funds in its possession to the Trust. The provisions of Sections 6.01, 6.03,
6.04 and 7.01 shall apply to the Certificate Paying Agent to the extent
applicable. Any reference in this Trust Agreement to the Certificate Paying
Agent shall include any co-paying agent unless the context requires otherwise.
(c) The Certificate Paying Agent shall establish and maintain with itself a
trust account (the "Certificate Distribution Account") in which the Certificate
Paying Agent shall deposit, on the same day as it is received from the Indenture
Trustee, each remittance received by the Certificate Paying Agent with respect
to payments made pursuant to the Indenture. The Certificate Paying Agent shall
make all distributions to Certificates, from moneys on deposit in the
Certificate Distribution Account.
(d) The Certificate Paying Agent shall be paid by the Indenture Trustee
from sources other than the Trust Estate.
Section 3.11. Pre-Funding Amount And Interest Coverage Amount. On the
Closing Date, (i) proceeds of the offering of the Bonds in an amount equal to
the Original Pre-Funded Amount shall be deposited into the Pre-Funding Account
as contemplated by Section 8.08 of the Indenture; (ii) proceeds of the offering
of the Bonds in an amount equal to the Interest Coverage Amount shall be
deposited into the Interest Coverage Account as contemplated by Section 8.09 of
the Indenture; (iii) the Original Pre-Funded Amount and the Interest Coverage
Amount shall become part of the Owner Trust Estate under this Trust Agreement;
and (iv) the Original Pre-Funded Amount and the Interest Coverage Amount shall
become part of the Trust Estate and the Collateral under the Indenture.
Section 3.12. Purchase Of Subsequent Mortgage Loans. On each Subsequent
Transfer Date, (i) the Trust shall purchase, and the Seller shall sell, the
Subsequent Mortgage Loans, as contemplated by and subject to the conditions set
forth in Section 2.2 of the Home Equity Loan Purchase Agreement; (ii) in
consideration for the Purchase of the Subsequent Mortgage Loans, the Trust shall
instruct the Indenture Trustee to transfer funds in the Pre-Funding Account to
the Seller as contemplated by and subject to the conditions set forth in Section
8.08 of the Indenture, (iii) the Subsequent Mortgage Loan shall become part of
the Owner Trust Estate under this Trust Agreement and (iv) the Subsequent
Mortgage Loans shall become part of the Trust Estate and the Collateral under
the Indenture.
<PAGE>
-13-
ARTICLE IV
Authority And Duties Of Owner Trustee
Section 4.01. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, as evidenced
conclusively by the Owner Trustee's execution thereof. In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, except
as otherwise provided in this Trust Agreement, to take all actions required of
the Trust pursuant to the Basic Documents.
Section 4.02. General Duties. It shall be the duty of the Owner Trustee to
discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement.
Section 4.03. Action Upon Instruction. (a) Subject to this Article IV and
in accordance with the terms of the Basic Documents, the Certificateholders may
by written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to this Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be required
to take any action hereunder or under any Basic Document if the Owner Trustee
shall have reasonably determined, or shall have been advised by counsel, that
such action is likely to result in liability on the part of the Owner Trustee or
is contrary to the terms hereof or of any Basic Document or is otherwise
contrary to law.
(c) Whenever the Owner Trustee is required to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust 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 shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Bond Insurer) requesting instruction
as to the course of action to be adopted, and to the extent the Owner Trustee
acts in good faith in accordance with any written instruction of the
Certificateholders (with the consent of the Bond Insurer), 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
<PAGE>
-14-
taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, the Bondholders and the Bond Insurer, and the Owner Trustee
shall have no liability to any Person for such action or inaction.
Section 4.04. No Duties Except As Specified Under Specified 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 (a) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (b) in accordance with the Basic
Documents and (c) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility (i) to file any
financing or continuation statement in any public office at any time, (ii) to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder, (iii) to record this Trust Agreement or any Basic
Document or (iv) to prepare or file any Securities and Exchange Commission
filing for the Trust. 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 4.05. Restrictions. (a) The Owner Trustee or the Company (or an
Affiliate thereof) shall not take any action (i) that is inconsistent with the
purposes of the Trust set forth in Section 2.03 or (ii) that, to the actual
knowledge of the Owner Trustee based on an Opinion of Counsel rendered by a law
firm generally recognized to be qualified to opine concerning the tax aspects of
asset securitization, would result in the Trust becoming taxable as a
corporation for federal income tax purposes or (iii) would result in the
amendment or modification of the Basic Documents or this Trust Agreement without
the prior written consent of the Bond Insurer. The Certificateholders shall not
direct the Owner Trustee to take action that would violate the provisions of
this Section 4.05.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (i) it shall have received an Opinion of Counsel rendered by a law
firm generally recognized to be qualified to opine concerning the tax aspects of
asset securitization to the effect that such transaction will not have any
material adverse tax consequence to the Trust or any Certificateholder and (ii)
such conveyance or transfer shall not violate the provisions of Section 3.16(b)
of the Indenture.
(c) 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 and liabilities 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
<PAGE>
-15-
records of all appropriate actions and shall maintain its office separate from
the offices of the Company.
Section 4.06. Prior Notice To Certificateholders With Respect To Certain
Matters. With respect to the following matters, the Owner Trustee shall not take
action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders and the Bond Insurer in
writing of the proposed action and the Certificateholders and the Bond Insurer
shall not have notified the Owner Trustee in writing prior to the 30th day after
such notice is given that such Certificateholders and the Bond Insurer have
withheld consent or provided alternative direction (provided, however, that any
direction by the Certificateholders shall require the prior consent of the Bond
Insurer):
(a) the initiation of any claim or lawsuit by the Trust (except claims or
lawsuits brought in connection with the collection of cash distributions due and
owing under the Mortgage 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 cash distributions due and
owing under the Mortgage 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 Trust Agreement or any Basic
Document in circumstances where the consent of any Bondholder or the Bond
Insurer is required;
(d) the amendment or other change to this Trust Agreement or any Basic
Document in circumstances where the consent of any Bondholder or the Bond
Insurer is not required and such amendment materially adversely affects the
interest of the Certificateholders;
(e) the appointment pursuant to the Indenture of a successor Bond
Registrar, Paying Agent or Indenture Trustee or, pursuant to this Trust
Agreement, of a successor Certificate Registrar or Certificate Paying Agent or
the consent to the assignment by the Bond Registrar, Paying Agent, Indenture
Trustee, Certificate Registrar or Certificate Paying Agent of its obligations
under the Indenture or this Trust Agreement, as applicable;
(f) the consent to the calling or waiver of any default under any Basic
Document;
(g) the consent to the assignment by the Indenture Trustee or Servicer of
their respective obligations under any Basic Document;
(h) except as provided in Article VIII 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;
<PAGE>
-16-
(j) cause the Trust to incur, assume or guaranty any indebtedness other
than as set forth in this Trust Agreement;
(k) perform any act that conflicts with any other Basic Document;
(l) perform any act which would make it impossible to carry on the ordinary
business of the Trust as described in Section 2.03 hereof;
(m) confess a judgment against the Trust;
(n) possess Trust assets or assign the Trust's right to property for other
than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those enumerated in this
Trust Agreement.
Section 4.07. Action By Certificateholders With Respect To Certain Matters.
The Owner Trustee shall not have the power, except upon the direction of the
Certificateholders, and with the consent of the Bond Insurer, to (a) remove or
replace the Servicer under the Servicing Agreement pursuant to Sections 6.01 and
6.02 thereof or to remove or replace the Indenture Trustee under the Indenture
pursuant to Section 6.08 thereof, (b) except as expressly provided in the Basic
Docu ments, sell the Mortgage Loans after the termination of the Indenture, (c)
institute proceedings to have the Trust declared or adjudicated to be bankrupt
or insolvent, (d) consent to the institution of bankruptcy or insolvency
proceedings against the Trust, (e) 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, (f) 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, (g) make any
assignment for the benefit of the Trust's creditors, (h) cause the Trust to
admit in writing its inability to pay its debts generally as they become due,
(i) take any action or cause the Trust to take any action, in furtherance of any
of the foregoing clauses (c) through (i) (any of such clauses, a "Bankruptcy
Action"). So long as the Indenture and the Insurance Agreement remain in effect
and no Bond Insurer Default exists, no Certificateholder shall have the power to
take, and shall 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. The Owner Trustee shall take the actions referred
to in the preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Bond Insurer.
Section 4.08. 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 consent of the Bond Insurer, the Bondholders and the
Owner Trustee and the delivery to the Owner Trustee by
<PAGE>
-17-
each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that the Trust is insolvent. This
paragraph shall survive for one year and one day following termination of this
Trust Agreement.
Section 4.09. Restrictions On Certificateholders' Power. The
Certificateholders shall not direct the Owner Trustee to take or to 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 Trust Agreement or any of the Basic
Documents or would be contrary to Section 2.03, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
Section 4.10. Majority Control. Except as expressly provided herein, any
action that may be taken by the Certificateholders under this Trust Agreement
may be taken by the Holders of Certificates evidencing not less than a majority
of the outstanding Certificate Percentage Interests of the Certificates. Except
as expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Certificate Principal Balance of the Certificates at the time of the delivery of
such notice.
Section 4.11. Optional Redemption. Upon receipt of written instructions
provided to the Owner Trustee by the Holder or Holders of 100% of the
Certificates, the Owner Trustee shall cause the Issuer to redeem the Bonds in
accordance with Section 8.07 of the Indenture and shall provide all necessary
notices on behalf of the Issuer to effect the foregoing, provided that such
Holder or Holders shall deposit with the Indenture Trustee an amount equal to
the aggregate redemption price specified under Section 8.07 of the Indenture,
which shall be applied by the Indenture Trustee solely to make such redemption
payments. The Owner Trustee shall not have the power to exercise the right of
the Issuer to redeem the Bonds pursuant to Section 7.05 of the Indenture, except
as provided above.
ARTICLE V
Application Of Trust Funds
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders, on a pro rata basis
based on the Certificate Percentage Interests thereof, all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture) for such Payment Date as reduced by any amount
owing to the Owner Trustee hereunder and any Expenses of the Trust remaining
unpaid.
(b) In the event that any withholding tax is imposed on the distributions
(or allocations of income) to a Certificateholder, such tax shall reduce the
amount otherwise distributable to such Certificateholder in accordance with this
Section 5.01. The Certificate Paying Agent is hereby authorized and directed to
retain or cause to be retained from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust
<PAGE>
-18-
(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 a Certificateholder shall be treated as
cash distributed to such Certificateholder at the time it is withheld by the
Certificate Paying Agent and remitted to the appropriate taxing authority. If
there is a possibility that withholding tax is payable with respect to a
distribution (such as a distribution to a non-U.S. Certificateholder), the
Certificate Paying Agent may in its sole discretion withhold such amounts in
accordance with this paragraph (b).
(c) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Bondholders and the Bond Insurer.
Section 5.02. Method Of Payment. Subject to Section 8.01(c), distributions
required to be made to Certificateholders on any Payment Date as provided in
Section 5.01 shall be made to each Certificateholder of record on the preceding
Record Date either by, in the case of any Certificateholder owning Certificates
having a Certificate Percentage Interest of 100%, wire transfer, in immediately
available funds, to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder shall have provided
to the Certificate Registrar appropriate written instructions at least five
Business Days prior to such Record Date or, if not, by check mailed to such
Certificateholder at the address of such Holder appearing in the Certificate
Register.
Section 5.03. Tax Returns. The Indenture Trustee shall (a) maintain (or
cause to be maintained) the books of the Trust on a calendar year basis using
the accrual method of accounting, (b) deliver (or cause to be delivered) to each
Certificateholder as may be required by the Code and applicable Treasury
Regulations, such information as may be required to enable each
Certificateholder to prepare its federal and state income tax returns, (c)
prepare and file or cause to be prepared and filed such tax returns relating to
the Trust as may be required by the Code and applicable Treasury Regulations
(making such elections as may from time to time be required or appropriate under
any applicable state or federal statutes, rules or regulations) and (d) collect
or cause to be collected any withholding tax as described in and in accordance
with Section 5.01 of this Trust Agreement with respect to income or
distributions to Certificateholders and prepare or cause to be prepared the
appropriate forms relating thereto.
Section 5.04. Statements To Certificateholders. On each Payment Date, the
Certificate Paying Agent shall send to each Certificateholder the statement or
statements provided to the Owner Trustee and the Certificate Paying Agent by the
Indenture Trustee pursuant to Section 7.05 of the Indenture with respect to such
Payment Date.
<PAGE>
-19-
ARTICLE VI
Concerning The Owner Trustee
Section 6.01. 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 Trust Agreement. Each of
the Owner Trustee and the Certificate Paying Agent also agrees to disburse all
moneys actually received by it constituting part of the Owner Trust Estate upon
the terms of the Basic Documents and this Trust Agreement. The Owner Trustee
shall not be answerable or accountable hereunder or under any Basic Document
under any circumstances, except (i) for its own willful misconduct, gross
negligence or bad faith or grossly negligent failure to act or (ii) in the case
of the inaccuracy of any representation or warranty contained in Section 6.03
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 with respect to any action taken
or omitted to be taken by it in accordance with the instructions of the
Certificateholders permitted under this Trust Agreement;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic 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;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Bonds;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Company or for the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate, or for or in respect of the validity
or sufficiency of the Basic Documents, the Bonds, the Certificates, other than
the certificate of authentication on the Certificates, if executed by the Owner
Trustee and the Owner Trustee shall in no event assume or incur any liability,
duty, or obligation to any Bondholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The Owner Trustee shall not be liable for the default or misconduct of
the Company, Indenture Trustee, Certificate Registrar or the Servicer under any
of the Basic Documents or otherwise and the Owner Trustee shall have no
obligation or liability to perform the obligations of the Trust under this Trust
Agreement or the Basic Documents that are required to be performed by the
Indenture Trustee under the Indenture or the Seller under the Home Equity Loan
Purchase Agreement; and
<PAGE>
-20-
(f) The Owner Trustee shall be under no obligation to exercise any of the
rights or powers vested in it or duties imposed by this Trust Agreement, or to
institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty.
Section 6.02. Furnishing Of Documents. The Owner Trustee shall furnish to
the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. Representations And Warranties. The Owner Trustee, in its
individual capacity, hereby represents and warrants to the Company, for the
benefit of the Certificateholders and the Bond Insurer that:
(a) 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
Trust Agreement;
(b) It has taken all corporate action necessary to authorize the execution
and delivery by it of this Trust Agreement, and this Trust Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Trust Agreement on its behalf;
(c) The execution, delivery, authentication and performance by it of this
Trust Agreement will not require the authorization, consent or approval of, the
giving of notice to, the filing or registration with, or the taking of any other
action with respect to, any governmental authority or agency;
(d) Neither the execution nor the delivery by it of this Trust Agreement,
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will contravene any
federal or Delaware law, governmental rule or regulation governing the banking
or trust powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or bylaws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by which
any of its properties may be bound;
(e) This Trust Agreement, assuming due authorization, execution and
delivery by the Company, constitutes a valid, legal and binding obligation of
the Owner Trustee, enforceable against it in accordance with the terms hereof
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the enforcement of creditors' rights generally
<PAGE>
-21-
and to general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law;
(f) The Owner Trustee is not in default with respect to any order or decree
of any court or any order, regulation or demand of any Federal, state, municipal
or governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or other) or operations
of the Owner Trustee or its properties or might have consequences that would
materially adversely affect its performance hereunder; and
(g) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement.
Section 6.04. 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 determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the Trust hereunder and in the
performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) if such persons 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 Trust Agreement or
any Basic Document.
Section 6.05. Not Acting In Individual Capacity. Except as provided in this
Article VI, 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 Trust Agreement or any Basic Document shall look only to
the Owner Trust Estate for payment or satisfaction thereof.
<PAGE>
-22-
Section 6.06. Owner Trustee Not Liable For Certificates Or Related
Documents. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of 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 Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Bonds, or of any Related Documents. The Owner Trustee shall
at no time have any responsibility or liability with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to Certificateholders under this Trust Agreement or the Bondholders
under the Indenture, including compliance by the Company or the Seller with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, or any action
of the Certificate Paying Agent, the Certificate Registrar or the Indenture
Trustee taken in the name of the Owner Trustee.
Section 6.07. Owner Trustee May Own Certificates And Bonds. The Owner
Trustee in its individual or any other capacity may, subject to Section 3.05,
become the owner or pledgee of Certificates or Bonds and may deal with the
Company, the Seller, the Certificate Paying Agent, the Certificate Registrar and
the Indenture Trustee in transactions with the same rights as it would have if
it were not Owner Trustee.
Section 6.08. Payments From Owner Trust Estate. All payments to be made by
the Owner Trustee under this Trust Agreement or any of the Basic Documents to
which the Owner Trustee is a party shall be made only from the income and
proceeds of the Owner Trust Estate or from other amounts required to be provided
by the Certificateholders and only to the extent that the Owner Trust shall have
received income or proceeds from the Owner Trust Estate or the
Certificateholders to make such payments in accordance with the terms hereof.
Wilmington Trust Company, in its individual capacity, shall not be liable for
any amounts payable under this Trust Agreement or any of the Basic Documents to
which the Owner Trustee is a party.
Section 6.09. Doing Business In Other Jurisdictions. Notwithstanding
anything contained herein to the contrary, neither Wilmington Trust Company nor
the Owner Trustee shall be required to take any action in any jurisdiction other
than in the State of Delaware if the taking of such action will, even after the
appointment of a co-trustee or separate trustee in accordance with Section 9.05
hereof, (i) require the consent or approval or authorization or order of or the
giving of notice to, or the registration with or the taking of any other action
in respect of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware; (ii) result in any fee, tax or
other governmental charge under the laws of the State of Delaware becoming
payable by Wilmington Trust Company; or (iii) subject Wilmington Trust Company
to personal jurisdiction in any jurisdiction other than the State of Delaware
for causes of action arising from acts unrelated to the consummation of the
transactions by Wilmington Trust Company or the Owner Trustee, as the case may
be, contemplated hereby.
<PAGE>
-23-
Section 6.10. LIABILITY OF CERTIFICATE REGISTRAR AND CERTIFICATE PAYING
AGENT. All provisions affording protection to or limiting the liability of the
Owner Trustee shall inure as well to the Certificate Registrar and Certificate
Paying Agent.
ARTICLE VII
Compensation Of Owner Trustee
Section 7.01. 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 and as set forth in Appendix A to
the Indenture, and the Owner Trustee shall be reimbursed by the Company or the
Servicer for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents. The amount of the Owner Trustee
Fee shall be paid by the Servicer to the Owner Trustee pursuant to Section
3.07(a)(viii) of the Servicing Agreement.
Section 7.02. Indemnification. The Company shall indemnify, defend and hold
harmless the Owner Trustee and its successors, assigns, agents and servants
(collectively, the "Indemnified Parties") from and against, any and all
liabilities, obligations, losses, damages, taxes, claims, actions and suits, and
any and all reasonable costs, expenses and disbursements (including reason able
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 Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Company shall not be liable for or required to indemnify an
Indemnified Party from and against Expenses arising or resulting from the
Owner Trustee's willful misconduct, gross negligence or bad faith or as a
result of any inaccuracy of a representation or warranty contained in
Section 6.03 expressly made by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified Party shall have
given the Company written notice thereof promptly after the Indemnified
Party shall have actual knowledge thereof;
(iii) while maintaining control over its own defense, the Company shall
consult with the Indemnified Party in preparing such defense; and
(iv) notwithstanding anything in this Trust Agreement to the contrary,
the Company shall not be liable for settlement of any claim by an
Indemnified Party entered
<PAGE>
-24-
into without the prior consent of the Company which consent shall not be
unreasonably withheld.
The indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Trust Agreement. In
the event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section 7.02, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection with
the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Company, which approval shall not be unreasonably withheld. In
addition, upon written notice to the Owner Trustee and with the consent of the
Owner Trustee which consent shall not be unreasonably withheld, the Company has
the right to assume the defense of any claim, action or proceeding against the
Owner Trustee.
ARTICLE VIII
Termination Of Trust Agreement
Section 8.01. Termination Of Trust Agreement. (a) This Trust Agreement
(other than Article VII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) the final distribution of all moneys or
other property or proceeds of the Owner Trust Estate in accordance with the
terms of the Indenture and this Trust Agreement, (ii) the Payment Date in
December 2027, or (iii) the distribution of all of the assets of the Owner Trust
Estate, in accordance with written instructions provided to the Owner Trustee by
Holders of a majority of the Certificates, following the optional redemption of
the Bonds by the Issuer pursuant to Section 8.07 of the Indenture; provided in
each case that all amounts owing to the Bondholders and the Bond Insurer to the
extent payable from the Owner Trust Estate or proceeds thereof have been paid in
full and that all obligations under the Indenture have been discharged. The
bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder shall not (x) operate to terminate this Trust Agreement or the
Trust or (y) entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or the Owner Trust
Estate or (z) otherwise affect the rights, obligations and liabilities of the
parties hereto.
(b) Except as provided in Section 8.01(a), neither the Company nor any
Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Bond Insurer mailed within five Business Days of receipt of notice of
the final payment on the Bonds from the Indenture Trustee, stating (i) the
Payment Date upon or with respect to which final payment of the Certificates
shall be made upon presentation and surrender of the Certificates at the office
of the Certificate Paying Agent therein designated,
<PAGE>
-25-
(ii) the amount of any such final payment and (iii) that the Record Date
otherwise applicable to such Payment Date is not applicable, payments being made
only upon presentation and surrender of the Certificates at the office of the
Certificate Payment Agent therein specified. The Certificate Paying Agent shall
give such notice to the Owner Trustee and the Certificate Registrar at the time
such notice is given to Certificateholders. Upon presentation and surrender of
the Certificates, the Certificate Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Payment Date pursuant to
Section 5.01.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Certificate Paying Agent shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.05 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certif icates, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Trust Agreement. Any
funds remaining in the Certificate Distribution Account after exhaustion of such
remedies shall be distributed by the Certificate Paying Agent to the Holder of
the Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner Trustee
shall cause the Certificate of Trust to be canceled by filing a certificate of
cancellation with the Secretary of State in accordance with the provisions of
Section 3810(d) of the Business Trust Statute.
ARTICLE IX
Successor Owner Trustees And Additional Owner Trustees
Section 9.01. Eligibility Requirements For Owner Trustee. The Owner Trustee
shall at all times be a corporation reasonably acceptable to the Bond Insurer
and satisfying the provisions of Section 3807(a) of the Business Trust Statute;
authorized to exercise corporate trust 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 that has) a rating
of at least Baa3 or is otherwise acceptable to the Bond Insurer, Moody's and
Standard & Poor's. 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 9.01, the Owner Trustee shall
resign immediately in the manner and with the effect specified in Section 9.02.
<PAGE>
-26-
Section 9.02. Replacement Of Owner Trustee. The Owner Trustee may at any
time resign and be discharged from the trusts hereby created by giving 30 days
prior written notice thereof to the Bond Insurer and the Company. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor Owner
Trustee with the consent of the Bond Insurer which will not be unreasonably
withheld, by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Owner Trustee and to the successor Owner
Trustee. If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee reasonably
acceptable to the Certificateholders and the Bond Insurer.
If at any time the Owner Trustee shall cease to be eligible in accordance
with the provisions of Section 9.01 and shall fail to resign after written
request therefor by the Company or the Bond Insurer, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Company may remove the Owner Trustee with
the consent of the Bond Insurer and shall remove the Owner Trustee at the
direction of the Bond Insurer.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until accep tance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies and
the Bond Insurer.
Section 9.03. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Indenture Trustee and to its predecessor Owner Trustee an instrument accepting
such appointment under this Trust Agreement, and thereupon the resignation or
removal of the predecessor Owner Trustee shall become effective, and such
successor Owner Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor under this Trust Agreement, with like effect as if originally named
as Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees
and expenses deliver to the successor Owner Trustee all documents and statements
and monies held by it under this Trust Agreement; and the predecessor Owner
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully and certainly vesting and confirming in the
successor Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
<PAGE>
-27-
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Owner Trustee shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Bondholders, the Bond Insurer and
the Rating Agencies.
Section 9.04. Merger Or Consolidation Of Owner Trustee. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, 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, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies and the Bond Insurer.
Section 9.05. Appointment Of Co-trustee Or Separate Trustee.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Owner Trustee
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons to act as co-trustee, jointly with the Owner Trustee, or as
separate trustee or 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 Owner Trustee or the Bond Insurer
may consider necessary or desirable. No co-trustee or separate trustee under
this Trust Agreement shall be required to meet the terms of eligibility as a
successor Owner Trustee pursuant to Section 9.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 9.03, except that notice to, and the consent of, the Bond Insurer shall
be required for appointment of a co-trustee.
Each separate trustee and co-trustee shall, to the extent permitted by law,
be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed upon
the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
<PAGE>
-28-
(c) The Owner Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Trust Agreement and the
conditions of this Article IX. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Trust Agreement, specifically including every provision of this Trust
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.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
ARTICLE X
Miscellaneous
Section 10.01. Amendments. (a) This Trust Agreement may be amended from
time to time by the parties hereto (with the prior written consent of the Bond
Insurer and with prior notice to the Rating Agencies) as specified in this
Section, provided that any amendment, except as provided in subparagraph (e)
below, shall be accompanied by an Opinion of Counsel addressed to the Owner
Trustee and obtained by the Servicer to the effect that such amendment (i)
complies with the provisions of this Section and (ii) would not cause the Trust
(if NCFC was not the Holder of 100% of the Certificates or if the Bond Insurance
Policy is outstanding) to be subject to an entity level tax for federal income
tax purposes.
(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 Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(i) a letter from each of the Rating Agencies that the amendment will not result
in the downgrading or withdrawal of the rating then assigned to any Bond or the
rating then assigned to any Bond without taking into account the Bond Insurance
Policy or (ii) an Opinion of Counsel obtained by the Servicer to the effect that
such action will not adversely affect in any material respect the
<PAGE>
-29-
interests of any Holders or the Bond Insurer, and the consent of the Bond
Insurer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding, it shall
not be necessary to obtain the consent of any Holder, but the Owner Trustee and
the Bond Insurer shall be furnished with an Opinion of Counsel obtained by the
Servicer that such amendment is necessary or helpful to prevent the imposition
of such taxes and is not materially adverse to any Holder or the Bond Insurer
and the consent of the Bond Insurer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change any
provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (i) an Opinion of Counsel obtained by the
Servicer to the effect that such action will not adversely affect in any
material respect the interests of any Holders or the Bond Insurer, (ii) the
consent of the Bond Insurer and (iii) either (A) a letter from each of the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Bond or the rating then assigned
to any Bond without taking into account the Bond Insurance Policy or (B) the
consent of the Indenture Trustee and the Holders of Certificates evidencing a
majority of the Certificate Principal Balance of the Certificates; provided,
however, that no such amendment shall (1) 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 and the
Bond Insurer, or (2) 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) If the purpose of the amendment is to provide for the holding of any of
the Certificates in book-entry form, it shall require the consent of Holders of
all such Certificates then outstanding; provided, that the Opinion of Counsel
specified in subparagraph (a) above shall not be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of any Holder, but the Owner Trustee shall be
furnished with (i) an Opinion of Counsel obtained by the Servicer to the effect
that such action will not adversely affect in any material respect the interests
of any Holders or the Bond Insurer and (ii) a letter from the each of the Rating
Agencies that the amendment will not result in the downgrading or withdrawal of
the rating then assigned to any Bonds or the rating then assigned to the Bonds
without taking into account the Bond Insurance Policy and the consent of the
Bond Insurer shall be obtained.
(g) Promptly after the execution of any such amendment or consent, the
Servicer shall furnish written notification of the substance of such amendment
or consent to each Certificate holder, the Indenture Trustee, the Bond Insurer
and each of the Rating Agencies. It shall not be necessary for the consent of
Certificateholders or the Indenture Trustee pursuant to this Section 10.01 to
approve the particular form of any proposed amendment or consent, but it shall
be
<PAGE>
-30-
sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents (and any other consents of Certificateholders provided
for in this Trust Agreement or in any other Basic Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement to
which the Trust is a party, other than this Trust Agreement, the Owner Trustee
shall be entitled to receive and conclusively rely upon an Opinion of Counsel to
the effect that such amendment is authorized or permitted by the documents
subject to such amendment and that all conditions precedent in the Basic
Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
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 of the State of Delaware.
Section 10.02. No Legal Title To Owner Trust Estate. The Certificateholders
shall not have legal title to any part of the Owner Trust Estate solely by
virtue of their status as Certificateholders. The Certificateholders shall be
entitled to receive distributions with respect to their undivided beneficial
interests therein only in accordance with Articles V and VIII. No transfer, by
operation of law or otherwise, of any right, title or interest of the
Certificateholders to and in their ownership interest in the Owner Trust Estate
shall operate to terminate this Trust 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 10.03. Limitations On Rights Of Others. Except for Section 2.07,
the provisions of this Trust Agreement are solely for the benefit of the Owner
Trustee, the Company, the Certificateholders, the Bond Insurer and, to the
extent expressly provided herein, the Indenture Trustee and the Bondholders, and
nothing in this Trust Agreement (other than Section 2.07), 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
Trust Agreement or any covenants, conditions or provisions contained herein.
Section 10.04. 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, to the Owner Trustee at: Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890;
Attention: Corporate Trust Administration; to the Company at: Merrill Lynch
Mortgage Investors, Inc., 250 Vesey Street, World Financial Center/North Tower,
23rd Floor, New York, New York 10281 Attention: Michael McGovern, Legal
Department; to the Indenture Trustee at: 230 S. Tryon Street, 9th Floor,
Charlotte, North Carolina 28288-1179, Attention: Corporate Trust Department -
NovaStar Home Equity Loan Trust Series 1997-2; to the Bond Insurer at: MBIA
Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention:
Insured Portfolio Mgmt-SF (telecopy number (914) 765-3810); to Moody's at: 99
<PAGE>
-31-
Church Street, New York, New York 10007, Attention: Residential Mortgage
Monitoring Unit; to Standard & Poor's at 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Asset Backed Surveillance Group or, as to each party, at
such other address as shall be designated by such party in a written notice to
each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust shall
also be delivered to the Company.
Section 10.05. Severability. Any provision of this Trust 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 10.06. Separate Counterparts. This Trust 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 10.07. Successors And Assigns. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Company, the Bond Insurer, the Owner Trustee and its
successors and each Certificateholder and its successors and permitted assigns,
all as herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by a Certificateholder shall bind the successors and
assigns of such Certificateholder.
Section 10.08. No Petition. The Owner Trustee, by entering into this Trust
Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against NovaStar
Assets, the Company or the Trust, or join in any institution against NovaStar
Assets, the Company or the Trust of, any bankruptcy proceedings under any United
States federal or state bankruptcy or similar law in connection with any obliga
tions to the Certificates, the Bonds, this Trust Agreement or any of the Basic
Documents. This Section shall survive for one year following the termination of
this Trust Agreement.
Section 10.09. No Recourse. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Company, the Seller, the Owner Trustee, the Indenture Trustee
or any Affiliate thereof and no recourse may be had against such
<PAGE>
-32-
parties or their assets, except as may be expressly set forth or contemplated in
this Trust Agreement, the Certificates or the Basic Documents.
Section 10.10. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST 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 10.12. Integration. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
Section 10.13. Third Party Beneficiary. The Bond Insurer shall be a third
party beneficiary hereof and shall be entitled to enforce the provisions hereof
as if a party hereto. This provision shall not be construed to limit or modify
in any way the fiduciary obligation of the Owner Trustee to the beneficial
owners of the Trust.
<PAGE>
IN WITNESS WHEREOF, the Company and the Owner Trustee have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
MERRILL LYNCH MORTGAGE INVESTORS, INC., as Company,
By:
---------------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY, as Owner Trustee,
By:
---------------------------------------------
Name: Emmett R. Harmon
Title: Vice President
Acknowledged and Agreed:
FIRST UNION NATIONAL BANK,
as Certificate Registrar
and Certificate Paying Agent
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE COMPANY TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS CERTIFYING AS TO THE
TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE COMPANY, THE SERVICER, THE INDENTURE TRUSTEE, OR
<PAGE>
A-2
THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY
PROVIDED IN THE TRUST AGREEMENT OR THE BASIC DOCUMENTS.
<PAGE>
A-3
Certificate No. ______________________
Certificate Percentage Interest of this Certificate: _______%
Cut-off Date: November 1, 1997
First Payment Date
December 26,1997
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2
NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES
SERIES 1997-2
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Loans in
NovaStar Home Equity Loan Trust Series 1997-2 (the "Trust"), a Delaware business
trust formed by
MERRILL LYNCH MORTGAGE INVESTORS, INC., as Company, pursuant to the Trust
Agreement referred to below.
This certifies that [name of Holder] is the registered owner of the
Certificate Percentage Interest represented hereby.
The Trust was created pursuant to a Trust Agreement, dated as of November
19, 1997, as amended and restated by the Amended and Restated Trust Agreement,
dated as of November 1, 1997 (as amended and supplemented from time to time, the
"Trust Agreement"), between the Company and Wilmington Trust Company, as owner
trustee (as amended and supplemented from time to time, the "Owner Trustee",
which term includes any successor entity under the Trust Agreement), a summary
of certain of the pertinent provisions of which is set forth hereinafter. 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.
This Certificate is one of a duly authorized issue of NovaStar Home Equity
Loan Asset- Backed Certificates, Series 1997-2 (herein called the
"Certificates") issued under the Trust Agreement to which reference is hereby
made for a statement of the respective rights thereunder of the Company, the
Owner Trustee and the Holders of the Certificates and the terms upon which the
Certificates are executed and delivered. All terms used in this Certificate
which are defined in the Trust Agreement shall have the meanings assigned to
them in the Trust Agreement. The Owner Trust Estate consists of the Mortgage
Loans in the NovaStar Home Equity Loan Trust Series 1997-2 and a Bond Insurance
Policy. The rights of the Holders of the Certificates are subordinated to the
rights of the Holders of the Bonds, as set forth in the Indenture.
<PAGE>
A-4
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 "Payment Date"),
commencing in December 1997, to the Person in whose name this Certificate is
registered (i) with respect to the first Payment Date, on the Closing Date and
(ii) with respect to every other Payment Date, at the close of business on the
last Business Day of the month preceding the month of such Payment Date (the
"Record Date"), such Certificateholder's Certificate Percentage Interest in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the funds on deposit in the Payment Account that have
been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Company is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust 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 Bondholders as described in the Indenture, dated as of November 1,
1997, between the Trust and First Union National Bank, as Indenture Trustee (the
"Indenture").
The Company and each Certificateholder, by acceptance of a Certificate,
agree to treat, and to take no action inconsistent with the treatment of, the
Certificates for federal, state and local income tax purposes as an equity
interest in the Trust.
Each Certificateholder, by its acceptance of a Certificate, covenants and
agrees that such Certificateholder will not at any time institute against the
Company, or join in any institution against the Company or the Trust of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Certificates, the
Bonds, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust 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.
<PAGE>
A-5
Unless the certificate of authentication hereon shall have been executed by
an authorized officer of the Owner Trustee, or an authenticating agent by manual
signature, this Certificate shall not entitle the Holder hereof to any benefit
under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
<PAGE>
A-6
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.
WILMINGTON TRUST COMPANY, not in its individual capacity but
solely as Owner Trustee
Dated: By:
------------------------------------------
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Trust Agreement.
WILMINGTON TRUST COMPANY, not in its individual capacity but
solely as Owner Trustee
By:
-----------------------------------------
Authorized Signatory
or
-----------------------------------------
As Authenticating Agent of the Trustee
By:
------------------------------------------
Authorized Signatory
<PAGE>
A-7
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in, the
Company, the Seller, the Servicer, the Indenture Trustee, the Owner Trustee or
any Affiliates of any of them and no recourse may be had against such parties or
their assets, except as expressly set forth or contemplated herein or in the
Trust Agreement or the Basic 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 with respect to the Mortgage
Loans, all as more specifically set forth herein and in the Trust Agreement. A
copy of the Trust Agreement may be examined by any Certificateholder upon
written request during normal business hours at the principal office of the
Company and at such other places, if any, designated by the Company.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Bond Insurer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and, if NovaStar
Certificates Financing Corporation was not the Holder of 100% of the
Certificates, would not cause the Trust to be subject to an entity level tax. If
the purpose of the amendment is to correct any mistake, eliminate any
inconsistency, cure any ambiguity or deal with any matter not covered, it shall
not be necessary to obtain the consent of any Holder, but the Owner Trustee
shall be furnished with (A) a letter from each of the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Bond or the rating then assigned to any Bond without taking into
account the Bond Insurance Policy or (B) an Opinion of Counsel to the effect
that such action will not adversely affect in any material respect the interests
of any Holders, and the consent of the Bond Insurer shall be obtained. If the
purpose of the amendment is to prevent the imposition of any federal or state
taxes at any time that any Security is outstanding, it shall not be necessary to
obtain the consent of the any Holder, but the Owner 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 Holder
and the consent of the Bond Insurer shall be obtained. If the purpose of the
amendment is to add or eliminate or change any provision of the Trust Agreement,
other than as specified in the preceding two sentences, the amendment shall
require (A) an Opinion of Counsel to the effect that such action will not
adversely affect in any material respect the interests of any Holders, (B) the
consent of the Bond Insurer and (C) either (a) a letter from each of the Rating
Agencies that the amendment will not result in the downgrading or withdrawal of
the rating then assigned to any Bond or the rating then assigned to any Bond
without taking into account the Bond Insurance Policy or (b) the consent of the
Indenture Trustee and the Holders of the Certificates evidencing a majority of
the Certificate Principal Balance of the Certificates; PROVIDED, HOWEVER, that
no such amendment shall (i) reduce in any manner the amount of, or delay the
timing of, pay ments received that are required to be distributed on any
Certificate without the consent of the related Certificateholder and the Bond
Insurer, 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.
<PAGE>
A-8
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 Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to 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 First Union National Bank.
Except as provided in the Trust Agreement, the Certificates are issuable
only in a minimum Certificate Percentage Interest of 10%. 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 Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
payable in connection therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate Registrar
and any agent of the Owner Trustee, the Certificate Paying Agent, 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 Certificate Paying Agent, 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 shall terminate as and when provided in accordance with
the terms of the Trust Agreement.
<PAGE>
A-9
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
- --------------------------------------------------------------------------------
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>
A-10
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available funds
to ----------------------------------------------
- -----------------------------------------------------------------
for the account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
------------------------------
Signature of assignee or agent
(for authorization of wire
transfer only)
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2
THIS Certificate of Trust of NovaStar Home Equity Loan Trust Series 1997-2
(the "Trust"), dated November 19, 1997, is being duly executed and filed by
______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 Et
Seq.).
1. Name. The name of the business trust formed hereby is NovaStar Home
Equity Loan Trust Series 1997-2.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, 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.
----------------------,
not in its individual capacity but solely as owner
trustee under a Trust Agreement dated as of
November 19, 1997
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with, the
Owner Trustee and the Company (each as defined in the Amended and Restated Trust
Agreement (the "Agreement"), dated as of November 1, 1997, between Merrill Lynch
Mortgage Investors, Inc., as Company, and Wilmington Trust Company, as Owner
Trustee) pursuant to Section 3.05 of the Agreement and
__________________________________ as indenture trustee, as follows:
a. The Buyer understands that the Rule 144A Securities have not
been registered under the 1933 Act or the securities laws of any state.
b. The Buyer considers itself a substantial, sophisticated
institutional investor having such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks
of investment in the Rule 144A Securities.
<PAGE>
C-2
c. The Buyer has been furnished with all information regarding
the Rule 144A Securities that it has requested from the Seller, the
Indenture Trustee, the Owner Trustee or the Servicer.
d. Neither the Buyer nor anyone acting on its behalf has
offered, transferred, pledged, sold or otherwise disposed of the Rule 144A
Securities, any interest in the Rule 144A Securities or any other similar
security to, or solicited any offer to buy or accept a transfer, pledge or
other disposition of the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security from, or otherwise approached
or negotiated with respect to the Rule 144A Securities, any interest in the
Rule 144A Securities or any other similar security with, any person in any
manner, or made any general solicitation by means of general advertising or
in any other manner, or taken any other action, that would constitute a
distribution of the Rule 144A Securities under the 1933 Act or that would
render the disposition of the Rule 144A Securities a violation of Section 5
of the 1933 Act or require registration pursuant thereto, nor will it act,
nor has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as that term
is defined in Rule 144A under the 1933 Act and has completed either of the
forms of certification to that effect attached hereto as Annex 1 or Annex
2. The Buyer is aware that the sale to it is being made in reliance on Rule
144A. The Buyer is acquiring the Rule 144A Securities for its own account
or the accounts of other qualified institutional buyers, understands that
such Rule 144A Securities may be resold, pledged or transferred only (i) to
a person reasonably believed to be a qualified institutional buyer that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, or (ii) pursuant to
another exemption from registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with, the
Seller, the Indenture Trustee, Owner Trustee, Servicer and the Company that
either (1) the Buyer is (A) not an employee benefit plan (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of the Internal
Revenue Code of 1986 ("Code")), which (in either case) is subject to ERISA or
Section 4975 of the Code (both a "Plan"), and (B) is not directly or indirectly
purchasing the Rule 144A Securities on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with "plan assets" of a Plan, or (2) the
Buyer understands that registration of transfer of any Rule 144A Securities to
any Plan, or to any Person acting on behalf of any Plan, will not be made unless
such Plan delivers an opinion of its counsel, addressed and satisfactory to the
Certificate Registrar and the Company, to the effect that the purchase and
holding of the Rule 144A Securities by, on behalf of or with "plan assets" of
any Plan would not constitute or result in a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code, and would not subject the
Company, the Servicer, the Indenture Trustee or the Trust to any obligation or
liability (including liabilities under ERISA or Section 4975 of the Code) in
addition to those undertaken in the Agreement or any other liability.]
<PAGE>
C-3
4. This document 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 document.
Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, each of the parties has executed this document
as of the date set forth below.
- ---------------------------- -----------------------------
Print Name of Seller Print Name of Buyer
By: By:
------------------------ -------------------
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No. No.
-------------------------- ------------------------
Date: Date:
-------------------------- ----------------------
<PAGE>
C-4
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested on a
discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts or
similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution organized
under the laws of any State, territory or the District of Columbia, the
business of which is substantially confined to banking and is
supervised by the State or territorial banking commission or similar
official or is a foreign bank or equivalent institution, and (b) has an
audited net worth of at least $25,000,000 as demonstrated in its latest
annual financial statements, A copy of which is attached hereto.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000
in securities unless Buyer is a dealer, and, in that case, Buyer must own
and/or invest on a discretionary basis at least $10,000,000 in securities.
<PAGE>
C-5
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead association
or similar institution, which is supervised and examined by a State or
Federal authority having supervision over any such institutions or is a
foreign savings and loan association or equivalent institution and (b)
has an audited net worth of at least $25,000,000 as demonstrated in its
latest annual financial statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section 15
of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary and
predominant business activity is the writing of insurance or the
reinsuring of risks underwritten by insurance companies and which is
subject to supervision by the insurance commissioner or a similar
official or agency of a State or territory or the District of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained by
a State, its political subdivisions, or any agency or instrumentality
of the State or its political subdivisions, for the benefit of its
employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered under
the Investment Advisers Act of 1940.
___ SBIC. The Buyer is 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.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers Act
of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or trust
company and whose participants are exclusively (a) plans established
and maintained by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees, or (b) employee benefit plans within the
meaning of Title I of the Employee Retirement Income Security Act of
1974, but is not a trust fund that includes as participants individual
retirement accounts or H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i) securities
of issuers that are affiliated with the Buyer, (ii) securities that are part of
an unsold allotment to or subscription by the Buyer, if the Buyer is a dealer,
(iii) bank deposit notes and certificates of deposit, (iv) loan
<PAGE>
C-6
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary basis by the Buyer, the Buyer used the cost
of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer agrees
that, in connection with any purchase of securities sold to the Buyer for the
account of a third party (including any separate account) in reliance on Rule
144A, the Buyer will only purchase for the account of a third party that at the
time is a "qualified institutional buyer" within the meaning of Rule 144A. In
addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
----------------------------------------
Print Name of Buyer
By:
-------------------------------------
Name:
Title:
Date:
-----------------------------------
<PAGE>
C-7
ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than the
excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year (such amount being calculated in accordance
with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which owned in
the aggregate $______________ in securities (other than the excluded
securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule
144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein means
two or more registered investment companies (or series thereof) that have the
same investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
<PAGE>
C-8
5. The Buyer is familiar with Rule 144A and understands that each
of the parties to which this certification is made are relying and will continue
to rely on the statements made herein because one or more sales to the Buyer
will be in reliance on Rule 144A. In addition, the Buyer will only purchase for
the Buyer's own account.
6. The undersigned will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice, the Buyer's purchase of Rule 144A Securities will constitute
a reaffirmation of this certification by the undersigned as of the date of such
purchase.
Print Name of Buyer
By:
------------------------
Name:
Title:
IF AN ADVISER:
---------------------------
Print Name of Buyer
---------------------------
Date:
<PAGE>
EXHIBIT D
FORM OF INVESTOR REPRESENTATION LETTER
, 19
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281
First Union National Bank
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Administration
Re: NovaStar Home Equity Loan Trust Series 1997-2
NovaStar Home Equity Loan Asset-Backed Certificates
SERIES 1997-2 (THE "CERTIFICATES")
Ladies and Gentlemen:
(the "Purchaser") intends to purchase from (the "Seller") $
of the above -captioned Certificates, issued pursuant to the Amended and
Restated Trust Agreement (the "Trust Agreement"), dated as of November 1, 1997,
between Merrill Lynch Mortgage Investors, Inc,. as company (the "Company"), and
Wilmington Trust Company, as owner trustee (the "Owner Trustee"), as
acknowledged and agreed by First Union National Bank as Certificate Registrar.
All terms used herein and not otherwise defined shall have the meanings set
forth in the Trust Agreement. The Purchaser hereby certifies, represents and
warrants to, and covenants with, the Company and the Certificate Registrar that:
1. The Purchaser understands that (a) the Certificates have
not been and will not be registered or qualified under the Securities
Act of 1933, as amended (the "Act") or any state securities law, (b)
the Company is not required to so register or qualify the Certificates,
(c) the Certificates may be resold only if registered and qualified
pursuant to the provisions of the Act or any state securities law, or
if an exemption from such registration and qualification is available,
(d) the Trust Agreement contains restrictions regarding the transfer of
the Certificates and (e) the Certificates will bear a legend to the
foregoing effect.
<PAGE>
D-2
2. The Purchaser is acquiring the Certificates for its own
account for investment only and not with a view to or for sale in
connection with any distribution thereof in any manner that would
violate the Act or any applicable state securities laws.
3. The Purchaser is (a) a substantial, sophisticated
institutional investor having such knowledge and experience in
financial and business matters, and, in particular, in such matters
related to securities similar to the Certificates, such that it is
capable of evaluating the merits and risks of investment in the
Certificates, (b) able to bear the economic risks of such an investment
and (c) an "accredited investor" within the meaning of Rule 501(a)
promulgated pursuant to the Act.
4. The Purchaser has been furnished with, and has had an
opportunity to review (a) a copy of the Trust Agreement and (b) such
other information concerning the Certificates, the Mortgage Loans and
the Company as has been requested by the Purchaser from the Company or
the Seller and is relevant to the Purchaser's decision to purchase the
Certificates. The Purchaser has had any questions arising from such
review answered by the Company or the Seller to the satisfaction of the
Purchaser.
5. The Purchaser has not and will not nor has it authorized or
will it authorize any person to (a) offer, pledge, sell, dispose of or
otherwise transfer any Certificate, any interest in any Certificate or
any other similar security to any person in any manner, (b) solicit any
offer to buy or to accept a pledge, disposition of other transfer of
any Certificate, any interest in any Certificate or any other similar
security from any person in any manner, (c) otherwise approach or
negotiate with respect to any Certificate, any interest in any
Certificate or any other similar security with any person in any
manner, (d) make any general solicitation by means of general
advertising or in any other manner or (e) take any other action, that
(as to any of (a) through (e) above) would constitute a distribution of
any Certificate under the Act, that would render the disposition of any
Certificate a violation of Section 5 of the Act or any state securities
law, or that would require registration or qualification pursuant
thereto. The Purchaser will not sell or otherwise transfer any of the
Certificates, except in compliance with the provisions of the Trust
Agreement.
6. The Purchaser represents:
(i) that either (a) or (b) is satisfied, as marked below:
____ a. The Purchaser is not any employee benefit plan subject
to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Internal Revenue Code of 1986 (the "Code"), a Person
acting, directly or indirectly, on behalf of any such plan or any
Person acquiring such Certificates with "plan assets" of a Plan within
<PAGE>
D-3
the meaning of the Department of Labor regulation promulgated at 29
C.F.R. ss.2510.3- 101; or
____ b. The Purchaser will provide the Company, the Owner
Trustee, the Certificate Registrar and the Servicer with either: (x) an
opinion of counsel, satisfactory to the Company, the Owner Trustee, the
Certificate Registrar and the Servicer, to the effect that the purchase
and holding of a Certificate by or on behalf of the Purchaser is
permissible under applicable law, will not constitute or result in a
prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code (or comparable provisions of any subsequent enactments) and
will not subject the Company, the Owner Trustee, the Trust, the
Certificate Registrar or the Servicer to any obligation or liability
(including liabilities under ERISA or Section 4975 of the Code) in
addition to those undertaken in the Trust Agreement, which opinion of
counsel shall not be an expense of the Company, the Owner Trustee, the
Trust, the Certificate Registrar or the Servicer; or (y) in lieu of
such opinion of counsel, a certification in the form of Exhibit G to
the Trust Agreement; and
(ii) the Purchaser is familiar with the prohibited transaction
restrictions and fiduciary responsibility requirements of Sections 406
and 407 of ERISA and Section 4975 of the Code and understands that each
of the parties to which this certification is made is relying and will
continue to rely on the statements made in this paragraph 6.
7. The Purchaser is not a non-United States person.
Very truly yours,
By:
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF TRANSFEROR REPRESENTATION LETTER
, 19
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281
First Union National Bank
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Administration
Re: NovaStar Home Equity Loan Trust Series 1997-2
NovaStar Home Equity Loan Asset-Backed Certificates
SERIES 1997-2 (THE "CERTIFICATES")
Ladies and Gentlemen:
(the "Purchaser") intends to purchase from
(the "Seller") a ___% Certificate Percentage Interest of NovaStar Home Equity
Loan Asset-Backed Certificates, Series 1997-2 (the "Certificates"), issued
pursuant to the Amended and Restated Trust Agreement (the "Trust Agreement"),
dated as of November 1, 1997 between Merrill Lynch Mortgage Investors, Inc., as
company (the "Company"), and Wilmington Trust Company, as owner trustee (the
"Owner Trustee"), as acknowledged and agreed by First Union National Bank, as
Certificate Registrar. All terms used herein and not otherwise defined shall
have the meanings set forth in the Trust Agreement. The Seller hereby certifies,
represents and warrants to, and covenants with, the Company and the Certificate
Registrar that:
Neither the Seller nor anyone acting on its behalf has (a)
offered, pledged, sold, disposed of or otherwise transferred any Certificate,
any interest in any Certificate or any other similar security to any person in
any manner, (b) has solicited any offer to buy or to accept a pledge,
disposition or other transfer of any Certificate, any interest in any
Certificate or any other similar security from any person in any manner, (c) has
otherwise approached or negotiated with respect to any Certificate, any interest
in any Certificate or any other similar security with any
<PAGE>
E-2
person in any manner, (d) has made any general solicitation by means of general
advertising or in any other manner, or (e) has taken any other action, that (as
to any of (a) through (e) above) would constitute a distribution of the
Certificates under the Securities Act of 1933 (the "Act"), that would render the
disposition of any Certificate a violation of Section 5 of the Act or any state
securities law, or that would require registration or qualification pursuant
thereto. The Seller will not act, in any manner set forth in the foregoing
sentence with respect to any Certificate. The Seller has not and will not sell
or otherwise transfer any of the Certificates, except in compliance with the
provisions of the Trust Agreement.
Very truly yours,
(Seller)
By:
Name:
Title:
<PAGE>
EXHIBIT F
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.05 of the Amended and Restated Trust Agreement, dated as
of November 1, 1997 (the "Trust Agreement"), between Merrill Lynch Mortgage
Investors, Inc., as Company, and Wilmington Trust Company, as Owner Trustee, in
connection with the acquisition of, transfer to or possession by the
undersigned, whether as beneficial owner (the "Beneficial Owner"), or nominee on
behalf of the Beneficial Owner of the NovaStar Home Equity Loan Asset-Backed
Certificates, Series 1997-2 (the "Certificate"). Capitalized terms used but not
defined in this certificate have the respective meanings given them in the Trust
Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III.
In addition, each holder shall submit with the Certificate an IRS Form W-9
relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a non-resident alien for
purposes of U.S. income taxation;
2. My (The Beneficial Owner's) name and home address are:
; and
3. My (The Beneficial Owner's) U.S. taxpayer identification
number (Social Security Number) is .
B. Corporate, Partnership or Other Entity as Beneficial Owner
1. (Name of the Beneficial Owner) is not a
foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the Code and
Treasury Regulations;
<PAGE>
F-2
2. The Beneficial Owner's office address and place of
incorporation (if applicable) is ; and
3. The Beneficial Owner's U.S. employer identification number
is .
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
an IRS Form W-9
a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
<PAGE>
F-3
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
Name
Title (if applicable)
Signature and Date
*NOTE: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
<PAGE>
EXHIBIT G
FORM OF ERISA REPRESENTATION LETTER
_____________, 199__
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281
Wilmington Trust Company, as Owner Trustee
11 North Market Street
Rodney Square North
Wilmington, Delaware 19890
First Union National Bank, as Certificate Registrar
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Re: NovaStar Home Equity Loan Asset-Backed Certificates, Series 1997-
2
Dear Sirs:
__________________________________ (the "Transferee") intends to
acquire from _____________________ (the "Transferor") a ____% Certificate
Percentage Interest of NovaStar Home Equity Loan Asset-Backed Certificates,
Series 1997-2 (the "Certificates"), issued pursuant to an Amended and Restated
Trust Agreement (the "Trust Agreement"), dated as of November 1, 1997, between
Merrill Lynch Mortgage Investors, Inc., as company (the "Company"), and
Wilmington Trust Company, as trustee (the "Owner Trustee"). Capitalized terms
used herein and not otherwise defined shall have the meanings assigned thereto
in the Trust Agreement.
The Transferee hereby certifies, represents and warrants to, and
covenants with, the Company, the Owner Trustee, the Certificate Registrar and
the Servicer that either:
(1) The Certificates (i) are not being acquired by, and will
not be transferred to, any employee benefit plan within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other retirement arrangement, including individual
retirement accounts and annuities, Keogh plans and bank collective
investment funds and insurance company general or separate accounts in
which such plans, accounts or arrangements are invested, that is
subject to Section 406 of ERISA or Section 4975 of the Internal Revenue
Code of 1986 (the "Code") (any of the foregoing, a "Plan"), (ii) are
not being acquired with "plan assets" of a Plan within the meaning of
the Department of Labor ("DOL") regulation, 29 C.F.R. ss. 2510.3-101,
and (iii) will not
<PAGE>
G-2
be transferred to any entity that is deemed to be investing in plan
assets within the meaning of the DOL regulation, 29 C.F.R. ss.
2510.3-101; or
(2) The purchase of the Certificates is permissible under
applicable law, will not constitute or result in any prohibited
transaction under ERISA or Section 4975 of the Code, will not subject
the Company or the Trustee to any obligation in addition to those
undertaken in the Trust Agreement and, with respect to each source of
funds being used by the Transferee to acquire the Certificates (each
being referred to as a "Source") and the following statements in either
(a) or (b):
(a) the Transferee is an insurance company and (i)
the Source is assets of its "general account," (ii) the conditions
set forth in PTCE 95-60 issued by the DOL have been satisfied and
the purchase and holding of Certificates by or on behalf of the
Transferee are exempt under PTCE 95-60 and (iii) the amount of
reserves and liabilities for such general account contracts held
by or on behalf of any Plan do not exceed 10% of the total
reserves and liabilities of such general account plus surplus as
of the date hereof (for purposes of this clause, all Plans
maintained by the same employer (or affiliate thereof) or employee
organization are deemed to be a single Plan) in connection with
its purchase and holding of such Certificates; or
(b) the Transferee is an insurance company and (i)
the Source is assets of its "general account," (ii) the
requirements of Section 401(c) of ERISA and the DOL regulations to
be promulgated thereunder ("401(c) Regulations") have been
satisfied and will continue to be satisfied and (iii) the
Transferee represents that it understands that the operation of
the general account after December 31, 1998 may affect its ability
to continue to hold the Certificates after the date which is 18
months after the 401(c) Regulations become final and unless a
class exemption issued by the DOL or an exception under Section
401(c) of ERISA is then available for the continued holding of
Certificates, if the assets of the general account constitute Plan
Assets, it will dispose of the Certificates prior to the date
which is 18 months after the 401(c) Regulations become final.
(3) The Transferee is familiar with the prohibited transaction
restrictions and fiduciary responsibility requirements of Sections 406
and 407 of ERISA and Section 4975 of the Code and understands that each
of the parties to which this certification is made is relying and will
continue to rely on the statements made herein.
Very truly yours,
By:
Name:
Title:
<PAGE>
EXHIBIT H
FORM OF REPRESENTATION LETTER
_____________, 199__
Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281
Wilmington Trust Company, as Owner Trustee
11 North Market Street
Rodney Square North
Wilmington, Delaware 19890
First Union National Bank, as Certificate Registrar
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Re: NovaStar Assets Corp.
Home Equity Loan Asset-Backed Certificates Series 1997-2
Dear Sirs:
__________________________________ (the "Transferee") intends to
acquire from _____________________ (the "Transferor") a ___% Certificate
Percentage Interest of NovaStar Home Equity Loan Asset-Backed Certificates,
Series 1997-2 (the "Certificates"), issued pursuant to an Amended and Restated
Trust Agreement (the "Trust Agreement"), dated as of November 1, 1997 among
Merrill Lynch Mortgage Investors, Inc., as company (the "Company"), and
Wilmington Trust Company, as trustee (the "Owner Trustee"). Capitalized terms
used herein and not otherwise defined shall have the meanings assigned thereto
in the Trust Agreement.
The Transferee hereby certifies, represents and warrants to, and
covenants with, the Company, the Owner Trustee, the Certificate Registrar and
the Servicer that:
(1) the Transferee is acquiring the Certificate for its own behalf and
is not acting as agent or custodian for any other person or entity in
connection with such acquisition; and
(2) the Transferee is not a partnership, grantor trust or S corporation
for federal income tax purposes, or, if the Transferee is a partnership,
grantor trust or S corporation for federal income tax purposes, the
Certificates are not more than 50% of the assets of the partnership,
grantor trust or S corporation.
<PAGE>
H-2
Very truly yours,
By:
Name:
Title:
<PAGE>
EXHIBIT I
INITIAL TRUST AGREEMENT
EXHIBIT 4.5
<PAGE>
EXECUTED COPY
================================================================================
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2
Issuer
and
FIRST UNION NATIONAL BANK
Indenture Trustee
-----------------------------------------
INDENTURE
Dated as of November 1, 1997
------------------------------------------
NOVASTAR HOME EQUITY LOAN ASSET-BACKED BONDS
SERIES 1997-2
-------------
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
Definitions
1.01. DEFINITIONS..............................................................3
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT........................3
1.03. RULES OF CONSTRUCTION....................................................3
ARTICLE II
Original Issuance of Bonds
2.01. FORM.....................................................................5
2.02. EXECUTION, AUTHENTICATION AND DELIVERY...................................5
2.03. ACCEPTANCE OF MORTGAGE LOANS BY INDENTURE TRUSTEE........................5
ARTICLE III
Covenants
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE LOANS................8
3.02. MAINTENANCE OF OFFICE OR AGENCY..........................................8
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT.....................8
3.04. EXISTENCE................................................................9
3.05. PAYMENT OF PRINCIPAL AND INTEREST.......................................10
3.06. PROTECTION OF TRUST ESTATE..............................................11
3.07. OPINIONS AS TO TRUST ESTATE.............................................12
3.08. PERFORMANCE OF OBLIGATIONS..............................................13
3.09. NEGATIVE COVENANTS......................................................13
3.10. ANNUAL STATEMENT AS TO COMPLIANCE.......................................14
3.11. [Reserved]..............................................................14
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS............14
3.13. AMENDMENTS TO SERVICING AGREEMENT.......................................14
3.14. SERVICER AS AGENT AND BAILEE OF THE INDENTURE TRUSTEE...................14
3.15. INVESTMENT COMPANY ACT..................................................15
3.16. ISSUER MAY CONSOLIDATE, ETC.............................................15
3.17. SUCCESSOR OR TRANSFEREE.................................................17
3.18. NO OTHER BUSINESS.......................................................17
3.19. NO BORROWING............................................................17
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.......................17
3.21. CAPITAL EXPENDITURES....................................................18
3.22. [Reserved]..............................................................18
3.23. RESTRICTED PAYMENTS.....................................................18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.24. NOTICE OF EVENTS OF DEFAULT.............................................18
3.25. FURTHER INSTRUMENTS AND ACTS............................................18
3.26. STATEMENTS TO BONDHOLDERS...............................................18
3.27. DETERMINATION OF BOND INTEREST RATE.....................................18
3.28. PAYMENTS UNDER THE BOND INSURANCE POLICY................................18
ARTICLE IV
The Bonds; Satisfaction and Discharge of Indenture
4.01. THE BONDS...............................................................20
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF BONDS;
APPOINTMENT OF CERTIFICATE REGISTRAR....................................20
4.03. MUTILATED, DESTROYED, LOST OR STOLEN BONDS..............................21
4.04. PERSONS DEEMED OWNERS...................................................22
4.05. CANCELLATION............................................................22
4.06. BOOK-ENTRY BONDS........................................................22
4.07. NOTICES TO DEPOSITORY...................................................23
4.08. DEFINITIVE BONDS........................................................23
4.09. TAX TREATMENT...........................................................24
4.10. SATISFACTION AND DISCHARGE OF INDENTURE.................................24
4.11. APPLICATION OF TRUST MONEY..............................................25
4.12. SUBROGATION AND COOPERATION.............................................25
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT................................27
4.14. TEMPORARY BONDS.........................................................27
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT.......................................................28
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT......................28
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE.......................................................29
5.04. REMEDIES; PRIORITIES....................................................31
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE...............................33
5.06. LIMITATION OF SUITS.....................................................33
5.07. UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST............................................................34
5.08. RESTORATION OF RIGHTS AND REMEDIES......................................34
5.09. RIGHTS AND REMEDIES CUMULATIVE..........................................34
5.10. DELAY OR OMISSION NOT A WAIVER..........................................35
5.11. CONTROL BY BOND INSURER.................................................35
5.12. WAIVER OF PAST DEFAULTS.................................................35
5.13. UNDERTAKING FOR COSTS...................................................36
5.14. WAIVER OF STAY OR EXTENSION LAWS........................................36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5.15. SALE OF TRUST ESTATE....................................................36
5.16. ACTION ON BONDS.........................................................38
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE.............................................40
6.02. RIGHTS OF INDENTURE TRUSTEE.............................................41
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE..................................42
6.04. INDENTURE TRUSTEE'S DISCLAIMER..........................................42
6.05. NOTICE OF EVENT OF DEFAULT..............................................42
6.06. TAX ADMINISTRATION OF THE ISSUER........................................42
6.07. COMPENSATION AND INDEMNITY..............................................42
6.08. REPLACEMENT OF INDENTURE TRUSTEE........................................43
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER...................................44
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE.......44
6.11. ELIGIBILITY; DISQUALIFICATION...........................................45
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER........................46
6.13. REPRESENTATIONS AND WARRANTIES..........................................46
6.14. DIRECTIONS TO INDENTURE TRUSTEE.........................................46
6.15. THE AGENTS..............................................................47
ARTICLE VII
BONDHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF
BONDHOLDERS.............................................................47
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO BONDHOLDERS..............47
7.03. REPORTS BY [THE INDENTURE TRUSTEE]; ISSUER FISCAL YEAR..................48
7.04. REPORTS BY INDENTURE TRUSTEE............................................48
7.05. STATEMENTS TO BONDHOLDERS...............................................49
7.06. BOOKS AND RECORDS.......................................................50
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY.....................................................51
8.02. TRUST ACCOUNTS..........................................................51
8.03. OFFICER'S CERTIFICATE...................................................52
8.04. TERMINATION UPON DISTRIBUTION TO BONDHOLDERS............................52
8.05. RELEASE OF TRUST ESTATE.................................................52
8.06. SURRENDER OF BONDS UPON FINAL PAYMENT...................................53
8.07. OPTIONAL REDEMPTION OF THE BONDS........................................53
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.08. PRE-FUNDING ACCOUNT.....................................................53
8.09. INTEREST COVERAGE ACCOUNT...............................................54
ARTICLE IX
SUPPLEMENTAL INDENTURES
9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF BONDHOLDERS..................55
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS.....................56
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES....................................58
9.04. EFFECT OF SUPPLEMENTAL INDENTURE........................................58
9.05. CONFORMITY WITH TRUST INDENTURE ACT.....................................58
9.06. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES...........................58
ARTICLE X
MISCELLANEOUS
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC...............................59
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE........................60
10.03. ACTS OF BONDHOLDERS.....................................................61
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, BOND INSURER AND
INDENTURE TRUSTEE.......................................................61
10.05. NOTICES TO BONDHOLDERS; WAIVER..........................................63
10.06. CONFLICT WITH TRUST INDENTURE ACT. .....................................63
10.07. EFFECT OF HEADINGS......................................................63
10.08. SUCCESSORS AND ASSIGNS..................................................64
10.09. SEPARABILITY............................................................64
10.10. BENEFITS OF INDENTURE...................................................64
10.11. LEGAL HOLIDAYS..........................................................64
10.12. GOVERNING LAW...........................................................64
10.13. COUNTERPARTS............................................................64
10.14. RECORDING OF INDENTURE..................................................64
10.15. ISSUER OBLIGATION.......................................................64
10.16. NO PETITION.............................................................65
10.17. INSPECTION..............................................................65
Signatures and Seals ....................................................................... 66
Acknowledgments ............................................................................ 67
</TABLE>
<PAGE>
EXHIBITS
Exhibit A - Form of Bonds
Exhibit B - Trustee's Initial Certification
Exhibit C - Trustee's Final Certification
Exhibit D - Mortgage Loan Schedule
Appendix A Definitions
<PAGE>
This Indenture, dated as of November 1, 1997, between NovaStar
Home Equity Loan Trust Series 1997-2, a Delaware business trust, as Issuer (the
"Issuer"), and First Union National Bank, a national banking association, as
Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the NovaStar
Home Equity Loan Asset-Backed Bonds, Series 1997-2 (the "Bonds") and the Bond
Insurer.
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Bonds and the
Bond Insurer, all of the Issuer's right, title and interest in and to whether
now existing or hereafter created by (a) the Initial Mortgage Loans, the
Subsequent Mortgage Loans, the Eligible Substitute Mortgage Loans and the
proceeds thereof and all rights under the Related Documents (including the
related Mortgage Files); (b) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (c) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof, including any income on funds
deposited in, or investments made with funds deposited in, the Payment Account,
which income shall belong to, and be for the account of, the Indenture Trustee;
(d) all funds on deposit from time to time in the Interest Coverage Account and
the Pre-Funding Account in each case including any income on funds deposited in,
or investments made with funds deposited in such accounts, which income shall
belong to, and be for the account of, the Indenture Trustee; (e) all rights
under the (i) Home Equity Loan Purchase Agreement as assigned to the Issuer,
(ii) the Ownership Transfer Agreement as assigned to the Issuer, (iii) the
Servicing Agreement and any Subservicing Agreements and (iv) any title and
hazard insurance policies with respect to the Mortgaged Properties; and (f) all
present and future claims, demands, causes and choses in action in respect of
any or all of the foregoing and all payments on or under, and all proceeds of
every kind and nature whatsoever in respect of, any or all of the foregoing and
all payments on or under, and all proceeds of every kind and nature whatsoever
in the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure (i) the payment
of principal of and interest on, and any other amounts owing in respect of, the
Bonds, equally and ratably without prejudice, priority or distinction, (ii) the
payment of all other amounts payable under this Indenture and (iii) compliance
with the provisions of this Indenture, all as provided in this Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Bonds and the Bond Insurer, acknowledges such Grant, accepts the trust under
this Indenture in accordance with the provisions hereof and agrees to perform
its duties as Indenture Trustee as required herein. The
<PAGE>
Indenture Trustee agrees that it will hold the Bond Insurance Policy in trust
and that it will hold any proceeds of any claim made upon the Bond Insurance
Policy solely for the use and benefit of the Holders of the Bonds in accordance
with the terms hereof and the terms of the Bond Insurance Policy.
The Indenture Trustee further acknowledges that in the event
(i) the transfer of the Mortgage Loans from the Seller to NovaStar Assets
pursuant to the Home Equity Loan Purchase Agreement is determined to be a
financing; (ii) the transfer of the Initial Mortgage Loans from NovaStar Assets
to the Company pursuant to the Ownership Transfer Agreement is determined to be
a financing; (iii) the transfer of the Initial Mortgage Loans from the Company
to the Issuer pursuant to the Trust Agreement is determined to be a financing;
and/or (iv) the transfer of the Subsequent Mortgage Loans by the Seller to the
Issuer pursuant to the Home Equity Loan Purchase Agreement is determined to
constitute a financing, then in each case the Indenture Trustee holds the
Mortgage Loans as the designee and bailee of NovaStar Assets, the Company and
the Issuer, respectively, subject however, in each case, to a prior lien in
favor of the Bondholders and the Bond Insurer pursuant to the terms of this
Indenture.
2
<PAGE>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A, which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Bonds.
"indenture security holder" means a Bondholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA by reference to another statute or defined by Commission
rules, have the meanings assigned to them by such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
3
<PAGE>
(v) words in the singular include the plural and words
in the plural include the singular; and
(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as
from time to time amended, modified or supplemented and includes (in
the case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
4
<PAGE>
ARTICLE II
Original Issuance of Bonds
Section 2.01. FORM. The Bonds, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture.
The Bonds shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders).
The terms of the Bonds set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Bonds shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Bonds may be manual or
facsimile.
Bonds bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Bonds or did not hold
such offices at the date of such Bonds.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Bonds for original issue in an aggregate initial principal amount of
$212,113,000.
Each Bond shall be dated the date of its authentication. The Bonds
shall be issuable as registered Bonds and the Bonds shall be issuable in the
minimum initial Bond Principal Balances of $25,000 and in integral multiples of
$1,000 in excess thereof.
No Bond shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Bond a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Bond shall be conclusive
evidence, and the only evidence, that such Bond has been duly authenticated and
delivered hereunder.
Section 2.03. ACCEPTANCE OF MORTGAGE LOANS BY INDENTURE TRUSTEE. (a)
The Indenture Trustee acknowledges receipt of, subject to the review described
below and any exceptions it notes pursuant to the procedures described below,
the documents (or certified copies thereof) referred to in Section 2.1(b) of the
Home Equity Loan Purchase Agreement and declares that it holds and will continue
to hold those documents and any amendments, replacements or supplements thereto
and all other assets of the Trust Estate as Indenture Trustee in trust for the
use and benefit of all present and future Holders of the Bonds and the Bond
Insurer. No later than 45 days after the Closing Date and each Subsequent
Transfer Date (or, with respect to any Eligible Substitute Mortgage Loan, within
5 Business Days after the receipt by the Indenture Trustee thereof and,
5
<PAGE>
with respect to any documents received beyond 45 days after the Closing Date,
promptly thereafter), the Indenture Trustee agrees, for the benefit of the
Bondholders and the Bond Insurer, to review each Mortgage File delivered to it
and to execute and deliver, or cause to be executed and delivered, to the Seller
and the Bond Insurer an initial certification in the form annexed hereto as
Exhibit B. In conducting such review, the Trustee will ascertain whether all
required documents described in Section 2.1(b) of the Home Equity Loan Purchase
Agreement have been executed and received and whether those documents relate,
determined on the basis of the Mortgagor name, original principal balance and
loan number, to the Mortgage Loans it has received, as identified in Exhibit D
to this Indenture, as supplemented (PROVIDED, HOWEVER, that with respect to
those documents described in subclause (b)(vi) of such section, the Indenture
Trustee's obligations shall extend only to documents actually delivered pursuant
to such subclause). In performing any such review, the Indenture Trustee may
conclusively rely on the purported due execution and genuineness of any such
document and on the purported genuineness of any signature thereon. If the
Indenture Trustee finds that any document constituting part of the Mortgage File
not to have been executed or received, or to be unrelated to the Mortgage Loans
identified in Exhibit D or Attachment B to Exhibit 2 of the Home Equity Loan
Purchase Agreement or to appear to be defective on its face, the Indenture
Trustee shall promptly notify the Seller and the Bond Insurer of such finding
and the Seller's obligation to cure such defect or repurchase or substitute for
the related Mortgage Loan.
Pursuant to Section 5.11 of this Indenture, the Bond Insurer, so long
as no Bond Insurer Default exists, has the right to exercise any trust or power
conferred on the Indenture Trustee. In connection with the acceptance of the
Subsequent Mortgage Loans by the Indenture Trustee, the Bond Insurer has
provided a Certificate (the "MBIA Certificate") stating that the Subsequent
Mortgage Loans are acceptable to the Bond Insurer. Since the Bond Insurer is
acting on behalf of the Bondholders, the MBIA Certificate will be binding upon
those Bondholders. The Indenture Trustee shall not agree to any transfer of
Subsequent Mortgage Loans to it without (i) receipt of the MBIA Certificate and
(ii) confirmation from the Rating Agencies that the purchase of such Subsequent
Mortgage Loans will not result in a downgrade, withdrawal or qualification of
the ratings then in effect for the Outstanding Bonds (without regard to the Bond
Insurance Policy).
(b) No later than 180 days after the Closing Date, the Indenture
Trustee will review, for the benefit of the Bondholders and the Bond Insurer,
the Mortgage Files and will execute and deliver or cause to be executed and
delivered to the Seller and the Bond Insurer, a final certification in the form
annexed hereto as Exhibit C. In conducting such review, the Indenture Trustee
will ascertain whether an original of each document described in subclauses
(b)(ii)-(iv) of Section 2.1 of the Home Equity Loan Purchase Agreement required
to be recorded has been returned from the recording office with evidence of
recording thereon or a certified copy has been obtained from the recording
office. If the Indenture Trustee finds any document constituting part of the
Mortgage File has not been received, or to be unrelated, determined on the basis
of the Mortgagor name, original principal balance and loan number, to the
Mortgage Loans identified in Exhibit D or Attachment B to Exhibit 2 of the Home
Equity Loan Purchase Agreement or to appear defective on its face, the Indenture
Trustee shall promptly notify the Seller and the Bond Insurer of such finding
and the Seller's obligation to cure such defect or repurchase or substitute for
the related Mortgage Loan.
6
<PAGE>
(c) Upon deposit of the Repurchase Price in the Payment Account, the
Indenture Trustee shall release to the Seller the related Mortgage File and
shall execute and deliver all instruments of transfer or assignment, without
recourse, furnished to it by the Seller as are necessary to vest in the Seller
title to and rights under the related Mortgage Loan. Such purchase shall be
deemed to have occurred on the date on which certification of the deposit of the
Repurchase Price in the Payment Account was received by the Indenture Trustee.
The Indenture Trustee shall amend the applicable Mortgage Loan Schedule to
reflect such repurchase and shall promptly notify the Servicer, the Bond Insurer
and the Rating Agencies of such amendment.
7
<PAGE>
ARTICLE III
Covenants
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain an Eligible Account
(the "Payment Account"), held in trust for the benefit of the Bondholders and
the Bond Insurer. The Indenture Trustee shall, subject to the terms of this
paragraph, deposit in the Payment Account, (i) on the date of receipt (if
received prior to 3:00 p.m. Eastern Standard Time, and if not, then on the
Business Day following receipt) from the Servicer, each remittance received by
the Indenture Trustee with respect to the Mortgage Loans and (ii) amounts
transferred from the Pre-Funding Account and the Interest Coverage Account
pursuant to Section 8.08 and 8.09 hereof. The Indenture Trustee shall make all
payments of principal of and interest on the Bonds, subject to Section 3.03, as
provided in Section 3.05 from monies on deposit in the Payment Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
within the United States of America, an office or agency where, subject to
satisfaction of conditions set forth herein, Bonds may be surrendered for
registration of transfer or exchange, and where notices and demands to or upon
the Issuer in respect of the Bonds and this Indenture may be served. The Issuer
hereby initially appoints the Indenture Trustee to serve as its agent for the
foregoing purposes. If at any time the Issuer shall fail to maintain any such
office or agency or shall fail to furnish the Indenture Trustee with the address
thereof, such surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Indenture Trustee, and the Issuer hereby appoints
the Indenture Trustee as its agent to receive all such surrenders, notices and
demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Bonds that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Bonds shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Bonds in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee and the Bond Insurer
notice of any default by the Issuer of which it has actual knowledge in
the making of any payment required to be made with respect to the
Bonds;
8
<PAGE>
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Bonds if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Bonds of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith; and
(vi) not commence a bankruptcy proceeding against the
Issuer in connection with this Indenture.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Bond (other than amounts paid under the Bond
Insurance Policy) and remaining unclaimed for one year after such amount has
become due and payable shall be discharged from such trust and be paid to the
Issuer upon receipt of an Issuer Request; and the Holder of such Bond shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Indenture Trustee with the consent of the Bond
Insurer, so long as no Bond Insurer Default exists, may also adopt and employ,
at the expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice of
such repayment to Holders whose Bonds have been called but have not been
surrendered for redemption or whose right to or interest in monies due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any
9
<PAGE>
successor Issuer hereunder is or becomes, organized under the laws of any other
state or of the United States of America, in which case the Issuer will keep in
full effect its existence, rights and franchises under the laws of such other
jurisdiction) and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Indenture, the Bonds, the
Mortgage Loans and each other instrument or agreement included in the Trust
Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST. (a) On each Payment
Date from amounts on deposit in the Payment Account in accordance with Section
8.02 hereof, the Indenture Trustee shall pay to the Bondholders and to other
Persons the amounts to which they are entitled as set forth below; PROVIDED,
HOWEVER, that any amounts representing payments from the Bond Insurer shall only
be used to pay interest and principal to the Bondholders pursuant to clauses
(iii) and (iv):
(i) to the Indenture Trustee, the Indenture Trustee
Fee;
(ii) to the Bond Insurer, the Bond Insurance Premium;
(iii) to the Bondholders, the Interest Payment Amount
with respect to such Payment Date;
(iv) to the Bondholders, as principal on the Bonds, the
Principal Payment Amount with respect to such Payment Date;
(v) to the Bond Insurer, the sum of (a) all payments
previously paid by the Bond Insurer under the Bond Insurance Policy
which have not previously been reimbursed, (b) any other amounts due to
the Bond Insurer pursuant to the Insurance Agreement, to the extent not
previously paid or reimbursed and (c) interest on the foregoing as set
forth in the Insurance Agreement from the date such amounts become due
until paid in full;
(vi) to the Bondholders, as principal on the Bonds, the
Subordination Increase Amount for such Payment Date;
(vii) to the Bondholders, any Carry-Forward Amount for
such Payment Date;
(viii) to the Indenture Trustee, any amounts owing to the
Indenture Trustee under any Basic Documents remaining unpaid;
(ix) to the Servicer, any amounts owing to the Servicer
pursuant to Section 5.03 of the Servicing Agreement in connection with
the indemnity by the Issuer thereunder; and
(x) any remaining amount, to the Issuer or the
Certificate Paying Agent as its designee, on behalf of the
Certificateholders.
10
<PAGE>
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders after payment of trust expenses to the Owner Trustee or the
Indenture Trustee pursuant to the Trust Agreement.
Interest will accrue on the Bonds during an Interest Period on the
basis of the actual number of days in such Interest Period and a year assumed to
consist of 360 days.
Any installment of interest or principal, if any, payable on any Bond
that is punctually paid or duly provided for by the Issuer on the applicable
Payment Date shall, so long as the Bonds are Book-Entry Bonds registered in the
name of the Depository or its nominee, be paid by wire transfer to the
Depository or its nominee; otherwise if such Holder shall have so requested at
least five Business Days prior to the related Record Date and such Holder holds
Bonds of an aggregate initial Bond Principal Balance of at least $5,000,000,
such installment shall be paid on such Payment Date to each Holder of record on
the preceding Record Date, by wire transfer to an account specified in writing
by such Holder reasonably satisfactory to the Indenture Trustee as of the
preceding Record Date, and in all other cases or if no such instructions have
been delivered to the Indenture Trustee, by check to such Bondholder mailed to
such Holder's address as it appears in the Bond Register in the amount required
to be distributed to such Holder on such Payment Date; PROVIDED, HOWEVER, that
the Indenture Trustee shall not pay to such Holders any amount required to be
withheld from a payment to such Holder by the Code. The Indenture Trustee may
deduct a reasonable wire transfer fee from any payment made by wire transfer.
(b) The principal of each Bond shall be due and payable in full on the
Final Scheduled Payment Date for such Bond as provided in the form of Bond set
forth in Exhibit A. All principal payments on the Bonds shall be made to the
Bondholders entitled thereto in accordance with the Percentage Interests
represented by such Bonds. Upon notice to the Indenture Trustee by the Issuer,
the Indenture Trustee shall notify the Person in whose name a Bond is registered
at the close of business on the Record Date preceding the Final Scheduled
Payment Date or other final Payment Date (including any final Payment Date
resulting from any redemption pursuant to Section 8.07 hereof). Such notice
shall to the extent practicable be mailed no later than five Business Days prior
to such Final Scheduled Payment Date or other final Payment Date and shall
specify that payment of the principal amount and any interest due with respect
to such Bond at the Final Scheduled Payment Date or other final Payment Date
will be payable only upon presentation and surrender of such Bond and shall
specify the place where such Bond may be presented and surrendered for such
final payment. No interest shall accrue on the Bonds on or after the Final
Scheduled Payment Date or any such other final Payment Date.
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will from time
to time prepare, execute and deliver all such supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
11
<PAGE>
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer or the Servicer to enforce any of
their rights with respect to the Mortgage Loans; and
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee, the Bond Insurer and the
Bondholders in such Trust Estate against the claims of all persons and
parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 hereof, unless the Indenture Trustee
shall have first received an Opinion of Counsel to the effect that the lien and
security interest created by this Indenture with respect to such property will
continue to be maintained after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to sign any financing statement, continuation statement or
other instrument required to be signed pursuant to this Section 3.06 upon the
Issuer's preparation thereof and delivery to the Indenture Trustee.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee, the Bond Insurer and the Owner
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the lien and first priority security interest in the Collateral and
reciting the details of such action, or stating that, in the opinion of such
counsel, no such action is necessary to make such lien and first priority
security interest effective.
(b) On or before September 1 in each calendar year, beginning in 1998,
the Issuer shall furnish to the Indenture Trustee and the Bond Insurer an
Opinion of Counsel at the expense of the Issuer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the lien and first priority security interest in the
Collateral and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest in the
Collateral until December 31 in the following calendar year.
12
<PAGE>
Section 3.08. PERFORMANCE OF OBLIGATIONS. (a) The Issuer will
punctually perform and observe all of its obligations and agreements contained
in this Indenture, the Basic Documents and in the instruments and agreements
included in the Trust Estate.
(b) The Issuer, with the consent of the Bond Insurer so long as no Bond
Insurer Default exists, may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Servicer
is expressly permitted to take in the Servicing Agreement. The Indenture
Trustee, as pledgee of the Mortgage Loans, shall with the consent of, or
direction of, the Bond Insurer, so long as no Bond Insurer Default exists, be
able to exercise the rights of the Issuer to direct the actions of the Servicer
pursuant to the Servicing Agreement.
Section 3.09. NEGATIVE COVENANTS. So long as any Bonds are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Bond Insurer or the Indenture Trustee
with the consent of the Bond Insurer, so long as no Bond Insurer
Default exists;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Bonds (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Bondholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Bonds under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Issuer's
interest in the Mortgage Loans, the Home
13
<PAGE>
Equity Loan Purchase Agreement or any other Basic Document, if any such
action would materially and adversely affect the interests of the
Bondholders or the Bond Insurer.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee and the Bond Insurer, within 120 days after the
end of each fiscal year of the Issuer (commencing with the fiscal year 1998), an
Officer's Certificate stating, as to the Authorized Officer signing such
Officer's Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. [Reserved].
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in the Home Equity Loan
Purchase Agreement concerning the Seller and the Mortgage Loans and the right to
enforce the remedies against the Seller provided in such Home Equity Loan
Purchase Agreement to the same extent as though such representations and
warranties were made directly to the Indenture Trustee. If the Indenture Trustee
has actual knowledge of any breach of any representation or warranty made by the
Seller in the Home Equity Loan Purchase Agreement, the Indenture Trustee shall
promptly notify the Seller and the Bond Insurer of such finding and the Seller's
obligation to cure such breach or repurchase or substitute for the related
Mortgage Loan.
Section 3.13. AMENDMENTS TO SERVICING AGREEMENT. The Issuer covenants
with the Indenture Trustee and the Bond Insurer that it will not enter into any
amendment or supplement to the Servicing Agreement without the prior written
consent of the Indenture Trustee and the Bond Insurer. The Indenture Trustee, as
pledgee of the Mortgage Loans, may, with the consent of the Bond Insurer so long
as no Bond Insurer Default exists, decline to enter into or consent to any such
supplement or amendment if the Bond Insurer's or Bondholders' rights, duties or
immunities would be materially and adversely affected thereby. The Indenture
Trustee may, but shall not be obligated to, enter into any amendment or
supplement to the Servicing Agreement that affects the Indenture Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise.
Section 3.14. SERVICER AS AGENT AND BAILEE OF THE INDENTURE TRUSTEE.
Solely for purposes of perfection under Section 9-305 of the Uniform Commercial
Code or other similar applicable law, rule or regulation of the state in which
such property is held by the Servicer, the Issuer and the Indenture Trustee
hereby acknowledge that the Servicer is acting as agent and bailee of the
14
<PAGE>
Indenture Trustee in holding amounts on deposit in the Collection Account, as
well as its agent and bailee in holding any Related Documents released to the
Servicer, and any other items constituting a part of the Trust Estate which from
time to time come into the possession of the Servicer. It is intended that, by
the Servicer's acceptance of such agency, the Indenture Trustee, as a secured
party of the Mortgage Loans, will be deemed to have possession of such Related
Documents, such monies and such other items for purposes of Section 9-305 of the
Uniform Commercial Code of the state in which such property is held by the
Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee and the Bond
Insurer, the due and punctual payment of the principal of and interest
on all Bonds and to the Certificate Paying Agent, on behalf of the
Certificateholders, and the payment of the Bond Insurance Premium and
all other amounts payable to the Bond Insurer and the performance or
observance of every agreement and covenant of this Indenture on the
part of the Issuer to be performed or observed, all as provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Bonds to be
reduced, suspended or withdrawn or to be considered by either Rating
Agency to be below investment grade without taking into account the
Bond Insurance Policy;
(iv) the Issuer and the Bond Insurer shall have received
an Opinion of Counsel (and shall have delivered a copy thereof to the
Indenture Trustee) to the effect that such transaction will not (A)
adversely affect the status of the Bonds as indebtedness for federal
income tax purposes, or (B) cause the Trust to be subject to an entity
level tax for federal income tax purposes;
15
<PAGE>
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture
Trustee and the Bond Insurer an Officer's Certificate and an Opinion of
Counsel each stating that such consolidation or merger and such
supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act); and
(vii) the Bond Insurer, so long as no Bond Insurer
Default exists, shall have given its prior written consent.
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Bonds and to the
Certificate Paying Agent, on behalf of the Certificateholders, and the
payment of the Bond Insurance Premium and all other amounts payable to
the Bond Insurer and the performance or observance of every agreement
and covenant of this Indenture on the part of the Issuer to be
performed or observed, all as provided herein, (C) expressly agree by
means of such supplemental indenture that all right, title and interest
so conveyed or transferred shall be subject and subordinate to the
rights of the Holders of the Bonds and the Bond Insurer, (D) unless
otherwise provided in such supplemental indenture, expressly agree to
indemnify, defend and hold harmless the Issuer, the Indenture Trustee
and the Bond Insurer against and from any loss, liability or expense
arising under or related to this Indenture and the Bonds and (E)
expressly agree by means of such supplemental indenture that such
Person (or if a group of Persons, then one specified Person) shall make
all filings with the Commission (and any other appropriate Person)
required by the Exchange Act in connection with the Bonds;
;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Bonds or the
rating of the Bonds without taking into account the Bond Insurance
Policy to be reduced, suspended or withdrawn;
(iv) the Issuer and the Bond Insurer shall have received
an Opinion of Counsel (and shall have delivered a copy thereof to the
Indenture Trustee) to the effect that such transaction will not (A)
adversely affect the status of the Bonds as indebtedness for federal
16
<PAGE>
income tax purposes, or (B) cause the Trust to be subject to an entity
level tax for federal income tax purposes;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture
Trustee and the Bond Insurer an Officer's Certificate and an Opinion of
Counsel each stating that such conveyance or transfer and such
supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act); and
(vii) the Bond Insurer, so long as no Bond Insurer
Default exists, shall have given its prior written consent.
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Bonds immediately upon the delivery of written
notice to the Indenture Trustee and the Bond Insurer of such conveyance or
transfer and approval of such transaction given by the Bond Insurer to the
Indenture Trustee.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans and the issuance of the Bonds and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Bonds and amounts due to the Bond Insurer under this
Indenture and the Insurance Agreement.
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
17
<PAGE>
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under this Indenture and the Trust Agreement and (y)
payments to the Servicer pursuant to the terms of the Servicing Agreement. The
Issuer will not, directly or indirectly, make payments to or distributions from
the Collection Account except in accordance with this Indenture and the Basic
Documents.
Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee, the Bond Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee or the Bond Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
Section 3.26. STATEMENTS TO BONDHOLDERS. On each Payment Date, the
Indenture Trustee and the Certificate Registrar shall forward by mail to each
Bondholder and Certificateholder, respectively, the statement prepared pursuant
to Section 7.05 of this Indenture. The Indenture Trustee shall have no
responsibility to (i) verify information provided by the Servicer to be included
in such statement or (ii) include any information required to be included in
such statement if the Servicer has failed to timely produce such information to
the Indenture Trustee as required pursuant to the Servicing Agreement.
Section 3.27. DETERMINATION OF BOND INTEREST RATE. On the second LIBOR
Business Day immediately preceding each Payment Date, the Indenture Trustee
shall determine One-Month LIBOR and the Bond Interest Rate for the following
Interest Period and shall inform the Issuer, the Servicer and the Company at
their respective facsimile numbers given to the Indenture Trustee in writing
thereof.
Section 3.28. PAYMENTS UNDER THE BOND INSURANCE POLICY. (a) On the
second Business Day immediately preceding any Payment Date, the Indenture
Trustee on behalf of the Bondholders shall file a notice of claim to the Bond
Insurer in an amount, if any, equal to the Deficiency Amount.
18
<PAGE>
.
(b) If the Indenture Trustee determines that a Deficiency Amount will
exist for the following Payment Date, then the Indenture Trustee shall submit a
Notice (as defined in the Bond Insurance Policy) for payment in the amount of
the Deficiency Amount to the Bond Insurer no later than 12:00 Noon, New York
City time, on the second Business Day prior to the applicable Payment Date. Upon
receipt of such Deficiency Amount in accordance with the terms of the Bond
Insurance Policy, the Indenture Trustee shall deposit such Deficiency Amount in
the Payment Account for distribution to Bondholders pursuant to Section 3.05
hereof or with respect to an acceleration pursuant to Section 6.02 hereof. All
amounts received by the Indenture Trustee under the Bond Insurance Policy shall
remain uninvested.
In addition, a claim may be made under the Bond Insurance Policy in
respect of any Preference Amount (as defined in and pursuant to the terms and
conditions of the Bond Insurance Policy) and the Indenture Trustee shall submit
a Notice (as defined in the Bond Insurance Policy) for payment with respect
thereto together with the other documents required to be delivered to the Bond
Insurer pursuant to the Bond Insurance Policy in connection with a claim in
respect of any Preference Amount.
19
<PAGE>
ARTICLE IV
The Bonds; Satisfaction and Discharge of Indenture
Section 4.01. THE BONDS. The Bonds shall be registered in the name of a
nominee designated by the Depository. Beneficial Owners will hold interests in
the Bonds through the book-entry facilities of the Depository in minimum
initial Bond Principal Balances of $25,000 and integral multiples of $1,000 in
excess thereof.
Subject to the last sentence of Section 4.12 , the Indenture Trustee
may for all purposes (including the making of payments due on the Bonds) deal
with the Depository as the authorized representative of the Beneficial Owners
with respect to the Bonds for the purposes of exercising the rights of Holders
of Bonds hereunder. In addition, subject to the last sentence of Section 4.12,
except as provided in the next succeeding paragraph of this Section 4.01, the
rights of Beneficial Owners with respect to the Bonds shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08
hereof, Beneficial Owners shall not be entitled to definitive certificates for
the Bonds as to which they are the Beneficial Owners. Requests and directions
from, and votes of, the Depository as Holder of the Bonds shall not be deemed
inconsistent if they are made with respect to different Beneficial Owners. The
Indenture Trustee may establish a reasonable record date in connection with
solicitations of consents from or voting by Bondholders and give notice to the
Depository of such record date. Without the consent of the Issuer and the
Indenture Trustee, no Bond may be transferred by the Depository except to a
successor Depository that agrees to hold such Bond for the account of the
Beneficial Owners.
In the event The Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Bonds it
beneficially owns in the manner prescribed in Section 4.08.
The Bonds shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Indenture Trustee and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF BONDS; APPOINTMENT OF CERTIFICATE REGISTRAR. The Issuer shall cause the
Indenture Trustee, as Bond Registrar, to keep at the Corporate Trust Office a
Bond Register in which, subject to such reasonable regulations as it may
prescribe, the Bond Registrar shall provide for the registration of Bonds and of
transfers and exchanges of Bonds as herein provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Bond at the Corporate Trust
Office, the Issuer shall execute and the Indenture Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one
20
<PAGE>
or more new Bonds in authorized initial Bond Principal Balances evidencing the
same aggregate Percentage Interests.
Subject to the foregoing, at the option of the Bondholders, Bonds may
be exchanged for other Bonds of like tenor and in authorized initial Bond
Principal Balances evidencing the same aggregate Percentage Interests upon
surrender of the Bonds to be exchanged at the Corporate Trust Office of the Bond
Registrar. Whenever any Bonds are so surrendered for exchange, the Issuer shall
execute and the Indenture Trustee shall authenticate and deliver the Bonds which
the Bondholder making the exchange is entitled to receive. Each Bond presented
or surrendered for registration of transfer or exchange shall (if so required by
the Bond Registrar) be duly endorsed by, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Bond Registrar
duly executed by the Holder thereof or his attorney duly authorized in writing
with such signature guaranteed by a commercial bank or trust company located or
having a correspondent located in the City of New York or the city in which any
Corporate Trust Office is located. Bonds delivered upon any such transfer or
exchange will evidence the same obligations, and will be entitled to the same
rights and privileges, as the Bonds surrendered.
No service charge shall be made for any registration of transfer or
exchange of Bonds, but the Bond Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Bonds.
The Issuer hereby appoints the Indenture Trustee as Certificate
Registrar to keep at its Corporate Trust Office a Certificate Register pursuant
to Section 3.09 of the Trust Agreement in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges thereof pursuant to
Section 3.05 of the Trust Agreement. The Indenture Trustee hereby accepts such
appointment.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN BONDS. If (i) any
mutilated Bond is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Bond, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer, the Bond Insurer and the
Indenture Trustee harmless, then, in the absence of notice to the Issuer, the
Bond Registrar or the Indenture Trustee that such Bond has been acquired by a
bona fide purchaser, and provided that the requirements of Section 8-405 of the
UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Bond, a replacement Bond; provided,
however, that if any such destroyed, lost or stolen Bond, but not a mutilated
Bond, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Bond, the Issuer may pay such destroyed, lost or stolen
Bond when so due or payable without surrender thereof. If, after the delivery of
such replacement Bond or payment of a destroyed, lost or stolen Bond pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Bond in lieu of which such replacement Bond was issued presents for payment such
original Bond, the Issuer, the Bond Insurer and the Indenture Trustee shall be
entitled to recover such replacement Bond (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Bond from such
Person to whom such replacement Bond was delivered or any assignee of such
Person,
21
<PAGE>
except a bona fide purchaser, and shall be entitled to recover upon the security
or indemnity provided therefor to the extent of any loss, damage, cost or
expense incurred by the Issuer, the Bond Insurer or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Bond under this Section 4.03, the
Issuer may require the payment by the Holder of such Bond of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Bond issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Bond shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Bond shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Bonds duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Bonds.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Bond, the Issuer, the Bond Insurer, the
Indenture Trustee and any agent of the Issuer, the Bond Insurer, or the
Indenture Trustee may treat the Person in whose name any Bond is registered (as
of the day of determination) as the owner of such Bond for the purpose of
receiving payments of principal of and interest, if any, on such Bond and for
all other purposes whatsoever, whether or not such Bond be overdue, and neither
the Issuer, the Bond Insurer, the Indenture Trustee nor any agent of the Issuer,
the Bond Insurer or the Indenture Trustee shall be affected by notice to the
contrary.
Section 4.05. CANCELLATION. All Bonds surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Bonds previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Bonds so delivered shall be promptly canceled by the
Indenture Trustee. No Bonds shall be authenticated in lieu of or in exchange for
any Bonds canceled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All canceled Bonds may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided, however, that such
Issuer Request is timely and the Bonds have not been previously disposed of by
the Indenture Trustee.
Section 4.06. BOOK-ENTRY BONDS. The Bonds, upon original issuance, will
be issued in the form of definitive Bonds representing the Book-Entry Bonds, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Bonds shall initially be registered on the Bond
Register in the name of Cede & Co., the nominee of the
22
<PAGE>
initial Depository, and no Beneficial Owner will receive a Definitive Bond
representing such Beneficial Owner's interest in such Bond, except as provided
in Section 4.08. Unless and until definitive, fully registered Bonds (the
"Definitive Bonds") have been issued to Beneficial Owners
pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in full
force and effect;
(ii) the Bond Registrar, the Bond Insurer and the
Indenture Trustee shall be entitled to deal with the Depository for all
purposes of this Indenture (including the payment of principal of and
interest on the Bonds and the giving of instructions or directions
hereunder) as the sole holder of the Bonds, and shall have no
obligation to the Beneficial Owners of Bonds;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) subject to the last sentence of Section 4.12, the
rights of Beneficial Owners shall be exercised only through the
Depository and shall be limited to those established by law and
agreements between such Beneficial Owners of Bonds and the Depository
and/or the Depository Participants. Unless and until Definitive Bonds
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Bonds to such
Depository Participants; and
(v) subject to the last sentence of Section 4.12,
whenever this Indenture requires or permits actions to be taken based
upon instructions or directions of Holders of Bonds evidencing a
specified percentage of the Bond Principal Balances of the Bonds, the
Depository shall be deemed to represent such percentage only to the
extent that it has received instructions to such effect from Beneficial
Owners and/or Depository Participants owning or representing,
respectively, such required percentage of the beneficial interest in
the Bonds and has delivered such instructions to the Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Bondholders is required under this Indenture, unless and
until Definitive Bonds shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Bonds to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE BONDS. If (i) the Indenture Trustee determines
that the Depository is no longer willing or able to properly discharge its
responsibilities with respect to the Bonds and the Indenture Trustee is unable
to locate a qualified successor, (ii) the Indenture Trustee elects to terminate
the book-entry system through the Depository or (iii) after the occurrence of an
Event of Default, Beneficial Owners of Bonds representing beneficial interests
aggregating at least a majority of the Bond Principal Balances of the Bonds
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of
23
<PAGE>
the Beneficial Owners, then the Depository shall notify all Beneficial Owners
and the Indenture Trustee of the occurrence of any such event and of the
availability of Definitive Bonds to Beneficial Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Bonds representing the
Book-Entry Bonds by the Depository, accompanied by registration instructions,
the Issuer shall execute and the Indenture Trustee shall authenticate the
Definitive Bonds in accordance with the instructions of the Depository. None of
the Issuer, the Bond Registrar or the Indenture Trustee shall be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be protected in relying on, such instructions. Upon the issuance of Definitive
Bonds, the Indenture Trustee shall recognize the Holders of the Definitive Bonds
as Bondholders. The Indenture Trustee shall notify the Bond Insurer upon the
issuance of Definitive Bonds.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Bonds will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Bonds
will qualify as indebtedness. The Issuer, by entering into this Indenture, and
each Bondholder, by its acceptance of its Bond (and each Beneficial Owner by its
acceptance of an interest in the applicable Book-Entry Bond), agree to treat the
Bonds for federal, state and local income, single business and franchise tax
purposes as indebtedness.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Bonds, except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Bonds, (iii) rights of Bondholders (and the Bond
Insurer, as subrogee of the Bondholders) to receive payments of principal
thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09, 3.16, 3.18
and 3.19, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.07 and
the obligations of the Indenture Trustee under Section 4.11) and (vi) the rights
of Bondholders as beneficiaries hereof with respect to the property so deposited
with the Indenture Trustee payable to all or any of them, and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Bonds and shall release and deliver the Collateral to or upon the
order of the Issuer, when
(A) either
(1) all Bonds theretofore authenticated and delivered (other
than (i) Bonds that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 hereof and (ii) Bonds
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
(2) all Bonds not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
24
<PAGE>
b. will become due and payable at the Final Scheduled
Payment Date within one year, or
c. have been called for early redemption pursuant to
Section 8.07 hereof,
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Bonds
then outstanding not theretofore delivered to the Indenture Trustee for
cancellation when due on the Final Scheduled Payment Date or other
final Payment Date and has delivered to the Indenture Trustee and the
Bond Insurer a verification report from a nationally recognized
accounting firm certifying that the amounts deposited with the
Indenture Trustee are sufficient to pay and discharge the entire
indebtedness of such Bonds, or, in the case of c. above, the Issuer
shall have complied with all requirements of Section 8.07 hereof;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer as
evidenced by the written consent of the Bond Insurer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Bond Insurer an Officer's Certificate and an Opinion of Counsel, each
meeting the applicable requirements of Section 10.01 hereof, each
stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture have been complied
with and, if the Opinion of Counsel relates to a deposit made in
connection with Section 4.10(A)(2)b. above, such opinion shall further
be to the effect that such deposit will constitute an "in-substance
defeasance" within the meaning of Revenue Ruling 85-42, 1985-1 C.B. 36,
and in accordance therewith, the Issuer will be the owner of the assets
deposited in trust for federal income tax purposes.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Bonds and this
Indenture, to the payment, either directly or through any Paying Agent or the
Issuer, Certificate Paying Agent as designee of the Issuer or the Bond Insurer,
as applicable, as the Indenture Trustee may determine, to the Holders of Bonds,
of all sums due and to become due thereon for principal and interest or
otherwise; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge (and each Bondholder by acceptance of its Bond
hereby agrees) that (i) to the extent the Bond Insurer makes payments under the
Bond Insurance Policy on account of principal of or interest on the Bonds, the
Bond Insurer will be fully subrogated to the rights of such Holders to receive
such principal and interest from the Issuer, and (ii) the Bond Insurer shall be
paid such
25
<PAGE>
principal and interest but only from the sources and in the manner provided
herein and in the Insurance Agreement for the payment of such principal and
interest.
Insured Payments disbursed by the Indenture Trustee from proceeds of
the Bond Insurance Policy shall not be considered payment by the Issuer with
respect to the Bonds, nor shall such disbursement of such Insured Payments
discharge the obligations of the Issuer with respect to the amounts thereof, and
the Bond Insurer shall become the owner of such amounts as the deemed subrogee
of such Bondholders.
So long as no Bond Insurer Default exists, the Indenture Trustee shall
cooperate in all respects with any reasonable request by the Bond Insurer for
action to preserve or enforce the Bond Insurer's rights or interest under this
Indenture or the Insurance Agreement, consistent with this Indenture and without
limiting the rights of the Bondholders as otherwise set forth in the Indenture,
including, without limitation, upon the occurrence and continuance of a default
under the Insurance Agreement, a request to take any one or more of the
following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Bonds, or under this Indenture in respect
to the Bonds and all amounts payable under the Insurance Agreement,
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments of Mortgage that
have not previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Bond Insurer hereunder;
provided, however, action shall be taken pursuant to this Section 4.12 by the
Indenture Trustee to preserve the Bond Insurer's rights or interest under this
Agreement or the Insurance Agreement only to the extent such action is available
to the Bondholders or the Bond Insurer under other provisions of this Indenture.
Notwithstanding any provision of this Indenture to the contrary, so
long as no Bond Insurer Default exists, the Bond Insurer shall at all times be
treated as if it were the exclusive Bondholder for the purposes of all
approvals, consents, waivers and the institution of any action and the direction
of all remedies hereunder, and the Indenture Trustee shall act in accordance
with the directions of the Bond Insurer so long as it is indemnified therefor to
its reasonable satisfaction; provided, however, that the provisions of the first
paragraph of Section 5.06 shall not apply to the
26
<PAGE>
Bond Insurer when the Bond Insurer is exercising the rights of the Bondholders
pursuant to this paragraph.
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Bonds,
all monies then held by any Person other than the Indenture Trustee under the
provisions of this Indenture with respect to such Bonds shall, upon demand of
the Issuer, be paid to the Indenture Trustee to be held and applied according to
Section 3.05 and thereupon such Person shall be released from all further
liability with respect to such monies.
Section 4.14. TEMPORARY BONDS. Pending the preparation of any
Definitive Bonds, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Bonds that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Bonds in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Bonds may reasonably determine, as evidenced by their execution of such Bonds.
If temporary Bonds are issued, the Issuer will cause Definitive Bonds
to be prepared without unreasonable delay. After the preparation of the
Definitive Bonds, the temporary Bonds shall be exchangeable for Definitive Bonds
upon surrender of the temporary Bonds at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Bonds, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Bonds of authorized denominations and of like tenor and aggregate
principal amount. Until so exchanged, such temporary Bonds shall in all respects
be entitled to the same benefits under this Indenture as Definitive Bonds.
27
<PAGE>
ARTICLE V
DEFAULT AND REMEDIES
--------------------
Section 5.01. EVENTS OF DEFAULT. The Issuer shall deliver to the
Indenture Trustee and the Bond Insurer, within five days after learning of the
occurrence of a Default or an Event of Default, written notice in the form of an
Officer's Certificate of the occurrence of such Default or Event of Default, its
status and what action the Issuer is taking or proposes to take with respect
thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee may (with the prior written consent of the Bond Insurer), and,
at the written direction of the Bond Insurer (which such written direction shall
include a statement to the effect that such acceleration is at the sole option
of the Bond Insurer and that an amount equal to the excess, if any, of the sum
of the unpaid Bond Principal Balance of the Bonds together with accrued and
unpaid interest thereon through the date of payment of such accelerated Bonds,
over Available Funds for such date of payment, would constitute a Deficiency
Amount pursuant to the terms of the Bond Insurance Policy and will be paid by
the Bond Insurer in connection with the acceleration in accordance with the
terms of the Bond Insurance Policy), or if a Bond Insurer Default exists, the
Holders of Bonds representing not less than a majority of the Bond Principal
Balances of all Bonds, shall, declare the Bonds to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Bondholders), and upon any such declaration the unpaid Bond Principal
Balance of the Bonds, together with accrued and unpaid interest thereon through
the date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Bond Insurer or, if a Bond Insurer
Default exists, the Holders of Bonds representing a majority of the Bond
Principal Balances of all Bonds, by written notice to the Issuer and the
Indenture Trustee, may waive the related Event of Default and rescind and annul
such declaration and its consequences if:
(i) the Issuer or the Bond Insurer has paid or
deposited with the Indenture Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Bonds and all other amounts that would then be due hereunder
or upon the Bonds if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums reasonably paid or advanced by the
Indenture Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee
and its agents and counsel; and
28
<PAGE>
(ii) all Events of Default, other than the nonpayment of
the principal of the Bonds that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
provided, however, the Bond Insurer, so long as no Bond Insurer Default exists,
may waive an Event of Default regardless of Section 5.02(i) or (ii) above.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest (including the Interest Payment Amount) on any Bond when
the same becomes due and payable, and such default continues for a period of
five days, or (ii) default is made in the payment of the principal (including
the Principal Payment Amount and the Subordination Increase Amount) of or any
installment of the principal of any Bond when the same becomes due and payable,
the Issuer shall, upon demand of the Indenture Trustee, at the direction of the
Bond Insurer, so long as no Bond Insurer Default exists, pay to the Indenture
Trustee, for the benefit of the Holders of Bonds and of the Bond Insurer, the
whole amount then due and payable on the Bonds for principal and interest, with
interest at the Bond Interest Rate upon the overdue principal, and in addition
thereto such further amount as shall be sufficient to cover the reasonable costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, and at the direction of the Bond Insurer, so long as no Bond Insurer
Default exists, subject to the provisions of Section
10.16
hereof, may institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer or other obligor upon the Bonds and collect
in the manner provided by law out of the property of the Issuer or other obligor
the Bonds, wherever situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee, at the direction of the Bond Insurer, so long as no Bond Insurer
Default exists, subject to the provisions of Section 10.16 hereof may, as more
particularly provided in Section 5.04 hereof, in its discretion, proceed to
protect and enforce its rights and the rights of the Bondholders and the Bond
Insurer, by such appropriate Proceedings as the Indenture Trustee, at the
direction of the Bond Insurer, so long as no Bond Insurer Default exists, shall
deem most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy
or legal or equitable right vested in the Indenture Trustee by this Indenture or
by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Bonds or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings
29
<PAGE>
under Title 11 of the United States Code or any other applicable federal or
state bankruptcy, insolvency or other similar law, or in case a receiver,
assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or
similar official shall have been appointed for or taken possession of the Issuer
or its property or such other obligor or Person, or in case of any other
comparable judicial Proceedings relative to the Issuer or other obligor upon the
Bonds, or to the creditors or property of the Issuer or such other obligor, the
Indenture Trustee, at the direction of the Bond Insurer, so long as no Bond
Insurer Default exists, irrespective of whether the principal of any Bonds shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Indenture Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Bonds and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all reasonable
expenses and liabilities incurred, and all advances made, by the
Indenture Trustee and each predecessor Indenture Trustee, except as a
result of negligence or bad faith), the Bond Insurer and of the
Bondholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Bonds in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Bondholders, the Bond
Insurer and of the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee, the Bond Insurer or the Holders of Bonds
allowed in any judicial proceedings relative to the Issuer, its
creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Bondholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee,
with the consent of the Bond Insurer, so long as no Bond Insurer Default exists,
shall consent to the making of payments directly to such Bondholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, all other reasonable expenses
and liabilities incurred, all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or bad faith,
and all amounts due to the Bond Insurer.
30
<PAGE>
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Bondholder any plan of reorganization, arrangement, adjustment or
composition affecting the Bonds or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Bond
holder in any such proceeding except, as aforesaid, to vote for the election of
a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Bonds, may be enforced by the Indenture Trustee without the
possession of any of the Bonds or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the reasonable
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents and attorneys, shall
be for the ratable benefit of the Holders of the Bonds and the Bond Insurer,
subject to Section 5.05 hereof.
(g) In any Proceedings brought by the Indenture Trustee with the
consent of the Bond Insurer, so long as no Bond Insurer Default exists (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Bonds, and it shall not be necessary to
make any Bondholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing and if an acceleration has been declared and not
rescinded pursuant to Section 5.02 hereof, the Indenture Trustee, subject to the
provisions of Section 10.16 hereof and with the consent of the Bond Insurer so
long as no Bond Insurer Default exists, may and, at the direction of the Bond
Insurer so long as no Bond Insurer Default exists, shall, do one or more of the
following (subject to Section 5.05 hereof):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts then
payable on the Bonds or under this Indenture with respect thereto,
whether by declaration or otherwise, and all amounts payable under the
Insurance Agreement, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Bonds monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Bonds
and the Bond Insurer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
31
<PAGE>
provided, however, that so long as a Bond Insurer Default exists, the Indenture
Trustee may not sell or otherwise liquidate the Trust Estate following an Event
of Default, unless (A) the Indenture Trustee obtains the consent of the Holders
of 100% of the aggregate Bond Principal Balance, (B) the proceeds of such sale
or liquidation distributable to the Holders of the Bonds are sufficient to
discharge in full all amounts then due and unpaid upon the Bonds for principal
and interest and to reimburse the Bond Insurer for any amounts drawn under the
Bond Insurance Policy and any other amounts due to the Bond Insurer under the
Insurance Agreement or (C) the Indenture Trustee determines that the Mortgage
Loans will not continue to provide sufficient funds for the payment of principal
of and interest on the Bonds as they would have become due if the Bonds had not
been declared due and payable, and the Indenture Trustee obtains the consent of
the Holders of a majority of the aggregate Bond Principal Balance. In
determining such sufficiency or insufficiency with respect to clause (B) and
(C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of
an Independent investment banking or accounting firm of national reputation as
to the feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order;
PROVIDED, HOWEVER, that any amounts representing payments from the Bond Insurer
shall only be used to pay interest and principal to the Bondholders pursuant to
clauses THIRD and FOURTH below:
FIRST: to the Indenture Trustee for amounts due under Section
6.07 hereof;
SECOND: to the Bond Insurer, provided no Bond Insurer Default
exists, with respect to any Bond Insurance Premium then due;
THIRD: to the Bondholders for amounts due and unpaid on the
Bonds with respect to interest, ratably, without preference or
priority of any kind, according to the amounts due and payable
on the Bonds for interest (including the Interest Payment
Amount but not including any Prepayment Interest Shortfalls,
any Relief Act Shortfalls and the Carry-Forward Amount) from
amounts available in the Trust Estate for the Bondholders;
FOURTH: to Bondholders for amounts due and unpaid on the Bonds
with respect to principal (including, but not limited to, any
Principal Payment Amount), from amounts available in the Trust
Estate for the Bondholders, and to each Bondholder ratably,
without preference or priority of any kind, according to the
amounts due and payable on the Bonds for principal, until the
Bond Principal Balance is reduced to zero;
FIFTH: to the Bond Insurer, the sum of (a) all payments
previously paid by the Bond Insurer under the Bond Insurance
Policy which have not previously been reimbursed, (b) any
other amounts due to the Bond Insurer pursuant to the
Insurance Agreement, to the extent not previously paid or
reimbursed and (c) interest on the foregoing as set forth in
the Insurance Agreement from the date such
32
<PAGE>
amounts become due until paid in full (including any Bond
Insurance Premium not paid pursuant to clause SECOND above);
SIXTH: to the Bondholders for amounts due and unpaid on the
Bonds with respect to the Carry-Forward Amount, ratably,
without preference or priority of any kind, according to the
amounts due and payable on the Bonds with respect thereto,
from amounts available in the Trust Estate for the
Bondholders; and
SEVENTH: to the payment of the remainder, if any, to the
Issuer or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Bondholders pursuant to this Section 5.04. With respect to any
acceleration at the direction of the Bond Insurer, the first payment date after
the acceleration shall be the first Payment Date after the acceleration. At
least 15 days before such record date, the Indenture Trustee shall mail to each
Bondholder a notice that states the record date, the payment date and the amount
to be paid.
Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Bonds
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, with the consent of the Bond Insurer, and
shall, at the direction of the Bond Insurer, so long as no Bond Insurer Default
exists, elect to take and maintain possession of the Trust Estate. It is the
desire of the parties hereto and the Bondholders that there be at all times
sufficient funds for the payment of principal of and interest on the Bonds and
other obligations of the Issuer including payment to the Bond Insurer, and the
Indenture Trustee shall take such desire into account when determining whether
or not to take and maintain possession of the Trust Estate. In determining
whether to take and maintain possession of the Trust Estate, the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
Section 5.06. LIMITATION OF SUITS. No Holder of any Bond shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless subject to the provisions of Section 10.16 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Bond
Principal Balances of the Bonds have made a written request to the
Indenture Trustee to institute such Proceeding in respect of such Event
of Default in its own name as Indenture Trustee hereunder;
33
<PAGE>
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice of request and offer of indemnity has failed to
institute such Proceedings;
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Bond Principal Balances of the Bonds;
and
(vi) such Holder or Holders have the consent of the Bond
Insurer, unless a Bond Insurer Default exists.
It is understood and intended that no one or more Holders of Bonds shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Bonds or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
Subject to the last paragraph of Section 4.12 herein, in the event the
Indenture Trustee shall receive conflicting or inconsistent requests and
indemnity from two or more groups of Holders of Bonds, each representing less
than a majority of the Bond Principal Balances of the Bonds, the Indenture
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF BONDHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Bond shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Bond on or
after the respective due dates thereof expressed in such Bond or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Bondholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee, the Bond Insurer or to such Bondholder, then and in every such case the
Issuer, the Indenture Trustee, the Bond Insurer and the Bondholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee, the Bond Insurer and the Bondholders shall
continue as though no such Proceeding had been instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Bond Insurer or to the
Bondholders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the
34
<PAGE>
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee, the Bond Insurer or any Holder of any Bond to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee, the Bond Insurer or to the Bondholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Bond Insurer or by the Bondholders, as the case may be.
Section 5.11. CONTROL BY BOND INSURER. The Bond Insurer, or if a Bond
Insurer Default exists, the Holders of a majority of the Bond Principal Balances
of Bonds shall have the right (subject to the provisions of Section 5.06) to
direct the time, method and place of conducting any Proceeding for any remedy
available to the Indenture Trustee with respect to the Bonds or exercising any
trust or power conferred on the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) if a Bond Insurer Default exists, subject to the
express terms of Section 5.04, any direction to the Indenture Trustee
to sell or liquidate the Trust Estate shall be by Holders of Bonds
representing 100% of the Bond Principal Balances of the Bonds;
(iii) if the conditions set forth in Section 5.05 hereof
have been satisfied and the Indenture Trustee, with the consent of the
Bond Insurer, so long as no Bond Insurer Default exists, elects to
retain the Trust Estate pursuant to such Section, then any direction to
the Indenture Trustee by Holders of Bonds (other than with respect to
the Bond Insurer exercising the rights of Bondholders pursuant to the
last sentence of Section 4.12) to sell or liquidate the Trust Estate
shall be of no force and effect; and
(iv) if a Bond Insurer Default exists, the Indenture
Trustee may take any other action deemed proper by the Indenture
Trustee that is not inconsistent with such direction.
Notwithstanding the rights of Bondholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or, if a Bond Insurer Default exists, might
materially adversely affect the rights of any Bondholders not consenting to such
action.
Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Bonds as provided in Section 5.02 hereof,
the Bond Insurer, or if a Bond Insurer Default exists, the Holders of Bonds of
not less than a majority of the Bond Principal
35
<PAGE>
Balances of the Bonds, may waive any past Event of Default and its consequences
except an Event of Default (a) with respect to payment of principal of or
interest on any of the Bonds or (b) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the Holder of each
Bond or (c) the waiver of which would materially and adversely affect the
interests of the Bond Insurer or modify its obligation under the Bond Insurance
Policy. In the case of any such waiver, the Issuer, the Indenture Trustee and
the Holders of the Bonds shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Bond by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee or the Bond Insurer, (b) any suit instituted by any
Bondholder, or group of Bondholders, in each case holding in the aggregate more
than 10% of the Bond Principal Balances of the Bonds or (c) any suit instituted
by any Bondholder for the enforcement of the payment of principal of or interest
on any Bond on or after the respective due dates expressed in such Bond and in
this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 hereof is expressly subject to the provisions of Section 5.05
hereof and this Section 5.15. The power to effect any such Sale shall not be
exhausted by any one or more Sales as to any portion of the Trust Estate
remaining unsold, but shall continue unimpaired until the entire Trust Estate
shall have been sold or all amounts payable on the Bonds and under this
Indenture and under the Insurance Agreement shall have been paid. The Indenture
Trustee with the consent of the Bond Insurer, so long as no Bond Insurer Default
exists, may from time to time postpone any public Sale by public
36
<PAGE>
announcement made at the time and place of such Sale. The Indenture Trustee
hereby expressly waives its right to any amount fixed by law as compensation for
any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Bond Insurer or, if a Bond Insurer Default exists, the
Holders of all Bonds, consent to or direct the Indenture Trustee to make, such
Sale, or
(2) unless the Bond Insurer otherwise consents, the proceeds
of such Sale would be not less than the entire amount which would be payable to
the Bondholders under the Bonds and the Bond Insurer in respect of amounts drawn
under the Bond Insurance Policy and any other amounts due to the Bond Insurer
under the Insurance Agreement, in full payment thereof in accordance with
Section 5.02 hereof, on the Payment Date next succeeding the date of such Sale,
or
(3) The Indenture Trustee determines with the consent of the
Bond Insurer, so long as no Bond Insurer Default exists, that the conditions for
retention of the Trust Estate set forth in Section 5.05 hereof cannot be
satisfied (in making any such determination, the Indenture Trustee may rely upon
an opinion of an Independent investment banking firm obtained and delivered as
provided in Section 5.05 hereof), and the Bond Insurer consents to such Sale, or
if a Bond Insurer Default exists, the Holders of Bonds representing at least
66-2/3% of the Bond Principal Balances of the Bonds consent to such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Bond Insurer or, if a Bond Insurer Default exists, the
Holders of Bonds representing at least 66-2/3% of the Bond Principal Balances of
the Bonds have otherwise consented or directed the Indenture Trustee, at any
public Sale of all or any portion of the Trust Estate at which a minimum bid
equal to or greater than the amount described in paragraph (2) of subsection (b)
of this Section 5.15 has not been established by the Indenture Trustee and no
Person bids an amount equal to or greater than such amount, the Indenture
Trustee shall bid an amount at least $1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust
Estate,
(1) any Holder or Holders of Bonds may bid for and with the
consent of the Bond Insurer purchase the property offered for Sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Bonds or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Bonds, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
37
<PAGE>
(2) the Indenture Trustee, with the consent of the Bond
Insurer, so long as no Bond Insurer Default exists, may bid for and acquire the
property offered for Sale in connection with any Sale thereof, and, subject to
any requirements of, and to the extent permitted by, applicable law in
connection therewith, may purchase all or any portion of the Trust Estate in a
private sale, and, in lieu of paying cash therefor, may make settlement for the
purchase price by crediting the gross Sale price against the sum of (A) the
amount which would be distributable to the Holders of the Bonds and Holders of
Certificates and amounts owing to the Bond Insurer as a result of such Sale in
accordance with Section 5.04(b) hereof on the Payment Date next succeeding the
date of such Sale and (B) the reasonable expenses of the Sale and of any
Proceedings in connection therewith which are reimbursable to it, without being
required to produce the Bonds in order to complete any such Sale or in order for
the net Sale price to be credited against such Bonds, and any property so
acquired by the Indenture Trustee shall be held and dealt with by it in
accordance with the provisions of this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON BONDS. The Indenture Trustee's right to seek
and recover judgment on the Bonds or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee, the Bond Insurer or the Bondholders shall be
impaired by the recovery of any judgment by the Indenture Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate or upon any of the assets of the Issuer. Any money or property
collected by the Indenture Trustee shall be applied in accordance with Section
5.04(b) hereof.
Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so, the Issuer, in
its capacity as holder of the Mortgage Loans, shall take all such lawful action
as the Indenture Trustee or the Bond Insurer may request to cause the Issuer to
compel or secure the performance and observance by the Seller and the Servicer,
as applicable, of each of their obligations to the Issuer under or in connection
with the Home Equity Loan Purchase Agreement and the Servicing Agreement, and to
exercise any and all rights, remedies, powers and privileges lawfully available
to the Issuer under or in connection with the Home Equity Loan Purchase
Agreement and the Servicing Agreement to the extent and in the manner directed
by the Indenture Trustee, with the consent of the Bond Insurer, so long as no
Bond Insurer Default exists, as pledgee of the Mortgage Loans, including the
transmission of
38
<PAGE>
notices of default on the part of the Seller or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Seller or the Servicer of each of their obligations
under the Home Equity Loan Purchase Agreement and the Servicing Agreement. So
long as no Bond Insurer Default exists, the Bond Insurer shall have the right to
approve or reject any proposed successor to the Servicer (other than the
Indenture Trustee) under the Servicing Agreement.
(b) The Indenture Trustee, as pledgee of the Mortgage Loans, subject to
the rights of the Bond Insurer under this Agreement and the Servicing Agreement
may, and at the direction (which direction shall be in writing or by telephone
(confirmed in writing promptly thereafter)) of the Bond Insurer or, if a Bond
Insurer Default exists, the Holders of 66-2/3% of the Bond Principal Balances of
the Bonds, shall exercise all rights, remedies, powers, privileges and claims of
the Issuer against the Seller or the Servicer under or in connection with the
Home Equity Loan Purchase Agreement and the Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller or the Servicer, as the case may be, of each of their obligations
to the Issuer thereunder and to give any consent, request, notice, direction,
approval, extension or waiver under the Home Equity Loan Purchase Agreement and
the Servicing Agreement, as the case may be, and any right of the Issuer to take
such action shall not be suspended.
39
<PAGE>
ARTICLE VI
THE INDENTURE TRUSTEE
---------------------
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Sections
5.11 or 5.15 or (B) from the Bond Insurer, which it is entitled to give
under any of the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other trust funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
40
<PAGE>
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
(h) The Indenture Trustee shall act in accordance with Sections 6.03
and 6.04 of the Servicing Agreement and shall act as successor to the Servicer
in accordance with Section 6.02 of the Servicing Agreement.
(i) For all purposes under this Indenture, the Indenture Trustee shall
not be deemed to have notice or knowledge of any Default or Event of Default
unless a Responsible Officer assigned to and working in the Indenture Trustee's
corporate trust department has actual knowledge thereof or unless written notice
of any event which is in fact such an Event of Default or Default is received by
the Indenture Trustee at the Corporate Trust Office, and such notice references
the Bonds generally, the Issuer, the Trust Estate or this Indenture.
The Indenture Trustee is hereby authorized to execute and shall execute
the Servicing Agreement and the Home Equity Loan Purchase Agreement and shall
perform its duties and satisfy its obligations thereunder. Every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee shall apply to the Indenture
Trustee's execution of the Servicing Agreement and the Home Equity Loan Purchase
Agreement and the performance of its duties and satisfaction of its obligations
thereunder.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel reasonably
satisfactory in form and substance to the Indenture Trustee, which Officer's
Certificate or Opinion of Counsel shall not be at the expense of the Indenture
Trustee or the Trust Estate (except in the priority set forth in Section
3.05(a)(viii)). The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on an Officer's Certificate or
Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
41
<PAGE>
(e) The Indenture Trustee may consult with counsel chosen by it with
due care, and the advice or opinion of counsel with respect to legal matters
relating to this Indenture and the Bonds shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Bonds and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Bond Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Indenture Trustee must comply with Section 6.11 hereof.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Bonds, it shall not be accountable for the
Issuer's use of the proceeds from the Bonds, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Bonds or in the Bonds other than the Indenture
Trustee's certificate of authentication.
Section 6.05. NOTICE OF EVENT OF DEFAULT. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Bond Insurer.
The Trustee shall mail to each Bondholder notice of the Event of Default within
10 days after a Responsible Officer has actual knowledge thereof unless such
Event of Default shall have been waived or cured. Except in the case of an Event
of Default in payment of principal of or interest on any Bond, the Indenture
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of Bondholders.
Section 6.06. TAX ADMINISTRATION OF THE ISSUER. The Indenture Trustee,
based solely on information timely provided by the Servicer, shall prepare and
file (or cause to be prepared and filed), on behalf of the Owner Trustee, all
tax returns and information reports, tax elections and such annual or other
reports of the Issuer as are necessary for preparation of tax returns and
information reports as provided in Section 5.03 of the Trust Agreement,
including without limitation Form 1099. All tax returns and information reports
shall be signed by the Owner Trustee as provided in Section 5.03 of the Trust
Agreement.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall pay to the
Indenture Trustee on each Payment Date reasonable compensation for its services.
The amount of the Indenture Trustee Fee shall be paid to the Indenture Trustee
on each Payment Date pursuant to Section 3.05(a)(i) of this Indenture, and all
amounts owing to the Indenture Trustee hereunder in excess of such amount shall
be paid solely as provided in Section 3.05(a)(viii) hereof and Section 5.06 of
the Servicing Agreement. The Indenture Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Issuer
shall reimburse the Indenture Trustee for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to
compensation for its services subject to the priorities established by
42
<PAGE>
Sections 3.05(a)(viii) and 5.04(b) of this Indenture. Such expenses shall
include reasonable compensation and expenses, disbursements and advances of the
Indenture Trustee's agents, counsel, accountants and experts. Subject to the
priorities established in Section 3.05(a)(viii) and Section 5.04(b) of this
Indenture, the Issuer shall indemnify the Indenture Trustee against any and all
loss, liability or expense (including reasonable attorneys' fees) incurred by it
in connection with the administration of this Trust Estate and the performance
of its duties hereunder. The Indenture Trustee shall notify the Issuer promptly
of any claim for which it may seek indemnity. Failure by the Indenture Trustee
to so notify the Issuer shall not relieve the Issuer of its obligations
hereunder. The Issuer shall defend any such claim, and the Indenture Trustee may
have separate counsel and the Issuer shall pay the reasonable fees and expenses
of such counsel. The Issuer is not obligated to reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
with respect to the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Bond Insurer. The Bond
Insurer or, if a Bond Insurer Default exists, the Holders of a majority of Bond
Principal Balances of the Bonds may remove the Indenture Trustee by so notifying
the Issuer and the Indenture Trustee and the Bond Insurer and may appoint a
successor Indenture Trustee. The Issuer shall, with the consent of the Bond
Insurer, so long as no Bond Insurer Default exists, remove the Indenture Trustee
if:
(i) the Indenture Trustee fails to comply with Section
6.11 hereof;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of
the Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of the Indenture Trustee for any reason (the Indenture Trustee in
such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall, with the consent of the Bond Insurer, so long as no Bond Insurer
Default exists, promptly appoint a successor Indenture Trustee reasonably
acceptable to the Bond Insurer.
43
<PAGE>
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Bond Insurer and to the
Issuer. Thereupon, the resignation or removal of the retiring Indenture Trustee
shall become effective, and the successor Indenture Trustee shall have all the
rights, powers and duties of the Indenture Trustee under this Indenture. The
successor Indenture Trustee shall mail a notice of its succession to the
Bondholders. The retiring Indenture Trustee shall promptly transfer all property
held by it as Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer, the Bond Insurer or the Holders of a majority of
Bond Principal Balances of the Bonds may petition any court of competent
jurisdiction for the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.07 shall continue for the
benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all of its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation, without any further act, shall be the successor Indenture Trustee;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 6.11 hereof. The Indenture Trustee shall
provide the Issuer, the Rating Agencies and the Bond Insurer with prior written
notice of any such transaction.
If at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture and any of the Bonds shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee and deliver such Bonds so
authenticated; and if at that time any of the Bonds shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Bonds either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is in the Bonds or in this Indenture provided
that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meet ing any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust Estate, and to
vest in such Person or Persons, in such capacity and for the benefit of the
Bondholders and the Bond Insurer, such title to the Trust Estate, or any part
hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Indenture Trustee or the Bond
Insurer may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of
44
<PAGE>
eligibility as a successor trustee under Section 6.11 hereof and notice to, and
the consent of, the Bond Insurer (but not the Bondholders) of the appointment of
any co-trustee or separate trustee shall be required.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times be reasonably acceptable to the Bond Insurer and authorized
to exercise corporate trust powers. The Indenture Trustee shall also satisfy the
requirements of TIA ss.310(a) and have a combined
45
<PAGE>
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition and it or its parent shall have a long-term
debt rating of Baa3 or better by Moody's and BBB or better by Standard & Poor's.
The Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met. If at any time the Indenture Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect specified in Section 6.08 hereof.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATIONS AND WARRANTIES. The Indenture Trustee
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a national banking association in good standing under the
laws of the United States with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted;
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action;
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the articles of organization or bylaws of the Indenture Trustee or any
agreement or other instrument to which the Indenture Trustee is a party
or by which it is bound; and
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture, (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
46
<PAGE>
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Owner Trust Estate in trust for the Bondholders and the Bond Insurer;
(b) to authenticate and deliver the Bonds substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
Section 6.15. THE AGENTS. The provisions of this Indenture relating to
the limitations of the Indenture Trustee's liability and to its indemnity shall
inure also to the Paying Agent, the Bond Registrar, the Certificate Paying Agent
and the Certificate Registrar.
ARTICLE VII
BONDHOLDERS' LISTS AND REPORTS
------------------------------
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF BONDHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Bonds as of such Record Date, (b) at such other
times as the Indenture Trustee and the Bond Insurer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Bond Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
BONDHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Bonds
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 hereof and the names and addresses of Holders of Bonds received
by the Indenture Trustee in its capacity as Bond Registrar. The Indenture
Trustee may destroy any list furnished to it as provided in such Section 7.01
upon receipt of a new list so furnished.
(b) Bondholders may communicate pursuant to TIA ss.312(b) with other
Bondholders with respect to their rights under this Indenture or under the
Bonds.
(c) The Issuer, the Indenture Trustee and the Bond Registrar shall have
the protection of TIA ss. 312(c).
47
<PAGE>
Section 7.03. REPORTS BY [THE INDENTURE TRUSTEE]; ISSUER FISCAL YEAR.
(a) The [Indenture Trustee] shall:
(i) file with the Company and the Bond Insurer, within
15 days after the Issuer is required to file the same with the
Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may from time to time by rules and
regulations prescribe) that the Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. Such
filings shall be as follows: within 15 days after each Payment Date,
the Indenture Trustee shall file with the Commission via the Electronic
Data Gathering and Retrieval System, a Form 8-K with a copy of the
statement to Bondholders for such Payment Date as an exhibit thereto.
Prior to January 30, 1998, the Indenture Trustee shall file a Form 15
Suspension Notification with respect to the Trust Fund, if applicable.
Prior to March 30, 1998, the Indenture Trustee shall file a Form 10-K,
in substance conforming to industry standards, with respect to the
Trust Fund. The Company hereby grants to the Indenture Trustee a
limited power of attorney to execute and file each such document on
behalf of the Company. Such power of attorney shall continue until the
earlier of (i) receipt by the Trustee from the Company of written
termination of such power of attorney and (ii) the termination of the
Trust Fund. At least three Business Days prior to filing any Form 8-K
or Form 10-K pursuant to this Section 7.03, the Indenture Trustee shall
deliver a copy of such Form 8-K or Form 10-K, as the case may be, to
the Company.
(ii) file with the Company, the Bond Insurer and the
Commission in accordance with rules and regulations prescribed from
time to time by the Commission such additional information, documents
and reports with respect to compliance by the Issuer with the
conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(iii) supply to the Company and the Bond Insurer (and the
Indenture Trustee shall transmit by mail to all Bondholders described
in TIA ss. 313(c)) such summaries of any information, documents and
reports required to be filed by the Issuer pursuant to clauses (i) and
(ii) of this Section 7.03(a) and by rules and regulations prescribed
from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, 1998, the
Indenture Trustee shall mail to each Bondholder as required by TIA ss. 313(c)
and to the Bond Insurer a brief report dated as of such date that complies with
TIA ss. 313(a). The Indenture Trustee also shall comply with TIA ss. 313(b).
A copy of each report at the time of its mailing to Bondholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Bonds are
48
<PAGE>
listed. The Issuer shall notify the Indenture Trustee and the Bond Insurer if
and when the Bonds are listed on any stock exchange.
Section 7.05. STATEMENTS TO BONDHOLDERS. (a) Subject to Section 3.26 of
this Indenture, with respect to each Payment Date, the Indenture Trustee shall
deliver to each Certificateholder and Bondholder, the Bond Insurer, the Company,
the Owner Trustee, the Certificate Paying Agent and each Rating Agency, a
statement setting forth the following information as to the Bonds, to the extent
applicable:
(i) the aggregate amount of collections with respect to the
Mortgage Loans with respect to such Payment Date;
(ii) the Interest Payment Amount, Principal Payment Amount and
Subordination Increase Amount payable to the Bondholders for such Payment Date,
the Guaranteed Interest Payment Amount and the Carry-Forward Amount for such
Payment Date and the aggregate unpaid Carry-Forward Amount for all prior Payment
Dates;
(iii) the amount of the aggregate distribution to the
Bondholders for such Payment Date;
(iv) the Insured Payments, if any, paid by the Bond Insurer
under the Bond Insurance Policy for such Payment Date and the aggregate Insured
Payments for all prior Payment Dates paid by the Bond Insurer under the Bond
Insurance Policy and not yet reimbursed;
(v) the aggregate Principal Balance of the Mortgage Loans as
of the end of the preceding Due Period;
(vi) the number and aggregate Principal Balances of Mortgage
Loans (a) as to which the Monthly Payment is delinquent for 30-59 days, 60-89
days and 90 or more days (excluding any Mortgage Loans in foreclosure or that
have become REO Property), respectively, (b) in foreclosure and (c) that have
become REO Property, in each case as of the end of the preceding Due Period;
provided, however, that such information will not be provided on the statements
relating to the first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the related
Payment Date;
(viii) the Required Subordination Amount, Subordination
Amount, Net Monthly Excess Cashflow and Subordination Reduction Amount for such
Payment Date;
(ix) the amount of any Advances and Compensating Interest
Payments for such Payment Date;
49
<PAGE>
(x) the aggregate Realized Losses with respect to the related
Payment Date and cumulative Realized Losses since the Closing Date;
(xi) the amount of any unpaid accrued interest on the Bonds
after such Payment Date;
(xii) the aggregate Bond Principal Balance of the Bonds after
giving effect to the distribution of principal on such Payment Date;
(xiii) the Maximum Bond Interest Rate and Bond Interest Rate
for such Payment Date;
(xiv) the number and aggregate Principal Balance of Mortgage
Loans repurchased pursuant to the Home Equity Loan Purchase Agreement for the
related Payment Date and cumulatively since the Closing Date;
(xv) the Cumulative Loss Percentage, Delinquency Percentage,
Delinquency Amount and Rolling Delinquency Percentage for such Payment Date;
(xvi) the amount of any Prepayment Interest Shortfalls or
Relief Act Shortfalls for such Payment Date;
(xvii) the aggregate Principal Balance of Mortgage Loans
purchased pursuant to Section 3.18 of the Servicing Agreement for the related
Payment Date and cumulatively since the Closing Date; and
(xviii) the aggregate amount collected with respect to any
prepayment penalties on the Mortgage Loans.
Items (iii) and (xii) above shall be presented on the basis of a Bond
having a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Bonds are outstanding, the Indenture Trustee
shall furnish a report to each Bondholder of record if so requested in writing
at any time during each calendar year as to the aggregate of amounts reported
pursuant to (iii) and (xii) with respect to the Bonds for such calendar year.
The Indenture Trustee in the absence of manifest error may conclusively
rely upon the Determination Date Report provided by the Servicer pursuant to
Section 4.01 of the Servicing Agreement in its preparation of its Statement to
the Bondholders pursuant to this Section 7.04.
Section 7.06. BOOKS AND RECORDS.
The Issuer hereby covenants with the Indenture Trustee and the
Bond Insurer that, so long as any of the Bonds remain Outstanding, it shall:
50
<PAGE>
(a) at all times cause to be kept proper books of account and
allow the Indenture Trustee and the Bond Insurer and any person appointed by it,
to whom the Issuer shall have no reasonable objection, access to the books of
account of the Issuer at all reasonable times, on reasonable prior notice and
during normal business hours;
(b) at all times conduct and continue to conduct business in
its own corporate name;
(c) at all times act and continue to act through its duly
authorized officers and agents; and
(d) so far as permitted by law, at all times cause to be given
to the Indenture Trustee and the Bond Insurer such information as it shall
reasonably require for the purpose of the discharge of the duties, powers,
trusts, authorities and discretions vested in it by this Indenture or by
operation of law.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
------------------------------------
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Bondholders and the Bond
Insurer, the Payment Account as provided in Section 3.01 hereof.
(b) All monies deposited from time to time in the Payment Account
(other than investments made with such monies including all income or other gain
from such investments pursuant to this Indenture), including assumption fees and
prepayment penalties, and all deposits therein pursuant to this Indenture are
for the benefit of the Bondholders and the Bond Insurer.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account to Bondholders in respect of the Bonds
and to such other persons in the order
51
<PAGE>
of priority set forth in Section 3.05 hereof (except as otherwise provided in
Section 5.04(b) hereof).
The Indenture Trustee may invest any funds in the Payment Account
(other than the proceeds of the Bond Insurance Policy) in Eligible Investments,
in its discretion, maturing no later than the Business Day preceding each
Payment Date (provided, however, that with respect to Eligible Investments that
consist of obligations of the Indenture Trustee or its affiliates, such Eligible
Investments may mature on the related Payment Date) and such Eligible
Investments shall not be sold or disposed of prior to their maturity. All income
or other gain from such investments may be released from the Payment Account and
paid to the Indenture Trustee from time to time as part of its compensation for
acting as Indenture Trustee.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least seven days' notice when requested by the Issuer to take any
action pursuant to Section 8.05(a) hereof, accompanied by copies of any
instruments to be executed, and the Indenture Trustee shall also require, as a
condition to such action, an Officer's Certificate, in form and substance
reasonably satisfactory to the Indenture Trustee, stating the legal effect of
any such action, outlining the steps required to complete such action, and
concluding that all conditions precedent to the taking of such action have been
complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO BONDHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Bondholders, the Bond Insurer, the Certificate Paying Agent on behalf of the
Certificateholders and the Indenture Trustee of all amounts required to be
distributed pursuant to Article III; provided, however, that in no event shall
the trust created hereby continue beyond the expiration of 21 years from the
death of the survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof.
Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its reasonable fees and expenses, the Indenture Trustee may, and when required
by the provisions of this Indenture shall, execute instruments to release
property from the lien of this Indenture, or convey the Indenture Trustee's
interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture.
(b) The Indenture Trustee shall, at such time as (i) there are no Bonds
Outstanding, (ii) all sums due to the Indenture Trustee pursuant to this
Indenture have been paid, and (iii) all sums due to the Bond Insurer have been
paid, release any remaining portion of the Trust Estate that secured the Bonds
from the lien of this Indenture.
(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of a request from the
Issuer accompanied by an Officers' Certificate and an Opinion of Counsel stating
that all applicable requirements have been satisfied, and a letter from the Bond
Insurer stating that the Bond Insurer has no objection to such request from the
Issuer.
52
<PAGE>
Section 8.06. SURRENDER OF BONDS UPON FINAL PAYMENT. By acceptance of
any Bond, the Holder thereof agrees to surrender such Bond to the Indenture
Trustee promptly, prior to such Bondholder's receipt of the final payment
thereon.
Section 8.07. OPTIONAL REDEMPTION OF THE BONDS. (a) The Issuer shall
have the option to redeem the Bonds in whole, but not in part, on any Payment
Date on or after the earlier of (i) the Payment Date on which the aggregate
Principal Balance of the Initial Mortgage Loans is less than or equal to 25% of
the sum of the aggregate Principal Balance of the Initial Mortgage Loans as of
the Cut-Off Date and the Original Pre-Funded Amount or (ii) the Payment Date
occurring in December 2004. The aggregate redemption price for the Bonds will be
equal to the unpaid Bond Principal Balance of the Bonds as of the Payment Date
on which the proposed redemption will take place in accordance with the
foregoing, together with accrued and unpaid interest thereon at the Bond
Interest Rate through such Payment Date (including any Carry-Forward Amount),
plus an amount sufficient to pay in full all amounts owing to the Bond Insurer
and the Indenture Trustee under this Indenture and the Insurance Agreement
(which amounts shall be specified in writing upon request of the Issuer by the
Indenture Trustee and the Bond Insurer).
(b) In order to exercise the foregoing option, the Issuer shall, not
less than 15 days prior to the proposed Payment Date on which such redemption is
to be made, deposit the aggregate redemption price specified in (a) above with
the Indenture Trustee (and the Indenture Trustee shall deposit such funds in the
Payment Account), and shall provide written notice of its exercise of such
option to the Indenture Trustee, the Bond Insurer, the Owner Trustee and the
Servicer. Following receipt of the notice and the aggregate redemption price,
calculated as specified in Section 8.07(a) hereof, pursuant to the foregoing,
the Indenture Trustee shall provide notice to the Bondholders of the final
payment on the Bonds and shall apply such funds to make final payments of
principal and interest on the Bonds in accordance with Section 3.05(a) hereof,
and this Indenture shall be discharged, subject to the provisions of Section
4.10 hereof. If for any reason the amount deposited by the Issuer is not
sufficient to make such redemption or such redemption cannot be completed for
any reason, the amount so deposited by the Issuer with the Indenture Trustee
shall be immediately returned to the Issuer in full and shall not be used for
any other purpose or be deemed to be part of the Trust Estate.
Section 8.08. PRE-FUNDING ACCOUNT.
(a) No later than the Closing Date, the Indenture Trustee shall
establish and maintain in the name of the Indenture Trustee one or more
segregated trust accounts that are Eligible Accounts, which shall be titled
"Pre-Funding Account, First Union National Bank, as indenture trustee for the
registered Bondholders of NovaStar Home Equity Loan Asset-Backed Bonds Series
1997-2" (the "Pre-Funding Account"). On the Closing Date, the Original
Pre-Funded Amount shall be deposited in the Pre-Funding Account from the
proceeds of the sale of the Bonds and retained therein. Funds deposited in the
Pre-Funding Account shall be held in trust by the Indenture Trustee for the
Holders of the Bonds and the Bond Insurer for the uses and purposes set forth in
the Indenture and the Home Equity Loan Purchase Agreement. If the Indenture
Trustee shall not have received an investment direction from the Issuer, the
Indenture Trustee will invest funds deposited in the Pre-Funding Account in
Eligible Investments of the kind described in clause
53
<PAGE>
(vii) of the definition of Eligible Investments. The Issuer shall be the owner
of the Pre-Funding Account and shall report all items of income, deduction, gain
or loss arising therefrom. All income and gain realized from investment of funds
deposited in the Pre-Funding Account shall be transferred to the Interest
Coverage Account on each Payment Date.
(ii) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Indenture Trustee as follows:
(A) On any Subsequent Transfer Date, the Indenture Trustee
shall withdraw from the Pre-Funding Account an amount equal to 100% of
the Principal Balances of the Subsequent Mortgage Loans transferred and
assigned to the Indenture Trustee on such Subsequent Transfer Date and
pay such amount to or upon the order of the Seller upon satisfaction of
the conditions set forth in Section 2.2 of the Home Equity Loan
Purchase Agreement with respect to such transfer and assignment; and
(B) If the Pre-Funded Amount has not been reduced to zero
during the Funding Period, on the Payment Date following the end of the
Funding Period, the Indenture Trustee shall deposit into the Payment
Account any amounts remaining in the Pre-Funding Account.
Section 8.09. INTEREST COVERAGE ACCOUNT.
(a) No later than the Closing Date, the Indenture Trustee shall
establish and maintain on behalf of itself one or more segregated trust
accounts, which shall be Eligible Accounts, titled "Interest Coverage Account,
First Union National Bank, as indenture trustee for the registered Bondholders
of NovaStar Home Equity Loan Asset-Backed Notes, Series 1997-2" (the "Interest
Coverage Account"). On the Closing Date, the Interest Coverage Amount shall be
deposited into the Interest Coverage Account and retained therein. In addition,
the Indenture Trustee shall deposit into the Interest Coverage Account all
income and gain on investments in the Pre-Funding Account pursuant to Section
8.08. Funds deposited in the Interest Coverage Account shall be held in trust by
the Indenture Trustee for the Holders of the Bonds and the Bond Insurer for the
uses and purposes set forth herein. The Issuer shall be the owner of the
Interest Coverage Account and shall report all items of income, deduction, gain
or loss arising therefrom.
(b) On each Payment Date during the Funding Period, the Indenture
Trustee shall withdraw from the Interest Coverage Account and deposit into the
Payment Account the applicable Interest Coverage Addition.
(c) Upon the earlier of (i) termination of the Trust Fund in accordance
with Section 8.01 of the Trust Agreement and (ii) the Payment Date following the
end of the Funding Period, any amount remaining on deposit in the Interest
Coverage Account shall be withdrawn by the Indenture Trustee and deposited in
the Payment Account.
54
<PAGE>
ARTICLE IX
SUPPLEMENTAL INDENTURES
-----------------------
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF BONDHOLDERS.
(a) Without the consent of the Holders of any Bonds but with the prior written
consent of the Bond Insurer and prior notice to the Rating Agencies, the Issuer
and the Indenture Trustee, when authorized by an Issuer Request, at any time and
from time to time, may enter into one or more indentures supplemental hereto
(which shall conform to the provisions of the TIA as in force at the date of the
execution thereof), in form reasonably satisfactory to the Indenture Trustee and
the Bond Insurer, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Bonds contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Bonds, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity or to correct or supplement
any provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture;
(vi) to make any other provisions with respect to
matters or questions arising under this Indenture or in any
supplemental indenture; provided, that such action shall not materially
and adversely affect the interests of the Holders of the Bonds;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor Indenture Trustee with respect to
the Bonds and to add to or change any of the provisions of this
Indenture as shall be necessary to facilitate the administration of the
trusts hereunder by more than one trustee, pursuant to the requirements
of Article VI hereof; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
55
<PAGE>
provided, however, that no such supplemental indenture shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such supplemental indenture will not (A) result in a "substantial
modification" of the Bonds under Treasury Regulation Section 1.1001.3 or
adversely affect the status of the Bonds as indebtedness for federal income tax
purposes or (B) cause the Trust to be subject to an entity level tax.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may
be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Bonds but
with the prior written consent of the Bond Insurer and prior notice to the
Rating Agencies, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Bonds under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel (or,
in the alternative, with respect to clause (i), as evidenced by a rating letter
confirming the existing ratings on the Bonds (without taking into account the
Bond Insurance Policy)) (i) adversely affect in any material respect the
interests of any Bondholder or (ii) if 100% of the Certificates are not owned by
NCFC or if the Bond Insurance Policy is outstanding, cause the Issuer to be
subject to an entity level tax for federal income tax purposes.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF BONDHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and with the prior written consent
of the Bond Insurer and the consent of the Holders of not less than a majority
of the Bond Principal Balances of the Bonds affected thereby, by Act (as defined
in Section 10.03 hereof) of such Holders delivered to the Issuer and the
Indenture Trustee, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Bonds under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each Bond affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Bond, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Bonds, or change any place of payment where, or the
coin or currency in which, any Bond or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Bonds on or after the respective due dates
thereof;
(ii) reduce the percentage of the Bond Principal
Balances of the Bonds, the consent of the Holders of which is required
for any such supplemental indenture, or the
56
<PAGE>
consent of the Holders of which is required for any waiver of
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this
Indenture;
(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding" or modify or alter the
exception in the definition of the term
"Bondholder";
(iv) reduce the percentage of the Bond Principal
Balances of the Bonds required to direct the Indenture Trustee to
direct the Issuer to sell or liquidate the Trust Estate pursuant to
Section 5.04 hereof;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder
of each Bond affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Bond on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to
or on a parity with the lien of this Indenture with respect to any part
of the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Bond of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may, with the consent of the Bond Insurer, so
long as no Bond Insurer Default exists, in its discretion determine whether or
not any Bonds would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Bonds, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Bondholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Bonds to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
57
<PAGE>
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Bonds affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Bonds
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES. Bonds
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Bonds so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Bonds.
58
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Bond Insurer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate
or opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such
signatory, such signatory has made such examination or investigation as
is necessary to enable such signatory to express an informed opinion as
to whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has been complied with; and
(5) if the signatory of such certificate or opinion is
required to be Independent, the statement required by the definition of
the term "Independent".
(b) (i) Except with respect to the substitution of Mortgage Loans
pursuant to Section 2.1 of the Home Equity Loan Purchase Agreement, prior to the
deposit of any Collateral or other property or securities with the Indenture
Trustee that is to be made the basis for the release of any property or
securities subject to the lien of this Indenture, the Issuer shall, in addition
to any obligation imposed in Section 10.01(a) or elsewhere in this Indenture,
furnish to the Indenture Trustee and the Bond Insurer an Officer's Certificate
certifying or stating the opinion of each person signing such certificate as to
the fair value (within 90 days of such deposit) to the Issuer of the Collateral
or other property or securities to be so deposited and a report from a
nationally recognized accounting firm verifying such value.
59
<PAGE>
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee and the Bond Insurer an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the matters described in clause
(i) above, the Issuer shall also deliver to the Indenture Trustee an Independent
Certificate from a nationally recognized accounting firm as to the same matters,
if the fair value to the Issuer of the securities to be so deposited and of all
other such securities made the basis of any such withdrawal or release since the
commencement of the then-current fiscal year of the Issuer, as set forth in the
certificates delivered pursuant to clause (i) above and this clause (ii), is 10%
or more of the Bond Principal Balances of the Bonds, but such a certificate need
not be furnished with respect to any securities so deposited, if the fair value
thereof to the Issuer as set forth in the related Officer's Certificate is less
than $25,000 or less than one percent of the Bond Principal Balances of the
Bonds.
(iii) Except with respect to the substitution of Mortgage
Loans pursuant to Section 2.1 of the Home Equity Loan Purchase Agreement,
whenever any property or securities are to be released from the lien of this
Indenture, the Issuer shall also furnish to the Indenture Trustee and the Bond
Insurer an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and stating that
in the opinion of such person the proposed release will not impair the security
under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee and the Bond Insurer an Officer's Certificate certifying or
stating the opinion of any signer thereof as to the matters described in clause
(iii) above, the Issuer shall also furnish to the Indenture Trustee an
Independent Certificate as to the same matters if the fair value of the property
or securities and of all other property, other than securities released from the
lien of this Indenture since the commencement of the then-current calendar year,
as set forth in the certificates required by clause (iii) above and this clause
(iv), equals 10% or more of the Bond Principal Balances of the Bonds, but such
certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the then Bond
Principal Balances of the Bonds.
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations
60
<PAGE>
by, an officer or officers of the Seller or the Issuer, stating that the
information with respect to such factual matters is in the possession of the
Seller or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF BONDHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Bondholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Bondholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Bondholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Bonds shall be proved by the Bond Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Bonds shall bind the Holder of every
Bond issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Bond.
Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, BOND
INSURER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Bond-
61
<PAGE>
holders or other documents provided or permitted by this Indenture shall be in
writing and if such request, demand, authorization, direction, notice, consent,
waiver or Act of Bondholders is to be made upon, given or furnished to or filed
with:
(i) the Indenture Trustee by any Bondholder or by
the Issuer or the Bond Insurer shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the
Indenture Trustee at the Corporate Trust Office. The Indenture Trustee
shall promptly transmit any notice received by it from the Bondholders
to the Issuer; or
(ii) the Issuer by the Indenture Trustee or by any
Bondholder or the Bond Insurer shall be sufficient for every purpose
hereunder if in writing and mailed first-class, postage prepaid, to the
Issuer addressed to: NovaStar Home Equity Loan Trust Series 1997-2, in
care of Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Administration (telecopy number (302) 651-1576), or at any other
address previously furnished in writing to the Indenture Trustee by the
Issuer. The Issuer shall promptly transmit any notice received by it
from the Bondholders to the Indenture Trustee; or
(iii) the Company by the Indenture Trustee or by any
Bondholder or the Bond Insurer shall be sufficient for every purpose
hereunder if in writing and mailed first-class, postage prepaid, to the
Company addressed to: Merrill Lynch Mortgage Investors, Inc., 250 Vesey
Street, World Financial Center/North Tower, 23rd Floor, New York, New
York 10281, Attention: Legal Department, Michael McGovern (telecopy
number (212) 449-5559), or at any other address previously furnished in
writing to the Indenture Trustee by the Company. The Company shall
promptly transmit any notice received by it from the Bondholders to the
Indenture Trustee; or
(iv) the Seller by the Indenture Trustee or by any
Bondholder or the Bond Insurer shall be sufficient for every purpose
hereunder if in writing and mailed first-class, postage prepaid, to the
Issuer addressed to: NovaStar Financial, Inc., 1900 West 47th Place,
Suite 205, Westwood, Kansas, Attention: Scott F. Hartman (telecopy
number (913) 362-1011), or at any other address previously furnished in
writing to the Indenture Trustee by the Seller. The Seller shall
promptly transmit any notice received by it from the Bondholders to the
Indenture Trustee; or
(v) the Bond Insurer by the Issuer, the Indenture
Trustee or by any Bondholders shall be sufficient for every purpose
hereunder if in writing and mailed, first-class, postage pre-paid, or
personally delivered or telecopied to: MBIA Insurance Corporation, 113
King Street, Armonk, New York 10504, Attention: Insured Portfolio
Mgmt-SF (telecopy number (914) 765-3810).
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed first-class postage pre-paid, to (i) in the case of Moody's, at the
following address: Moody's Investors Service, Inc.,
62
<PAGE>
Residential Mortgage Monitoring Department, 99 Church Street, New York, New York
10007 and (ii) in the case of Standard & Poor's, at the following address:
Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York, New York
10004, Attention of Asset Backed Surveillance Department; or as to each of the
foregoing, at such other address as shall be designated by written notice to the
other parties.
Section 10.05. NOTICES TO BONDHOLDERS; WAIVER. Where this Indenture
provides for notice to Bondholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed first-class, postage prepaid, to each Bondholder affected by such
event, at such Person's address as it appears on the Bond Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Bondholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Bondholder shall affect the sufficiency of such notice with
respect to other Bondholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given regardless of
whether such notice is in fact actually received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Bondholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Bondholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.07. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
63
<PAGE>
Section 10.08. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Bonds by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 10.09. SEPARABILITY. In case any provision in this Indenture or
in the Bonds shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.10. BENEFITS OF INDENTURE. The Bond Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. To the extent that this Indenture confers upon or gives or
grants to the Bond Insurer any right, remedy or claim under or by reason of this
Indenture, the Bond Insurer may enforce any such right, remedy or claim
conferred, given or granted hereunder. Nothing in this Indenture or in the
Bonds, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Bondholders and the Bond Insurer,
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 10.11. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Bonds or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.12. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.13. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.14. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Bondholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.15. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Bonds or under this Indenture or any certificate or
other writing delivered in connection herewith or
64
<PAGE>
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Indenture Trustee or the Owner Trustee in its individual capacity,
any holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may have
expressly agreed (it being understood that the Indenture Trustee and the Owner
Trustee have no such obligations in their individual capacity) and except that
any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity. For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Article VI, VII and
VIII of the Trust Agreement.
Section 10.16. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Bondholder, by accepting a Bond, hereby covenant and
agree that they will not at any time institute against NovaStar Assets, the
Company or the Issuer, or join in any institution against NovaStar Assets, the
Company or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Bonds, this Indenture or any of the Basic Documents.
This Section 10.16 will survive for one year and one day following the
termination of this Indenture.
Section 10.17. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee and the Bond
Insurer, during the Issuer's normal business hours, to examine all the books of
account, records, reports and other papers of the Issuer, to make copies and
extracts therefrom, to cause such books to be audited by Independent certified
public accountants, and to discuss the Issuer's affairs, finances and accounts
with the Issuer's officers, employees, and Independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee and the Bond Insurer shall cause their
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the
Indenture Trustee may reasonably determine that such disclosure is necessary to
perform its obligations hereunder.
65
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2,
as Issuer
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner
Trustee
By:_________________________________
Name:
Title:
FIRST UNION NATIONAL BANK, not in its
individual capacity but solely as Indenture
Trustee and as Bond Registrar
By:_________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
hereby accepts the appointment as
Certificate Paying Agent pursuant to Section
3.10 of the Trust Agreement and as
Certificate Registrar pursuant to Section
4.02 hereof.
By:_________________________________
Name:
Title:
<PAGE>
STATE OF DELAWARE )
) ss.:
COUNTY OF NEW CASTLE)
On this 11th day of December, before me personally appeared Emmett R.
Harmon, to me known, who being by me duly sworn, did depose and say, that he
resides at _____________, he is the Administrative Account Manager of the Owner
Trustee, one of the corporations described in and which executed the above
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF NORTH CAROLINA)
) ss.:
COUNTY OF MECKLENBURG )
On this 11th day of December, before me personally appeared Robert
Asbaugh, to me known, who being by me duly sworn, did depose and say, that he is
the Vice President of First Union National Bank, as Indenture Trustee, a
national banking association, which executed the above instrument; that he knows
the seal of said national banking association; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said national banking association; and that she signed her name
thereto by like order.
Notary Public
[NOTARIAL SEAL]
<PAGE>
EXHIBIT A
FORM OF BONDS
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND 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 BOND IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT OF
PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AND THE BOND INSURANCE POLICY
AS PROVIDED IN THE INDENTURE REFERRED TO BELOW. THE ISSUER IS NOT OTHERWISE
PERSONALLY LIABLE FOR PAYMENTS ON THIS BOND.
PRINCIPAL OF THIS BOND IS PAYABLE OVER TIME AS SET FORTH HEREIN. ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2
NOVASTAR HOME EQUITY LOAN ASSET-BACKED BONDS, SERIES 1997-2
AGGREGATE BOND PRINCIPAL
BALANCE: $212,113,000
INITIAL BOND PRINCIPAL
BALANCE OF THIS BOND: $ CUSIP NO.
BOND NUMBER:
NovaStar Home Equity Loan Trust Series 1997-2 (the "Issuer"), a
Delaware business trust, for value received, hereby promises to pay to
__________ or registered assigns, the principal sum
<PAGE>
of ______________________________________ ($___________) in monthly installments
on the twenty-fifth day of each month or, if such day is not a Business Day, the
next succeeding Business Day (each a "Payment Date"), commencing in December
1997 and ending on or before the Payment Date occurring in December, 2027 (the
"Stated Maturity") and to pay interest on the Bond Principal Balance of this
Bond outstanding from time to time as provided below.
This Bond is one of a duly authorized issue of NovaStar Home Equity
Loan Asset-Backed Bonds, Series 1997-2 (the "Bonds"), issued under an Indenture,
dated as of November 1, 1997 (the "Indenture"), between the Issuer and First
Union National Bank, as indenture trustee (the "Indenture Trustee", which term
includes any successor Indenture Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights thereunder of the Issuer, the Indenture
Trustee, and the Holders of the Bonds and the terms upon which the Bonds are to
be authenticated and delivered. All terms used in this Bond which are defined in
the Indenture shall have the meanings assigned to them in the Indenture.
Payments of principal and interest on the Bonds will be made on each
Payment Date to Bondholders of record as of the related Record Date. On each
Payment Date, Bondholders will be entitled to receive interest payments in an
aggregate amount equal to the Interest Payment Amount for such Payment Date,
together with principal payments in an aggregate amount equal to the Principal
Payment Amount plus the Subordination Increase Amount, if any, for such Payment
Date. In addition, on each Payment Date, Bondholders in the aggregate will be
entitled to receive additional interest payments equal to the Carry-Forward
Amount for such Payment Date, to the extent of available funds. The "Bond
Principal Balance" of a Bond as of any date of determination is equal to the
initial principal balance thereof as of the Closing Date, reduced by the
aggregate of all amounts previously paid with respect to such Bond on account of
principal.
The principal of, and interest on, this Bond are due and payable as
described in the Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. All payments made by the Issuer with respect to this Bond shall
be equal to this Bond's pro rata share of the aggregate payments on all Bonds as
described above, and shall be applied as between interest and principal as
provided in the Indenture.
MBIA Insurance Corporation (the "Bond Insurer"), in consideration of
the payment of the premium and subject to the terms of the financial guaranty
insurance policy (the "Bond Insurance Policy") issued thereby, has
unconditionally and irrevocably guaranteed the payment of the Insured Payment.
The Bond Insurance Policy will not cover any Prepayment Interest Shortfalls,
Relief Act Shortfalls or Carry-Forward Amount.
All principal and interest accrued on the Bonds, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.
The Bonds are subject to redemption in whole, but not in part, by the
Issuer on any Payment Date on or after the earlier of (i) the Payment Date on
which the aggregate Principal Balance of the Mortgage Loans is less than or
equal to 25% of the sum of the aggregate Principal
<PAGE>
Balance of the Initial Mortgage Loans as of the Cut-Off Date and the Original
Pre-Funded Amount and (ii) the Payment Date in December 2004.
The Issuer shall not be liable upon the indebtedness evidenced by the
Bonds except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Bonds. The assets included in the
Trust Estate and payments under the Bond Insurance Policy will be the sole
source of payments on the Bonds, and each Holder hereof, by its acceptance of
this Bond, agrees that (i) such Bond will be limited in right of payment to
amounts available from the Trust Estate and the Bond Insurance Policy as
provided in the Indenture and (ii) such Holder shall have no recourse to the
Issuer, the Owner Trustee, the Indenture Trustee, the Company, the Servicer or
any of their respective affiliates, or to the assets of any of the foregoing
entities, except the assets of the Issuer pledged to secure the Bonds pursuant
to the Indenture.
Any payment of principal or interest payable on this Bond which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Bond (or one or more predecessor Bonds) is registered at the
close of business on the Record Date for such Payment Date by check mailed to
such person's address as it appears in the Bond Register on such Record Date,
except for the final installment of principal and interest payable with respect
to such Bond, which shall be payable as provided below. Notwithstanding the
foregoing, upon written request with appropriate instructions by the Holder of
this Bond (holding an aggregate initial Bond Principal Balance of at least
$5,000,000), any payment of principal or interest, other than the final
installment of principal or interest, shall be made by wire transfer to an
account in the United States designated by such Holder reasonably satisfactory
to the Indenture Trustee. All reductions in the principal amount of a Bond (or
one or more predecessor Bonds) effected by payments of principal made on any
Payment Date shall be binding upon all Holders of this Bond and of any bond
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, whether or not such payment is noted on such Bond. The final
payment of this Bond shall be payable upon presentation and surrender thereof on
or after the Payment Date thereof at the Corporate Trust Office or the office or
agency of the Issuer maintained by it for such purpose pursuant to Section 3.02
of the Indenture.
Subject to the foregoing provisions, each Bond delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of any
other Bond, shall carry the rights to unpaid principal and interest that were
carried by such other Bond.
If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Bonds, the Bonds may become or be declared to be
due and payable in the manner and with the effect provided in the Indenture. If
any such acceleration of maturity occurs prior to the payment of the entire
unpaid Bond Principal Balance of the Bonds, the amount payable to the Holder of
this Bond will be equal to the sum of the unpaid Bond Principal Balance of the
Bonds, together with accrued and unpaid interest thereon as described in the
Indenture. The Indenture provides that, notwithstanding the acceleration of the
maturity of the Bonds, under certain circumstances specified therein, all
amounts collected as proceeds of the Trust Estate securing the Bonds or
otherwise shall continue to be applied to payments of principal of and interest
on the Bonds as if they had not been declared due and payable.
-71-
<PAGE>
The failure to pay any Subordination Increase Amount or Carry-Forward
Amount at any time when funds are not available to make such payment as provided
in the Indenture shall not constitute an Event of Default under the Indenture.
Pursuant to the Indenture, unless a Bond Insurer Default exists (i) the
Bond Insurer shall be deemed to be the holder of the Bonds for certain purposes
specified in the Indenture (other than with respect to payment on the Bonds),
and will be entitled to exercise all rights of the Bondholders thereunder,
including the rights of Bondholders relating to the occurrence of, and the
remedies with respect to, an Event of Default, without the consent of such
Bondholders, and (ii) the Indenture Trustee may take actions which would
otherwise be at its option or within its discretion, including actions relating
to the occurrence of, and the remedies with respect to, an Event of Default,
only at the direction of the Bond Insurer.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Bond may be registered on the Bond Register of
the Issuer. Upon surrender for registration of transfer of, or presentation of a
written instrument of transfer for, this Bond at the Corporate Trust Office,
accompanied by proper instruments of assignment in form satisfactory to the
Indenture Trustee, one or more new Bonds of any authorized denominations and of
a like aggregate initial Bond Principal Balance will be issued to the designated
transferee or transferees.
Prior to the due presentment for registration of transfer of this Bond,
the Issuer, the Bond Insurer, the Indenture Trustee and any agent of the Issuer,
the Bond Insurer or the Indenture Trustee may treat the Person in whose name
this Bond is registered as the owner of such Bond (i) on the applicable Record
Date for the purpose of making payments and interest of such Bond, and (ii) on
any other date for all other purposes whatsoever, as the owner hereof, whether
or not this Bond be overdue, and none of the Issuer, the Bond Insurer, the
Indenture Trustee or any such agent of the Issuer or the Indenture Trustee shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Bonds under the Indenture at any
time by the Issuer with the consent of the Bond Insurer and the Holders of a
majority of all Bonds at the time outstanding. The Indenture also contains
provisions permitting (i) the Bond Insurer or (ii) if a Bond Insurer Default
exists, the Holders of Bonds representing specified percentages of the aggregate
Bond Principal Balance of the Bonds on behalf of the Holders of all the Bonds,
to waive any past Event of Default under the Indenture and its consequences. Any
such waiver by the Holder, at the time of the giving thereof, of this Bond (or
any one or more predecessor Bonds) shall bind the Holder of every Bond issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not notation of such consent or waiver is made upon such
Bond. The Indenture also permits the Issuer and the Indenture Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of the Holders of the Bonds issued thereunder.
Initially, the Bonds will be represented by two bonds registered in the
name of CEDE & Co. as nominee of DTC, acting in its capacity as the Depository
for the Bonds. The Bonds will be delivered in denominations as provided in the
Indenture and subject to certain limitations
-72-
<PAGE>
therein set forth. The Bonds are exchangeable for a like aggregate initial Bond
Principal Balance of Bonds of different authorized denominations, as requested
by the Holder surrendering the same.
Unless the Certificate of Authentication hereon has been executed by
the Indenture Trustee by manual signature, this Bond shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.
Each Bondholder, by accepting a Bond, hereby covenants and agrees that
such Bondholder will not at any time institute against NovaStar Assets, the
Company or the Issuer, or join in any institution against NovaStar Assets, the
Company or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States federal or state bankruptcy or similar law in connection with any
obligations relating to the Bonds, the Indenture or any of the Basic Documents.
So long as no Bond Insurer Default exists, the Bond Insurer shall at
all times be treated as if it were the exclusive Bondholder for the purposes of
all approvals, consents, waivers and the institution of any action and the
direction of all remedies, and the Indenture Trustee shall act in accordance
with the directions of the Bond Insurer so long as it is indemnified therefor to
its reasonable satisfaction.
AS PROVIDED IN THE INDENTURE, THIS BOND AND THE INDENTURE CREATING THIS
BOND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN.
-73-
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by Wilmington Trust Company, not in its individual capacity but solely
as Owner Trustee.
Dated:
NOVASTAR HOME EQUITY LOAN TRUST SERIES 1997-2
BY: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely in its
capacity as Owner Trustee
By:___________________________________________
Authorized Signatory
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds referred to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK, not in its individual
capacity but solely as Indenture Trustee
By:_________________________________
Authorized Signatory
-74-
<PAGE>
ABBREVIATIONS
-------------
The following abbreviations, when used in the inscription on the face
of the Bond, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -- ______________ Custodian_________________________
(Cust) (Minor)
under Uniform Gifts to Minor Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE:
_________________________________________________
_________________________________________________
_________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
________________________________________________________________________________
the within bond and all rights thereunder, hereby irrevocably constitution and
appointing ______________________________ attorney to transfer said Bond on the
books of the Issuer, with full power of substitution in the premises.
Dated:______________________________ ___________________________________
Signature Guaranteed by________________________________________________
NOTICE: The signature(s) to this assignment must correspond with the name as it
appears upon the face of the within Bond in every particular, without alteration
or enlargement or any change whatsoever. Signature(s) must be guaranteed by a
commercial bank or by a member firm of the New York Stock Exchange or another
national securities exchange. Notarized or witnessed signatures are not
acceptable.
<PAGE>
EXHIBIT B
FORM OF TRUSTEE INITIAL CERTIFICATION
[Closing Date]
[Seller]
[Servicer]
[Bond Insurer]
[Company]
_________________________
_________________________
Re: Indenture, dated as of November 1, 1997 (the
"Indenture"), between NovaStar Home Equity
Loan Trust Series 1997-2 (the "Issuer") and
First Union National Bank (the "Indenture
Trustee") -- NovaStar Home Equity Loan
Asset-Backed Bonds, Series 1997-2
Gentlemen:
In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.1(b) of the Home Equity Loan Purchase Agreement, dated
as of November 1, 1997, between NovaStar Financial, Inc., the Issuer, the
Indenture Trustee and NovaStar Assets Corp. (the "Home Equity Loan Purchase
Agreement"; and together with the Indenture, the "Agreements"), the undersigned,
as Indenture Trustee, hereby certifies that as to each Mortgage Loan listed in
the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed
on the attachment hereto) it has reviewed the Mortgage File and the Mortgage
Loan Schedule and has determined that: (i) all documents required to be included
in the Mortgage File are in its possession; (ii) such documents have been
reviewed by it and appear regular on their face and relate to such Mortgage
Loan; and (iii) based on examination by it, and only as to such documents, the
information set forth in items (i) - (vii) and (xiv) of the definition or
description of "Mortgage Loan Schedule" is correct.
The Indenture Trustee has made no independent examination of
any documents contained in each Mortgage File beyond the review specifically
required in the above-referenced Agreements. The Indenture Trustee makes no
representation that any documents specified in clause (vi) of Section 2.1(b) of
the Home Equity Loan Purchase Agreement should be included in any Mortgage File.
The Indenture Trustee makes no representations as to and shall not be
responsible to verify: (i) the validity, legality, sufficiency, enforceability,
due authorization, recordability or genuineness of any of the documents
contained in each Mortgage File of any of the Mortgage Loans identified on the
Mortgage Loan Schedule, (ii) the collectability, insurability,
-2-
<PAGE>
effectiveness or suitability of any such Mortgage Loan, or (iii) the existence
of any assumption, modification, written assurance or substitution agreement
with respect to any Mortgage File if no such documents appear in the Mortgage
File delivered to the Indenture Trustee.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Indenture.
FIRST UNION NATIONAL BANK, not in its individual
capacity but solely as Indenture Trustee
By:______________________________________________
Name:
Title:
-3-
<PAGE>
EXHIBIT C
FORM OF TRUSTEE FINAL CERTIFICATION
[date]
[Seller]
[Servicer]
[Bond Insurer]
[Company]
__________________________
__________________________
Re: Indenture, dated as of November 1, 1997 (the
"Indenture"), between NovaStar Home Equity Loan Trust
Series 1997-2 (the "Issuer") and First Union National
Bank (the "Indenture Trustee") -- NovaStar Home
Equity Loan Asset-Backed Bonds, Series 1997-2
Gentlemen:
In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.1(b) of the Home Equity Loan Purchase Agreement, dated
as of November 1, 1997, between NovaStar Financial, Inc., the Issuer, the
Indenture Trustee and NovaStar Assets Corp. (the "Home Equity Loan Purchase
Agreement"; and together with the Indenture, the "Agreements"), the undersigned,
as Indenture Trustee, hereby certifies that as to each Mortgage Loan listed in
the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed
on the attachment hereto) it has received the documents set forth in Section
2.1(b) of the Home Equity Loan Purchase Agreement.
The Indenture Trustee has made no independent examination of
any documents contained in each Mortgage File beyond the review specifically
required in the Agreements. The Indenture Trustee makes no representation that
any documents specified in clause (vi) of Section 2.1(b) should be included in
any Mortgage File. The Indenture Trustee makes no representations as to and
shall not be responsible to verify: (i) the validity, legality, sufficiency,
enforceability, due authorization, recordability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan or (iii) the existence of
any assumption, modification, written assurance or substitution agreement with
respect to any Mortgage File if no such documents appear in the Mortgage File
delivered to the Indenture Trustee.
-4-
<PAGE>
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Indenture.
FIRST UNION NATIONAL BANK, not in its individual
capacity but solely as Indenture Trustee
By:______________________________________________
Name:
Title:
-5-
<PAGE>
EXHIBIT D
MORTGAGE LOAN SCHEDULE
[See Tab 4]
-6-
EXHIBIT 10.1
<PAGE>
OWNERSHIP TRANSFER AGREEMENT
This OWNERSHIP TRANSFER AGREEMENT (this "Agreement"), dated as
of December 3, 1997, is made between NovaStar Assets Corp. as transferor (the
"Transferor"), and Merrill Lynch Mortgage Investors, Inc. as transferee (the
"Company").
W I T N E S S E T H :
WHEREAS, pursuant to the terms of the Home Equity Loan
Purchase Agreement, the Seller will sell (i) the Initial Mortgage Loans to the
Transferor on the Closing Date and (ii) the Subsequent Mortgage Loans to the
Issuer on each Subsequent Transfer Date ;
WHEREAS, pursuant to the terms of this Ownership Transfer
Agreement, the Transferor will transfer the Initial Mortgage Loans and all of
its rights under the Home Equity Loan Purchase Agreement to the Company, as
agent of the Transferor, on the Closing Date;
WHEREAS, the Company, as agent of the Transferor, will sell
the Initial Mortgage Loans and transfer all of its rights under this Ownership
Transfer Agreement and the Home Equity
Loan Purchase Agreement to the Issuer on the Closing Date;
WHEREAS, pursuant to the terms of the Trust Agreement, the
Issuer will issue and transfer to or at the direction of the Transferor, the
Certificates;
WHEREAS, pursuant to the terms of the Certificates Sale
Agreement, the Transferor will sell the Certificates to NCFC;
WHEREAS, pursuant to the terms of the Indenture, the Issuer
will issue and transfer to or at the direction of the Company, the Bonds; and
WHEREAS, pursuant to the terms of the Servicing Agreement, the
Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the
Definitions contained in Appendix A to the Indenture, dated as of November 1,
1997 (the "Indenture"), between the Issuer and First Union National Bank, as
indenture trustee (the "Indenture Trustee"), which Definitions are incorporated
by reference herein. All other capitalized terms used herein shall have the
meanings specified herein.
<PAGE>
2. AGENCY
The Transferor hereby appoints the Company, and the Company
hereby accepts the appointment, as agent of the Transferor for purposes of (i)
taking ownership of the Initial Mortgage Loans pursuant to this Agreement solely
for purposes of selling such Initial Mortgage Loans to the Issuer; (ii) creating
the Issuer and selling the Initial Mortgage Loans to the Issuer pursuant to the
Trust Agreement; (iii) receiving the Certificates issued by the Issuer and
delivering such Certificates to the Transferor; (iv) selling the Bonds under the
Company's shelf registration statement and (v) otherwise facilitating the
transactions contemplated by this Agreement. As agent of the Transferor, the
Company shall not be entitled to the economic benefits associated with the
ownership of the Initial Mortgage Loans or the Certificates and will not be
subject to the economic burdens associated with such ownership.
3. WARRANTIES
The Transferor warrants and represents that attached hereto as
Exhibit 2 is a true, accurate and complete copy of the Home Equity Loan Purchase
Agreement with respect to the Initial Mortgage Loans, which Home Equity Loan
Purchase Agreement is in full force and effect as of the date hereof and will be
in full force and effect as of the Closing Date and has not been nor will be
amended or modified in any respect nor has any notice of termination been given
or will be given thereunder as of the date hereof and as of the Closing Date.
4. TRANSFER OF INITIAL MORTGAGE LOANS TO COMPANY FOR SALE TO THE ISSUER
The Transferor, by the execution and delivery of this
Agreement, for purposes of selling the Initial Mortgage Loans to the Issuer,
does hereby assign, set over, and otherwise convey to the Company, as agent of
the Transferor, without recourse but subject to the terms of this Agreement, all
of its legal right, title and interest in, to and under the Initial Mortgage
Loans listed on the Mortgage Loan Schedule attached hereto as Exhibit 1, whether
now existing or hereafter acquired and wherever located, on the Closing Date and
as of the Cut-off Date, the proceeds thereof and all rights under the Related
Documents (including the related Mortgage Files).
In addition, the Transferor hereby assigns to the Company, as
agent of the Transferor, all of its legal right, title, and interest in, to, and
under the Home Equity Loan Purchase Agreement to the extent of the Initial
Mortgage Loans, and the Company hereby assumes all of the Transferor's
obligations under the Home Equity Loan Purchase Agreement with respect to the
Initial Mortgage Loans from and after the date hereof, and the Transferor shall
be relieved and released of all of its obligations under the Home Equity Loan
Purchase Agreement to the extent of the Initial Mortgage Loans from and after
the date hereof.
The parties hereto intend that the transactions set forth
herein constitute a transfer by the Transferor to the Company, as agent of the
Transferor, on the Closing Date of all the Transferor's legal right, title and
interest in and to the Initial Mortgage Loans, and other property as and to the
extent described above. In addition, the Transferor hereby grants to the Company
-2-
<PAGE>
as of the Closing Date a security interest in all of the Transferor's legal
right, title and interest in, to and under the Initial Mortgage Loans, and such
other property, to secure all of the Transferor's obligations hereunder, and
this Agreement shall constitute a security agreement under applicable law, and
in such event, the parties hereto acknowledge that the Indenture Trustee, in
addition to holding the Initial Mortgage Loans for the benefit of the
Bondholders and the Bond Insurer, holds the Mortgage Loans as designee of the
Company. The Transferor agrees to take or cause to be taken such actions and to
execute such documents, including without limitation the filing of all necessary
UCC-1 financing statements filed in the State of Delaware and the State of
Kansas (which shall be submitted for filing as of the Closing Date), any
continuation statements with respect thereto and any amendments thereto required
to reflect a change in the name or corporate structure of the Transferor or the
filing of any additional UCC-1 financing statements due to the change in the
principal office of the Transferor, as are necessary to perfect and protect the
interests of the Company and its assignees in each Initial Mortgage Loan and the
proceeds thereof.
5. PURCHASE PRICE
The "Purchase Price" for the Initial Mortgage Loans
transferred to the Company for sale to the Issuer shall be (i) a payment in an
amount equal to 93.467% of the aggregate Principal Balance of the Initial
Mortgage Loans as of the close of business on the Cut-off Date, which payment
shall be paid to the Transferor by wire transfer in immediately available funds
on the Closing Date by or on behalf of the Company, or as otherwise agreed by
the Company, and (ii) delivery to the Transferor or its assignee on the Closing
Date of the Certificates issued pursuant to the Trust Agreement, representing a
100% Certificate Percentage Interest in the Issuer.
6. SUCCESSORS AND ASSIGNS; ASSIGNMENT OF PURCHASE AGREEMENT
This Agreement shall bind and inure to the benefit of and be
enforceable by the Transferor, the Company, the Issuer and their respective
successors and assigns, the Indenture Trustee and the Bond Insurer. The
obligations of the Transferor under this Agreement cannot be assigned or
delegated to a third party without the consent of the Company, the Issuer and
the Bond Insurer, which consent shall be at the Company's, the Issuer's and the
Bond Insurer's sole discretion. The parties hereto acknowledge that the Company,
as agent of the Transferor, is acquiring the Initial Mortgage Loans solely for
the purpose of selling them and assigning all of its rights under this Agreement
and under the Home Equity Loan Purchase Agreement to the Issuer, who will in
turn pledge the Initial Mortgage Loans and assign all of its rights under this
Agreement and the Home Equity Loan Purchase Agreement to the Indenture Trustee
for the benefit of the Bondholders and the Bond Insurer. As an inducement to the
Company to acquire the Initial Mortgage Loans, the Transferor acknowledges and
consents to (i) the assignment by the Company to the Issuer of such rights and
to the enforcement or exercise of any right or remedy against the Transferor
pursuant to this Agreement and the Home Equity Loan Purchase Agreement as
assigned by the Company and (ii) the assignment by the Issuer to the Indenture
Trustee for the benefit of the Bondholders and the Bond Insurer of such rights
and to the enforcement or exercise of any right or remedy against the Transferor
pursuant to this Agreement. Such enforcement of a right or remedy by the Issuer,
the Owner Trustee, the Indenture Trustee or the Bond Insurer,
-3-
<PAGE>
as applicable, shall have the same force and effect as if the right or remedy
had been enforced or exercised by the Company directly. The Bond Insurer and the
Indenture Trustee are express third- party beneficiaries to this Agreement.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Ownership
Transfer Agreement the day and year first above written.
NOVASTAR ASSETS CORP.
By:
Name:
Title:
MERRILL LYNCH MORTGAGE INVESTORS,
INC.
By:
Name:
Title:
-5-
<PAGE>
EXHIBIT 1
INITIAL MORTGAGE LOAN SCHEDULE
-6-
<PAGE>
EXHIBIT 2
Home Equity Loan Purchase Agreement, dated as of December 3, 1997,
among NovaStar Assets Corp., NovaStar Financial, Inc.,
NovaStar Home Equity Loan Trust Series 1997-2 and First Union National Bank
-7-
